SALEM COMMUNICATIONS CORP /DE/, 424B4, 1999-07-01

SALEM COMMUNICATIONS CORP /DE/
424B4, 1999-07-01
RADIO BROADCASTING STATIONS

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<PAGE> 1

Filed pursuant to Rule 424(b)(4)
[SALEM LOGO] File Nos. 333-76649 and 333-82031.

- --------------------------------------------------------------------------------
8,400,000 Shares
Class A Common Stock
- --------------------------------------------------------------------------------

THIS IS SALEM'S INITIAL PUBLIC OFFERING. WE ARE OFFERING 6,720,000 SHARES OF
CLASS A COMMON STOCK AND THE SELLING STOCKHOLDERS OF SALEM ARE OFFERING
1,680,000 SHARES OF CLASS A COMMON STOCK.

THE CLASS A COMMON STOCK HAS BEEN APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL
MARKET UNDER THE SYMBOL "SALM."

Investing in our Class A common stock involves risks which are described in the
"Risk Factors" section beginning on page 8 of this prospectus.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PROCEEDS, PROCEEDS,
BEFORE BEFORE EXPENSES,
PRICE TO UNDERWRITING EXPENSES, TO SELLING
PUBLIC DISCOUNT TO SALEM STOCKHOLDERS
<S> <C> <C> <C> <C>
PER SHARE $22.50 $1.43 $21.07 $21.07
TOTAL $189,000,000 $12,012,000 $141,590,400 $35,397,600
</TABLE>

THE UNDERWRITERS MAY ALSO PURCHASE FROM THE SELLING STOCKHOLDERS UP TO AN
ADDITIONAL 1,260,000 SHARES OF CLASS A COMMON STOCK WITHIN 30 DAYS FROM THE DATE
OF THIS PROSPECTUS TO COVER OVER-ALLOTMENTS.

Joint Lead Managers and Joint Bookrunners

Deutsche Banc Alex. Brown ING Barings

-------------------------

Salomon Smith Barney

THE DATE OF THIS PROSPECTUS IS JUNE 30, 1999.
<PAGE> 2

INSIDE FRONT COVER: A depiction of the names and logos of Salem Communications
Corporation, Salem Radio Network, Salem Radio Representatives, OnePlace, Ltd.
and CCM Communications, Inc.

GATEFOLD: Map of the United States depicting states in which Salem's radio
stations and network operations are located. A listing of Salem's radio stations
and network operations is also presented.

INSIDE BACK COVER: A depiction of the names and logos of Salem's non-radio
businesses, OnePlace, Ltd. and CCM Communications, Inc.
<PAGE> 3

SUMMARY

In addition to this summary of the more detailed information appearing
elsewhere in this prospectus, you should read the entire prospectus carefully,
including the risk factors and consolidated financial statements and related
notes. All information in this prospectus assumes the underwriters will not
exercise their over-allotment option, unless otherwise stated. In addition,
unless otherwise stated, we have adjusted all references in this prospectus to
shares and per share data to reflect a 67-for-one stock dividend on Salem's
Class A and Class B common stock declared on May 26, 1999. In this prospectus,
"Salem," "we," "us" and "our" refer to Salem Communications Corporation and its
subsidiaries (but not to the underwriters listed in this prospectus), unless the
context otherwise requires.

SALEM

We are the largest U.S. radio broadcasting company providing programming
targeted at audiences interested in religious and family issues. Our core
business is the ownership and operation of radio stations in large metropolitan
markets. After we complete our pending transactions, we will own 52 radio
stations, including 34 stations which broadcast to 19 of the top 25 markets. We
also operate Salem Radio Network(R), a national radio network offering
syndicated talk, news and music programming to over 1,100 affiliated radio
stations.

Our primary strategy has been, and will continue to be, to acquire and
operate radio stations in large metropolitan markets. We either acquire general
format radio stations and reformat them or acquire radio stations already
broadcasting in a religious and family issues format. Traditionally, we have
programmed acquired stations with our primary format, talk programming with
religious and family themes. This format generally features nationally
syndicated and local programs produced by organizations that purchase block
program time on our radio stations. We have expanded our acquisition strategy in
recent years by acquiring additional radio stations in markets in which we
already have a presence. We program these radio stations to feature news/talk
and religious music formats that complement our primary format. Salem Radio
Network(R) supports our strategy by enabling us to offer a variety of program
content on newly acquired radio stations in both new and existing markets.

Our founders, Salem's current CEO and chairman, are career radio
broadcasters who have owned and operated radio stations with religious and
family issues formats for the last 25 years. As Salem has grown, we have
recruited managers with strong radio backgrounds and a commitment to our format.
Our senior managers have an average of 25 years of industry experience and nine
years with Salem.

Our financial results demonstrate management's successful implementation of
our acquisition and operating strategies:

- Our net broadcasting revenue increased 14.7% from 1997 to 1998 and grew
at a compound annual rate of 19.2% from 1994 to 1998.

- Our broadcast cash flow increased 25.1% from 1997 to 1998 and grew at a
compound annual rate of 21.2% from 1994 to 1998.

- On a "same station" basis, our net broadcasting revenue improved 12.7%
from 1997 to 1998 and our broadcast cash flow increased 21.4% from 1997
to 1998.
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<PAGE> 4

We continue to seek new ways to expand and integrate our distribution and
content capabilities. We recently acquired publishing, Internet and information
technology businesses that direct their content to persons with interests
similar to those of our targeted radio audience. We plan to use these
businesses, together with our radio stations and national radio network, to
attract and retain a larger audience and customer base.

OUR AUDIENCE

We are committed to serving our target audience, the segment of the
population interested in religious and family issues. We believe this audience
is large and will continue to expand.

- Religious formats constitute the third largest radio format in the U.S.
after country and news/talk/business/sports formats, as of November 1998
(The M Street Journal).

- Over the last ten years, the number of radio stations identified as
having primarily a religious format has increased by 79% to 1,785 (The M
Street Journal).

- From 1997 to 1998, listeners to religious format radio increased by 1.3
million adults to 27.9 million weekly listeners (Religion & Media
Monthly).

- The Christian retail industry had $3 billion in sales in 1998 (Christian
Booksellers Association).

- Sales of Christian music grew an average of 17% each year from 1989 to
1998 (The Recording Industry Association of America).

GROWTH AND OPERATING STRATEGIES

Continue to Focus on Targeted Audience. We attribute our success largely to
a consistent emphasis on reaching the audience interested in religious and
family issues. We have demonstrated a long-term commitment to this audience by
operating radio stations with formats directed to our listeners' specific needs
and interests. This consistent focus and commitment builds loyalty and trust
from our listening audience, block program purchasers and advertisers.

Pursue Strategic Radio Acquisitions in Large Markets. We intend to pursue
acquisitions of radio stations in both new and existing markets, particularly in
large metropolitan areas. Because we believe our presence in large markets makes
us attractive to national block programmers and national advertisers, we will
continue to pursue acquisitions of radio stations in selected top 50 markets
where we currently do not have a presence. In addition, we will explore
opportunities to acquire additional radio stations in our current markets, which
we will program with news/talk and religious music formats. Through our
acquisition strategy, we reach a greater number and broader range of listeners.
This enables us to increase audience response for block program customers and
expand our advertising revenue base. In addition, our ownership of multiple
radio stations in the same market enables us to achieve cost savings by
consolidating operations.

Emphasize Compelling Program Content. As more listening, reading and
viewing options become available to consumers, compelling program content will
be a prerequisite for expanding our listening audience and increasing audience
response to block
2
<PAGE> 5

programmers and advertisers. We continually look for new block program
producers. We provide advice to both prospective and existing block program
customers on program content and structure, staffing, engineering and
programming delivery options. Our national radio network will continue to
compete aggressively for talk show talent that will be attractive to affiliates,
expand and refine our music formats, and develop compelling news and public
affairs features. In addition, our newly acquired publishing, Internet and
information technology businesses will develop creative content offerings.

Build Station Identity. We seek to build local station identity for each of
our radio stations in order to retain and increase its listening audience,
expand its base of advertisers and provide increased audience response to our
block program customers. We emphasize the development of a radio station's
identity to allow each radio station to better compete against general format
radio stations through improvement of production quality and technical
facilities and the development of local on-air personalities.

Integrate Media Assets. We began to develop integrated media assets to
complement the distribution capabilities of our radio stations when we created
our radio network. Our ability to control both content and distribution enables
us to expand and better serve our listening audience, as well as our advertising
and block program customers. We plan to continue to implement this strategy and
apply it to our newly acquired publishing, Internet and information technology
businesses. We will also opportunistically pursue acquisitions of new media and
other businesses that serve our audience. We intend to develop cross-promotion
and cross-selling programs on each of our radio, magazine and Internet media to
attract new audiences for our radio stations, new readers for our magazines and
new customers for our Internet products and services.

RECENT DEVELOPMENTS

RADIO

In April 1999, we entered into letters of intent to purchase KAIM-AM,
KAIM-FM, KGU-AM and KHNR-AM Honolulu, Hawaii for a total purchase price of $3.4
million.

In April 1999, we entered into a letter of intent to purchase WLSY-FM and
WRVI-FM, Louisville, Kentucky, for a total purchase price of $5.0 million.

In April 1999, we entered into an agreement to purchase KGME-AM, Phoenix,
Arizona, for $5.0 million. This radio station currently operates under the call
letters KFDJ-AM and will be renamed KCTK-AM after closing.

In April 1999, we purchased KKOL-AM, Seattle, Washington, for $1.4 million
from a corporation owned by our principal stockholders. We have been operating
this station pursuant to a local marketing agreement since June 1997.

In October 1998, we purchased KTEK-AM, Houston, Texas, and KYCR-AM,
Minneapolis, Minnesota, for a total purchase price of $2.6 million, retained the
stations' religious talk formats and combined their operations with our other
Houston and Minneapolis radio stations, respectively.

In August 1998, we purchased KIEV-AM, Los Angeles, California, for $33.2
million, retained its news/talk format and added programming from our network.
The operations of KIEV-AM have been combined with our other Los Angeles radio
stations.
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<PAGE> 6

In August 1998, we purchased KKMO-AM, Seattle-Tacoma, Washington, for
$500,000, reformatted the station to a religious talk format and combined the
station's operations with our other Seattle radio stations.

In August 1998, we entered into an agreement with XM Satellite Radio, Inc.
to develop, produce, supply and market on an exclusive basis religious and
family issues audio programming which will be distributed by a subscriber-based
satellite digital audio radio service. XM Satellite Radio, Inc., one of two
Federal Communications Commission licensees for this service, will have the
capability of providing up to 100 channels of audio programming. XM Satellite
Radio expects its service to commence in 2000. We have agreed to provide
religious and family issues talk programming on one channel and youth and adult
religious music programming on two additional channels.

OTHER MEDIA

In January 1999, we purchased the assets of OnePlace, LLC for $6.2 million.
OnePlace(TM), based in Greensboro, North Carolina, provides Internet e-commerce,
search engines, consumer profiling and other information technologies to the
Christian products industry. OnePlace(TM) also creates information databases and
publishes software applications, including management software for churches and
GuardiaNet(TM), an Internet-based Web filtering system.

In January 1999, we purchased CCM Communications, Inc. for $1.9 million.
CCM, based in Nashville, Tennessee, has published magazines since 1978 which
follow the Christian music industry. CCM's flagship publication, CCM Magazine,
is a monthly music magazine offering interviews with artists, issue-oriented
features, album reviews and concert schedules. CCM also publishes Christian
Research Report, the leading trade publication providing rating information to
contemporary Christian music formatted radio stations, and CCM Update, a trade
publication providing rating information to contemporary Christian music
producers and retailers. With the combination of these CCM publications, we are
uniquely positioned to track contemporary Christian music audience trends.

------------------------------

We are a Delaware corporation. Our principal executive offices are located
at 4880 Santa Rosa Road, Suite 300, Camarillo, CA 93012, and our telephone
number is (805) 987-0400.
4
<PAGE> 7

THE OFFERING

Class A common stock offered
by:

Salem........................ 6,720,000 shares

Selling stockholders......... 1,680,000 shares

Total........................ 8,400,000 shares

Common stock outstanding after
the offering:
Class A common stock......... 17,902,392 shares

Class B common stock......... 5,553,696 shares

Over-allotment option.......... 1,260,000 shares

Use of proceeds................ We intend to use the net proceeds to Salem of
$140.4 million as follows:

- to redeem a portion of our senior
subordinated notes,

- to repay all indebtedness outstanding under
our credit facility, and

- for general corporate purposes, including
acquisitions and working capital
requirements.

We will not receive any proceeds from the sale
by the selling stockholders of shares of Class
A common stock.

Voting rights.................. - Holders of Class A common stock are entitled
to one vote per share and holders of Class B
common stock are entitled to ten votes per
share, except for specified related party
transactions. See "Description of Capital
Stock -- Common Stock."

- Holders of Class A common stock and Class B
common stock vote together as a single class
on all matters submitted to a vote of
stockholders, except that holders of Class A
common stock vote separately for two
independent directors.

- Existing stockholders hold all of the shares
of Class B common stock and, after this
offering, will own shares having
approximately 88% of the combined votes of
Salem's Class A and Class B common stock.

Risk Factors................... See "Risk Factors" for a discussion of factors
you should carefully consider before deciding
to invest in the shares of Class A common
stock.

Nasdaq National Market
symbol....................... "SALM"
5
<PAGE> 8

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

You should read the following summary financial information together with
Salem's consolidated financial statements and related notes, "Selected
Consolidated Financial Information" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus. Our financial results are not comparable from period to period
because of our acquisition and disposition of radio stations and our acquisition
of other media businesses.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31 MARCH 31
-------------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net broadcasting revenue............... $ 38,575 $ 48,168 $ 59,010 $ 67,912 $ 77,891 $ 17,702 $ 20,425
Other media revenue.................... -- -- -- -- -- -- 1,095
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenue.......................... 38,575 48,168 59,010 67,912 77,891 17,702 21,520
Operating expenses:
Broadcasting operating expenses....... 22,179 27,527 33,463 39,626 42,526 9,930 11,379
Other media operating expenses........ -- -- -- -- -- -- 1,298
Corporate expenses.................... 3,292 3,799 4,663 6,210 7,395 1,503 1,796
Tax reimbursements to S corporation
shareholders(1)..................... 977 2,057 2,038 1,780 -- -- --
Depreciation and amortization......... 7,633 7,884 8,394 12,803 14,058 3,337 4,111
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses............... 34,081 41,267 48,558 60,419 63,979 14,770 18,584
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net operating income................... 4,494 6,901 10,452 7,493 13,912 2,932 2,936
Other income (expense):
Interest income....................... 230 319 523 230 291 103 25
Gain (loss) on disposal of assets..... (482) (7) 16,064 4,285 236 (22) --
Interest expense...................... (3,668) (6,646) (7,361) (12,706) (15,941) (3,772) (4,375)
Other expense......................... (135) (255) (270) (389) (422) (105) (120)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total other income (expense)........... (4,055) (6,589) 8,956 (8,580) (15,836) (3,796) (4,470)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes and
extraordinary item.................... 439 312 19,408 (1,087) (1,924) (864) (1,534)
Provision (benefit) for income taxes... (247) (204) 6,655 106 (343) (290) (226)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary
item.................................. 686 516 12,753 (1,193) (1,581) (574) (1,308)
Extraordinary loss(2).................. -- (394) -- (1,185) -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)...................... $ 686 $ 122 $ 12,753 $ (2,378) $ (1,581) $ (574) $ (1,308)
========== ========== ========== ========== ========== ========== ==========
Pro forma net income (loss)(1)......... $ 848 $ 1,024 $ 12,838 $ (770)
========== ========== ========== ==========
Basic and diluted income (loss) per
share before extraordinary item....... $ 0.04 $ 0.03 $ 0.77 $ (0.07) $ (0.09) $ (0.03) $ (0.08)
========== ========== ========== ========== ========== ========== ==========
Basic and diluted net income (loss) per
share(3).............................. $ 0.04 $ 0.01 $ 0.77 $ (0.14) $ (0.09) $ (0.03) $ (0.08)
========== ========== ========== ========== ========== ========== ==========
Pro forma basic and diluted income
(loss) per share before extraordinary
item.................................. $ 0.05 $ 0.09 $ 0.77 $ 0.02
========== ========== ========== ==========
Pro forma basic and diluted net income
(loss) per share...................... $ 0.05 $ 0.06 $ 0.77 $ (0.05)
========== ========== ========== ==========
Basic and diluted weighted average
shares outstanding(3)................. 16,661,088 16,661,088 16,661,088 16,661,088 16,661,088 16,661,088 16,661,088
========== ========== ========== ========== ========== ========== ==========
OTHER DATA:
Broadcast cash flow(4)................. $ 16,396 $ 20,641 $ 25,547 $ 28,286 $ 35,365 $ 7,772 $ 9,046
Broadcast cash flow margin(5).......... 42.5% 42.9% 43.3% 41.7% 45.4% 43.9% 44.3%
EBITDA(4).............................. $ 13,104 $ 16,842 $ 20,884 $ 22,076 $ 27,970 $ 6,269 $ 7,047
After-tax cash flow(4)................. 8,770 9,306 11,594 10,647 12,335 2,776 2,803
Cash flows related to:
Operating activities.................. $ 7,482 $ 7,681 $ 10,495 $ 7,314 $ 11,015 $ (519) $ (1,255)
Investing activities.................. (18,806) (27,681) (18,923) (26,326) (31,762) (1,935) (10,023)
Financing activities.................. 11,827 19,227 9,383 18,695 21,019 2,248 11,398
ADJUSTED STATEMENT OF OPERATIONS AND
OTHER DATA(6):
Interest expense....................... $ (9,939) $ (2,534)
Net income (loss)...................... 2,167 (43)
Basic and diluted net income (loss) per
share(7).............................. 0.09 (0.00)
After-tax cash flow(4)................. $ 16,083 $ 4,068
Basic and diluted after-tax cash flow
per share(4)(7)....................... 0.69 0.17
Basic and diluted weighted average
shares outstanding(7)................. 23,456,088 23,456,088
</TABLE>

(footnotes on following page)
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<PAGE> 9

<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
--------------------------
ACTUAL AS ADJUSTED(6)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 2,037 $ 48,508
Total assets................................................ 219,397 264,360
Long-term debt and capital lease obligations, less current
portions.................................................. 187,840 100,290
Stockholders' equity........................................ 7,793 144,132
</TABLE>

(1) Tax reimbursements to S corporation shareholders represent the income tax
liabilities of our principal stockholders created by the income of New
Inspiration and Golden Gate, which were both S corporations prior to our
August 1997 reorganization. Pro forma net income (loss) excludes tax
reimbursements to S corporation shareholders and includes a pro forma tax
provision at an estimated combined federal and state income tax rate of 40%
as if the reorganization had occurred at the beginning of each period
presented. In August 1997, New Inspiration and Golden Gate became
wholly-owned subsidiaries of Salem. From this date, pretax income of New
Inspiration and Golden Gate is included in our computation of the income tax
provision included in our consolidated statements of operations. See
"Selected Consolidated Financial Information" and notes 1 and 6 to our
consolidated financial statements.

(2) The extraordinary loss in each of 1995 and 1997 relates to the write-off of
deferred financing costs and termination fees related to the repayment of
long-term debt. See note 4 to our consolidated financial statements.

(3) See note 1 to our consolidated financial statements.

(4) We define broadcast cash flow as net operating income, excluding other media
revenue and other media operating expenses, before depreciation and
amortization and corporate expenses. We define EBITDA as net operating
income before depreciation and amortization. We define after-tax cash flow
as income (loss) before extraordinary item minus gain (loss) on disposal of
assets (net of income tax) plus depreciation and amortization. For periods
prior to 1998, broadcast cash flow and EBITDA are calculated using net
operating income before tax reimbursements to S corporation shareholders.
For periods prior to 1998, after-tax cash flow excludes tax reimbursements
to S corporation shareholders and includes a pro forma tax provision at an
estimated combined federal and state income tax rate of 40% as if the
reorganization had occurred at the beginning of each period presented.

Although broadcast cash flow, EBITDA and after-tax cash flow are not
measures of performance calculated in accordance with generally accepted
accounting principles, we believe that they are useful to an investor in
evaluating Salem because they are measures widely used in the radio
broadcast industry to evaluate a radio company's operating performance.
However, you should not consider broadcast cash flow, EBITDA and after-tax
cash flow in isolation or as substitutes for net income, cash flows from
operating activities and other statement of operations or cash flows data
prepared in accordance with generally accepted accounting principles as a
measure of liquidity or profitability. These measures are not necessarily
comparable to similarly titled measures employed by other companies.

(5) Broadcast cash flow margin is broadcast cash flow as a percentage of net
broadcasting revenue.

(6) The adjusted data give effect to the offering and the application of the net
proceeds of the offering to redeem $50 million in principal amount of our
senior subordinated notes and to repay all amounts outstanding under our
credit facility ($36.8 million as of March 31, 1999), including amounts
borrowed in April 1999 under our credit facility to repay our unsecured note
to stockholder ($800,000 as of March 31, 1999), as if the offering and the
application of the net proceeds had occurred as of January 1, 1998 in the
case of the adjusted statement of operations data and March 31, 1999 in the
case of the adjusted balance sheet data. The adjusted statement of
operations data include a reduction in interest expense of $6.0 million for
1998 and $1.8 million for the quarter ended March 31, 1999 and related
increases in income tax expense of $2.3 million for 1998 and $576,000 for
the quarter ended March 31, 1999. We will record a redemption premium ($4.8
million) and a write-off of a portion of unamortized bond issue costs as an
extraordinary loss on the early extinguishment of debt in the period when
the senior subordinated notes are redeemed. We will also record a charge of
$1.7 million plus an amount for the individual federal and state income tax
effects for an officer who was awarded 75,000 shares of Class A common stock
in May 1999. The adjusted statement of operations data excludes the
extraordinary loss and the charge associated with the stock award since
these will be non-recurring charges. The adjusted balance sheet data reflect
the estimated cash and equity effects of the extraordinary loss and the
stock award.

(7) Based on the weighted average number of shares of Class A common stock and
Class B common stock outstanding for all periods presented, including the
number of shares of Class A common stock to be issued and sold by Salem in
the offering and 75,000 shares of Class A common stock issued in May 1999 to
an officer of Salem, assuming the offering and the stock award had occurred
as of January 1, 1998.
7
<PAGE> 10

RISK FACTORS

In addition to the other information in this prospectus, you should
carefully consider the following factors in evaluating Salem and our business
before purchasing shares of Class A common stock.

OUR RESULTS DEPEND SIGNIFICANTLY UPON THE SUCCESS OF THE RELIGIOUS AND FAMILY
ISSUES FORMAT

We are committed to a broadcasting format emphasizing religious and family
issues. Our results of operations therefore depend significantly upon:

- the success of religious and family issues formats,

- the continued positive listener response to our block program and
advertising customers,

- the financial success of the organizations purchasing block program time
and advertising on our radio stations, and

- the financial success of affiliated radio stations that feature
programming from Salem Radio Network(R).

We may not pursue potentially more profitable business opportunities
outside of our religious and family issues format. For example, we may not
switch to other formats in response to changing audience preferences.

OUR STRATEGY TO GROW THROUGH ACQUISITIONS INVOLVES NUMEROUS RISKS

We intend to continue our acquisition strategy by acquiring radio stations
in new and existing markets, as well as by expanding into other media and
acquiring businesses that share our commitment to serving our targeted audience.
Our acquisition strategy involves numerous risks:

- We may be unable to generate cash flow from reformatted radio stations as
effectively as we have in the past or in amounts sufficient to offset
associated acquisition costs.

- Our management may be unable to manage a larger organization or may be
unable to effectively assimilate newly acquired radio stations into our
organization.

- We may be unable to identify attractive radio station acquisition
opportunities, or may be forced to pay higher prices, due to increased
competition with other buyers in the rapidly consolidating radio
broadcasting industry. General format broadcast companies may be able to
outbid us because they may have greater financial resources or can
justify paying higher prices for radio stations broadcasting in their
desired format or otherwise meeting their acquisition strategies.

- We may be unable to obtain additional financing on terms that are both
acceptable to our management and in compliance with covenants in our
credit facility or senior subordinated notes.

- Our core group of national block program customers, which have
historically accounted for a substantial portion of our revenue, may not
be willing to support our further expansion into new markets due in part
to:

- their high initial costs required to create a listener base in a new
market capable of generating revenue sufficient to cover programming
costs, and

- their pre-existing relationships with other radio stations in these
markets.

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<PAGE> 11

- We may not be able to acquire new media and other businesses that we
identify as important to our strategy, and may be unable to successfully
integrate acquisitions of these businesses into our organization.

Our inability to successfully implement our acquisition strategy could have
a material adverse effect on our business and results of operations.

THE HIGHLY COMPETITIVE NATURE OF THE RADIO BROADCAST INDUSTRY COULD NEGATIVELY
IMPACT OUR BUSINESS

The radio broadcasting industry, including the religious format segment of
this industry, is highly competitive. The financial success of each of our radio
stations that features talk programming is dependent, to a significant degree,
upon our ability to generate revenue from the sale of block program time to
national and local religious organizations. We compete for this program revenue
with a number of commercial and non-commercial radio stations. Due to the
significant competition for this block programming, we cannot be sure that we
will be able to maintain or increase our current block programming revenue.

In the advertising market, we compete for revenue with other commercial
religious format and general format radio stations, as well as with other media,
including broadcast and cable television, newspapers, magazines, direct mail and
billboard advertising. Due to this significant competition, we cannot be sure
that we will be able to maintain or increase our current advertising revenue.

In addition to the competition faced by our radio stations, Salem Radio
Network(R) faces competition from other providers of radio program content,
including commercial radio networks that offer news and talk programming to
religious format radio stations and non-commercial networks that offer religious
music formats. Our network also competes with other radio networks and
individual radio stations for the services of talk show personalities.
Competition from existing and new radio networks may limit the growth and
profitability of our network.

INDUSTRY COMPETITION MAY INCREASE DUE TO NEW TECHNOLOGIES AND SERVICES

Radio broadcasting is subject to competition from new media technologies
and services that are being developed or introduced. These include delivery of
audio programming by cable television, satellite, digital audio radio services,
the Internet, personal communications services and the proposed authorization by
the FCC of a new service of low powered, limited coverage FM radio stations. We
cannot predict the effect that any of this new technology may have on our
business or the radio broadcasting industry.

DECLINES IN THE LOS ANGELES OR NEW YORK MARKETS COULD NEGATIVELY IMPACT OUR
BUSINESS

Broadcast cash flow from our radio stations in Los Angeles and New York,
our two largest markets, accounted for 21% and 17%, respectively, of our
broadcast cash flow in 1998. Stations in Los Angeles and New York accounted for
22% and 16%, respectively, of our broadcast cash flow for the quarter ended
March 31, 1999. A significant decline in broadcast cash flow from radio stations
in these two markets could have a material adverse effect on our financial
results. Adverse economic events or conditions that affect the Los Angeles or
New York markets could have a material adverse effect on our financial results

9
<PAGE> 12

by, for example, causing our advertising customers in these markets to reduce
their expenditures for advertising.

LOSS OF KEY EXECUTIVES COULD NEGATIVELY IMPACT OUR BUSINESS

Our business is dependent upon the performance and continued efforts of
certain key individuals, particularly Edward G. Atsinger III, our President and
Chief Executive Officer; Stuart W. Epperson, our Chairman of the Board; and Eric
H. Halvorson, our Chief Operating Officer, Executive Vice President and General
Counsel. The loss of the services of any of Messrs. Atsinger, Epperson or
Halvorson could have a material adverse effect upon Salem. We have entered into
employment agreements with each of Messrs. Atsinger, Epperson and Halvorson.
Messrs. Atsinger and Epperson's agreements expire in July 2001; Mr. Halvorson's
agreement expires in December 2003. Mr. Epperson has radio interests outside of
Salem that will continue to impose demands on his time. See "Transactions
Involving Officers, Directors and Principal Stockholders -- Radio Stations Owned
By the Eppersons."

WE HAVE A HISTORY OF NET LOSSES AND MAY EXPERIENCE FUTURE LOSSES

During 1997 and 1998, we incurred net losses of $2.4 million and $1.6
million, respectively. We incurred a net loss of $1.3 million for the quarter
ended March 31, 1999, compared to a net loss of $574,000 for the same quarter of
the prior year. The losses resulted primarily from interest expense and
depreciation and amortization expense associated with acquisitions, as well as
ongoing expenses related to the process of reformatting radio stations. We may
continue to experience losses while we pursue our acquisition strategy and
proceed through the process of reformatting acquired radio stations. In the
first quarter of 1999, our newly acquired publishing, Internet and information
technology businesses incurred a net operating loss of $398,000. We cannot be
sure that our newly acquired publishing, Internet and information technology
businesses will be profitable.

GOVERNMENT REGULATION OF THE BROADCASTING INDUSTRY MAY NEGATIVELY IMPACT OUR
BUSINESS

Our operations are subject to extensive and changing governmental
regulations and policies and actions of federal regulatory bodies, including the
Department of Justice, the Federal Trade Commission and the Federal
Communications Commission. We operate each of our radio stations pursuant to one
or more FCC broadcasting licenses. As each license expires, we apply for renewal
of the license. However, we cannot be sure that any of our licenses will be
renewed, and renewal is subject to challenge by third-parties or to rejection by
the FCC. The Communications Act of 1934 and FCC rules and policies require FCC
approval for transfers of control of, and assignments of, FCC licenses. Were a
complaint to be filed against Salem or other FCC licensees involved in a
transaction with us, the FCC could delay the grant of, or refuse to grant, its
consent to an assignment or transfer of control of licenses.

Further, the FTC and the DOJ evaluate transactions to determine whether
those transactions should be challenged under federal antitrust laws. We are
aware that the FTC and the DOJ have been increasingly active in their review of
radio station acquisitions. This is particularly the case when a radio broadcast
company proposes to acquire additional stations in its existing markets. We
cannot be sure that the DOJ or the FTC will not seek to prohibit or require the
restructuring of our future acquisitions.

10
<PAGE> 13

WE DO NOT INTEND TO PAY CASH DIVIDENDS

We do not expect to declare or pay any cash dividends in the near future.
We are a holding company and derive substantially all of our operating income
from our subsidiaries. Should we change our policy of not paying dividends, our
sole source of cash from which to make dividend payments will be dividends paid
or payments made to us by our subsidiaries, which may be restricted in their
ability to pay cash to Salem. Our ability to pay dividends is also restricted by
our credit facility and senior subordinated notes.

EXISTING STOCKHOLDERS HAVE THE ABILITY TO CONTROL MATTERS ON WHICH SALEM'S
STOCKHOLDERS MAY VOTE

Upon completion of the offering, Edward G. Atsinger III, Stuart W. Epperson
and Nancy A. Epperson will own or control approximately 88% of the combined
votes of the Class A and Class B common stock. If the underwriters'
over-allotment option is exercised in full, they will own or control
approximately 87% of the combined votes of the Class A and Class B common stock.
Accordingly, Messrs. Atsinger and Epperson and Mrs. Epperson will control the
vote on all matters submitted to a vote of the holders of Salem's common stock,
except with respect to the election of two independent directors. See
"Description of Capital Stock -- Common Stock." Control by Messrs. Atsinger and
Epperson and Mrs. Epperson may have the effect of preventing or discouraging
transactions involving an actual or a potential change of control of Salem. This
may include transactions in which the holders of Class A common stock might
otherwise receive a premium for their shares over then-current market prices.

PROVISIONS OF OUR CERTIFICATE OF INCORPORATION, BYLAWS AND APPLICABLE LAW COULD
PREVENT OR DELAY A CHANGE IN CONTROL

Provisions of our certificate of incorporation, our bylaws and Delaware and
federal law may have the effect of discouraging a third party from making an
acquisition proposal for Salem. This may inhibit a transaction in which the
holders of Class A common stock might otherwise receive a premium for their
shares over then-current market prices. Such provisions include:

- Salem's certificate of incorporation and bylaws require: advance notice
for stockholder proposals and director nominations to be considered at a
meeting of stockholders; prohibit stockholders from calling special
meetings; prohibit stockholder actions by written consent instead of at a
meeting; and authorize the board of directors to issue preferred stock
and to determine the terms of this preferred stock without stockholder
approval.

- A provision of Delaware corporation law could prohibit us from engaging
in a business transaction with any interested stockholder, as defined in
the Delaware corporation law, for three years.

- The Communications Act and FCC rules require the prior consent of the FCC
to any change of control of Salem and restrict ownership by non-U.S.
persons.

SALES OF SIGNIFICANT AMOUNTS OF CLASS A COMMON STOCK COULD DEPRESS ITS MARKET
PRICE

Sales of a substantial number of shares of Class A common stock in the
public market following this offering, or the perception that these sales could
occur, could depress the market price for the Class A common stock by
introducing a large number of sellers or potential sellers to the market.
Following the offering, we will have outstanding

11
<PAGE> 14

17,902,392 shares of Class A common stock and 5,553,696 shares of Class B common
stock. The 8,400,000 shares of Class A common stock sold in the offering will be
freely transferable without restriction under the Securities Act by persons
other than our affiliates. The remaining 9,502,392 shares of Class A common
stock and all shares of Class B common stock are held by affiliates of Salem and
are subject to restrictions on public sale under the Securities Act. Salem, its
directors and executive officers, and all existing stockholders are subject to
"lock-up" agreements under which they have agreed not to sell or otherwise
dispose of any shares of Salem common stock for a period of 180 days after the
date of this prospectus without the prior written consent of Deutsche Bank
Securities Inc. and ING Barings LLC. Because of these restrictions, on the date
of this prospectus, no shares other than those shares of Class A common stock
offered by this prospectus will be eligible for sale. When the lock-up period
expires, substantially all of the shares held by our affiliates will be eligible
for sale in the public market, subject to compliance with the manner-of-sale,
volume and other limitations of Rule 144.

INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION

The initial offering price is expected to be substantially higher than the
net tangible book value of each share of outstanding common stock. Purchasers of
Class A common stock in the offering will experience immediate and substantial
dilution. The dilution will be $22.73 per share in the net tangible book value
of Class A common stock from the expected initial public offering price.

FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "intend," "should," "expect," "plan,"
"anticipate," "believe," "estimate," "predict," "potential" or "continue" or the
negative of such terms or other comparable terminology.

Forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause our and the radio broadcast industry's actual
results, levels of activity, performance, achievements and prospects to be
materially different from those expressed or implied by such forward-looking
statements. These risks, uncertainties and other factors include those
identified under "Risk Factors" in this prospectus.

We are under no duty to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise,
after the date of this prospectus. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in this prospectus might not
occur.

12
<PAGE> 15

USE OF PROCEEDS

We will receive net proceeds of $140.4 million from the sale of shares of
Class A common stock in the offering after deducting underwriting discounts and
estimated offering expenses. We will not receive any proceeds from the sale of
Class A common stock by the selling stockholders. We expect to use the net
proceeds of this offering to:

- Redeem $50 million principal amount of our 9 1/2% senior subordinated
notes due 2007, approximately 30 to 60 days following the offering, plus
a $4.75 million redemption premium and accrued and unpaid interest. In
order to reduce the redemption premium, we may repurchase some or all of
the $50 million principal amount of the notes in privately negotiated
transactions.

- Repay all indebtedness outstanding under our credit facility ($38.8
million as of June 2, 1999).

- Provide for general corporate purposes, including acquisitions and
working capital requirements.

We will use approximately $13.4 million of the net proceeds of the offering
to fund the acquisitions of KAIM-AM, KAIM-FM, KGU-AM, KHNR-AM, KFDJ-AM, WLSY-FM
and WRVI-FM. See "Summary -- Recent Developments." We regularly evaluate
potential acquisition candidates. No other acquisitions are currently considered
to be pending or probable.

Indebtedness under our credit facility accrues interest at variable rates
and must be repaid in full by August 2004. At June 2, 1999, the blended interest
rate on credit facility borrowings was 7.99%.

Pending the application of the net proceeds, we will temporarily invest the
net proceeds of the offering in short-term interest bearing investments.

DIVIDEND POLICY

We intend to retain future earnings for use in our business and do not
anticipate declaring or paying any dividends on shares of Class A or Class B
common stock in the foreseeable future. Further, our board of directors will
make any determination to declare and pay dividends in light of our earnings,
financial position, capital requirements, agreements for our outstanding debt
and such other factors as the board of directors deems relevant.

Our sole source of cash from which to make dividend payments will be
dividends paid to us or payments made to us by our subsidiaries. The ability of
our subsidiaries to make these payments may be restricted by applicable state
laws or terms of agreements to which they are or may become party.

13
<PAGE> 16

CAPITALIZATION

The following table sets forth cash and cash equivalents and capitalization
of Salem as of March 31, 1999 (i) on an actual historical basis and (ii) on a
pro forma as adjusted basis to reflect (a) the recording of compensation
expense, net of the related tax benefits, associated with the award of 75,000
shares of Class A common stock to an officer of Salem, including the estimated
cash bonus to be paid to the officer to pay the individual federal and state
income taxes associated with the award, (b) the sale by us of 6,720,000 shares
of Class A common stock in the offering (after deducting underwriting discounts
and estimated offering expenses payable by Salem) and (c) the application of the
estimated net proceeds to Salem to redeem $50 million principal amount of our
senior subordinated notes and pay a $4.8 million redemption premium, and repay
all amounts outstanding under our credit facility, including the borrowing of
$800,000 used to repay the unsecured note to stockholder.

The information in the table should be read in conjunction with the more
detailed consolidated financial statements and related notes included elsewhere
in this prospectus.

<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................... $ 2,037 $ 48,508
======== ========
Capital lease obligations, less current portion......... $ 290 $ 290
Long-term debt:
Unsecured note to stockholder(1)...................... 800 --
Senior subordinated notes............................. 150,000 100,000
Credit facility(2).................................... 36,750 --
-------- --------
Total long-term debt, less current portion.... 187,550 100,000
Stockholders' equity:
Class A common stock, $.01 par value; authorized
80,000,000 shares; issued and outstanding
11,107,392 shares, actual; 17,902,392 shares, as
adjusted(3)........................................ 111 179
Class B common stock, $.01 par value; authorized
20,000,000 shares; issued and outstanding 5,553,696
shares, actual; 5,553,696 shares, as adjusted...... 56 56
Additional paid-in capital............................ 5,665 147,675
Retained earnings (accumulated deficit)(4)............ 1,961 (3,778)
-------- --------
Total stockholders' equity.................... 7,793 144,132
-------- --------
Total capitalization.................................. $195,633 $244,422
======== ========
</TABLE>

- -------------------------
(1) We repaid this note in full in April 1999.
(2) As of June 2, 1999, $38.8 million was outstanding under our credit facility.
Subject to completion of this offering, we are amending our credit facility
to increase our borrowing capacity from $75 million to $150 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
(3) As adjusted amounts exclude 1,000,000 shares of Class A common stock
reserved for grants under Salem's 1999 stock incentive plan, but include
75,000 shares of Class A common stock issued in May 1999 to an officer of
Salem as a stock bonus.
(4) Reflects the charges associated with the one time payment of the redemption
premium ($4.8 million), the write-off of a portion of the unamortized bond
issue costs ($1.5 million) and the charges associated with the award of
75,000 shares of Class A common stock to an officer of Salem and the bonus
to be paid to the officer for individual federal and state income taxes
associated with the award, all net of the applicable estimated tax effects.

14
<PAGE> 17

DILUTION

Our net tangible book value (deficit) as of March 31, 1999 was $(142.1)
million or $(8.53) per share of common stock. Net tangible book value (deficit)
per share represents the amount of our total tangible assets reduced by the
amount of our total liabilities, divided by the number of shares of common stock
outstanding. After giving effect to our sale of 6,720,000 shares of Class A
common stock and the application of the proceeds from the sale (after deducting
underwriting discounts and estimated offering expenses) to redeem $50 million
principal amount of our senior subordinated notes, pay a $4.8 million redemption
premium and repay all amounts outstanding under our credit facility, and after
giving effect to the award of 75,000 shares of Class A common stock to a Salem
officer in May 1999, our pro forma as adjusted net tangible book value (deficit)
would have been $(5.5) million or $(0.23) per share. This represents an
immediate increase in net tangible book value of $8.30 per share to existing
stockholders and an immediate dilution of $22.73 per share to new investors. The
following table illustrates this dilution on a per share basis:

<TABLE>
<S> <C> <C>
Initial public offering price per share................ $22.50
Net tangible book value (deficit) per share before the
offering............................................. $(8.53)
Increase per share attributable to new investors....... 8.30
------
Net tangible book value (deficit) per share after the
offering............................................. (0.23)
------
Dilution per share to new investors.................... $22.73
======
</TABLE>

The following table summarizes, after giving effect to the offering, the
differences between existing stockholders, including the Salem officer who
received an award of 75,000 shares of Class A common stock, and new investors
with respect to the number of shares of common stock purchased from us, the
total consideration paid to us and the average price per share paid, based on
the initial public offering price:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing
stockholders........ 16,736,088 71.4% $ 5,832,000 3.7% $ 0.35
New investors......... 6,720,000 28.6 151,200,000 96.3 $22.50
---------- ----- ------------ -----
Total............... 23,456,088 100.0% $157,032,000 100.0%
========== ===== ============ =====
</TABLE>

15
<PAGE> 18

SELECTED CONSOLIDATED FINANCIAL INFORMATION

Salem's selected historical statement of operations and balance sheet data
presented below as of and for the years ended December 31, 1994, 1995, 1996,
1997 and 1998 are derived from the consolidated financial statements of Salem,
which have been audited by Ernst & Young LLP, independent auditors. Salem's
selected consolidated financial information presented below as of March 31, 1999
and for the three months ended March 31, 1998 and 1999 is derived from Salem's
unaudited consolidated financial statements which, in the opinion of Salem's
management, contain all necessary adjustments of a normal recurring nature, to
present the financial statements in conformity with generally accepted
accounting principles. Our quarterly results for the three months ended March
31, 1999 are not necessarily indicative of the results for the year ended
December 31, 1999. The consolidated financial statements as of December 31, 1997
and 1998 and for each of the years in the three-year period ended December 31,
1998, and the independent auditors' report thereon, are included elsewhere in
this prospectus. Salem's financial results are not comparable from period to
period because of our acquisition and disposition of radio stations and our
acquisition of other media businesses. The selected consolidated financial
information below should be read in conjunction with, and is qualified by
reference to, our consolidated financial statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
-------------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net broadcasting revenue............... $ 38,575 $ 48,168 $ 59,010 $ 67,912 $ 77,891 $ 17,702 $ 20,425
Other media revenue.................... -- -- -- -- -- -- 1,095
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenue.......................... 38,575 48,168 59,010 67,912 77,891 17,702 21,520
Operating expenses:
Broadcasting operating expenses....... 22,179 27,527 33,463 39,626 42,526 9,930 11,379
Other media operating expenses........ -- -- -- -- -- -- 1,298
Corporate expenses.................... 3,292 3,799 4,663 6,210 7,395 1,503 1,796
Tax reimbursements to S corporation
shareholders(1)..................... 977 2,057 2,038 1,780 -- -- --
Depreciation and amortization......... 7,633 7,884 8,394 12,803 14,058 3,337 4,111
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses............... 34,081 41,267 48,558 60,419 63,979 14,770 18,584
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net operating income................... 4,494 6,901 10,452 7,493 13,912 2,932 2,936
Other income (expense):
Interest income....................... 230 319 523 230 291 103 25
Gain (loss) on disposal of assets..... (482) (7) 16,064 4,285 236 (22) --
Interest expense...................... (3,668) (6,646) (7,361) (12,706) (15,941) (3,772) (4,375)
Other income expense.................. (135) (255) (270) (389) (422) (105) (120)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total other income (expense)........... (4,055) (6,589) 8,956 (8,580) (15,836) (3,796) (4,470)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes and
extraordinary item.................... 439 312 19,408 (1,087) (1,924) (864) (1,534)
Provision (benefit) for income taxes... (247) (204) 6,655 106 (343) (290) (226)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary
item.................................. 686 516 12,753 (1,193) (1,581) (574) (1,308)
Extraordinary loss(2).................. -- (394) -- (1,185) -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)...................... $ 686 $ 122 $ 12,753 $ (2,378) $ (1,581) $ (574) $ (1,308)
========== ========== ========== ========== ========== ========== ==========
Pro forma net income (loss)(1)......... $ 848 $ 1,024 $ 12,838 $ (770)
========== ========== ========== ==========
Basic and diluted income (loss) per
share before extraordinary item....... $ 0.04 $ 0.03 $ 0.77 $ (0.07) $ (0.09) $ (0.03) $ (0.08)
========== ========== ========== ========== ========== ========== ==========
Basic and diluted net income (loss) per
share(3).............................. $ 0.04 $ 0.01 $ 0.77 $ (0.14) $ (0.09) $ (0.03) $ (0.08)
========== ========== ========== ========== ========== ========== ==========
Pro forma basic and diluted income
(loss) per share before extraordinary
item.................................. $ 0.05 $ 0.09 $ 0.77 $ 0.02
========== ========== ========== ==========
Pro forma basic and diluted net income
(loss) per share...................... $ 0.05 $ 0.06 $ 0.77 $ (0.05)
========== ========== ========== ==========
Basic and diluted weighted average
shares outstanding(3)................. 16,661,088 16,661,088 16,661,088 16,661,088 16,661,088 16,661,088 16,661,088
========== ========== ========== ========== ========== ========== ==========
OTHER DATA:
Broadcast cash flow(4)................. $ 16,396 $ 20,641 $ 25,547 $ 28,286 $ 35,365 $ 7,772 $ 9,046
Broadcast cash flow margin(5).......... 42.5% 42.9% 43.3% 41.7% 45.4% 43.9% 44.3%
EBITDA(4).............................. $ 13,104 $ 16,842 $ 20,884 $ 22,076 $ 27,970 $ 6,269 $ 7,047
After-tax cash flow(4)................. 8,770 9,306 11,594 10,647 12,335 2,776 2,803
Cash flows related to:
Operating activities.................. $ 7,482 $ 7,681 $ 10,495 $ 7,314 $ 11,015 $ (519) $ (1,255)
Investing activities.................. (18,806) (27,681) (18,923) (26,326) (31,762) (1,935) (10,023)
Financing activities.................. 11,827 19,227 9,383 18,695 21,019 2,248 11,398
ADJUSTED STATEMENT OF OPERATIONS AND
OTHER DATA(6):
Interest expense....................... $ (9,939) $ (2,534)
Net income (loss)...................... 2,167 (43)
Basic and diluted net income (loss) per
share(7).............................. 0.09 (0.00)
After-tax cash flow(4)................. $ 16,083 $ 4,068
Basic and diluted after-tax cash flow
per share(4)(7)....................... 0.69 0.17
Basic and diluted weighted average
shares outstanding(7)................. 23,456,088 23,456,088
</TABLE>

(footnotes on following page)

16
<PAGE> 19

<TABLE>
<CAPTION>
AS OF DECEMBER 31 AS OF
--------------------------------------------------- MARCH 31
1994 1995 1996 1997 1998 1999
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......... $ 1,780 $ 1,007 $ 1,962 $ 1,645 $ 1,917 $ 2,037
Total assets...................... 82,041 104,817 159,185 184,813 207,750 219,397
Long-term debt and capital lease
obligations, less current
portions........................ 60,656 81,020 121,790 154,500 178,610 187,840
Stockholders' equity.............. 13,160 13,282 20,534 10,682 9,101 7,793
</TABLE>

- -------------------------
(1) Tax reimbursements to S corporation shareholders represent the income tax
liabilities of our principal stockholders created by the income of New
Inspiration and Golden Gate, which were both S corporations prior to our
August 1997 reorganization. Pro forma net income (loss) excludes tax
reimbursements to S corporation shareholders and includes a pro forma tax
provision at an estimated combined federal and state income tax rate of
40% as if the reorganization had occurred at the beginning of each period
presented. In August 1997, New Inspiration and Golden Gate became
wholly-owned subsidiaries of Salem. From this date, pretax income of New
Inspiration and Golden Gate is included in our computation of the income
tax provision included in our consolidated statements of operations. See
notes 1 and 6 to our consolidated financial statements.

The following table reflects the pro forma adjustments to historical net
income for the periods prior to and including our August 1997
reorganization:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
1994 1995 1996 1997
------ ------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Pro Forma Information:

Income (loss) before income taxes and extraordinary
item as reported above............................ $ 439 $ 312 $19,408 $(1,087)
Add back tax reimbursements to S corporation
shareholders...................................... 977 2,057 2,038 1,780
------ ------ ------- -------
Pro forma income (loss) before income taxes and
extraordinary item................................ 1,416 2,369 21,446 693
Pro forma provision (benefit) for income taxes...... 568 951 8,608 278
------ ------ ------- -------
Pro forma income (loss) before extraordinary item... 848 1,418 12,838 415
Extraordinary loss.................................. -- (394) -- (1,185)
------ ------ ------- -------
Pro forma net income (loss)......................... $ 848 $1,024 $12,838 $ (770)
====== ====== ======= =======
</TABLE>

(3) See note 1 to our consolidated financial statements.

(4) We define broadcast cash flow as net operating income, excluding other media
revenue and other media operating expenses, before depreciation and
amortization and corporate expenses. We define EBITDA as net operating
income before depreciation and amortization. We define after-tax cash flow
as income (loss) before extraordinary item minus gain (loss) on disposal of
assets (net of income tax) plus depreciation and amortization. For periods
prior to 1998, broadcast cash flow and EBITDA are calculated using net
operating income before tax reimbursements to S corporation shareholders.
For periods prior to 1998, after-tax cash flow excludes reimbursements to S
corporation shareholders and includes a pro forma tax provision at an
estimated combined federal and state income tax rate of 40% as if the
reorganization had occurred at the beginning of each period presented.

(footnotes continued on following page)

17
<PAGE> 20

tax cash flow in isolation or as substitutes for net income, cash flows
from operating activities and other statement of operations or cash flows
data prepared in accordance with generally accepted accounting principles
as a measure of liquidity or profitability. These measures are not
necessarily comparable to similarly titled measures employed by other
companies.

(5) Broadcast cash flow margin is broadcast cash flow as a percentage of net
broadcasting revenue.

(6) The adjusted data give effect to the offering and the application of the net
proceeds of the offering to redeem $50 million in principal amount of our
senior subordinated notes and to repay all amounts outstanding under our
credit facility ($36.8 million as of March 31, 1999), including amounts
borrowed in April 1999 under our credit facility to repay our unsecured note
to stockholder ($800,000 as of March 31, 1999), as if the offering and the
application of the net proceeds had occurred as of January 1, 1998. The
adjusted statement of operations data include a reduction in interest
expense of $6.0 million for 1998 and $1.8 million for the quarter ended
March 31, 1999 and related increases in income tax expense of $2.3 million
for 1998 and $576,000 for the quarter ended March 31, 1999. We will record
the redemption premium ($4.8 million) and a write-off of a portion of
unamortized bond issue costs as an extraordinary loss on the early
extinguishment of debt in the period when the senior subordinated notes are
redeemed. We will also record a charge of $1.7 million plus an amount for
the individual federal and state income tax effects for an officer who was
awarded 75,000 shares of Class A common stock in May 1999. The adjusted
statement of operations data excludes the extraordinary loss and the charge
associated with the stock award since these will be non-recurring charges.

18
<PAGE> 21

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

OVERVIEW

The principal sources of our revenue are:

- the sale of block program time, both to national and local program
producers,

- the sale of advertising time on our radio stations, both to national
and local advertisers, and

- the sale of advertising time on our national radio network.

The following table shows gross broadcasting revenue, percentage of gross
broadcasting revenue for each broadcasting revenue source and net broadcasting
revenue.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 THREE MONTHS
----------------------------------------------------- ENDED
1996 1997 1998 MARCH 31, 1999
--------------- --------------- --------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Block program time:
National................... $26,610 40.8% $27,664 37.0% $30,337 35.5% $ 8,165 36.6%
Local...................... 10,869 16.7 11,392 15.2 12,558 14.7 3,279 14.7
------- ----- ------- ----- ------- ----- ------- -----
37,479 57.5 39,056 52.2 42,895 50.2 11,444 51.3
Advertising:
National................... 4,088 6.3 3,621 4.8 4,458 5.2 1,118 5.0
Local...................... 17,416 26.7 21,143 28.3 26,106 30.6 6,846 30.7
------- ----- ------- ----- ------- ----- ------- -----
21,504 33.0 24,764 33.1 30,564 35.8 7,964 35.7
Infomercials(1).............. -- -- 3,819 5.1 4,121 4.8 871 3.9
Salem Radio Network.......... 5,270 8.1 6,186 8.3 6,053 7.1 1,665 7.4
Other........................ 888 1.4 1,005 1.3 1,778 2.1 382 1.7
------- ----- ------- ----- ------- ----- ------- -----
Gross broadcasting revenue... 65,141 100.0% 74,830 100.0% 85,411 100.0% 22,326 100.0%
===== ===== ===== =====
Less agency commissions...... 6,131 6,918 7,520 1,901
------- ------- ------- -------
Net broadcasting revenue..... $59,010 $67,912 $77,891 $20,425
======= ======= ======= =======
</TABLE>

- ---------------
(1) Prior to 1997, classification of broadcasting revenue (as national program,
national advertising, local program or local advertising) from infomercials
was determined at the discretion of local station general managers. In 1997,
we began including revenue from infomercials in a separate category in order
to establish uniformity of classification of revenue.

Our broadcasting revenue is affected primarily by the program rates our
radio stations charge and by the advertising rates our radio stations and
network charge. The rates for block program time are based upon our stations'
ability to attract audiences that will support the program producers through
contributions and purchases of their products. Advertising rates are based upon
the demand for advertising time, which in turn is based on our stations' and
network's ability to produce results for its advertisers. We do not subscribe to
traditional audience measuring services. Instead, we market ourselves to
advertisers based upon the responsiveness of our audience. See
"Business -- Radio Stations." Each of our radio stations and our network have a
general pre-determined level of time that they make available for block programs
and/or advertising, which may vary at different times of the day.

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<PAGE> 22

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

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

Our cash flow is affected by a transition period experienced by radio
stations we have acquired that previously operated with formats other than a
religious and family issues format. This transition period, which usually lasts
less than a year, is when we develop the radio station's program customer and
listener base. During this period, these stations typically generate negative or
insignificant cash flow.

In the broadcasting industry, radio stations often utilize trade or barter
agreements to exchange advertising time for goods or services (such as other
media advertising, travel or lodging), in lieu of cash. In order to preserve the
sale of our advertising time for cash, we generally enter into trade agreements
only if the goods or services bartered to us will be used in our business. We
have minimized our use of trade agreements and have generally sold most of our
advertising time for cash. In 1998, we sold 92% of our advertising time for
cash. In addition, it is our general policy not to preempt advertising paid for
in cash with advertising paid for in trade.

The primary operating expenses incurred in the ownership and operation of
our radio stations include employee salaries and commissions, and facility
expenses (for example, rent and utilities). In addition to these expenses, our
network incurs programming costs and lease expenses for satellite communication
facilities. We also incur and will continue to incur significant depreciation,
amortization and interest expense as a result of completed and future
acquisitions of radio stations and existing and future borrowings.

OnePlace earns its revenue by selling products and services on the Internet
and licensing its e-commerce, search engines and imaging applications. CCM earns
its revenue by selling advertising in and subscriptions to its publications. The
revenue and related operating expenses of these businesses are reported as
"other media" on our condensed consolidated statements of operations.

Our consolidated statements of operations for periods prior to 1998 have
included an operating expense called "tax reimbursements to S corporation
shareholders." These amounts represent the income tax liabilities of our
principal stockholders created by the income of New Inspiration and Golden Gate,
which were both S corporations prior to our August 1997 reorganization. We
consider the nature of this operating expense to be essentially equivalent to an
income tax provision. In August 1997, New Inspiration and Golden Gate became
wholly-owned subsidiaries of Salem. From this date, pretax income of New
Inspiration and Golden Gate is included in our consolidated income tax return
and in our computation of the income tax provision included in our consolidated
statements of operations.

The performance of a radio broadcasting company, such as Salem, is
customarily measured by the ability of its stations to generate broadcast cash
flow, EBITDA and after-tax cash flow. We define broadcast cash flow as net
operating income, excluding other media revenue and other media operating
expenses, before depreciation and amortization

20
<PAGE> 23

and corporate expenses. We define EBITDA as net operating income before
depreciation and amortization. We define after-tax cash flow as income (loss)
before extraordinary item minus gain (loss) on disposal of assets (net of income
tax) plus depreciation and amortization. For periods prior to 1998, broadcast
cash flow and EBITDA are calculated using net operating income before tax
reimbursements to S corporation shareholders. For periods prior to 1998,
after-tax cash flow is calculated as if New Inspiration and Golden Gate were C
corporations for each of these periods. This means that after-tax cash flow
excludes tax reimbursements to S corporation shareholders and includes a pro
forma tax provision at an estimated combined federal and state income tax rate
of 40% as if the reorganization had occurred at the beginning of each period
presented.

Although broadcast cash flow, EBITDA and after-tax cash flow are not
measures of performance calculated in accordance with generally accepted
accounting principles, and should be viewed as a supplement to and not a
substitute for our results of operations presented on the basis of generally
accepted accounting principles, we believe that broadcast cash flow, EBITDA and
after-tax cash flow are useful because they are generally recognized by the
radio broadcasting industry as measures of performance and are used by analysts
who report on the performance of broadcast companies. These measures are not
necessarily comparable to similarly titled measures employed by other companies.

In the following discussion of our results of operations, we compare our
results between periods on an as reported basis (that is, the results of
operations of all radio stations and network formats owned or operated at any
time during either period) and on a "same station" basis. We include in our same
station comparisons the results of operations of radio stations and network
formats that:

- we own or operate for all of both periods;

- we acquire or begin to operate at any time after the beginning of the
first relevant comparison period if the station or network format (i) is
in a market in which we already own or operate a radio station or network
format and (ii) is integrated with the existing station or network format
for our internal financial reporting purposes; or

- we sell or cease to operate at any time after the beginning of the first
relevant comparison period if the station or network format (i) was
integrated with another station or network format in a market for our
internal financial reporting purposes prior to the sale or cessation of
operations and (ii) we continue to own or operate the other station or
network format following the sale or cessation of operations.

We include in our same station comparisons the results of operations of our
integrated stations and network formats from the date that we acquire or begin
to operate them or through the date that we sell or cease to operate them, as
the case may be.

In the quarter ending June 30, 1999, we will record a charge of $1.7
million relating to the award of 75,000 shares of Class A common stock to an
officer of Salem plus an amount for the individual federal and state income tax
effects associated with the award.

RESULTS OF OPERATIONS

QUARTER ENDED MARCH 31, 1999 COMPARED TO QUARTER ENDED MARCH 31, 1998

Net Broadcasting Revenue. Net broadcasting revenue increased $2.7 million
or 15.3% to $20.4 million for the quarter ended March 31, 1999 from $17.7
million for the same quarter of the prior year. The inclusion of revenue from
radio stations acquired in 1998, partially offset by the loss of revenue from
radio stations sold in 1998, provided $600,000
21
<PAGE> 24

of the increase. On a same station basis, net broadcasting revenue improved $2.1
million or 12.0% to $19.6 million in 1999 from $17.5 million in 1998. Included
in this same station comparison are the results of three stations that we
acquired in 1998 for a total purchase price of $3.1 million. The improvement was
primarily due to an increase in revenue at the radio stations we acquired in
1996 and 1997 that previously operated with formats other than a religious and
family issues format, an increase in program rates and, to a lesser extent, an
increase in advertising time and improved selling efforts at both the national
and local level. Revenue from advertising as a percentage of our gross
broadcasting revenue increased from 33.9% for the quarter ended March 31, 1998
to 35.7% for the same quarter in 1999. Revenue from block program time as a
percentage of our gross broadcasting revenue decreased from 51.6% for the
quarter ended March 31, 1998 to 51.3% for the same quarter in 1999. This change
in our revenue mix is primarily due to our efforts to develop more advertising
sales in all of our markets.

Other Media Revenue. Other media revenue was $1.1 million for the quarter
ended March 31, 1999, and was generated from the businesses acquired during that
quarter.

Broadcasting Operating Expenses. Broadcasting operating expenses increased
$1.5 million or 15.2% to $11.4 million for the quarter ended March 31, 1999 from
$9.9 million for the same quarter of the prior year. The inclusion of operating
expenses from radio stations acquired in 1998, partially offset by the exclusion
of operating expenses from radio stations sold in 1998, accounted for $200,000
of the increase. On a same station basis, broadcasting operating expenses
increased $1.3 million or 13.4% to $11.0 million in 1999 from $9.7 million in
1998, primarily due to incremental selling and production expenses incurred to
produce the increased revenue in the period.

Other Media Operating Expenses. Other media operating expenses were $1.3
million for the quarter ended March 31, 1999, and were incurred in the
businesses acquired during that quarter.

Broadcast Cash Flow. Broadcast cash flow increased $1.2 million or 15.4% to
$9.0 million for the quarter ended March 31, 1999 from $7.8 million for the same
quarter of the prior year. The increase is primarily attributable to the
improved performance of radio stations acquired in 1996 and 1997 that previously
operated with formats other than a religious and family issues format. As a
percentage of net broadcasting revenue, broadcast cash flow was essentially
unchanged for the quarter ended March 31, 1999 compared to the same quarter of
the prior year. Acquired and reformatted radio stations typically produce low
margins during the first few years following conversion from a non-religious
format to a religious and family issues format. Broadcast cash flow margins
improve as we implement scheduled program rate increases and increase
advertising revenue on our stations. These improvements were offset by higher
station and network selling expenses in the quarter ended March 31, 1999. On a
same station basis, broadcast cash flow improved $800,000 or 10.3% to $8.6
million in the quarter ended March 31, 1999 from $7.8 million in the same
quarter of the prior year.

Corporate Expenses. Corporate expenses increased $300,000 or 20.0% to $1.8
million in the quarter ended March 31, 1999 from $1.5 million in the same
quarter of the prior year, primarily due to additional overhead costs associated
with radio station acquisitions in 1998.

EBITDA. EBITDA increased $700,000 or 11.1% to $7.0 million for the quarter
ended March 31, 1999 from $6.3 million for the same quarter of the prior year.
As a percentage of total revenue, EBITDA decreased to 32.6% for the quarter
ended March 31, 1999 from 35.6% for the same quarter of the prior year. The
decrease is primarily

22
<PAGE> 25

attributable to a negative EBITDA margin on our other media businesses (that is,
EBITDA for our other media businesses divided by other media revenue), partially
offset by an improvement in the EBITDA margin on our broadcasting business (that
is, EBITDA for our broadcasting business divided by net broadcasting revenue).

Depreciation and Amortization. Depreciation and amortization expense
increased $800,000 or 24.2% to $4.1 million for the quarter ended March 31, 1999
from $3.3 million for the same quarter in the prior year, primarily due to radio
station acquisitions consummated during 1998, and acquisitions of other media
businesses in 1999.

Other Income (Expense). Interest income, loss on disposal of assets and
other expense were essentially unchanged for the quarter ended March 31, 1999
compared to the same quarter of the prior year. Interest expense increased
$600,000 or 15.8% to $4.4 million for the quarter ended March 31, 1999 from $3.8
million for the same quarter in the prior year, primarily due to interest
expense associated with additional borrowings to fund acquisitions consummated
during 1999 and 1998.

Benefit for Income Taxes. Benefit for income taxes as a percentage of loss
before income taxes (that is, the effective tax rate) was (14.7)% for the
quarter ended March 31, 1999 and (33.6)% for the same quarter of the prior year.
For the quarter ended March 31, 1999 and 1998 the effective tax rate differs
from the federal statutory income tax rate of 34.0% primarily due to the effect
of state income taxes and certain expenses that are not deductible for tax
purposes. The increase in the effective tax rate for the quarter ended March 31,
1999 as compared to the same quarter of the prior year is primarily due to an
increase in state income taxes.

Net Loss. We recognized a net loss of $1.3 million for the quarter ended
March 31, 1999, compared to a net loss of $574,000 for the same quarter of the
prior year.

After-Tax Cash Flow. After-tax cash flow increased $100,000 or 3.7% to $2.8
million for the quarter ended March 31, 1999 from $2.7 million for the same
quarter of the prior year. The increase is primarily attributable to an increase
in operating income before depreciation and amortization, partially offset by an
increase in interest expense.

1998 COMPARED TO 1997

Net Broadcasting Revenue. Net broadcasting revenue increased $10.0 million
or 14.7% to $77.9 million in 1998 from $67.9 million in 1997. The inclusion of
revenue from the acquisitions of radio stations and revenue generated from local
marketing agreements entered into during 1998 and 1997 provided $1.5 million of
the increase. On a same station basis, net broadcasting revenue improved $8.5
million or 12.7% to $75.3 million in 1998 from $66.8 million in 1997. Included
in this same station comparison are the results of three stations that we
acquired in 1998 for a total purchase price of $3.1 million, four stations that
we acquired or began to operate in 1997 for a total purchase price of $4.9
million and one station that we sold in 1997 for $5.0 million. The improvement
was primarily due to an increase in revenue at the radio stations we acquired in
1996 that previously operated with formats other than a religious and family
issues format, an increase in program rates and, to a lesser extent, an increase
in advertising time and improved selling efforts at both the national and local
level. Revenue from advertising as a percentage of our gross broadcasting
revenue increased from 33.1% in 1997 to 35.8% in 1998. Revenue from block
program time as a percentage of our gross broadcasting revenue decreased from
52.2% in 1997 to 50.2% in 1998. This change in our revenue mix is primarily due
to our efforts to develop more local advertising sales in all of our markets.

23
<PAGE> 26

Broadcasting Operating Expenses. Broadcasting operating expenses increased
$2.9 million or 7.3% to $42.5 million in 1998 from $39.6 million in 1997. The
inclusion of expenses from the acquisitions of radio stations and expenses
incurred for local marketing agreements entered into during 1998 and 1997
accounted for $400,000 of the increase. On a same station basis, broadcasting
operating expenses increased $2.5 million or 6.4% to $41.3 million in 1998 from
$38.8 million in 1997, primarily due to incremental selling and production
expenses incurred to produce the increased revenue in the period. This increase
was offset in part by a one-time credit of $453,000 that we recorded in 1998.
The credit related to music licensing fees and represented the proceeds of a
settlement between us and the two largest performance rights organizations.

Broadcast Cash Flow. Broadcast cash flow increased $7.1 million or 25.1% to
$35.4 million in 1998 from $28.3 million in 1997. As a percentage of net
broadcasting revenue, broadcast cash flow increased to 45.4% in 1998 from 41.7%
in 1997. The increase is primarily attributable to the improved performance of
radio stations acquired in 1996 and 1997 that previously operated with formats
other than a religious and family issues format and the one-time credit for
music licensing fees. Acquired and reformatted radio stations typically produce
low margins during the first few years following conversion from a non-religious
format to a religious and family issues format. Broadcast cash flow margins
improve as we implement scheduled program rate increases and increase
advertising revenue on our stations. On a same station basis, broadcast cash
flow improved $6.0 million or 21.4% to $34.0 million in 1998 from $28.0 million
in 1997.

Corporate Expenses. Corporate expenses increased $1.2 million or 19.4% to
$7.4 million in 1998 from $6.2 million in 1997, primarily due to bonuses
totaling $538,000 paid to our president and to our chairman of the board in 1998
and additional personnel and overhead costs associated with radio station
acquisitions in 1998.

EBITDA. EBITDA increased $5.9 million or 26.7% to $28.0 million in 1998
from $22.1 million in 1997. As a percentage of total revenue, EBITDA increased
to 35.9% in 1998 from 32.5% in 1997. The increase is primarily attributable to
the improved performance of radio stations acquired in 1996 and 1997 that
previously operated with formats other than a religious and family issues format
and the one-time credit for music licensing fees.

Depreciation and Amortization. Depreciation and amortization expense
increased $1.3 million or 10.2% to $14.1 million in 1998 from $12.8 million in
1997, primarily due to radio station acquisitions consummated during 1998 and
1997.

Other Income (Expense). Interest income was essentially unchanged for 1998
compared to 1997. Gain on disposal of assets decreased $4.1 million from $4.3
million in 1997 to $236,000 in 1998. The gain in 1997 was primarily due to the
sale of WPZE-AM, Boston. Interest expense increased $3.2 million or 25.2% to
$15.9 million in 1998 from $12.7 million in 1997, primarily due to interest
expense associated with additional borrowings to fund acquisitions consummated
during 1998 and 1997. Other expense was essentially unchanged for 1998 compared
to 1997.

Provision (Benefit) for Income Taxes. Provision (benefit) for income taxes
as a percentage of income (loss) before income taxes and extraordinary item
(that is, the effective tax rate) was (17.8)% for 1998 and 9.8% for 1997. The
effective tax rate in 1998 differs from the federal statutory income tax rate of
34.0% primarily because of the effect of state income taxes and certain expenses
that are not deductible for tax purposes. The effective tax rate in 1997 differs
from the federal statutory income tax rate of 34.0% primarily because of the
effect of state income taxes and the establishment of a deferred

24
<PAGE> 27

tax liability of $609,000 resulting from our August 1997 reorganization. These
effects were offset by the inclusion of income from New Inspiration and Golden
Gate, which were S corporations (and therefore not subject to federal income
taxes) prior to the reorganization.

Net Loss. We recognized a net loss of $1.6 million in 1998, compared to a
net loss of $2.4 million in 1997. Included in the net loss for 1997 is a $1.2
million extraordinary loss for the write-off of deferred financing costs and
termination fees related to the repayment of our prior credit facility which we
repaid in full upon issuance of our senior subordinated notes in September 1997.

After-Tax Cash Flow. After-tax cash flow increased $1.7 million or 16.0% to
$12.3 million in 1998 from $10.6 million in 1997. The increase is primarily
attributable to improved net operating income.

1997 COMPARED TO 1996

Net Broadcasting Revenue. Net broadcasting revenue increased $8.9 million
or 15.1% to $67.9 million in 1997 from $59.0 million in 1996. The inclusion of
revenue from the acquisitions of radio stations and revenue generated from local
marketing agreements entered into during 1997 and 1996 provided $5.5 million of
the increase. On a same station basis, net broadcasting revenue improved $3.4
million or 6.2% to $58.4 million in 1997 from $55.0 million in 1996 due
primarily to an increase in program rates and, to a lesser extent, an increase
in advertising time and improved selling efforts at both the national and local
level. Included in this same station comparison are the results of four stations
that we acquired or began to operate in 1997 for a total purchase price of $11.3
million, one station that we sold in 1997 for $5.0 million and one station that
we sold in 1996 for $1.5 million. While broadcasting revenue from advertising as
a percentage of our gross broadcasting revenue was essentially unchanged from
1996 to 1997, revenue from local advertising as a percentage of our gross
broadcasting revenue increased from 26.7% in 1996 to 28.3% in 1997. Revenue from
block program time as a percentage of our gross broadcasting revenue decreased
from 57.5% in 1996 to 52.2% in 1997. Revenue from informercials was 5.1% of
gross broadcasting revenue in 1997. Prior to 1997, classification of revenue (as
national program, national advertising, local program or local advertising) from
infomercials was determined at the discretion of local station general managers.
The change in our broadcasting revenue mix is primarily due to our efforts to
develop more local advertising sales in all of our markets and to the effects of
separate reporting of revenue from infomercials beginning in 1997.

Broadcasting Operating Expenses. Broadcasting operating expenses increased
$6.1 million or 18.2% to $39.6 million in 1997 from $33.5 million in 1996. The
inclusion of expenses from the acquisitions of radio stations and expenses
incurred for local marketing agreements entered into during 1997 and 1996
accounted for $4.4 million of the increase. On a same station basis,
broadcasting operating expenses increased $1.7 million or 5.9% to $30.6 million
in 1997 from $28.9 million in 1996, primarily due to incremental selling and
production expenses incurred to produce the increased revenue in the period.

Broadcast Cash Flow. Broadcast cash flow increased $2.8 million or 11.0% to
$28.3 million in 1997 from $25.5 million in 1996. As a percentage of net
broadcasting revenue, broadcast cash flow decreased to 41.7% in 1997 from 43.3%
in 1996. The decrease is primarily attributable to lower margins achieved by
recently acquired and reformatted radio stations. On a same station basis,
broadcast cash flow improved $1.7 million or 6.5% to $27.8 million in 1997 from
$26.1 million in 1996.

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<PAGE> 28

Corporate Expenses. Corporate expenses increased $1.5 million or 31.9% to
$6.2 million in 1997 from $4.7 million in 1996, primarily due to additional
personnel and overhead costs associated with radio station acquisitions in 1997
($1.0 million), bonuses paid to corporate officers in 1997 ($85,000), the
write-off of costs incurred for potential station acquisitions which were
abandoned ($172,000), and expenses incurred for officers' life insurance
($277,000), in 1997.

EBITDA. EBITDA increased $1.2 million or 5.7% to $22.1 million in 1997 from
$20.9 million in 1996. As a percentage of total revenue, EBITDA decreased to
32.5% in 1997 from 35.4% in 1996. The decrease was primarily attributable to
lower margins achieved by recently acquired and reformatted stations and to
increased corporate expenses in 1997 as compared to 1996.

Tax Reimbursements to S Corporation Shareholders. Tax reimbursements to S
corporation shareholders decreased $200,000 or 10.0% to $1.8 million in 1997
from $2.0 million in 1996, primarily due to decreased taxable income of the S
corporations as a result of the termination of the S corporation status of New
Inspiration and Golden Gate in August 1997.

Depreciation and Amortization. Depreciation and amortization expense
increased $4.4 million or 52.4% to $12.8 million in 1997 from $8.4 million in
1996, primarily due to radio station and network acquisitions consummated during
1997 and 1996.

Other Income (Expense). Interest income decreased $293,000 to $230,000 in
1997 from $523,000 in 1996, primarily due to interest income earned in 1996 on a
$14.0 million deposit from the sale of KDBX-FM, Portland. Gain on disposal of
assets decreased $11.8 million from $16.1 million in 1996 to $4.3 million in
1997. The gain in 1997 was primarily due to the sale of WPZE-AM, Boston. The
gain in 1996 was primarily due to the sale of KDBX-FM, Portland and KDFX-AM,
Dallas. Interest expense increased $5.3 million or 71.6% to $12.7 million in
1997 from $7.4 million in 1996, primarily due to interest expense associated
with additional borrowings to fund acquisitions consummated during 1997 and
1996. Other expense was essentially unchanged for 1997 compared to 1996.

Provision (Benefit) for Income Taxes. Income tax provision (benefit) as a
percentage of income (loss) before income taxes and extraordinary item (that is,
the effective tax rate) was 9.8% for 1997 and 34.3% for 1996. The effective tax
rate in 1997 differs from the federal statutory income tax rate of 34.0%
primarily because of the effect of state income taxes and the establishment of a
deferred tax liability of $609,000 resulting from our August 1997
reorganization. These effects were offset by the inclusion of income from New
Inspiration and Golden Gate, which were S corporations (and, therefore, not
subject to federal income taxes) prior to the reorganization. The effective tax
rate in 1996 differs from the federal statutory income tax rate of 34.0%
primarily because of the effect of state income taxes and the effect of gains
realized on the sale of radio stations in 1997. These effects were offset by the
inclusion of income from New Inspiration and Golden Gate, which were S
corporations (and, therefore, not subject to federal income taxes) prior to the
reorganization.

Net Income (Loss). We recognized a net loss of $2.4 million in 1997,
compared to net income of $12.8 million in 1996. Included in the net loss for
1997 is a $1.2 million extraordinary loss for the write-off of deferred
financing costs and termination fees related to the repayment of our prior
credit facility which we repaid in full in September 1997.

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<PAGE> 29

After-Tax Cash Flow. After-tax cash flow decreased $1.0 million or 8.6% to
$10.6 million in 1997 from $11.6 million in 1996. The decrease is primarily
attributable to increased interest expense in 1997.

LIQUIDITY AND CAPITAL RESOURCES

We have historically financed acquisitions of radio stations through
borrowings, including borrowings under bank credit facilities and, to a lesser
extent, from operating cash flow and selected asset dispositions. We anticipate
funding future acquisitions from the net proceeds of the offering, borrowings
under our credit facility and operating cash flow. We have historically funded,
and will continue to fund, expenditures for operations, administrative expenses,
capital expenditures and debt service required by our credit facility and senior
subordinated notes from operating cash flow.

We believe that the net proceeds of the offering, cash flow from operations
and borrowings under our credit facility will be sufficient to permit us to meet
our financial obligations and to fund acquisitions and operations for at least
the next twelve months.

At June 2, 1999, we had $38.8 million outstanding under our credit
facility. We will repay all amounts outstanding under our credit facility with a
portion of the net proceeds of the offering. Subject to the completion of the
offering, we will enter into an amendment to our credit facility principally to
increase our borrowing capacity from $75 million to $150 million, to lower the
borrowing rates and to modify current financial ratio tests to provide us with
additional borrowing flexibility. We have received a commitment letter from The
Bank of New York in respect of the amended credit facility. The amended credit
facility will mature on June 30, 2006. Aggregate commitments under the amended
credit facility will begin to decrease commencing March 31, 2001.

Amounts outstanding under our existing credit facility bear interest (and
will bear interest under our amended credit facility) at a base rate, at our
option, of the bank's prime rate or LIBOR, plus a spread. For purposes of
determining the interest rate under our existing credit facility, the prime rate
spread ranged from 0% to 2.25%, and the LIBOR spread ranged from 1% to 3.5%.
Under the amended credit facility, the prime rate spread will range from 0% to
1%, and the LIBOR spread will range from 0.875% to 2.25%.

The maximum amount that we may borrow under our amended credit facility
will be limited by our debt to cash flow ratio, adjusted for recent radio
station acquisitions (the "Adjusted Debt to Cash Flow Ratio"). The maximum
Adjusted Debt to Cash Flow Ratio allowed under our existing credit facility is
7.00 to 1 at March 31, 1999, but decreases to 5.25 to 1 by December 31, 1999 and
to 4.50 to 1 by December 31, 2000. The maximum Adjusted Debt to Cash Flow Ratio
allowed under our amended credit facility will be 6.00 to 1 through December,
31, 2000. Thereafter, the maximum ratio will decline periodically until January
1, 2004, at which point it will remain at 4.00 to 1 through June 2006. At March
31, 1999, the Adjusted Debt to Cash Flow Ratio, after giving effect to the
offering and the application of the net proceeds, including $13.4 million for
our pending acquisitions, would have been 2.61 to 1, resulting in total
borrowing availability of approximately $127 million, all of which is available
for acquisition purposes and $97 million of which is available for working
capital purposes.

Our amended credit facility will contain additional restrictive covenants
customary for credit facilities of the size, type and purpose contemplated
which, with specified exceptions, limits our ability to enter into affiliate
transactions, pay dividends, consolidate, merge or effect certain asset sales,
make specified investments, acquisitions and loans and change the nature of our
business. The amended credit facility will provide that the lenders may
accelerate the indebtedness if the voting power of Salem's capital stock held by

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<PAGE> 30

Stuart W. Epperson, Edward G. Atsinger III, their family members, trusts for
their benefit and their estates drops below 51% or if their capital stock
holdings represent less than 35% of the total economic interest in Salem. The
credit facility will also require us to satisfy financial covenants, which
covenants will require the maintenance of specified financial ratios and
compliance with certain financial tests, including ratios for maximum leverage
as described above (not greater than 6.00 to 1 as of the closing of the
offering), minimum interest coverage (not less than 1.75 to 1 as of the closing
of the offering), minimum debt service coverage (a static ratio of not less than
1.1 to 1) and minimum fixed charge coverage (a static ratio of not less than 1.1
to 1). The credit facility will be guaranteed by all of our subsidiaries and is
secured by pledges of all of our and our subsidiaries' assets and all of the
capital stock of our subsidiaries.

In September 1997, we issued $150 million principal amount of 9 1/2% senior
subordinated notes due 2007. We used the net proceeds from the sale of the notes
to repay substantially all indebtedness outstanding under our prior credit
facility. We will redeem $50 million in principal amount of the senior
subordinated notes with a portion of the net proceeds of the offering. After
giving effect to this redemption, we will be required to pay $9.5 million per
year in interest on the senior subordinated notes. The indenture for the senior
subordinated notes contains restrictive covenants that, among others, limit the
incurrence of debt by us and our subsidiaries, the payment of dividends, the use
of proceeds of specified asset sales and transactions with affiliates. The
senior subordinated notes are guaranteed by all of our subsidiaries.

As a result of the partial redemption of our senior subordinated notes, we
will record a non-cash charge of $1.5 million (as of March 31, 1999) for the
write-off of unamortized bond issue costs. This is in addition to the $4.8
million redemption premium and any accrued and unpaid interest that we will pay
in connection with this partial redemption.

The decrease in accounts receivable from December 31, 1998 to March 31,
1999 is due to increased collections during the first quarter of 1999. The
decrease was partially offset by the inclusion of accounts receivable of other
media businesses acquired in 1999. The decrease in accrued interest from
December 31, 1998 to March 31, 1999 is due to the payment of interest on our
senior subordinated notes on March 31, 1999. Deferred subscription revenue,
which was assumed as part of the acquisition of CCM Communications, Inc.,
represents revenue from magazine subscriptions to be earned over a one year
period.

Net cash used in operating activities increased to $1.3 million for the
quarter ended March 31, 1999, compared to $500,000 for the same quarter in the
prior year, primarily due to a larger decrease in accounts payable during the
quarter ended March 31, 1999 compared with the same quarter of the prior year.
Net cash provided by operating activities increased to $11.0 million in 1998,
compared to $7.3 million in 1997, primarily due to increased net operating
income in 1998. Net cash provided by operations decreased to $7.3 million in
1997, compared to $10.5 million in 1996, primarily due to decreased net
operating income in 1997.

Net cash used in investing activities increased to $10.0 million for the
quarter ended March 31, 1999, compared to $1.9 million in the same quarter of
the prior year, primarily due to the acquisitions during the first quarter of
1999. We did not acquire any radio stations or other businesses during the first
quarter of 1998. Net cash used in investing activities increased to $31.8
million in 1998, compared to $26.3 million in 1997, primarily due to radio
station acquisitions (cash used of $33.7 million to purchase four stations in
1998 compared to cash used of $19.4 million to purchase eight stations in 1997).
Net cash used in investing activities increased to $26.3 million in 1997,
compared to $18.9 million in

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<PAGE> 31

1996, primarily due to the proceeds of the sales of KDBX-FM, Portland, Oregon,
and KDFX-AM, Dallas, Texas, offsetting the cash used in investing activities in
1996.

Net cash provided by financing activities increased to $11.4 million for
the quarter ended March 31, 1999 compared to $2.2 million for the quarter ended
March 31, 1998, primarily due to increased long-term debt borrowings for
acquisitions. Net cash provided by financing activities was $21.0 million in
1998, $18.7 million in 1997 and $9.4 million in 1996. The increases in 1997 and
1998 were primarily due to increased long-term debt borrowings.

In 1998, we purchased radio stations KIEV-AM, Los Angeles, California,
KTEK-AM, Houston, Texas, KYCR-AM, Minneapolis, Minnesota, and KKMO-AM, Tacoma,
Washington, in separate transactions for a total of $36.3 million. We financed
these purchases primarily by borrowings under our credit facility. In 1998, we
sold radio stations KAVC-FM, Lancaster, California, and KTSL-FM, Spokane,
Washington, for a total of $2.9 million.

In January 1999, we purchased the assets of OnePlace, LLC and the stock of
CCM Communications, Inc., in separate transactions for a total of $8.1 million.
We financed these purchases primarily by borrowings under our credit facility.

In April 1999, we agreed to purchase radio station KGME-AM, Phoenix,
Arizona for a total of $5 million. We anticipate this purchase will close in
July 1999. This radio station currently operates under the call letters KFDJ-AM
and will be renamed KCTK-AM after closing. We will use a portion of the net
proceeds of the offering to fund this purchase.

In April 1999, we entered into letters of intent to purchase radio stations
KAIM-AM, KAIM-FM, KGU-AM and KHNR-AM, Honolulu, Hawaii, and WLSY-FM and WRVI-
FM, Louisville, Kentucky, in separate transactions for a total of $8.4 million.
Subject to the execution of mutually acceptable purchase agreements, we
anticipate these purchases will close in July or August of 1999.

In April 1999, we purchased KKOL-AM, Seattle-Tacoma, Washington, for $1.4
million from a corporation owned by our principal stockholders. We financed this
acquisition primarily by a borrowing under our credit facility. We also agreed
to purchase the real estate at the transmitting site for KKOL-AM for $400,000
from the same seller.

YEAR 2000 COMPUTER SYSTEM COMPLIANCE

The term "year 2000 issue" (the year 2000 referred to as "Y2K") is a
general term used to describe the various problems that may result from the
improper processing of dates and date-sensitive calculations by computers and
other machinery as the year 2000 is approached and reached. These problems
generally arise from the fact that most of the world's computer hardware and
software have historically used only two digits (instead of four) to identify
the year in a date, often meaning that the computer will fail to distinguish
dates in the "2000's" from dates in the "1900's." These problems may also arise
from other sources as well, such as the use of special codes and conventions in
software that make use of the date field.

In early 1998, we began implementing the assessment phase of our plan to
address the Y2K issue in each broadcast area and have substantially completed a
Y2K assessment phase of our computer, broadcast and environmental systems,
redundant power systems and other critical systems including: (i) digital audio
systems, (ii) traffic scheduling and billing systems, (iii) accounting and
financial reporting systems and (iv) local area networking infrastructure. As
part of the assessment phase, we initiated formal communication with all of our
key business partners to identify their exposure to the Y2K

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<PAGE> 32

issue. This assessment is targeting potential external risks related to the Y2K
issue and is still in progress, but is expected to be completed by the end of
the third quarter of 1999. Key business partners include local and national
programmers and advertisers, suppliers of communication services, financial
institutions and suppliers of utilities. Amounts related to the assessment phase
are primarily internal costs, are expensed as incurred, have not been material
to date and are not expected to be material through completion of the phase.

The remediation phase is the next step in our plan to address the Y2K
issue. Activities during this phase are in progress and include, if necessary,
the actual repair, replacement or upgrade of our systems based on the findings
of the assessment phase. Systems which are Y2K ready include local area
networks, digital audio systems and traffic scheduling and billing systems. We
have implemented a new accounting and financial reporting system which is Y2K
ready. Costs related to this new system of approximately $200,000 will be
included in capital expenditures.

The final plan phase, the testing phase, will include the actual testing of
the enhanced and upgraded systems. This process will include internal and
external user review confirmation, as well as unit testing and integration
testing with other system interfaces. The testing schedule has begun and is
expected to be completed by the end of the third quarter. Based on test results
and assessment of outside risks, contingency plans will be developed as
determined necessary. We would expect to complete such plans in the fourth
quarter of 1999.

We anticipate minimal business disruption from both external and internal
factors. However, possible risks include, but are not limited to, loss of power
and communication links which are not subject to our control. We believe that
our Y2K compliance issues from all phases of our plan will be resolved on a
timely basis and that any related costs will not have a material impact on our
operations, cash flows or financial condition of future periods.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Derivative Instruments. We do not invest, and during 1998 and the quarter
ended March 31, 1999 did not invest, in market risk sensitive instruments.

Market Risk. Our market risk exposure with respect to financial instruments
is to changes in the "prime rate" in the United States. We may borrow up to $75
million under our credit facility and, upon amendment of the credit facility in
connection with the offering, we will be able to borrow up to $150 million. At
March 31, 1999, we had borrowed $36.8 million under our credit facility. Amounts
outstanding under the credit facility bear interest at a base rate, at Salem's
option, of the bank's prime rate or LIBOR, plus a spread. For purposes of
determining the interest rate under our existing credit facility the prime rate
spread ranged from 0% to 2.25%, and the LIBOR spread ranged from 1% to 3.5%. At
March 31, 1999, the blended interest rate on amounts outstanding under the
credit facility was 8.01%. In January 1999, the credit facility was amended to
change certain required loan ratio terms and to amend the interest rate spreads.
As of January 1, 1999, the interest rate spread ranges from 0% to 2.25%, and the
LIBOR spread ranges from 1% to 3.5%. At March 31, 1999, a hypothetical 100 basis
point increase in the prime rate would result in additional interest expense of
$367,500 on an annualized basis.

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<PAGE> 33

BUSINESS

OVERVIEW

We are the largest U.S. radio broadcasting company, measured by number of
stations and audience coverage, providing programming targeted at audiences
interested in religious and family issues. Our core business is the ownership
and operation of radio stations in large metropolitan markets. After we complete
our pending transactions, we will own 52 radio stations, including 34 stations
which broadcast to 19 of the top 25 markets in terms of audience size. We also
operate Salem Radio Network(R), a national radio network offering syndicated
talk, news and music programming to over 1,100 affiliated radio stations.

We continue to seek new ways to expand and integrate our distribution and
content capabilities. We recently acquired publishing, Internet and information
technology businesses that direct their content to persons with interests that
are similar to those of our targeted radio audience. We plan to use these
businesses, together with our radio stations and national radio network, to
attract and retain a larger audience and customer base.

Salem was incorporated in Delaware in 1993 and remained inactive until
March 1999 when it merged with Salem Communications Corporation, a California
corporation, which prior to that time had conducted our operations. Salem
Communications Corporation-California was formed in 1986 in connection with a
combination of most of the radio station holdings of Edward G. Atsinger III and
Stuart W. Epperson. Initially, Messrs. Atsinger and Epperson each owned
fifty-percent of Salem Communications Corporation-California. New Inspiration
Broadcasting Company, Inc., the licensee of KKLA-FM, Los Angeles, and Golden
Gate Broadcasting Company, Inc., the licensee of KFAX-AM, San Francisco, were
owned by the principal stockholders and Mr. Epperson's wife, Nancy A. Epperson.
New Inspiration and Golden Gate were both "S corporations," as that term is
defined in the Internal Revenue Code of 1986, as amended. In August 1997, Salem
Communications Corporation-California, New Inspiration and Golden Gate effected
a reorganization pursuant to which New Inspiration and Golden Gate became
wholly-owned subsidiaries of Salem Communications Corporation-California. The

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S corporation status of each of New Inspiration and Golden Gate was terminated
in the reorganization.

TARGET AUDIENCE AND RADIO FORMAT OVERVIEW

We are committed to serving our target audience, the segment of the
population interested in religious and family issues. We believe this audience
is large and will continue to expand.

- Religious formats, featured on commercial and non-commercial radio
stations, constitute the third largest radio format in the U.S. after
country and news/talk/business/sports formats, as of November 1998 (The M
Street Journal).

- Over the past ten years, the number of radio stations identified as
having primarily a religious format has increased by 79% to 1,785 (The M
Street Journal).

- From 1997 to 1998, listeners to religious format radio increased by 1.3
million adults to 27.9 million weekly listeners. In the same period, more
than 120 radio stations with religious formats began broadcasting,
although, as a result of this increase, the average number of weekly
listeners declined on a per station basis (Religion & Media Monthly).

- The Christian retail industry, which includes books, Bibles, curriculum
material, apparel, music, videos, gifts and greeting cards, had sales of
$3 billion in 1998 (Christian Booksellers Association).

- Sales of Christian music grew an average of 17% each year from 1989 to
1998 (The Recording Industry Association of America).

- Wal Mart, the nation's largest music retailer, now devotes more than 20%
of its music selling space to Christian music (Gospel Music Association).

While a variety of music formats, including Southern Gospel, Black Gospel,
Praise and Worship and Contemporary Christian, are offered on religious format
stations, the largest single category of religious format is Christian talk and
teaching. Religious talk and music formats can be found on both commercial and
non-commercial stations. Commercial radio stations account for approximately
two-thirds of stations with religious formats. The balance of these stations
broadcast from the non-commercial educational band (88.1MHz - 91.9MHz) and are
licensed to non-profit organizations.

Commercial stations that specialize in religious talk programming generate
the majority of their revenue from the sale of block program time to national
and local program producers. Commercial stations that feature religious music
formats generate nearly all of their revenue from the sale of advertising time
to local and national advertisers and national network advertisers.
Non-commercial stations typically obtain revenue through tax-deductible
contributions from listeners, the sale of block program time to national and
local program producers and grants or sponsorships of specific programming that
allow the sponsor's name to be featured. Sale of advertising time is prohibited
on non-commercial stations.

GROWTH AND OPERATING STRATEGIES

CONTINUE TO FOCUS ON TARGETED AUDIENCE. We attribute our success largely to
a consistent emphasis on reaching the audience interested in religious and
family issues. We have demonstrated a long-term commitment to this audience by
operating radio stations with formats directed to our listeners' specific needs
and interests. This consistent focus

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and commitment builds loyalty and trust from our listening audience, block
program purchasers and advertisers.

PURSUE STRATEGIC RADIO ACQUISITIONS IN LARGE MARKETS. We intend to pursue
acquisitions of radio stations in both new and existing markets, particularly in
large metropolitan areas. In 1997 and 1998, we spent $61.7 million to purchase
12 radio stations. Because we believe our presence in large markets makes us
attractive to national block programmers and national advertisers, we will
continue to pursue acquisitions of radio stations in selected top 50 markets
where we currently do not have a presence. In addition, we will explore
opportunities to acquire additional radio stations in our current markets, which
we will program with news/talk and religious music formats. Through our
acquisition strategy, we reach a greater number and broader range of listeners.
This enables us to increase audience response for block program customers and
expand our advertising revenue base.

Ownership of two or more radio stations in a single market provides
operational efficiencies, such as the use of one general manager, sales staff
and broadcast facility. In addition, we use talk and music product from the
Salem Radio Network(R) to program additional stations in a market. We believe
religious music formats have become increasingly popular and are complementary
to our religious and family issues talk format. Three separate religious music
formats are produced by our network and are available for use by our radio
stations on a full-time basis or in selected time slots.

Our strategy also includes the acquisition of upgraded facilities in
existing markets that provide broader signal coverage than our existing radio
stations. Our strategy of acquiring upgraded facilities has been an area of
emphasis for our senior management for many years and has been successfully
demonstrated in such markets as Seattle, New York, Boston and Dallas. We believe
our acquisition strategy will better serve block programmers and advertisers,
increase the size of our audience and increase our cash flow.

EMPHASIZE COMPELLING PROGRAM CONTENT. As more listening, reading and
viewing options become available to consumers, compelling program content will
be a prerequisite for expanding our listening audience and increasing audience
response to block programmers and advertisers.

We continually look for new block program producers. We provide advice to
both prospective and existing block program customers on program content and
structure, staffing, engineering and programming delivery options. Station
managers are encouraged to evaluate local talk programs with a view toward
expansion of promising programs into national syndication. We continue to
emphasize this important development area with the goal of maintaining a backlog
of quality programs available for placement in new markets and existing markets
where we may add additional stations.

We are committed to expanding Salem Radio Network(R) by adding to its menu
of product offerings and by actively promoting these products to our network
affiliates. We believe that by continually increasing the quality and variety of
our network's product we will add to its affiliate base, thereby providing more
audience reach that will attract more national advertising customers. Our
national radio network will continue to compete aggressively for talk show
talent that will be attractive to affiliates, expand and refine our music
formats, and develop compelling news and public affairs features. For example,
unused network advertising time can be used to promote potential or existing
program producers and thereby generate revenue for the program producer that
will enable it to purchase block program time on our radio stations. In
addition, our newly acquired

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publishing, Internet and information technology businesses will develop creative
content offerings.

BUILD STATION IDENTITY. We seek to build local station identity for each of
our radio stations in order to retain and increase its listening audience,
expand its base of advertisers and provide increased audience response to our
block program customers. We assist local personnel and coordinate development of
increased production quality through our director of programming located at our
corporate headquarters. We are committed to the ongoing evaluation and
improvement of our technical facilities, including power increases, tower/
antenna relocations and investment in state of the art equipment. We also
emphasize the development of local on-air personalities to allow each radio
station to better compete against general format radio stations. We encourage
station employees with responsibility for programming to share their ideas for
building identity with other Salem stations.

INTEGRATE MEDIA ASSETS. We began to develop integrated media assets to
complement the distribution capabilities of our radio stations when we created
our radio network. Our ability to control both content and distribution enables
us to expand and better serve our listening audience, as well as our advertising
and block program customers. We are exploring ways to better serve our customers
and listening audience by using the combined resources of our radio stations and
our network. We plan to continue to implement this strategy and apply it to our
newly acquired publishing, Internet and information technology businesses. We
will also opportunistically pursue acquisitions of new media and other
businesses that serve our audience. We intend to develop cross-promotion and
cross-selling programs on each of our radio, magazine and Internet media to
attract new audiences for our radio stations, new readers for our magazines and
new customers for our Internet products and services.

RADIO STATIONS

After completing our pending transactions, we will own 52 radio stations in
29 markets. The following table sets forth information about each of Salem's
stations in order of market size:

<TABLE>
<CAPTION>
MSA YEAR
MARKET(1) RANK(2) STATION CALL LETTERS ACQUIRED
--------- ------- -------------------- --------
<S> <C> <C> <C>
New York, NY(3).......................... 1 WMCA-AM 1989
WWDJ-AM 1994
Los Angeles, CA.......................... 2 KKLA-FM 1985
KLTX-AM 1986
KIEV-AM 1998
Chicago, IL.............................. 3 WYLL-FM 1990
San Francisco, CA........................ 4 KFAX-AM 1984
Philadelphia, PA......................... 5 WFIL-AM 1993
WZZD-AM 1994
Dallas-Ft. Worth, TX..................... 7 KWRD-FM 1996
Boston, MA............................... 8 WEZE-AM 1997
Washington, D.C. ........................ 9 WAVA-FM 1992
Houston-Galveston, TX.................... 10 KKHT-FM 1995
KENR-AM 1995
KTEK-AM 1998
Seattle-Tacoma, WA....................... 14 KGNW-AM 1985
KLFE-AM 1994
KKOL-AM 1999
KKMO-AM 1998
</TABLE>

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<TABLE>
<CAPTION>
MSA YEAR
MARKET(1) RANK(2) STATION CALL LETTERS ACQUIRED
--------- ------- -------------------- --------
<S> <C> <C> <C>
Phoenix, AZ.............................. 15 KPXQ-AM 1996
KFDJ-AM (4)
San Diego, CA............................ 16 KPRZ-AM 1986
Minneapolis-St. Paul, MN................. 18 KKMS-AM 1996
KYCR-AM 1998
Baltimore, MD............................ 20 WITH-AM(5) 1997
Pittsburgh, PA........................... 21 WORD-FM 1989
WPIT-AM 1993
Denver-Boulder, CO....................... 23 KRKS-FM 1993
KRKS-AM 1994
KNUS-AM 1996
Cleveland, OH............................ 24 WHK-AM 1997
WCCD-AM 1997
Portland, OR............................. 25 KPDQ-FM 1986
KPDQ-AM 1986
Cincinnati, OH........................... 26 WTSJ-AM 1997
Sacramento, CA........................... 28 KFIA-AM 1995
KTKZ-AM 1997
Riverside-San Bernardino, CA............. 29 KKLA-AM(6) 1986
Columbus, OH............................. 33 WRFD-AM 1982
San Antonio, TX.......................... 34 KSLR-AM 1994
Louisville, KY........................... 53 WLSY-FM (7)
WRVI-FM (7)
Honolulu, HI............................. 60 KAIM-AM (8)
KAIM-FM (8)
KGU-AM (8)
KHNR-AM (8)
Akron, OH................................ 68 WHLO-AM 1997
Colorado Springs, CO..................... 93 KGFT-FM 1996
KBIQ-FM 1996
KPRZ-FM 1996
Oxnard, CA............................... 106 KDAR-FM 1974
Canton, OH............................... 123 WHK-FM(9) 1997
</TABLE>

- -------------------------
(1) Actual city of license may differ from metropolitan market served.
(2) "MSA" means Metro Survey Area. We have obtained all Metro Survey Area rank
information used in this prospectus from the Fall 1998 Radio Market Survey
Schedule & Population Rankings published by The Arbitron Company. According
to the Radio Market Survey, the population estimates used were based upon
1990 U.S. Bureau Census estimates updated and projected to January 1, 1999
by Market Statistics, based on the data from Sales & Marketing Management's
1997 Survey of Buying Power.
(3) This market includes the Nassau-Suffolk, NY Metro market which independently
has a MSA rank of 17.
(4) A contract to acquire this radio station for $5.0 million has been signed
and FCC approval of the acquisition is pending. This radio station was
formerly known by the call letters KGME-AM and will be renamed KCTK-AM after
the closing.
(5) The station is simulcast with WAVA-FM, Washington, D.C.
(6) The station is simulcast with KKLA-FM, Los Angeles.
(7) A letter of intent to acquire these two radio stations for $5.0 million has
been signed and FCC approval of the acquisitions is pending.
(8) Letters of intent to acquire four radio stations for $3.4 million have been
signed.
(9) The station is simulcast with WHK-AM, Cleveland.

PROGRAM REVENUE. For the quarter ended March 31, 1999, we derived 36.6% and
14.7% of our gross broadcasting revenue from the sale of nationally syndicated
and local block program time, respectively. In 1998, we derived 35.5% and 14.7%
of our gross broadcasting revenue from the sale of nationally syndicated and
local block program time, respectively. We derive nationally syndicated program
revenue from a program customer

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<PAGE> 38

base consisting primarily of geographically diverse, well-established non-profit
religious and educational organizations that purchase time on radio stations in
a large number of markets in the United States. We believe that sales of block
program time lessen our exposure to swings in general economic activity and thus
make our revenue stream less volatile. Nationally syndicated program producers
typically purchase 13, 26 or 52 minute blocks on a Monday through Friday basis
and may offer supplemental programming for weekend release. We obtain local
program revenue from community organizations and churches that typically
purchase time primarily for weekend release and from local speakers who purchase
daily releases. We have been successful in assisting quality local programs to
expand into national syndication.

Purchasers of block program time derive their income from two primary
sources: listener contributions and product sales. Product sales include sales
of inspirational material such as printed literature and periodicals, audio and
video tapes and other miscellaneous items. Revenue from listener contributions
and product sales is used in part to pay for the air time purchased from us. The
nationally syndicated program producers carefully track the source of their
donations and product sales and use this information to measure the return on
their air time investment at each radio station. Because program customers
derive their income primarily from various forms of listener support, and given
the time period usually required for a program to obtain and develop an
audience, our management believes that program customers have generally found it
to be in their best interest to retain a specific time slot on a long-term basis
notwithstanding customers' short-term financial results or economic conditions.

Our radio stations have enjoyed long-standing relationships with key
customers. Focus on the Family and Insight for Living, recognized as two of the
leading daily radio programs featured on religious and family issues talk format
stations, have been ongoing customers of ours since 1977. We attribute this
continuity to our commitment to our religious and family issues talk format and
maintaining our presence in the markets we serve. As is typical in the radio
industry, contracts may generally be canceled by either the station or the
program producer on one month's notice. We typically negotiate our rate
increases on an annual basis.

ADVERTISING REVENUE. In the quarter ended March 31, 1999, we derived 30.7%
and 5.0% of our gross broadcasting revenue from the sale of local and national
advertising, respectively. In 1998, we derived 30.6% and 5.2% of our gross
broadcasting revenue from the sale of local and national advertising,
respectively.

We believe that the listening audiences for our radio stations are
responsive to advertisers that promote products and services targeted to
audiences interested in religious and family issues and are receptive to direct
response appeals such as those offered through infomercials. Local church groups
and many community organizations such as rescue missions and family crisis
support services can often effectively reach their constituencies by advertising
on religious and family issues talk format radio stations. Significant
advertising is also purchased by local and nationally affiliated religious
bookstores, publishers specializing in inspirational and religious literature
and other businesses that desire to specifically target audiences interested in
religious and family issues. We also generate advertising revenue from general
market retailers, including automobile dealers and grocery store chains, in many
of our stations' markets. Our management believes that general market retailers
are increasingly willing to use niche radio formats for advertising.

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<PAGE> 39

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

We do not subscribe to traditional audience measuring services used by
general format radio stations. Rather, we sell advertising based upon the proven
success of our existing advertising customers. A majority of advertisers on our
radio stations are "direct-response" advertisers (that is, advertisers that
solicit some type of response, typically the calling of a toll-free telephone
number to purchase a product or service advertised). The typical advertiser on
our radio station measures the effectiveness of its advertising on our stations
in terms of:

- the number of inquiries to the advertiser in which the caller reports
having heard the advertiser's commercial on one of our radio stations;

- the volume of new customers for the advertiser given a designated inquiry
level (for example, the advertiser may require that it experience a
conversion rate of four new customers for every 10 inquiries); and

- the revenue attributable to sales that are identified as generated by the
advertiser's commercial aired on our radio stations.

The sales staff of our radio stations obtains information regarding advertisers'
level of satisfaction with the results generated by commercials aired on our
radio stations. Our sales staff communicates this information, as well as
information regarding the volume of existing advertisers' repeat advertising on
our radio stations, to prospective advertisers in marketing our radio stations.

Our radio stations also receive revenue from national advertisers desiring
to include selected Salem radio stations in national buys covering multiple
markets. These national advertising buys are placed through Salem Radio
Representatives, which receives a commission based on the gross dollar amount of
all orders generated. We regularly run infomercials on our radio stations,
generally on weekends. In reviewing proposed purchases of air time by
advertisers and infomercial producers, we consider the suitability of the
content of the advertising and infomercials for our stations' audiences.

OPERATIONS. In each of the radio markets in which we have a radio station,
we have a general manager who is responsible for day-to-day operations, local
advertising sales and local program sales. We pay our general managers a base
salary plus a percentage of the radio station's net operating income. Each
general manager has a staff of full and part-time engineering, programming and
sales personnel. We pay our sales staff on a commission basis.

We have decentralized our operations in response to the growth we have
experienced in recent years. Our operations vice presidents, some of whom are
also station general managers, oversee several markets on a regional basis. Our
operations vice presidents are experienced radio broadcasters with expertise in
sales, programming and production. We will continue to rely on this strategy of
decentralization and encourage operations vice presidents to apply innovative
techniques to the operations they oversee which, if successful, can be
implemented in our other stations.

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Our corporate headquarters personnel oversee the placement and rate
negotiation for all nationally syndicated programs. Centralized oversight of
this component of our revenue is necessary because our key program customers
purchase time in many of our markets. Corporate headquarters personnel also are
responsible for centralized reporting and financial functions, benefits
administration, engineering oversight and other support functions designed to
provide resources to local management.

SATELLITE RADIO. In August 1998, we entered into an agreement with XM
Satellite Radio, Inc. to develop, produce, supply and market, on an exclusive
basis, religious and family issues audio programming which will be distributed
by a subscriber-based satellite digital audio radio service. XM Satellite Radio,
Inc., one of two FCC licensees for this service, will have the capability of
providing up to 100 channels of audio programming. XM Satellite Radio expects
its service to commence in 2000. We have agreed to provide religious and family
issues talk programming on one channel and youth and adult religious music
programming on two additional channels.

SALEM RADIO NETWORK(R)

In 1993, we established Salem Radio Network(R) in connection with our
acquisition of certain assets of the former CBN Radio Network. Establishment of
Salem Radio Network(R) was a part of our overall business strategy to develop a
national network of affiliated radio stations anchored by our radio stations in
major markets. Salem Radio Network(R), headquartered in Dallas, Texas, develops,
produces and syndicates a broad range of programming specifically targeted to
religious and family issues talk and music stations as well as general market
news/talk stations. Currently, we have rights to six full-time satellite
channels and all of our network's product is delivered to affiliates by
satellite.

As of May 17, 1999, our network had over 1,100 affiliate radio stations,
including our owned radio stations, that broadcast one or more of the offered
programming options. A majority of our affiliate radio stations are commercial
stations. Our programming options include talk shows, news and music. Network
operations also include commission revenue of Salem Radio Representatives, a
wholly-owned subsidiary of Salem. Salem Radio Representatives sells all national
commercial advertising placed on our network's commercial affiliate radio
stations. Our network's gross revenue was $6.1 million for 1998 and $1.7 million
for the quarter ended March 31, 1999. Salem Radio Network(R) incurred a net
operating loss of $392,000 for 1998 and had net operating income of $157,000 for
the quarter ended March 31, 1999.

TALK PROGRAMMING. Salem Radio Network(R) offers talk programming designed
to attract listeners to affiliate radio stations by addressing current national
issues from a religious and family issues perspective. Our network currently
produces 20 daily and weekly long-form and short-form programs including The
Michael Medved Show, The David Gold Show, Tim Kimmel Live!, Janet Parshall's
America and The Cal Thomas Commentary. As of May 17, 1999, 523 affiliate radio
stations carried some form of Salem Radio Network(R) talk programming.

Station affiliations for talk programming are non-exclusive, allowing a
radio station to select specific network programs it wishes to carry. Commercial
affiliates are required to air five minutes of network advertisements during
each hour of network programming carried. Because they are unable to clear
commercial advertisements, non-commercial radio stations that carry our talk
programming pay a monthly access fee.

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<PAGE> 41

NEWS. Salem Radio Network(R) began the production and distribution of news
in 1996 with the purchase of StandardNews. The name was subsequently changed to
SRN News and the news product was repositioned to offer affiliates a
family-focused news service. The service is delivered three times each hour and
provides coverage of national and international news. SRN News operates from its
fully-digital headquarters located in the Washington, D.C. area. SRN News has
fully-equipped broadcast facilities at the White House, United States House of
Representatives and United States Senate that are staffed by full-time
correspondents. As of May 17, 1999, Salem Radio Network(R) provided SRN News to
607 affiliate radio stations, compared with the 167 affiliates existing at the
time the news service was acquired in 1996.

Commercial radio stations that affiliate with SRN News are required to air
12 minutes of network advertisements between the hours of 6 AM and 11 PM daily.
Noncommercial radio stations that affiliate with SRN News pay a monthly access
fee.

MUSIC. Salem Radio Network(R) offers three syndicated religious music
formats. The Morningstar format, which originates from studios in Nashville,
features adult contemporary Christian music targeted to the mainstream 25-to-54
year old audience. Salem Radio Network(R) also offers a contemporary Christian
music format, The Word in Music(R), targeted to a younger audience, and a more
traditional praise and worship format, The Word in Praise. Both of these formats
originate from two of Salem's Colorado Springs radio stations. All music formats
are available to affiliate radio stations on a 24-hour basis or in selected time
slots. As of May 17, 1999, Morningstar, The Word in Music(R) and The Word in
Praise had 117, 15 and 11 affiliate radio stations, respectively.

Each music network requires commercial affiliates to air a minimum number
of minutes per hour for network advertisements. In addition, fixed monthly
affiliation fees are charged to both commercial and non-commercial radio
stations which affiliate with the Morningstar format and non-commercial radio
stations which affiliate with The Word in Music(R) and The Word in Praise. In
addition to these three 24-hour music formats, Salem Radio Network(R) provides
weekly music programs, including CCM Countdown with Gary Chapman, CCM Radio
Magazine, Christian Pirate Radio Countdown, Let Us Worship and Rock Alive, to
136 affiliate radio stations as of May 17, 1999.

SALEM RADIO REPRESENTATIVES. We established Salem Radio Representatives in
1992 as a sales representation company specializing in placing national
advertising on religious and family issues format radio stations. Salem Radio
Network(R) and Salem owned radio stations have agreements with Salem Radio
Representatives for the sale of available advertising time. Salem Radio
Representatives also contracts with radio stations not owned by Salem to sell
air time to national advertisers. See "-- Radio Stations -- Advertising
Revenue." Salem Radio Representatives administrative offices are located in
Dallas, Texas, and its 11 commissioned sales personnel are located in field
offices in Washington, D.C., Chicago, Nashville, Dallas, Seattle, St. Louis and
Los Angeles.

OTHER MEDIA

INTERNET AND INFORMATION TECHNOLOGY. In January 1999, we purchased the
assets of OnePlace, LLC for $6.2 million. OnePlace(TM), based in Greensboro,
North Carolina, is organized into two primary business units. The first, known
as the Christian Marketplace, utilizes OnePlace's proprietary databases and
digital imaging technologies to develop, market and sell products and services.
The second, known as Technology Licensing, develops and licenses OnePlace's
e-commerce, search engines and imaging applications.

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<PAGE> 42

The Christian Marketplace business unit generates revenue from (i) the
direct sales of products and services to consumers, families, churches,
denominational houses and publishers and (ii) the Innovative Church Marketing
Group which provides business-to-business applications for religious bookstores
and vendors of products targeted to the religious market. The direct sales
division includes numerous offerings.

- SermonSearch is a subscription based online database of sermons submitted
by pastors and noted church leaders that is used by youth leaders,
ministers and teachers who research and prepare sermons or lessons.

- CCIS-Membership software is designed to maintain and track church
membership, contributions, pledges, attendance and activities.

- GuardiaNet(TM) is a consumer profiling, security and filtering
application that allows customers to create a safe environment for
families by defining access rights uniquely for each family member.

- OnePlace.com is an online community designed to offer access to church
and consumer products and provide other information and resources in a
family friendly Internet community. We plan to generate revenue from
OnePlace.com through advertising, e-commerce and subscription services.

- The ChristianSuperstore.net is an online e-commerce "superstore" of more
than 31,000 consumer Christian products, including books, music, Bibles,
gift items, software and other products.

- The music superstore division of OnePlace(TM), accessible through
OnePlace.com and ChristianSuperstore.net, is an online e-commerce site of
Christian music. We complement the sale of music CDs with artist and
concert information from CCM Magazine and streaming of audio samples,
including samples from The CCM Countdown with Gary Chapman.

- OnePlace Search, located within OnePlace.com, is a "yellow pages" guide
to Christian resources that include Web pages listings for churches,
retail stores, retail bookstores, Christian counselors and other
institutions.

The Innovative Church Marketing Group provides business-to-business
products and services for vendors, publishers, distributors and retailers of
Christian products. The division's services include the digital creation,
storage and transmission of pictures, art work and audio and video streams that
enable both print and electronic catalogs of products to be produced
efficiently. The division also serves the institutional church market through
the delivery of approximately 280,000 print catalogs annually, in addition to e-
commerce versions of the same catalogs.

The Technology Licensing business unit licenses OnePlace's technologies to
general market companies. These technologies include digital imaging software,
search engines, e-commerce and subscription commerce applications and filtering
security software for libraries and other institutions. As part of the
technology licensing effort, OnePlace(TM) also generates revenue from building
Web sites for organizations that incorporate OnePlace's technologies.

OnePlace(TM) currently generates substantially all of its revenue from
SermonSearch, CCIS-Membership software and its Innovative Church Marketing
Group.

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<PAGE> 43

PUBLISHING. In January 1999, we purchased CCM Communications, Inc. for $1.9
million. CCM, based in Nashville, Tennessee, has published magazines since 1978
which follow the Christian music industry and, more recently, has added
publications aimed at church staff. The products of CCM include the following:

- CCM Magazine, CCM's flagship publication for over 20 years, is published
monthly and follows the Contemporary Christian music format through
interviews with artists, feature articles, album reviews and concert
schedules.

- Worship Leader, published bi-monthly and owned in partnership with The
Corinthian Group, is a resource magazine for planning worship services
and features columns by recognized authorities on worship and "how-to"
articles and models designed to expand understanding of current trends
and issues affecting worship.

- Youthworker, published bi-monthly, is a professional journal for
Christian youthworkers who desire to keep current with leadership and
youth trends and issues.

- The CCM Update, a weekly newsletter directed to Christian music
retailers, radio stations and record company executives, features
industry news, radio and sales charts and reviews.

- Christian Research Report, a weekly publication directed exclusively to
Christian radio, includes national airplay charts and music research.

- CCM New Music Guide, published quarterly, provides listings of upcoming
releases from major record labels and national product distributors and
offers reviews of Contemporary Christian releases scheduled for the
coming quarter.

- The CCM Radio division produces The CCM Countdown with Gary Chapman, a
three-hour weekly program featuring the top 30 Adult Contemporary songs
as compiled by The CCM Update, and The CCM Radio Magazine, a one-hour
weekly program based on the editorial content of CCM Magazine. The
programs are delivered by satellite on the Salem Radio Network(R).

- CCM Online maintains CCM's Web site that contains content from the
magazines, listings of where CCM Radio programs are aired, concert
schedules and links to artist-related Web sites.

COMPETITION

RADIO. The radio broadcasting industry, including the religious and family
issues format segment of this industry, is a highly competitive business. The
financial success of each of our radio stations that features talk programming
is dependent, to a significant degree, upon its ability to generate revenue from
the sale of block program time to national and local religious and educational
organizations. We compete for this program revenue with a number of different
commercial and non-commercial radio station licensees. While no group owner in
the United States specializing in the religious format approaches Salem in size
of potential listening audience and presence in major markets, religious format
stations exist and enjoy varying degrees of prominence and success in all
markets. We own 34 radio stations which broadcast to 19 of the top 25 radio
markets in terms of audience size. Our closest commercial competitor in the top
25 radio markets owns 16 commercial radio stations which broadcast to eight of
these major markets. Our closest non-commercial competitor in the top 25 radio
markets owns five radio stations which broadcast to four of these major markets.

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We also compete for revenue in the advertising market with other commercial
religious format and general format radio station licensees. We compete in the
advertising market with other media as well, including broadcast television,
cable television, newspapers, magazines, direct mail and billboard advertising.

Competition may also come from new media technologies and services that are
currently being developed or introduced. These include delivery of audio
programming by cable television, satellite, digital audio radio services, the
Internet, personal communications services and the proposed authorization by the
FCC of a new service of low powered, limited coverage FM radio stations. Digital
audio broadcasting may deliver multiformat digital radio services by satellite
to national and regional audiences. We have attempted to address these
competitive threats, in part, through our acquisition of OnePlace(TM) and
through our arrangement with XM Satellite Radio to provide religious and family
issues talk and music formats on its proposed satellite digital audio radio
service.

NETWORK. Salem Radio Network(R) competes with other commercial radio
networks that offer news and talk programming to religious and general format
radio stations and two non-commercial networks that offer religious music
formats. Our network also competes with other radio networks for the services of
talk show personalities.

OTHER MEDIA. Our magazines compete for readers and advertisers with other
publications that follow the religious music industry and publications that
address issues of interest to church leadership. Our Internet business competes
with other companies that deliver online audio programming, companies with Web
sites targeted to persons interested in religious and family issues and
e-commerce companies, such as Amazon.com, whose product offerings include
religious books and music.

EMPLOYEES

At May 14, 1999, Salem employed 592 full-time and 239 part-time employees.
None of Salem's employees are covered by collective bargaining agreements, and
we consider our relations with our employees to be good. We have employment
agreements with Edward G. Atsinger III, Stuart W. Epperson and Eric H.
Halvorson.

In certain of our larger markets, we employ key managers and on-air talent
who do not have employment contracts. While the loss of any of these individuals
could have a material adverse effect upon the operations of the applicable radio
station, we do not believe that any such loss would have a material adverse
effect on our financial condition or results of operations taken as a whole.

PROPERTIES AND FACILITIES

The types of properties required to support our radio stations include
offices, studios and tower and antenna sites. A station's studios are generally
housed with its office in a downtown or business district. We generally select
our tower and antenna sites to provide maximum market coverage. Our network
operations are supported by offices and studios from which its programming
originates or is relayed from a remote point of origination. The operations of
our new media businesses are supported by office facilities.

Our radio stations' studios and offices, our network's operations, the
operations of our new media businesses and our corporate headquarters are
located in leased facilities. Our network leases satellite transponders used for
delivery of its programming. We either own or lease our radio station tower and
antenna sites. We do not anticipate difficulties in

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renewing those leases that expire within the next several years or in obtaining
other lease arrangements, if necessary.

We lease certain property from the principal stockholders or trusts and
partnerships created for the benefit of the principal stockholders and their
families. See "Transactions Involving Officers, Directors and Principal
Stockholders." All such leases have cost of living adjustments. Based upon our
management's assessment and analysis of local market conditions for comparable
properties, we believe such leases do not have terms that vary materially from
those that would have been available from unaffiliated parties.

No one property is material to our overall operations. We believe that our
properties are in good condition and suitable for our operations; however, we
continually evaluate opportunities to upgrade our properties. We own
substantially all of our equipment, consisting principally of transmitting
antennae, transmitters, studio equipment and general office equipment.

LITIGATION

We are involved in various routine legal proceedings, incident to the
ordinary course of our business. We believe that the outcome of all pending
legal proceedings in the aggregate will not have a material adverse effect on
our consolidated financial condition or our results of operations.

FEDERAL REGULATION OF RADIO BROADCASTING

INTRODUCTION. The ownership, operation and sale of broadcast stations,
including those licensed to Salem, are subject to the jurisdiction of the FCC,
which acts under authority derived from The Communications Act of 1934, as
amended, and the rules and regulations promulgated thereunder (the
"Communications Act"). The Communications Act was amended by the
Telecommunications Act of 1996 (the "Telecommunications Act") to make changes in
several broadcast laws. Among other things, the FCC assigns frequency bands for
broadcasting; determines whether to approve changes in ownership or control of
station licenses; regulates transmission facilities, including power employed,
antenna and tower heights, and location of transmission facilities; adopts and
implements regulations and policies that directly or indirectly affect the
ownership, operation and employment practices of stations; and has the power to
impose penalties for violations of its rules under the Communications Act.

The following is a brief summary of certain provisions of the
Communications Act and of specific FCC regulations and policies. Failure to
observe these or other rules and policies can result in the imposition of
various sanctions, including monetary forfeitures, the grant of "short" (less
than the maximum) license renewal terms or, for particularly egregious
violations, the denial of a license renewal application, the revocation of a
license or the denial of FCC consent to acquire additional broadcast properties.
For further information concerning the nature and extent of federal regulation
of broadcast stations you should refer to the Communications Act, FCC rules and
the public notices and rulings of the FCC.

LICENSE GRANT AND RENEWAL. Radio broadcast licenses are granted for maximum
terms of eight years. Licenses may be renewed through an application to the FCC.
Prior to the Telecommunications Act, during certain periods when a renewal
application was pending, competing applicants could file for the radio frequency
being used by the renewal applicant. The Telecommunications Act prohibits the
FCC from considering such competing applications if the FCC finds that the
station has served the public interest,

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convenience and necessity, that there have been no serious violations by the
licensee of the Communications Act or the rules and regulations of the FCC, and
that there have been no other violations by the licensee of the Communications
Act or the rules and regulations of the FCC that, when taken together, would
constitute a pattern of abuse.

Petitions to deny license renewals can be filed by interested parties,
including members of the public. Such petitions may raise various issues before
the FCC. The FCC is required to hold hearings on renewal applications if the FCC
is unable to determine that renewal of a license would serve the public
interest, convenience and necessity, or if a petition to deny raises a
"substantial and material question of fact" as to whether the grant of the
renewal application would be prima facie inconsistent with the public interest,
convenience and necessity. Also, during certain periods when a renewal
application is pending, the transferability of the applicant's license is
restricted. We are not currently aware of any facts that would prevent the
timely renewal of our licenses to operate our radio stations, although there can
be no assurance that our licenses will be renewed.

The FCC classifies each AM and FM station. An AM station operates on either
a clear channel, regional channel or local channel. A clear channel is one on
which AM stations are assigned to serve wide areas. Clear channel AM stations
are classified as either: Class A stations, which operate on an unlimited time
basis and are designated to render primary and secondary service over an
extended area; Class B stations, which operate on an unlimited time basis and
are designed to render service only over a primary service area; and Class D
stations, which operate either during daytime hours only, during limited times
only or on an unlimited time basis with low nighttime power. A regional channel
is one on which Class B and Class D AM stations may operate and serve primarily
a principal center of population and the rural areas contiguous to it. A local
channel is one on which AM stations operate on an unlimited time basis and serve
primarily a community and the suburban and rural areas immediately contiguous
thereto. Class C AM stations operate on a local channel and are designed to
render service only over a primary service area that may be reduced as a
consequence of interference.

The minimum and maximum facilities requirements for an FM station are
determined by its class. FM class designations depend in part upon the
geographic zone in which the transmitter of the FM station is located. In
general, commercial FM stations are classified as follows, in order of
increasing power and antenna height: Class A, B1, C3, B, C2, C1 and C.

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The following table sets forth in order of market size the market, call
letters, FCC license classification, antenna height above average terrain
(HAAT), power and frequency of each of the stations owned or operated by Salem
and the date on which each station's FCC license expires. None of our FCC
licenses expires prior to October 1, 2003.

<TABLE>
<CAPTION>
HAAT POWER EXPIRATION
STATION FCC IN IN DATE OF
MARKET(1) CALL LETTERS CLASS METERS KILOWATTS(2) FREQUENCY LICENSE
--------- ------------ ----- ------ ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
New York, NY(3)............ WMCA-AM B NA 5.0/5.0 570 kHz 6/1/2006
WWDJ-AM B NA 5.0/5.0 970 kHz 6/1/2006
Los Angeles, CA............ KKLA-FM B 878 10.5 99.5 MHz 12/1/2005
KIEV-AM B NA 20/3 870 kHz 12/1/2005
KLTX-AM B NA 5.0/3.6 1390 kHz 12/1/2005
Chicago, IL................ WYLL-FM B 91(4) 50 106.7 MHz 12/1/2004
San Francisco, CA.......... KFAX-AM B NA 50 1100 kHz 12/1/2005
Philadelphia, PA........... WFIL-AM B NA 5.0/5.0 560 kHz 8/1/2006
WZZD-AM B NA 50.0/10.0 990 kHz 8/1/2006
Dallas-Ft. Worth, TX....... KWRD-FM C 460 100 94.9 MHz 8/1/2005
Boston, MA................. WEZE-AM B NA 5.0/5.0 590 kHz 4/1/2006
Washington, D.C. .......... WAVA-FM B 165 41 105.1 MHz 10/1/2003
Houston-Galveston, TX...... KENR-AM B NA 10.0/5.0 1070 kHz 8/1/2005
KKHT-FM C 579 100 106.9 MHz 8/1/2005
KTEK-AM D NA 2.7/2.067(5) 1110 kHz 8/1/2005
Seattle-Tacoma, WA......... KGNW-AM B NA 50.0/5.0 820 kHz 2/1/2006
KLFE-AM B NA 5.0/5.0 1590 kHz 2/1/2006
KKOL-AM B NA 5.0/5.0 1300 kHz 2/1/2006
KKMO-AM B NA 5.0/5.0 1360 kHz 2/1/2006
Phoenix, AZ................ KPXQ-AM B NA 5.0/5.0 960 kHz 10/1/2005
San Diego, CA.............. KPRZ-AM B NA 20.0/5.0 1210 kHz 12/1/2005
Minneapolis-St Paul,
MN....................... KKMS-AM B NA 5.0/5.0 980 kHz 4/1/2005
KYCR-AM B NA 3.8/0.230 1570 kHz 4/1/2005
Baltimore, MD.............. WITH-AM C NA 1.0/1.0 1230 kHz 10/1/2003
Pittsburgh, PA............. WORD-FM B 154 48 101.5 MHz 8/1/2006
WPIT-AM D NA 5.0/0.024 730 kHz 8/1/2006
Denver-Boulder, CO......... KNUS-AM B NA 5.0/5.0 710 kHz 4/1/2005
KRKS-AM B NA 5.0/0.39 990 kHz 4/1/2005
KRKS-FM(6) C 300 100 94.7 MHz 4/1/2005
Cleveland, OH.............. WCCD-AM D NA 0.5 1000 kHz 10/1/2004
WHK-AM B NA 5.0/5.0 1420 kHz 10/1/2004
Portland, OR............... KPDQ-AM B NA 1.0/0.51 800 kHz 2/1/2006
KPDQ-FM(6) C 387 100 93.7 MHz 2/1/2006
Cincinnati, OH............. WTSJ-AM B NA 1.0/0.28 1050 kHz 10/1/2004
Sacramento, CA............. KFIA-AM B NA 25.0/1.0 710 kHz 12/1/2005
KTKZ-AM B NA 5.0/5.0 1380 kHz 12/1/2005
Riverside-San Bernardino,
CA....................... KKLA-AM C NA 1.0/1.0 1240 kHz 12/1/2005
Columbus, OH............... WRFD-AM D NA 23/6.1(5) 880 kHz 10/1/2004
San Antonio, TX............ KSLR-AM B NA 5.0/4.3 630 kHz 8/1/2005
Akron, OH.................. WHLO-AM B NA 5.0/0.50 640 kHz 10/1/2004
Colorado Springs, CO....... KBIQ-FM C 695 72 102.7 MHz 4/1/2005
KGFT-FM C 676 78 100.7 MHz 4/1/2005
KPRZ-FM(7) C3 614 0.51 96.1 MHz 4/1/2005
Oxnard, CA................. KDAR-FM B1 393 1.5 98.3 MHz 12/1/2005
Canton, OH................. WHK-FM(8) B 175 36 98.1 MHz 10/1/2004
</TABLE>

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<PAGE> 48

- -------------------------
(1) Actual city of license may be different form the metropolitan market served.

(2) Pursuant to FCC rules and regulations, many AM radio stations are licensed
to operate at a reduced power during nighttime broadcasting hours, which
results in reducing the radio station's coverage during those hours of
operation. Both power ratings are shown, where applicable.

(3) This market includes the Nassau-Suffolk, NY Metro market which independently
has a MSA rank of 17.

(4) The FCC has issued a construction permit to Salem which allows the antenna
for this station to be increased to 129m HAAT.

(5) Pursuant to FCC rules and regulations, many AM radio stations are licensed
to operate at a reduced power during critical hours, the two-hour periods
immediately following sunrise and preceding sunset. Both daytime power
ratings are shown. KTEK-AM and WRFD-AM do not operate during nighttime
hours.

(6) The FCC has issued a notice of proposed rulemaking that contemplates adding
a new class of FM station known as C0. For further information, see
"-- Proposed Changes" below.

(7) The FCC has issued a construction permit to Salem which allows the license
for this station to be changed to class C2, the antenna to be increased to
670m HAAT, the power to be increased to 1.7kW.

(8) The FCC has issued a construction permit to Salem which allows the antenna
for this station to be increased to 268m HAAT and the power to be changed to
15.5kW. Construction has been completed pursuant to the permit and the
station is now operating with its new antenna facility. An application to
license the new facility is pending before the FCC.

OWNERSHIP MATTERS. The Communications Act prohibits the assignment of a
broadcast license or the transfer of control of a broadcast license without the
prior approval of the FCC. In determining whether to assign, transfer, grant or
renew a broadcast license, the FCC considers a number of factors pertaining to
the licensee, including compliance with various rules limiting common ownership
of media properties, the "character" of the licensee and those persons holding
"attributable" interests therein, and compliance with the Communications Act's
limitation on alien ownership, as well as compliance with other FCC policies,
including equal employment opportunity requirements.

Once a station purchase agreement has been signed, an application for FCC
consent to assignment of license or transfer of control (depending upon whether
the underlying transaction is an asset purchase or stock acquisition) is filed
with the FCC. Approximately 10 to 15 days after this filing, the FCC publishes a
notice assigning a file number to the application and advising that the
application has been "accepted for filing." This begins a 30-day statutory
public notice period during which third parties have the opportunity to file
formal petitions to deny the proposed transaction. Informal objections to the
transaction may be filed at any time prior to the grant of an application.
During this 30-day period, the FCC staff generally begins its review of the
application and may request additional information from the applicants in
response to any questions the staff may have.

Assuming that no petitions are filed during the public notice period and
that the proposed transaction poses no issues requiring higher level consent,
the FCC staff often grants the application by delegated authority approximately
10 days after the end of the public notice period. If there is a back log of
applications or the transaction proposes an issue requiring higher level
consent, the 10-day period can extend to 30 days or more. The parties to the
application are legally authorized to close on the transaction at any time after
the application is granted. At this point, however, the grant is not a "final
order."

Public notice of the FCC staff grant of an application is usually issued
within seven days of the date on which the application is granted. For a period
of 30 days following the date of this public notice interested parties may file
petitions seeking staff reconsideration or full FCC review of the staff action.
In addition, for a period of 40 days following the date of the public notice,
the FCC, on its own, can review and reconsider the grant. If the FCC itself
adopts an order granting an application or adopts an order affirming the staff
grant of an application, judicial review of the FCC action may be sought

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in the United States Court of Appeals for the District of Columbia within 30
days of the public notice of the FCC's action. In the event the court affirms
the FCC's action, further judicial review may be sought by seeking rehearing en
banc from the Court of Appeals or by certiorari from the United States Supreme
Court.

Assuming that no petitions are filed by third parties and no action staying
or reversing the grant is made by the FCC, then the grant will become a final
order by operation of law at the close of business on the 40th day following the
public notice of the grant. Upon a grant becoming a final order, counsel is able
to deliver an opinion that the grant is no longer subject to administrative or
judicial review, although such actions can nevertheless be set aside in rare
circumstances (for example, fraud on the agency by a party to the application).

The FCC will not issue an unconditional assignment or transfer grant if an
application for renewal of license for the station is pending. Thus, the
foregoing timetables will be altered in the event an application for assignment
or transfer is filed while a license renewal application is pending.

Under the Communications Act, a broadcast license may not be granted to or
held by a corporation that has more than one-fifth of its capital stock owned or
voted by aliens or their representatives, by foreign governments or their
representatives, or by non-U.S. corporations. Under the Communications Act, a
broadcast license also may not be granted to or held by any corporation that is
controlled, directly or indirectly, by any other corporation more than
one-fourth of whose capital stock is owned or voted by aliens or their
representatives, by foreign governments or their representatives, or by non-U.S.
corporations. These restrictions apply in modified form to other forms of
business organizations, including partnerships. We therefore may be restricted
from having more than one-fourth of our stock owned or voted by aliens, foreign
governments or non-U.S. corporations.

The Communications Act and FCC rules also generally restrict the common
ownership, operation or control of radio broadcast stations serving the same
local market, of a radio broadcast station and a television broadcast station
serving the same local market, and of a radio broadcast station and a daily
newspaper serving the same local market. Under these "cross-ownership" rules,
absent waivers, we would not be permitted to acquire any daily newspaper or
television broadcast station (other than low power television) in a local market
where we then owned any radio broadcast station. The FCC's rules provide for the
liberal grant of a waiver of the rule prohibiting common ownership of radio and
television stations in the same geographic market in the top 25 television
markets if certain conditions are satisfied. The Telecommunications Act extends
this waiver policy to stations in the top 50 television markets, although the
FCC has not yet implemented this change.

In response to the Telecommunications Act, the FCC amended its multiple
ownership rules to eliminate the national limits on ownership of AM and FM
stations. The FCC's broadcast multiple ownership rules restrict the number of
radio stations one person or entity may own, operate or control on a local
level. These limits, as specified in the Telecommunications Act, are:

- in a market with 45 or more commercial radio stations, an entity may own
up to eight commercial radio stations, not more than five of which are in
the same service (FM or AM);

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<PAGE> 50

- in a market with between 30 and 44 (inclusive) commercial radio stations,
an entity may own up to seven commercial radio stations, not more than
four of which are in the same service;

- in a market with between 15 and 29 (inclusive) commercial radio stations,
an entity may own up to six commercial radio stations, not more than four
of which are in the same service;

- in a market with 14 or fewer commercial radio stations, an entity may own
up to five commercial radio stations, not more than three of which are in
the same service, except that an entity may not own more than 50% of the
stations in such market.

None of these multiple ownership rules requires any change in our current
ownership of radio broadcast stations; however, these rules will limit the
number of additional stations that we may acquire in the future in certain of
our markets.

Because of these multiple and cross-ownership rules, a purchaser of voting
stock of the company that acquires an "attributable" interest in the company may
violate the FCC's rule if it also has an attributable interest in other
television or radio stations, or in daily newspapers, depending on the number
and location of those radio or television stations or daily newspapers. Such a
purchaser also may be restricted in the other companies in which it may invest,
to the extent that these investments give rise to an attributable interest. If
an attributable stockholder of the company violates any of these ownership
rules, the company may be unable to obtain from the FCC one or more
authorizations needed to conduct its radio station business and may be unable to
obtain FCC consents for certain future acquisitions.

The FCC generally applies its television/radio/newspaper cross-ownership
rules and its broadcast multiple ownership rules by considering the
"attributable," or cognizable interests held by a person or entity. A person or
entity can have an interest in a radio station, television station or daily
newspaper by being an officer, director, partner or stockholder of a company
that owns that station or newspaper. Whether that interest is cognizable under
the FCC's ownership rules is determined by the FCC's attribution rules. If an
interest is attributable, the FCC treats the person or entity who holds that
interest as an "owner" of the radio station, television station or daily
newspaper in question, and therefore subject to the FCC's ownership rules.

With respect to a corporation, officers and directors and persons or
entities that directly or indirectly can vote 5% or more of the corporation's
stock (10% or more of such stock in the case of insurance companies, investment
companies, bank trust departments which act as "passive investors" that hold
such stock for investment purposes only) generally are attributed with an
ownership interest in whatever radio stations, television stations and daily
newspapers the corporation owns.

With respect to a partnership, the interest of a general partner is
attributable, as is the interest of any limited partner who is "materially
involved" in the media-related activities of the partnership. Debt instruments,
nonvoting stock, options and warrants for voting stock that have not yet been
exercised, limited partnership interests where the limited partner is not
"materially involved" in the media-related activities of the partnership, and
minority (under 5%) voting stock, generally do not subject their holders to
attribution.

The FCC has issued a notice of proposed rulemaking that contemplates
tightening attribution standards where parties have multiple nonattributable
interests in and

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<PAGE> 51

relationships with stations that would be prohibited by the FCC's
cross-ownership rules, if the interest/relationships were attributable. The
proposed rule contemplates that this change in attribution will apply only to
persons holding debt or equity interests that exceed certain benchmarks. For
further information, see "-- Proposed Changes" below.

In addition, the FCC has a "cross-interest" policy that under certain
circumstances could prohibit a person or entity with an attributable interest in
a broadcast station or daily newspaper from having a "meaningful"
nonattributable interest in another broadcast station or daily newspaper in the
same local market. Among other things, "meaningful" interests could include
significant equity interests (including nonvoting stock, voting stock and
limited partnership interests) and significant employment positions. This policy
may limit the permissible investments a purchaser of the company's voting stock
may make or hold.

PROGRAMMING AND OPERATION. The Communications Act requires broadcasters to
serve the "public interest." The FCC has gradually relaxed or eliminated many of
the more formalized procedures it had developed in the past to promote the
broadcast of certain types of programming responsive to the needs of a station's
community of license. Licensees continue to be required, however, to present
programming that is responsive to community problems, needs and interests and to
maintain certain records demonstrating such responsiveness. Complaints from
listeners concerning a station's programming will be considered by the FCC when
it evaluates the licensee's renewal application, but such complaints may be
filed and considered at any time.

Stations also must pay regulatory and application fees and follow various
FCC rules that regulate, among other things, political advertising, the
broadcast of obscene or indecent programming, sponsorship identification and
technical operations (including limits on radio frequency radiation) and equal
employment opportunity requirements. The broadcast of contests and lotteries is
regulated by FCC rules.

Failure to observe these or other rules and policies can result in the
imposition of various sanctions, including monetary forfeitures, the grant of
"short" (less than the maximum) renewal terms or, for particularly egregious
violations, the denial of a license renewal application or the revocation of a
license.

LOCAL MARKETING AGREEMENTS. Over the past five years, a number of radio
stations, including certain of our stations, have entered into "time brokerage
agreements" of the type which are commonly referred to as "local marketing
agreements." These LMAs take various forms. Separately-owned and licensed
stations may agree to function cooperatively in terms of programming,
advertising sales and other matters, subject to compliance with the antitrust
laws and the FCC's rules and policies, including the requirement that the
licensee of each station maintains independent control over the programming and
other operations of its own station. The FCC has held that such agreements do
not violate the Communications Act as long as the licensee of the station that
is being substantially programmed by another entity maintains complete
responsibility for, and control over, operations of its broadcast stations and
otherwise ensures compliance with applicable FCC rules and policies.

A station that brokers substantial time on another station in its market or
engages in an LMA with a station in the same market will be considered to have
an attributable ownership interest in the brokered station for purposes of the
FCC's ownership rules. As a result, a broadcast station may not enter into an
LMA that allows it to program more than 15% of the broadcast time, on a weekly
basis, of another local station that it could not own under the FCC's local
multiple ownership rules. FCC rules also prohibit the broadcast

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<PAGE> 52

licensee from simulcasting more than 25% of its programming on another station
in the same broadcast service (that is, AM-AM or FM-FM) where the two stations
serve substantially the same geographic area, whether the licensee owns the
stations or owns one and programs the other through an LMA arrangement.

PROPOSED CHANGES. In December, 1994, the FCC initiated a proceeding to
solicit comment on whether it should revise its radio ownership "attribution"
rules by among other proposals:

- raising the basic benchmark for attributing ownership in a corporate
licensee from 5% to 10% of the licensee's voting stock;

- increasing from 10% to 20% of the licensee's voting stock the attribution
benchmark for "passive investors" in corporate licensees; and

- restricting the availability of the attribution exemption when a single
party controls more than 50% of the voting stock.

At this time, no decision has been made by the FCC in these matters. We can make
no determination as to what effect, if any, this proposed rulemaking will have
on Salem.

The Congress and the FCC from time to time have under consideration, and
may in the future consider and adopt, new laws, regulations and policies
regarding a wide variety of matters that could, directly or indirectly, affect
the operation, ownership and profitability of the company's radio stations,
result in the loss of audience share and revenue for the company's radio
stations, and affect the ability of the company to acquire additional radio
stations or finance such acquisitions. Such matters include:

- proposals to impose spectrum use or other fees on FCC licensees;

- the FCC's equal employment opportunity rules and matters relating to
political broadcasting;

- technical and frequency allocation matters;

- changes in the FCC's cross interest policies;

- changes in multiple ownership and cross-ownership rules;

- changes to broadcast technical requirements;

- proposals to allow telephone or cable television companies to deliver
audio and video programming to the home through existing phone lines;

- proposals to limit the tax deductibility of advertising expenses by
advertisers; and

- proposals to auction the right to use the radio broadcast spectrum to the
highest bidder, instead of granting FCC licenses and subsequent license
renewals without such bidding.

The Balanced Budget Act of 1997, enacted August 5, 1997, requires the FCC
to resolve mutually-exclusive requests for use of the commercial radio broadcast
spectrum by auction under most circumstances, including requests for new radio
stations or major changes in the facilities of existing stations filed after
June 30, 1997. The FCC may use auctions to resolve such mutually-exclusive
requests filed before July 1, 1997, which remain pending after a mandated period
ending February 1, 1998, in which the applicants may enter into settlement
agreements to resolve the mutual exclusivity of their applications.

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<PAGE> 53

On November 25, 1997, the FCC adopted a notice of proposed rulemaking
seeking to implement its statutory auction authority. In connection with the
November 25, 1997 notice of proposed rulemaking, the FCC has imposed a temporary
freeze on the filing of most requests for new commercial broadcast radio
stations or for major changes of existing commercial broadcast facilities until
it completes the adoption of auction rules and procedures. On August 6, 1998,
the FCC adopted a First Report and Order amending certain of its rules and
enacting new rules to implement its auction authority, and delegated authority
to the Chief of the Mass Media Bureau to prescribe procedures and mechanisms for
the conduct of broadcast service auctions under the new and amended rules.
Petitions for reconsideration of that First Report and Order were filed and
considered by the FCC. On April 15, 1999, the FCC acted on those petitions by
generally reaffirming the auction rules adopted August 6, 1998, which among
other provisions award bidding credits to owners of no or very few mass media
outlets. The Mass Media Bureau has scheduled the first auction of commercial
broadcast station construction permits for September 28, 1999. The Mass Media
Bureau and Wireless Telecommunications Bureau have under consideration proposed
procedural rules for that auction. Still under consideration by the FCC is a
further refinement of the rule under which bidding credits will be awarded.

The freeze imposed in connection with the November 25, 1997 auction notice
remains in effect. On March 30, 1999, the FCC adopted an order in a separate
proceeding which, among other actions, amended the definition of a major change
application for existing AM radio stations, redefining many former major changes
as minor changes and potentially lessening the impact of the freeze on licensees
of commercial AM radio stations.

The FCC has issued a notice of proposed rulemaking that contemplates
adopting rules to authorize a new service of low powered, limited coverage FM
stations. Should this new low powered FM service be authorized, the FCC has
proposed to adopt ownership limitations which would exclude present multiple
station owners. The FCC has asked for comments on whether this new service, if
authorized, should be limited to noncommercial operation.

The FCC has also issued a notice of proposed rulemaking that contemplates
adding a new class of FM station known as C0. If the proposed rule is adopted
and if a station's facilities place it in the C0 class, it may be precluded from
increasing its antenna height and power combination above the limits set for C0
classification. Some of Salem's FM stations which are now Class C stations may
become Class C0 stations dependent upon the outcome of that rulemaking
proceeding. The FCC has proposed to adopt a three-year transition period, should
it adopt the new C0 classification, during which a station subject to the new
classification could apply for and obtain a construction permit to increase the
antenna height to a level at which it could retain Class C status.

We cannot predict whether any proposed changes will be adopted or what
other matters might be considered in the future, nor can we judge in advance
what impact, if any, the implementation of any of these proposals or changes
might have on our business.

The FCC, on April 2, 1997, awarded two licenses for the provision of
satellite digital radio services. Under rules adopted for this service,
licensees must begin construction of their space stations within one year, begin
operating within four years, and be operating their entire system within six
years. We cannot predict whether the service will be subscription or advertiser
supported. Digital technology also may be used in the future by terrestrial
radio broadcast stations either on existing or alternate broadcasting
frequencies,

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<PAGE> 54

and the FCC has stated that it will consider making changes to its rules to
permit AM and FM radio stations to offer digital sound following industry
analysis of technical standards. In addition, the FCC has authorized an
additional 100 kHz of bandwidth for the AM band and on March 17, 1997, adopted
an allotment plan for the expanded band that identified the 88 AM radio stations
selected to move into the band. At the end of a five-year transition period,
those licensees will be required to return to the FCC either the license for
their existing AM band station or the license for the expanded AM band station.
Salem has received two expanded band authorizations, one for KBJD-AM, paired
with KRKS-AM, Denver-Boulder, Colorado, and one for KAZJ-AM, paired with
KLFE-AM, Seattle-Tacoma, Washington.

The foregoing summary of certain provisions of the Communications Act and
of specific FCC rules and policies does not purport to be comprehensive. For
further information concerning the nature and extent of federal regulation of
radio broadcast stations you should refer to the Communications Act, the FCC's
rules and the public notices and rulings of the FCC.

FEDERAL ANTITRUST CONSIDERATIONS. The FTC and the DOJ, which evaluate
transactions to determine whether those transactions should be challenged under
the federal antitrust laws, have been increasingly active recently in their
review of radio station acquisitions, particularly where an operator proposes to
acquire additional stations in its existing markets.

For an acquisition meeting certain size thresholds, the Hart-Scott-Rodino
Improvements Act ("HSR Act") and the rules promulgated thereunder require the
parties to file Notification and Report Forms with the FTC and the DOJ and to
observe specified waiting period requirements before consummating the
acquisition. At any time before or after the consummation of a proposed
acquisition, the FTC or the DOJ could take such action under the antitrust laws
as it deems necessary or desirable in the public interest, including seeking to
enjoin the acquisition or seeking divestiture of the business acquired or other
assets of the company. Acquisitions that are not required to be reported under
the HSR Act may be investigated by the FTC or the DOJ under the antitrust laws
before or after consummation. In addition, private parties may under certain
circumstances bring legal action to challenge an acquisition under the antitrust
laws.

As part of its increased scrutiny of radio station acquisitions, the DOJ
has stated publicly that it believes that LMAs and other similar agreements
customarily entered into in connection with radio station transfers prior to the
expiration of the waiting period under the HSR Act could violate the HSR Act.

Although we do not believe that our acquisition strategy as a whole will be
adversely affected in any material respect by antitrust review, we cannot be
sure that this will be the case.

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MANAGEMENT

EXECUTIVE AND OTHER KEY OFFICERS AND DIRECTORS

The executive officers, directors and key employees of Salem and its
subsidiaries and their ages and positions with Salem are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Edward G. Atsinger III......... 59 President, Chief Executive Officer and Director
Stuart W. Epperson............. 62 Chairman of the Board
Eric H. Halvorson.............. 50 Executive Vice President, Chief Operating
Officer, General Counsel and Director
Greg R. Anderson............... 52 President, Salem Radio Network
Dirk Gastaldo.................. 43 Vice President and Chief Financial Officer
Kenneth L. Gaines.............. 60 Vice President - Operations
Dave Armstrong................. 54 Vice President - Operations and General
Manager/KKLA-FM/AM, KLTX-AM and KIEV-AM
Joe D. Davis................... 55 Vice President - Operations and General
Manager/WMCA-AM and WWDJ-AM
Kenneth W. Sasso............... 52 Vice President - Operations and General
Manager/KGFT-FM, KPRZ-FM and KBIQ-FM
David Ruleman.................. 52 Vice President - Operations and General
Manager/WAVA-FM and WITH-AM
W. Douglas Young............... 48 Chief Executive Officer, OnePlace, Ltd.
John W. Styll.................. 47 President, CCM Communications, Inc.
Richard A. Riddle.............. 54 Director
Roland S. Hinz................. 60 Director
Joseph S. Schuchert............ 70 Director
Donald P. Hodel................ 64 Director
</TABLE>

All directors hold office until the next annual meeting of stockholders
following their election, or until their successors are elected and qualified.
Officers are elected annually by the board of directors and serve at the
discretion of the board.

Mr. Atsinger has been President, Chief Executive Officer and a director of
Salem since its inception. He has been engaged in the ownership and operation of
radio stations since 1969 and is a member of the board of directors of the
National Religious Broadcasters.

Mr. Epperson has been Chairman of Salem since its inception. Mr. Epperson
has been engaged in the ownership and operation of radio stations since 1961. In
addition, he is a member of the board of directors of the National Religious
Broadcasters. Mr. Epperson is married to Nancy A. Epperson who is Mr. Atsinger's
sister.

Mr. Halvorson has been Chief Operating Officer of Salem since 1995,
Executive Vice President since 1991 and a director since 1988. In addition, he
serves as Executive Vice President of each subsidiary of Salem. From 1991 to the
present, Mr. Halvorson has also served as the General Counsel of Salem. Mr.
Halvorson was the managing partner of the law firm of Godfrey & Kahn, S.C.-Green
Bay from 1988 until 1991. From 1985 to 1988, he was Vice President and General
Counsel of Salem. From 1976 until 1985, he was an associate and then a partner
of Godfrey & Kahn, S.C.-Milwaukee. Mr. Halvorson was a Certified Public
Accountant with Arthur Andersen & Co. from 1971 to 1973.

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<PAGE> 56

Mr. Anderson has been President of Salem Radio Network(R) since 1994. From
1993 to 1994, Mr. Anderson was the Vice President-General Manager of the
Network. Mr. Anderson was employed by Multimedia, Inc. from 1980 to 1993. After
serving as program director and general manager at Multimedia stations in
Greenville, Shreveport and Milwaukee, he was named Vice President, Operations,
of the Multimedia radio division in 1987 and was subsequently appointed as
Executive Vice President and group head of Multimedia's radio division.

Mr. Gastaldo has been Chief Financial Officer of Salem since 1993, and a
Vice President since 1992. From 1992 to 1993, Mr. Gastaldo was Vice
President - Administration of Salem, and from 1989 to 1991 he was
Manager - Internal Audit. He was a Certified Public Accountant with Ernst &
Young from 1978 to 1989.

Mr. Gaines has been Vice President - Operations of Salem since 1994. Prior
to that time, he served as General Manager of KKLA-FM from 1992 to 1994 and
General Manager of WYLL-FM from 1990 to 1992. Mr. Gaines has been involved in
the management of radio stations since 1964. He served as Executive Vice
President of Commonwealth Communications from 1988 to 1990, Vice President of
Penn Communications from 1985 to 1988, Executive Vice President of Broadstreet
Communications from 1974 to 1985 and Vice President and General Manager of
Metromedia from 1964 to 1974.

Mr. Armstrong has been Vice President - Operations of Salem since 1996 and
General Manager of KKLA-FM/AM since 1994. He has also supervised operations of
KLTX-AM since January 1997 and of KIEV-AM since August 1998. Mr. Armstrong has
28 years of radio broadcast experience and has been general manager of radio
stations in Santa Ana and Orange, California.

Mr. Davis has been Vice President - Operations of Salem since 1996 and
General Manager of WMCA-AM since 1989. He has also been the General Manager of
WWDJ-AM since 1994. He has previously served as Vice President and Executive
Director of Christian Fund for the Disabled as well as President of Practice
Resources, Inc., Davis Eaton Corporation and Vintage Specialty Advertising
Company.

Mr. Sasso has been Vice President - Operations of Salem since 1996 and
General Manager of Salem's Colorado Springs radio stations from 1994 to present.
He also served as General Manager of Salem's Denver radio stations from 1994 to
1996. Mr. Sasso is the former owner of eight radio stations in Florida,
Mississippi and Louisiana which were sold in 1989. From 1969 to 1979, he served
in various radio management capacities for King Broadcasting and The American
Broadcasting Companies.

Mr. Ruleman has been Vice President - Operations of Salem since January
1999 and General Manager of WAVA-FM since 1992 and WITH-AM since 1997. He was
General Manager of KPRZ-AM from 1986 to 1992. From 1973 to 1986, Mr. Ruleman
served as Vice President of Palomar Broadcasting Corporation, a group owner of
radio stations in Southern California.

Mr. Young has been Chief Executive Officer of OnePlace, Ltd. since January
1999, and was Chief Executive Officer and a shareholder of its predecessor
corporation, OnePlace, LLC since August 1998. From 1997 to 1998, Mr. Young
served as Chief Executive Officer of Landmark Community Interests, an
Internet-based technology company controlled by Landmark Communications, Inc. He
served as President of networkMCI Digital Imaging, the Web site development and
electronic commerce implementation division of MCI Telecommunications, from 1995
to 1997. Prior to 1995 Mr. Young founded and developed several technology
companies including Image Technology, Inc., and Advanced MediaGraphics Center,
both of which companies were sold to MCI Telecommunications.

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<PAGE> 57

Mr. Styll founded Praise Productions, the predecessor of CCM
Communications, Inc., in 1978 and has served as the President of CCM
Communications, Inc. since its incorporation in 1979. He served as President of
the Gospel Music Association from 1991 to 1994 and as President of the Christian
Music Trade Association from 1996 to 1998. Mr. Styll is a member of the National
Academy of Recording Arts and Sciences.

Mr. Riddle has been a director of Salem since September 1997. Mr. Riddle is
an independent businessman specializing in providing financial assistance and
consulting to manufacturing companies. Since 1991 he has been the President of
Richray Industries, a holding company for various manufacturing companies. He
was President and majority stockholder of I. L. Walker Company from 1987 to 1997
when the company was sold. He also was Chief Operating Officer and majority
stockholder of Richter Manufacturing from 1970 to 1987.

Mr. Hinz has been a Director of Salem since September 1997. Mr. Hinz has
been the owner and President of Hi-Torque Publishing Company, a publisher of
magazines covering the motorcycling and biking industries, since 1981. He is
active in a number of non-profit organizations and serves as Chairman of the
Fund Development Committee of English Language Institute China. Mr. Hinz also
serves on the boards of directors of Gordon Conwell Theological Seminary,
Association for Community Education, Inc., Truth for Life, and Lake Avenue
Congregational Church.

Mr. Schuchert has been a Director of Salem since May 1999. He was a founder
of the investment firm Kelso & Company, Inc. in 1970 and served as its Chairman
and Chief Executive Officer through December 1997 and Chairman since January
1998. Mr. Schuchert currently serves on the boards of directors of American
Standard Corporation, Earl M. Jorgensen Company, the United States Chamber of
Commerce and St. Vincent College. He is Director Emeritus of Carnegie Mellon
University.

Mr. Hodel has been a Director of Salem since May 1999. Mr. Hodel is a
founder and has been the Managing Director of Summit Group International, Ltd.,
an energy and natural resources consulting firm, since 1989. He has served as
Vice Chairman of Texon Corporation, an oil and natural gas marketing company,
since 1994. Mr. Hodel served as President of the Christian Coalition from June
1997 to January 1999 and as Executive Vice President of Focus on the Family from
January 1996 to August 1996. Mr. Hodel currently serves on the boards of
directors of Integrated Electrical Services, Inc., Eagle Publishing, Inc. and
Focus on the Family. During the Reagan Administration, Mr. Hodel served as
Secretary of Energy and Secretary of the Interior.

COMMITTEES OF THE BOARD OF DIRECTORS

Salem has formed an Audit Committee and a Compensation Committee of its
board of directors, and all of the directors serving on the Audit Committee and
the Compensation Committee are directors who are not employees of Salem.

The Audit Committee consists of Messrs. Riddle and Hodel. The Audit
Committee will review the results and scope of the audit performed by Salem's
independent accountants and establish standards for review of Salem's compliance
with applicable accounting and regulatory standards. The Compensation Committee
consists of Messrs. Hinz and Schuchert. The Compensation Committee will make
decisions or recommendations to the board of directors concerning salaries,
incentive compensation and severance benefits for officers and senior employees
of Salem.

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<PAGE> 58

EXECUTIVE COMPENSATION

The following table sets forth all compensation paid by Salem for 1998,
1997 and 1996 to its Chief Executive Officer and four highest paid executive
officers.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------- OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS COMPENSATION COMPENSATION
- ---------------------------- ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Edward G. Atsinger III.... 1998 $400,000 $250,000 $ -- $ --
President, Chief 1997 400,000 -- 1,281,192(1) --
Executive Officer 1996 400,000 350,000(2) 996,372(1) --
and Director
Stuart W. Epperson........ 1998 400,000 288,000 -- --
Chairman of the Board 1997 400,000 -- 1,281,192(1) --
1996 400,000 350,000(2) 1,012,319(1) --
Eric H. Halvorson......... 1998 285,000 87,500 -- 570(3)
Executive Vice President, 1997 270,000 85,000 -- 63,525(4)
Chief Operating Officer 1996 255,000 85,000 -- 909(3)
and Director
Dave Armstrong............ 1998 175,658 38,000 -- 876(3)
Vice President - 1997 163,683 -- -- 19(3)
Operations 1996 149,019 15,000 -- 585(3)
Joe D. Davis.............. 1998 172,362 20,000 -- 1,000(3)
Vice President - 1997 163,524 -- -- 950(3)
Operations 1996 159,026 -- -- 950(3)
</TABLE>

- -------------------------
(1) Represents tax reimbursement payments made to satisfy individual federal and
state income tax liabilities generated by New Inspiration and Golden Gate as
a result of their S corporation status. See note 1 to our consolidated
financial statements included elsewhere in this prospectus. Of the 1997
amounts, approximately $390,000 was paid to each executive as distributions
from New Inspiration and Golden Gate.

(2) Paid as distributions from New Inspiration and Golden Gate.

(3) Represents employer matching contributions to individuals' 401(k) accounts.

(4) Includes employer matching contributions to Mr. Halvorson's 401(k) account
and cancellation of $25,000 indebtedness owed to Salem by Mr. Halvorson,
plus accrued interest of $7,420 and a distribution to Mr. Halvorson of
$30,155, an amount equal to the tax liability incurred by Mr. Halvorson as a
result of cancellation of this debt.

COMPENSATION OF DIRECTORS

Officers of Salem who also serve as directors do not receive compensation
for their services as directors other than the compensation they receive as
officers of Salem. Directors of Salem who are not also officers or employees of
Salem were paid a one-time fee of $7,500 in 1998 and receive $2,500 per quarter
for their services as directors of Salem. Directors of Salem are entitled to
reimbursement of their reasonable out-of-pocket expenses in connection with
their travel to and attendance at board meetings.

1999 STOCK INCENTIVE PLAN

On May 26, 1999, we adopted the 1999 stock incentive plan, conditioned upon
completion of the offering, designed to provide incentives relating to equity
ownership to plan participants including present and future directors, officers,
employees, consultants and advisors of Salem and our subsidiaries as may be
selected in the sole discretion of the

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<PAGE> 59

board of directors or a board committee that the board may appoint to administer
the plan. The plan provides for the granting of awards to participants as the
board of directors, or such administrative board committee it may designate,
deems to be consistent with the purposes of the plan. Awards under the plan may
include any one or more of the following: stock options, performance awards,
restricted stock, stock appreciation rights, stock payments, dividend
equivalents, stock bonuses, stock sales, phantom stock and other stock-based
benefits. An aggregate of 1,000,000 shares of Class A common stock have been
reserved for issuance under the plan. The plan affords Salem latitude in
tailoring incentive compensation for the retention of key personnel, to support
corporate and business objectives, and to anticipate and respond to a changing
business environment and competitive compensation practices.

The board of directors, or the board committee it has appointed, has
exclusive discretion to select the plan participants, to determine the type,
size and terms of each award, to modify the terms of awards, to determine when
awards will be granted and paid, and to make all other determinations which it
deems necessary or desirable in the interpretation and administration of the
plan. The plan terminates ten years from its effective date as adopted by the
board of Salem. The board or the appointed committee has the ability to
administer and amend the plan without stockholder approval except as required by
law or the plan.

In general, a participant's rights and interest under the plan are not
transferable and only a recipient of an award may exercise such awards. The
assignability and transferability of awards are further subject to limitations
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the Internal Revenue Code of 1986, as amended.

Stock Options. Options awardable under the plan, which include
non-qualified stock options and incentive stock options, are rights to purchase
a specified number of shares of Class A common stock at a price fixed by the
board or appointed committee as of the date the option is granted. The option
price may not be less than the fair market value of the underlying shares of
Class A common stock. Each stock option will become exercisable, as a whole or
in part, on the date or dates specified by the board or the appointed committee
and will expire on a date determined by the board or the appointed committee,
but not later than 10 years after the date the stock option is granted. The
options will be subject to earlier termination as provided in the plan or the
award document. Upon termination of a participant's employment with Salem,
options that are not exercisable will be forfeited immediately and options that
are exercisable may be subject to a shortened exercise period determined by the
board or appointed committee, as set forth in the agreement establishing the
award or as agreed to by the participant. Payment of the option price must be
made in full at the time of exercise in such form (including, but not limited
to, cash or Class A common stock of Salem) as the board or appointed committee
may determine.

Performance Awards. Performance awards are awards payable in cash, Class A
common stock or a combination of both, and vest and become payable over a period
of time upon attainment of performance criteria established by the board or the
appointed committee. Each performance award will expire on a date determined by
the board or appointed committee and is subject to earlier termination as
provided in the plan.

Restricted Stock. Restricted stock awards are grants or sales of Class A
common stock that are nontransferable and subject to a substantial risk of
forfeiture until specific conditions are met. The board or appointed committee
determines the purchase price (if any) to be paid for the restricted stock, the
terms of payment, the restrictions upon the restricted stock, and when such
restrictions will lapse. Subject to any restrictions imposed

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<PAGE> 60

upon the restricted stock, the recipient will have all rights of a stockholder
with respect to the restricted stock granted or sold to such recipient,
including, without limitation, the right to vote the shares and receive all
dividends and other distributions paid or made with respect thereto. Unless the
board or the appointed committee determines otherwise, upon a participant's
termination of employment, Salem will repurchase grants of restricted stock that
remain subject to restrictions on the date of such termination at the purchase
price paid by the recipient, if any.

Stock Appreciation Rights. Stock appreciation rights are rights to receive
payments measured with reference to the amount by which the fair market value of
a specified number of shares of Class A common stock appreciates from a
specified date, such as the date of grant, to the date of exercise. The board or
the appointed committee has full discretion to determine the form in which
payment of a stock appreciation right will be made and to consent to or
disapprove the election of a recipient to receive cash in full or partial
settlement of a stock appreciation right. In addition, the board or the
appointed committee may, at the time a stock appreciation right is granted,
impose such conditions on the exercise of the stock appreciation right as may be
required to comply with requirements of the Exchange Act.

Stock Payments. Stock payments are payments in shares of Class A common
stock that are made to replace all or any portion of a participant's non-base
salary compensation that would otherwise become payable to the participant in
cash.

Dividend Equivalents. Dividend equivalents are payments made to a
participant who holds stock options, stock appreciation rights or other award in
which the payments are equivalent to the amount of dividends payable to such
participant with respect to the shares of common stock underlying such other
award. Dividend equivalents may be paid in cash, Class A common stock or another
award, and the amount of dividend equivalents paid other than in cash will be
determined by the board or the appointed committee by application of such
formula as the board or the appointed committee may deem appropriate to
translate the cash value of dividends paid to the alternative form of payment of
the dividend equivalent.

Stock Bonuses. Stock bonuses are awards of restricted or unrestricted
shares of Class A common stock as bonuses for services rendered or for any other
valid consideration on such terms and conditions as the board or the appointed
committee may determine.

Stock Sales. Stock sales are sales of Class A common stock on such terms
and conditions as the board or the appointed committee may determine.

Phantom Stock. Phantom stock grants are grants of cash bonuses measured by
the fair market value of a specified number of shares of Class A common stock on
a specified date or measured by the excess of such fair market value over a
specified minimum, which may, but need not, include dividend equivalents.

Other Stock-Based Benefits. The board or appointed committee may grant to
eligible persons other stock-based benefits not otherwise described above that
(i) by their terms might involve the issuance or sale of Class A common stock or
(ii) involve a benefit that is measured, as a whole or in part, by the value,
appreciation, dividend yield or other features attributable to a specified
number of shares of Class A common stock.

In the event of a reorganization not involving a change of control in which
holders of shares of Class A common stock are entitled to receive any
securities, cash or other

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<PAGE> 61

consideration for their shares of Class A common stock, each award outstanding
under the plan shall become exercisable, in accordance with the plan, for the
kind and amount of securities, cash and/or other consideration receivable by a
holder of the same number of shares of Class A common stock upon such
reorganization. Any adjustments to the consideration will be made in the sole
discretion of the board or appointed committee at it deems appropriate to give
effect to the reorganization.

In the event of a reorganization that involves a change of control, as of
the effective time of the reorganization, the plan and any then outstanding
awards, whether or not vested, shall automatically terminate unless otherwise
provided in writing in connection with such reorganization or by the board. If
the plan and the awards terminate by reason of a change in control
reorganization as described in the preceding sentence, then any recipient
holding outstanding awards shall have the right, at such time immediately prior
to the consummation of the reorganization as the board shall designate, to
exercise the recipient's awards to the full extent not theretofore exercised,
including any installments which have not yet become vested.

Upon the completion of the offering, the board of directors intends to
grant options under the plan for the purchase of an aggregate of 294,500 shares
of Class A common stock to selected directors, executive officers and employees
of Salem. The exercise price of the options will be the public offering price
set forth on the cover page of this prospectus.

EMPLOYMENT AGREEMENTS

Edward G. Atsinger III and Stuart W. Epperson entered into employment
agreements with Salem effective as of August 1, 1997 and as amended effective as
of May 19, 1999, pursuant to which Mr. Atsinger will serve as President and
Chief Executive Officer of Salem and Mr. Epperson will serve as chairman of
Salem for an initial period expiring July 31, 2001. Pursuant to the employment
agreements, each of Messrs. Atsinger and Epperson will be paid an annual base
salary and an annual bonus determined at the discretion of the board of
directors. Effective as of June 1, 1999, the annual base salary payable to each
of Messrs. Atsinger and Epperson will be $600,000. Messrs. Atsinger's and
Epperson's employment agreements provide that, in the event of a termination of
employment by Salem without cause (or a constructive termination by Salem)
during the initial term of employment, Salem will pay a severance benefit in the
form of salary continuation payments for the longer of six months or the
remainder of the initial term, plus accrued bonus through the date of
termination. Following the initial term of employment, a termination of
employment by Salem without cause (or a constructive termination by Salem) or a
failure by Salem to renew the initial or any subsequent term of employment for
an additional annual term would entitle Messrs. Atsinger and Epperson to three
months of severance plus accrued bonus through the date of termination.

Additionally, the employment agreements with Messrs. Atsinger and Epperson
provide Salem with a right of first refusal on corporate opportunities, which
includes acquisitions of radio stations in any market in which Salem is
interested, and includes a noncompete provision for a period of two years from
the cessation of employment with Salem and a nondisclosure provision which is
effective for the term of the employment agreement and indefinitely thereafter.

Eric H. Halvorson is a party to an employment agreement with Salem pursuant
to which he serves as Executive Vice President of Salem at an annual salary of
$400,000, with a term of employment through December 2003. If Mr. Halvorson is
terminated without cause by Salem, he is entitled to severance payments equal to
his salary for the remaining term of his agreement. Mr. Halvorson also entered
into a deferred compensation agreement with Salem effective as of November 1991,
pursuant to which Mr. Halvorson

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<PAGE> 62

will receive (i) 50% of the average of his three highest years of compensation,
payable for a period of ten consecutive years, if he remains employed by Salem
until age 60, or (ii) a discounted amount, based upon the compensation he would
have received if he had remained employed until age 60, if his employment
terminates for any reason after the term of the employment agreement or before
he reaches age 60 by reason of death, disability or termination by Salem without
cause.

On May 26, 1999, we granted 75,000 shares of Class A common stock to Eric
H. Halvorson and a cash bonus to be paid in an amount equal to the individual
income tax liability incurred by Mr. Halvorson in connection with the stock
grant.

401(k) PLAN

Salem adopted a 401(k) savings plan in 1993 for the purpose of providing,
at the option of the employee, retirement benefits to full-time employees of
Salem and its subsidiaries. Contributions to the 401(k) savings plan are made by
the employee and, on a voluntary basis, by the company. The company currently
matches 25% of the employee's contributions to the 401(k) savings plan which do
not exceed 6% of the employee's annual compensation. Salem made a contribution
of $87,000 to the 401(k) savings plan during 1998.

TRANSACTIONS INVOLVING OFFICERS,
DIRECTORS AND PRINCIPAL STOCKHOLDERS

OUR 1997 REORGANIZATION

Salem's August 1997 reorganization was effected by each of the three
stockholders contributing their shares of stock in New Inspiration and Golden
Gate to Salem (which in turn effected the contribution to Salem of the
stockholders' interests in Beltway Media Partners in exchange for new shares in
Salem). The share conversion factors were based on the ratio of asset values of
each of Salem, New Inspiration and Golden Gate to the combined asset value of
all of these entities. The asset values of these entities were determined by an
independent radio station broker. Following our 1997 reorganization, Mrs.
Epperson, who had been a 50% owner of New Inspiration, became a stockholder of
Salem.

In connection with our 1997 reorganization, New Inspiration and Golden
Gate, which were each S corporations prior to our 1997 reorganization,
distributed cash and promissory notes to their respective stockholders in the
aggregate amount of $8.5 million. Of such amount, $1.8 million, which equaled
the estimated federal and state income tax liability of the stockholders on the
earnings of New Inspiration and Golden Gate, was paid by New Inspiration and
Golden Gate in cash. The remainder, $6.7 million, was paid in the form of
promissory notes payable to the stockholders immediately following the closing
of the offering of our senior subordinated notes. After that closing, Salem
borrowed $6.7 million under its credit agreement and applied this amount to the
payment of indebtedness owed by Salem to New Inspiration and Golden Gate. The
cash made available from the repayment of such loans was then used by New
Inspiration and Golden Gate to pay the notes due to the stockholders.

LOAN TRANSACTIONS

In December 1996, Messrs. Atsinger and Epperson, Salem's principal
stockholders, repaid Salem $4.8 million for outstanding principal and accrued
interest under two promissory notes given for loans made to them in 1991. Salem
made these loans,

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approximately $1.7 million each, to Messrs. Atsinger and Epperson, to facilitate
the repayment of personal indebtedness each of them had incurred in connection
with prior radio station acquisitions. The notes bore interest at a floating
rate. The repayments to Salem were made with the proceeds of a distribution to
Messrs. Atsinger and Epperson from Golden Gate and New Inspiration of previously
taxed S corporation income. Principal and accrued interest on these notes
amounted to approximately $4.6 million at December 31, 1995. Salem earned
approximately $189,000 in interest on these two notes in 1996.

In December 1996, Salem borrowed $1.9 million from Mr. Atsinger. Salem
repaid the note for this borrowing, including interest at 9 1/4%, in January
1997, with proceeds from a borrowing under our credit facility.

In July 1997, Salem canceled certain indebtedness owed to us by Eric H.
Halvorson, an executive officer and director of Salem, in the amount of $25,000
plus accrued interest calculated at a floating rate. At the same time, Salem
made a distribution to Mr. Halvorson in an amount equal to the tax liability he
incurred as a result of the cancellation of this debt.

In December 1997, Salem borrowed $2.0 million from Mr. Atsinger pursuant to
a promissory note with a revolving principal amount of up to $2.5 million. The
outstanding balance on the note as of December 31, 1998 was $1.8 million and the
note was repaid in full and cancelled in April 1999. The note bore interest at a
floating rate that was last set at 8%.

In January 1998, Salem borrowed $1.5 million from Mr. Epperson pursuant to
a promissory note with a revolving principal amount of up to $2.5 million. In
May 1998, Salem repaid $1.5 million and there was no outstanding balance on the
note as of December 31, 1998. The note was cancelled in April 1999. The note
bore interest at a floating rate that was last set at 8%.

In 1997, Salem purchased split-dollar life insurance policies for Messrs.
Atsinger and Epperson. Mr. Epperson selected a one-year policy in the amount of
$20 million while Mr. Atsinger selected a one-year policy in the amount of $40
million, resulting in a premium difference of $94,000 between the two policies,
which difference was paid to Mr. Epperson in cash in the form of an
interest-free loan. The loan will be called upon payment by Mr. Atsinger of
$94,000 to Salem. In 1998, Salem purchased one-year split-dollar life insurance
policies in the amount of $20 million for each of Messrs. Atsinger and Epperson.

LEASES WITH PRINCIPAL STOCKHOLDERS

Salem leases the studios and tower and antenna sites described in the table
below from Messrs. Atsinger and Epperson or trusts and partnerships created for
the benefit of Messrs. Atsinger and Epperson and their families. All such leases
have cost of living adjustments. Based upon management's assessment and analysis
of local market conditions

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<PAGE> 64

for comparable properties, we believe that such leases do not have terms that
vary materially from those that would have been available from unaffiliated
parties.

<TABLE>
<CAPTION>
STATION CALL CURRENT EXPIRATION
MARKET LETTERS FACILITIES LEASED ANNUAL RENTAL DATE(1)
------ ------------ --------------------- ------------- ----------
<S> <C> <C> <C> <C>
LEASES WITH BOTH MESSRS. ATSINGER
AND EPPERSON:
Los Angeles, CA.............. KKLA-AM Antenna/Tower/Studios $ 46,260 2002
KLTX-AM Antenna/Tower 140,172 2002
Chicago, IL.................. WYLL-FM Antenna/Tower 42,048 2002
San Francisco, CA............ KFAX-AM Antenna/Tower 145,680 2003
Philadelphia, PA............. WFIL-AM/ Antenna/Tower/Studios 112,044 2004
WZZD-AM
Houston-Galveston, TX........ KKHT-FM Antenna/Tower 150,000 2008
KENR-AM Antenna/Tower 32,184 2005
KTEK-AM Antenna/Tower 16,800 2009
Seattle-Tacoma, WA........... KGNW-AM Antenna/Tower 36,444 2002
KLFE-AM Antenna/Tower 26,484 2004
Minneapolis-St. Paul, MN..... KKMS-AM Antenna/Tower/Studios 135,120 2006
Pittsburgh, PA............... WORD-FM Antenna/Tower 27,156 2003
Denver-Boulder, CO........... KNUS-AM Antenna/Tower 18,816 2006
Cleveland, OH................ WHK-AM Antenna/Tower 34,080 2008
Portland, OR................. KPDQ-AM/FM Studios 61,680 2002
Antenna/Tower 14,016 2002
Cincinnati, OH............... WTSJ-AM Antenna/Tower/Studios 24,096 2007
Sacramento, CA............... KFIA-AM Antenna/Tower 80,916 2006
San Antonio, TX.............. KSLR-AM Antenna/Tower 34,730 2007
Akron, OH.................... WHLO-AM Antenna/Tower 12,162 2007
Canton, OH................... WHK-FM Antenna/Tower 12,162 2007
----------
$1,203,050
----------
LEASE WITH MR. ATSINGER:
San Diego, CA................ KPRZ-FM Antenna/Tower 46,812 2002
----------
$1,249,862
==========
</TABLE>

- -------------------------
(1) The expiration date reported for certain facilities represents the
expiration date assuming exercise of lease term extensions at Salem's
option.

Rental expense paid by Salem to Messrs. Atsinger and Epperson or trusts or
partnerships created for the benefit of their families for 1998, 1997 and 1996
amounted to approximately $1,000,000, $1,000,000 and, $800,000, respectively.
Rental expense paid by Salem solely to Mr. Atsinger or trusts created for the
benefit of his family for 1998, 1997 and 1996 amounted to approximately $60,000,
$57,000 and $57,000, respectively. Rental expense paid by Salem to Messrs.
Atsinger and Epperson in 1998, 1997 and 1996 represented payment under
substantially the same leases as currently in effect, however, leases for radio
station properties disposed of by Salem during 1996, 1997 and 1998 are not
included in the preceding summary table.

KKOL-AM

In April 1999, Salem purchased KKOL-AM, Seattle, Washington for $1.4
million from Sonsinger, Inc., a corporation owned by Messrs. Atsinger and
Epperson. Prior to the acquisition, pursuant to a local marketing agreement with
Sonsinger entered into on June 13, 1997, Salem programed KKOL-AM and sold all
the airtime. Under that local marketing agreement we retained all of the revenue
(approximately $82,000 and $20,400 for 1998 and 1997, respectively) and incurred
all of the expenses related to our operation

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<PAGE> 65

of KKOL-AM and incurred approximately $164,000 and $64,000 in local marketing
fees under the agreement in 1998 and 1997, respectively. We also agreed to
purchase the real estate and transmitter site for KKOL-AM for $400,000 from
Sonsinger.

TOWER CONSTRUCTION CONTRACT

In August 1997, in order to reduce the indebtedness under our credit
facility, we assigned our contract with a tower construction company to build a
broadcast tower in Houston to a corporation owned by Messrs. Atsinger and
Epperson. Messrs. Atsinger and Epperson reimbursed us for our costs and expenses
of $3.7 million on December 31, 1997. The antenna for our station in Houston,
KKHT-FM, is located on the tower and we pay rent to Messrs. Atsinger and
Epperson at an annual rate of $150,000.

RADIO STATIONS OWNED BY THE EPPERSONS

Mrs. Epperson has personally acquired four radio stations in the
Norfolk-Virginia Beach-Newport News, Virginia market. Additionally, Mr. Epperson
has personally acquired certain radio stations in the Greensboro-Winston-Salem,
North Carolina market. These Virginia and North Carolina markets are not
currently served by Salem's radio stations. Acquisitions in these markets are
not part of our current business and acquisition strategies. Under his
employment agreement, Mr. Epperson is required to offer Salem a right of first
refusal on opportunities related to Salem's business.

TRANSPORTATION SERVICES SUPPLIED BY PRINCIPAL STOCKHOLDER

From time to time, Salem rents an airplane and a helicopter from Atsinger
Aviation LLC, which is owned by Mr. Atsinger. As approved by the independent
members of Salem's board of directors, Salem rents these aircraft on an hourly
basis at below-market rates and uses them for general corporate needs. In 1998,
1997 and 1996, Salem paid approximately $69,000, $60,000 and $38,000
respectively to Atsinger Aviation for airplane rental; no amounts were paid for
helicopter rental in 1998, 1997 or 1996.

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<PAGE> 66

SECURITY OWNERSHIP OF SELLING STOCKHOLDERS,
BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information with respect to the beneficial
ownership of Salem's common stock by (i) 5% stockholders, (ii) each of the
directors who beneficially owns shares, (iii) Salem's Chief Executive Officer
and each of its four highest paid executive officers who beneficially owns
shares and (iv) all directors and executive officers as a group.

Individually and through family and charitable trusts, Edward G. Atsinger
III and Stuart W. Epperson, our CEO and chairman, are the selling stockholders
and have granted the underwriters an option to acquire up to an additional
1,260,000 shares of Class A common stock. See "Underwriting."

The address of the individuals listed below is 4880 Santa Rosa Road, Suite
300, Camarillo, California 93012.

<TABLE>
<CAPTION>
CLASS A COMMON STOCK PERCENT OF VOTE OF
--------------------------------------------------- ALL CLASSES OF
CLASS B COMMON STOCK
BEFORE AFTER COMMON -------------------
OFFERING SHARES OFFERING STOCK
------------------- BEING ----------------- ---------------- BEFORE AFTER
NAME OF BENEFICIAL OWNER NUMBER % OFFERED NUMBER % NUMBER % OFFERING OFFERING
- ------------------------ ---------- ----- --------- --------- ---- --------- --- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Edward G. Atsinger
III(1) 5,553,696 49.7% 840,000 4,713,696 26.3% 2,776,848 50% 49.9% 44.2%
Stuart W. Epperson 5,553,696(2) 49.7% 840,000 4,713,696(2) 26.3% 2,776,848(3) 50% 49.9% 44.2%
Nancy A. Epperson 5,553,696(2) 49.7% 0 4,713,696(2) 26.3% 2,776,848(3) 50% 49.9% 44.2%
Eric H. Halvorson 75,000(4) * 0 75,000(4) * 0 0% * *
All directors and
executive officers as
a group (16 persons) 11,182,392 100.0% 1,680,000 9,502,392 53.1% 5,553,696 100% 100.0% 88.6%
</TABLE>

- -------------------------
* Less than 1%.

(1) Represents shares of Class A and Class B common stock held by trusts of
which Mr. Atsinger is trustee.

(2) Includes shares of Class A common stock held by trusts of which Mr. Epperson
is trustee and held directly by Mr. Epperson. As husband and wife, Mr. and
Mrs. Epperson are each deemed to be the beneficial owner of shares held by
the other and, therefore, their combined beneficial ownership is shown in
the table.

(3) Includes shares of Class B common stock held directly by Mr. Epperson and
held directly by Mrs. Epperson.

(4) Represents shares of Class A common stock held by a trust of which Mr.
Halvorson and his wife are trustees.

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<PAGE> 67

DESCRIPTION OF CAPITAL STOCK

Salem's authorized capital stock consists of 80,000,000 shares of Class A
common stock, $.01 par value, 20,000,000 shares of Class B common stock, $.01
par value, and 10,000,000 shares of preferred stock, $.01 par value. Together,
the Class A common stock and the Class B common stock comprise all of the
authorized common stock.

COMMON STOCK

Upon completion of this offering, there will be 17,902,392 shares of Class
A common stock and 5,553,696 shares of Class B common stock outstanding. All of
the outstanding Class B common stock is beneficially owned by Edward G. Atsinger
III, Stuart W. Epperson and Nancy A. Epperson.

Voting. Holders of Class A common stock are entitled to one vote for each
share held of record, and holders of Class B common stock are entitled to 10
votes for each share held of record, except that:

- in the case of a proposed acquisition of a company where any director,
officer, holder of 10% or more of any class of common stock or any of
their affiliates has an interest in the company, the assets to be
acquired or in the proceeds from the transaction, holders of both classes
of common stock are entitled to one vote for each share held of record;
and

- in the case of a proposed going private transaction involving Salem or
Edward G. Atsinger III, Stuart W. Epperson or Nancy A. Epperson or any of
their affiliates, holders of both classes of common stock are entitled to
one vote for each share held of record.

The Class A common stock and the Class B common stock vote together as a
single class on all matters submitted to a vote of stockholders, including the
election of directors by proxy, except as required by law and except as follows.
Beginning with Salem's first annual meeting following the offering, the holders
of Class A common stock will vote as a separate class for two independent
directors, in addition to voting together with holders of Class B common stock
for the remaining directors. Shares of common stock do not have cumulative
voting rights with respect to the election of directors.

For purposes of the election of independent directors by the holders of
Class A common stock, an independent director is a person who is not an officer,
employee, affiliate, agent, principal stockholder, consultant, or partner of
Salem or its subsidiaries, and who does not otherwise have a relationship which,
in the opinion of the board of directors, would interfere with the exercise of
independent judgment in carrying out the responsibilities of a director. Prior
to the first annual meeting following this offering, these directors will be
appointed by the board of directors.

As a result of this offering, excluding any over-allotment shares, the
percentage of the voting power of the outstanding common stock controlled by
Messrs. Atsinger and Epperson and Mrs. Epperson will decline to approximately
88% (87% if the underwriters' over-allotment option is exercised in full); but
they will continue to control all actions to be taken by the stockholders,
including the election of all directors to the board of directors other than the
two independent directors to be elected by the holders of Class A common stock.
See "Security Ownership of Selling Stockholders, Beneficial Owners and
Management" and "Risk Factors -- Existing Stockholders Have the Ability to
Control Matters on Which Salem's Stockholders May Vote."

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<PAGE> 68

Dividends. Holders of the common stock are entitled to receive, as when and
if declared by the board of directors from time to time, such dividends and
other distributions in cash, stock or property from Salem's assets or fund
legally available for such purposes subject to any dividend preferences that may
be attributable to preferred stock that may be authorized. Each share of Class A
common stock and Class B common stock is equal in respect of dividends and other
distributions in cash, stock or property, including distributions upon
liquidation of Salem and consideration to be received upon a merger or
consolidation of Salem or a sale of all or substantially all of the Salem's
assets, except that in the case of stock dividends, only shares of Class A
common stock will be distributed with respect to the Class A common stock and
only shares of Class B common stock will be distributed with respect to Class B
common stock. In no event will either Class A common stock or Class B common
stock be split, divided or combined unless the other class is proportionately
split, divided or combined.

Conversion. The shares of Class A common stock are not convertible into any
other series or class of securities. Each share of Class B common stock,
however, is freely convertible into one share of Class A common stock at the
option of the Class B stockholder. Shares of Class B common stock may not be
transferred to third parties. Except for transfers to certain family members and
for estate planning purposes, any such attempt to transfer Class B common stock
will result in the automatic conversion of such shares into Class A common
shares. All conversions of Class B common stock are subject to any necessary FCC
approval.

Liquidation. Upon liquidation, dissolution or winding up of Salem, the
holders of the common stock are entitled to share ratably in all assets
available for distribution after payment in full of creditors and holders of the
preferred stock of Salem, if any.

The Class A common stock will be quoted on the Nasdaq National Market under
the symbol "SALM."

PREFERRED STOCK

The board of directors, without further action by the stockholders, is
authorized to issue an aggregate of 10,000,000 shares of preferred stock. No
shares of preferred stock are outstanding and the board of directors currently
has no plans to issue a new series of preferred stock. The board of directors
may, without stockholder approval, issue preferred stock with dividend rates,
redemption prices, preferences on liquidation or dissolution, conversion rights,
voting rights and any other preferences, which rights and preferences could
adversely affect the voting power of the holders of common stock. The issuance
of preferred stock, while providing desirable flexibility in connection with
possible acquisitions or other corporate purposes, could have the effects of
making it more difficult for a third party to acquire, or could discourage or
delay a third party from acquiring, a majority of our outstanding stock and of
decreasing the amount of earnings or assets available for distribution to the
holders of common stock.

CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS

Advance Notice. Salem's bylaws provide that advance notice of all director
nominations or other business matters proposed to be brought before an annual
meeting of stockholders be delivered to our secretary at our corporate office
not later than 90 nor more than 120 days prior to the first anniversary of the
preceding year's annual meeting. This provision may make it more difficult for
stockholders to nominate or elect directors or take action opposed by the board.

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Special Meetings. Our bylaws provide that special meetings of the
stockholders may be called only by the board of directors, the chairman of the
board of directors or the president. This provision may make it more difficult
for stockholders to take action opposed by the board.

No Stockholder Action by Written Consent. Our certificate of incorporation
provides that stockholders can take action only at an annual or special meeting
of stockholders duly called in accordance with Salem's bylaws. Accordingly,
stockholders of Salem will not be able to take action by written consent in lieu
of a meeting. This provision may have the effect of deterring hostile takeovers
or delaying changes in control or management of Salem.

Indemnification of Directors and Officers. Salem's certificate of
incorporation and bylaws provide a right to indemnification to the fullest
extent permitted by law for expenses, attorney's fees, damages, punitive
damages, judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by any person whether or not the indemnified liability
arises or arose from any threatened, pending or completed proceeding by or in
Salem's right by reason of the fact that such person is or was serving as a
director or officer at Salem's request, as a director, officer, partner,
venturer, proprietor, employee, agent, or trustee of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
Salem's certificate of incorporation and bylaws provide for the advancement of
expenses to an indemnified party upon receipt of an undertaking by the party to
repay those amounts if it is finally determined that the indemnified party is
not entitled to indemnification.

Salem's bylaws authorize it to take steps to ensure that all persons
entitled to the indemnification are properly indemnified, including, if the
board of directors so determines, purchasing and maintaining insurance.

CERTAIN PROVISIONS OF DELAWARE LAW

Salem is a Delaware corporation and is subject to the provisions of Section
203 of the Delaware General Corporation Law, an anti-takeover law. In general,
the statute prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction by which that person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. For purposes of Section 203, a "business combination"
includes a merger, asset sale or other transaction resulting in a financial
benefit to the interested stockholder, and an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within three years
prior did own, 15% or more of Salem's voting stock.

FOREIGN OWNERSHIP RESTRICTIONS

Salem's certificate of incorporation includes provisions designed to ensure
that control and management of Salem remains with citizens of the United States
and/or corporations formed under the laws of the United States or any of the
states of the United States, as required by the Communications Act.

These provisions include restrictions on transfers to and holdings of
Salem's capital stock by an "Alien." For the purposes of these restrictions, an
Alien is (i) a person who is a citizen of a country other than the United
States; (ii) any entity organized under the laws of a government other than the
government of the United States or any state, territory, or possession of the
United States; (iii) a government other than the government

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of the United States or of any state, territory, or possession of the United
States; or (iv) a representative of, or an individual or entity controlled by,
any of the foregoing.

Specifically, Salem's foreign ownership restrictions provide:

- Salem shall not issue to an Alien any shares of its capital stock if such
issuance would result in the total number of shares of such capital stock
held or voted by Aliens (or for or by the account of Aliens) to exceed
25% of (i) the total number of all shares of such capital stock
outstanding at any time and from time to time or (ii) the total voting
power of all shares of such capital stock outstanding and entitled to
vote at any time and from time to time. Salem shall not permit the
transfer on its books of any capital stock to any Alien that would result
in the total number of shares of such capital stock held or voted by
Aliens (or for or by the account of Aliens) exceeding such 25% limits.

- No Alien or Aliens, individually or collectively, shall be entitled to
vote or direct or control the vote of more than 25% of (i) the total
number of all shares of capital stock of Salem outstanding at any time
and from time to time or (ii) the total voting power of all shares of
capital stock of Salem outstanding and entitled to vote at any time and
from time to time. Issuance or transfer of Salem's capital stock in
violation of this provision is prohibited.

Salem's board of directors shall have all powers necessary to implement
these provisions of Salem's certificate of incorporation and to ensure
compliance with the alien ownership restrictions (the "Alien Ownership
Restrictions") of the Communications Act, including, without limitation, the
power to prohibit the transfer of any shares of capital stock of Salem to any
Alien and to take or cause to be taken such action as it deems appropriate to
implement such prohibition, including placing a legend regarding restrictions on
foreign ownership of the capital stock on certificates representing such capital
stock.

In addition, any shares of Salem's capital stock determined by the board of
directors to be owned beneficially by an Alien or Aliens shall always be subject
to redemption by Salem by action of the board of directors or any other
applicable provision of law, to the extent necessary, in the judgment of the
board of directors, to comply with the Alien Ownership Restrictions. The terms
and conditions of such redemption are as follows:

- the redemption price shall be equal to the lower of (i) the fair market
value of the shares to be redeemed, as determined by the board of
directors in good faith, and (ii) such Alien's purchase price for such
shares;

- the redemption price may be paid in cash, securities or any combination
thereof;

- if less than all the shares held by Aliens are to be redeemed, the shares
to be redeemed shall be selected in any manner determined by the board of
directors to be fair and equitable;

- at least 10 days' prior written notice of the redemption date shall be
given to the holders of record of the shares selected to be redeemed
(unless waived in writing by any such holder), provided that the
redemption date may be the date on which written notice shall be given to
holders if the cash or securities necessary to effect the redemption
shall have been deposited in trust for the benefit of such holders and
subject to immediate withdrawal by them upon surrender of the stock
certificates for their shares to be redeemed duly endorsed in blank or
accompanied by duly executed proper instruments of transfer;

- from and after the redemption date, the shares to be redeemed shall cease
to be regarded as outstanding and any and all rights of the holders in
respect of the

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<PAGE> 71

shares to be redeemed or attaching to such shares of whatever nature (including
without limitation any rights to vote or participate in dividends declared on
capital stock of the same class or series as such shares) shall cease and
terminate, and the holders thereof thereafter shall be entitled only to
receive the cash or securities payable upon redemption; and

- such other terms and conditions as the board of directors shall
determine.

LIMITATION OF LIABILITY

Salem's certificate of incorporation provides that none of the directors
shall be personally liable to Salem or its stockholders for monetary damages for
a breach of fiduciary duty as a director, except for liability:

- for any breach of such person a duty of loyalty;

- for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law;

- for the payment of unlawful dividends and certain other actions
prohibited by Delaware corporate law; and

- for any transaction resulting in receipt by such person of an improper
personal benefit.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Class A common stock is The Bank
of New York.

SHARES ELIGIBLE FOR FUTURE SALE

SHARES OUTSTANDING AND FREELY TRADEABLE AFTER OFFERING

Upon completion of this offering, Salem will have 17,902,392 shares of
Class A common stock and 5,553,696 shares of Class B common stock outstanding
(assuming that the underwriters do not exercise their over-allotment option).
Shares of Class B common stock are convertible at the option of the holder into
an equal number of Class A common stock. The 6,720,000 shares of Class A common
stock to be sold by Salem in this offering and all shares sold by the selling
stockholders will be freely tradeable without restriction or limitation under
the Securities Act, except for any such shares held by "affiliates" of Salem, as
such term is defined under Rule 144 of the Securities Act. Shares of Class A and
Class B common stock held by affiliates of Salem may be sold only if registered
under the Securities Act or sold in accordance with an applicable exemption from
registration, such as Rule 144. Salem's directors, executive officers and its
existing stockholders have agreed not to sell, directly or indirectly, any
shares owned by them for a period of 180 days after the date of this prospectus
without the prior written consent of Deutsche Bank Securities Inc. and ING
Barings LLC. See "Underwriting." Upon the expiration of this 180 day lock-up
period, substantially all of these shares will become eligible for sale subject
to the restrictions of Rule 144.

RULE 144

In general, under Rule 144, as currently in effect, a person, or persons
whose shares are aggregated, who has beneficially owned shares for at least one
year, including an affiliate of Salem, would be entitled to sell, within any
three-month period, that number of

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shares that does not exceed the greater of 1% of the then-outstanding shares of
common stock and the average weekly trading volume in the common stock during
the four calendar weeks immediately preceding the date on which the notice of
sale is filed with the Commission, provided certain manner of sale and notice
requirements and requirements as to the availability of current public
information about Salem are satisfied. A holder of "restricted securities" who
is not deemed an affiliate of the issuer and who has beneficially owned shares
for a least two years would be entitled to sell shares under Rule 144(k) without
regard to these limitations. Affiliates of Salem must comply with the
restrictions and requirements of Rule 144, other than the one-year holding
period requirement, in order to publicly sell shares of common stock. As defined
in Rule 144, an "affiliate" of an issuer is a person who, directly or
indirectly, through the use of one or more intermediaries controls, or is
controlled by, or is under common control with, such issuer.

EFFECT OF SUBSTANTIAL SALES ON MARKET PRICE OF COMMON STOCK

Salem is unable to estimate the number of shares that may be sold in the
future by its existing stockholders or the effect, if any, that such sales will
have on the market price of the Class A common stock prevailing from time to
time. Sales of substantial amounts of Class A common stock, or the prospect of
such sales, could adversely affect the market price of the Class A common stock.

CERTAIN U.S. FEDERAL TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS OF CLASS A COMMON STOCK

The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Class A common stock
by a beneficial owner thereof that is a "Non-U.S. Holder." A "Non-U.S. Holder"
is a person or entity that, for U.S. federal income tax purposes, is a
non-resident alien individual, a foreign corporation, a foreign partnership, or
a foreign estate or trust.

This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), and administrative interpretations as of the date hereof, all of
which are subject to change, including changes with retroactive effect. This
discussion does not address all aspects of U.S. federal income and estate
taxation that may be relevant to Non-U.S. Holders in light of their particular
circumstances and does not address any tax consequences arising under the laws
of any state, local or foreign jurisdiction. Prospective holders should consult
their tax advisors with respect to the particular tax consequences to them of
owning and disposing of Class A common stock, including the consequences under
the laws of any state, local or foreign jurisdiction.

DIVIDENDS

Subject to the discussion below, dividends paid to a Non-U.S. Holder of
Class A common stock generally will be subject to withholding tax at a 30% rate
or such lower rate as may be specified by an applicable income tax treaty. For
purposes of determining whether tax is to be withheld at a 30% rate or at a
reduced rate as specified by an income tax treaty, Salem ordinarily will presume
that dividends paid on or before December 31, 1999 to an address in a foreign
country are paid to a resident of such country absent knowledge that such
presumption is not warranted.

Under United States Treasury Regulations issued on October 6, 1997, which
are applicable to dividends paid after December 31, 1999 (the "New
Regulations"), to obtain a reduced rate of withholding under a treaty, a
Non-U.S. Holder will generally be required to provide an Internal Revenue
Service Form W-8 certifying such Non-U.S. Holder's

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entitlement to benefits under a treaty. The New Regulations also provide special
rules to determine whether, for purposes of determining the applicability of a
tax treaty, dividends paid to a Non-U.S. Holder that is an entity should be
treated as paid to the entity or those holding an interest in that entity.

There will be no withholding tax on dividends paid to a Non-U.S. Holder
that are effectively connected with the Non-U.S. Holder's conduct of a trade or
business within the United States if a Form 4224 stating that the dividends are
so connected is filed with Salem. Instead, the effectively connected dividends
will be subject to regular U.S. income tax in the same manner as if the Non-U.S.
Holder were a U.S. resident. A non-U.S. corporation receiving effectively
connected dividends may also be subject to an additional "branch profits tax"
that is imposed, under certain circumstances, at a rate of 30% (or such lower
rate as may be specified by an applicable treaty) of the non-U.S. corporation's
effectively connected earnings and profits, subject to certain adjustments.
Under the New Regulations, Form W-8 will replace Form 4224.

Generally, Salem must report to the U.S. Internal Revenue Service the
amount of dividends paid, the name and address of the recipient, and the amount,
if any, of tax withheld. A similar report is sent to the holder. Pursuant to tax
treaties or certain other agreements, the U.S. Internal Revenue Service may make
its reports available to tax authorities in the recipient's country of
residence.

Dividends paid to a Non-U.S. Holder at an address within the United States
may be subject to backup withholding imposed at a rate of 31% if the Non-U.S.
Holder fails to establish that it is entitled to an exemption or to provide a
correct taxpayer identification number and certain other information.

Under current United States federal income tax law, backup withholding
imposed at a rate of 31% generally will not apply to dividends paid on or before
December 31, 1999 to a Non-U.S. Holder at an address outside the United States
(unless the payer has knowledge that the payee is a U.S. Person). Under the New
Regulations, however, a Non-U.S. Holder will be subject to backup withholding
unless applicable certification requirements are met.

GAIN ON DISPOSITION OF CLASS A COMMON STOCK

A Non-U.S. Holder generally will not be subject to U.S. federal income tax
with respect to gain realized on a sale or other disposition of Class A common
stock unless (i) the gain is effectively connected with a trade or business of
such holder in the United States, (ii) in the case of certain Non-U.S. Holders
who are non-resident alien individuals and hold the Class A common stock as a
capital asset, such individuals are present in the United States for 183 or more
days in the taxable year of the disposition, (iii) the Non-U.S. Holder is
subject to a tax pursuant to the provisions of the Code regarding the taxation
of U.S. expatriates, or (iv) Salem is or has been a "U.S. real property holding
corporation" within the meaning of Section 897(c)(2) of the Code at any time
within the shorter of the five-year period preceding such disposition or such
holder's holding period. Salem is not, and does not anticipate becoming, a U.S.
real property holding corporation.

INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING ON DISPOSITION OF
CLASS A COMMON STOCK

Under current United States federal income tax law, information reporting
and backup withholding imposed at a rate of 31% will apply to the proceeds of a
disposition of Class A common stock effected by or through a U.S. office of a
broker unless the disposing holder certifies as to its non-U.S. status or
otherwise establishes an exemption. Generally, U.S. information reporting and
backup withholding will not apply to a payment of disposition proceeds where the
transaction is effected outside the United States through a non-U.S.

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<PAGE> 74

office of a non-U.S. broker. However, U.S. information reporting requirements
(but not backup withholding) will apply to a payment of disposition proceeds
where the transaction is effected outside the United States by or through an
office outside the United States of a broker that is either (i) a U.S. person,
(ii) a foreign person which derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States, (iii) a
"controlled foreign corporation" for U.S. federal income tax purposes or (iv) in
the case of payments made after December 31, 1999, a foreign partnership with
certain connections to the United States, unless such broker has documentary
evidence in its files of the holder's non-U.S. status and has no actual
knowledge to the contrary or unless the holder establishes an exemption.

Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the U.S.
Internal Revenue Service.

FEDERAL ESTATE TAX

An individual Non-U.S. Holder who is treated as the owner of, or has made
certain lifetime transfers of, an interest in the Class A common stock will be
required to include the value thereof in his gross estate for U.S. federal
estate tax purposes, and may be subject to U.S. federal estate tax unless an
applicable estate tax treaty provides otherwise.

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<PAGE> 75

UNDERWRITING

We intend to offer our Class A common stock through a number of
underwriters. Deutsche Bank Securities Inc., ING Barings LLC and Salomon Smith
Barney Inc. are acting as representatives of each of the underwriters named
below. Subject to the terms and conditions set forth in a purchase agreement
among Salem, the selling stockholders and the underwriters, we and the selling
stockholders have agreed to sell to the underwriters, and each of the
underwriters severally and not jointly has agreed to purchase from Salem and the
selling stockholders, the number of shares of Class A common stock set forth
opposite its name below.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Deutsche Bank Securities Inc................................ 2,680,000
ING Barings LLC............................................. 2,680,000
Salomon Smith Barney Inc.................................... 1,340,000
BancBoston Robertson Stephens Inc........................... 100,000
Bear, Stearns & Co. Inc..................................... 100,000..
Credit Suisse First Boston Corporation...................... 100,000
Credit Lyonnais Securities (USA) Inc........................ 100,000
Donaldson, Lufkin & Jenrette Securities Corporation......... 100,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated.......... 100,000
Morgan Stanley & Co. Incorporated........................... 100,000
PaineWebber Incorporated.................................... 100,000
SG Cowen.................................................... 100,000
Wasserstein Perella Securities, Inc......................... 100,000
Sands Brothers & Co., Ltd................................... 100,000
Dominick & Dominick LLC..................................... 75,000
Fahnestock & Co. Inc........................................ 75,000
Gabelli & Company, Inc...................................... 75,000
Edgar M. Norris & Co. Inc................................... 75,000
Pennsylvania Merchant Group................................. 75,000
Raymond James & Associates, Inc............................. 75,000
The Robinson-Humphrey Company, LLC.......................... 75,000
SunTrust Equitable Securities Corporation................... 75,000
---------
Total............................................... 8,400,000
=========
</TABLE>

In the purchase agreement, the several underwriters have agreed, subject to
the terms and conditions set forth in the purchase agreement, to purchase all of
the shares of Class A common stock being sold under the terms of the purchase
agreement if any of the shares of Class A common stock being sold under the
terms of the purchase agreement are purchased. In the event of a default by an
underwriter, the purchase agreement provides that, in certain circumstances, the
purchase commitments of the nondefaulting underwriters may be increased or the
purchase agreement may be terminated.

We and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities, including certain liabilities under the Securities
Act, or to contribute to payments the underwriters may be required to make in
respect of those liabilities.

The shares of Class A common stock are being offered by the several
underwriters, subject to prior sale, when, as and if issued to and accepted by
them, subject to approval of certain legal matters by counsel for the
underwriters and certain other conditions. The

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underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part.

COMMISSIONS AND DISCOUNTS

The representatives have advised us and the selling stockholders that the
underwriters propose initially to offer the shares of Class A common stock to
the public at the initial public offering price set forth on the cover page of
this prospectus, and to certain dealers at such price less a concession not in
excess of $0.82 per share of Class A common stock. The underwriters may allow,
and such dealers may reallow, a discount not in excess of $0.10 per share of
Class A common stock on sales to certain other dealers. After the initial public
offering, the public offering price, concession and discount may change.

The following table shows the per share and total public offering price,
underwriting discount to be paid by us and the selling stockholders to the
underwriters and the proceeds before expenses to us and the selling
stockholders. This information is presented assuming either no exercise or full
exercise by the underwriters of the over-allotment option.

<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- ------------
<S> <C> <C> <C>
Public offering price............. $22.50 $189,000,000 $217,350,000
Underwriting discount............. $ 1.43 $ 12,012,000 $ 13,813,800
Proceeds, before expenses, to
Salem........................... $21.07 $141,590,400 $141,590,400
Proceeds, before expenses, to the
selling stockholders............ $21.07 $ 35,397,600 $ 61,945,800
</TABLE>

The expenses of the offering, exclusive of the underwriting discount, are
estimated at $1.2 million and are payable by us.

OVER-ALLOTMENT OPTION

The selling stockholders have granted an option to the underwriters,
exercisable for 30 days after the date of this prospectus, to purchase up to an
aggregate of 1,260,000 additional shares of our Class A common stock at the
public offering price set forth on the cover page of this prospectus, less the
underwriting discount. The underwriters may exercise this option solely to cover
over-allotments, if any, made on the sale of our Class A common stock offered
hereby. To the extent that the underwriters exercise this option, each
underwriter will be obligated, subject to certain conditions, to purchase a
number of additional shares of our Class A common stock proportionate to such
underwriter's initial amount reflected in the foregoing table.

RESERVED SHARES

At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 5% of the shares offered hereby to be sold to some
of our directors, officers, employees, distributors, dealers, business
associates and related persons. The number of shares of our Class A common stock
available for sale to the general public will be reduced to the extent that
those persons purchase the reserved shares. Any reserved shares which are not
orally confirmed for purchase within one day of the pricing of the offering will
be offered by the underwriters to the general public on the same terms as the
other shares offered by this prospectus.

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<PAGE> 77

LOCK-UP

We and our executive officers and directors and all existing stockholders
have agreed, subject to certain exceptions, without the prior written consent of
Deutsche Bank Securities Inc. and ING Barings LLC on behalf of the underwriters
for a period of 180 days after the date of this prospectus, not to directly or
indirectly:

- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of or otherwise dispose of or transfer any
shares of our common stock or securities convertible into or exchangeable
or exercisable for or repayable with our common stock, whether now owned
or later acquired by the person executing the agreement or with respect
to which the person executing the agreement later acquires the power of
disposition, or file a registration statement under the Securities Act
with respect to any shares of our common stock or

- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of our common stock whether
any such swap or transaction is to be settled by delivery of our common
stock or other securities, in cash or otherwise.

NASDAQ NATIONAL MARKET QUOTATION

Our Class A common stock has been approved for quotation on the Nasdaq
National Market under the symbol "SALM."

Before this offering, there has been no public market for our Class A
common stock. The initial public offering price will be determined through
negotiations among us, the selling stockholders and the representatives. The
factors considered in determining the initial public offering price, in addition
to prevailing market conditions, are the valuation multiples of publicly traded
companies that the representatives believe to be comparable to us, certain of
our financial information, our history, our prospects, the industry in which we
compete, and an assessment of our management, its past and present operations,
the prospects for, and timing of, our future revenue, the present state of our
development, and the above factors in relation to market values and various
valuation measures of other companies engaged in activities similar to ours.
There can be no assurance that an active trading market will develop for our
Class A common stock or that our Class A common stock will trade in the public
market subsequent to the offering at or above the initial public offering price.

The underwriters do not expect sales of the our Class A common stock to any
accounts over which they exercise discretionary authority to exceed 5% of the
number of shares offered in this offering.

PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

Until the distribution of our Class A common stock is completed, rules of
the Securities and Exchange Commission may limit the ability of the underwriters
and certain selling group members to bid for and purchase our Class A common
stock. As an exception to these rules, the representatives are permitted to
engage in transactions that stabilize the price of our Class A common stock.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of our Class A common stock.

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<PAGE> 78

If the underwriters create a short position in our Class A common stock in
connection with the offering, that is, if they sell more shares of our Class A
common stock than are set forth on the cover page of this prospectus, the
representatives may reduce that short position by purchasing our Class A common
stock in the open market. The representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.

The representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares of
our Class A common stock in the open market to reduce the underwriters' short
position or to stabilize the price of our Class A common stock, they may reclaim
the amount of the selling concession from the underwriters and selling group
members who sold those shares.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our Class A common stock to the extent
that it discourages resales of our Class A common stock.

Neither Salem nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our Class A common stock. In addition,
neither Salem nor any of the underwriters makes any representation that the
representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.

ING Barings LLC and Salomon Smith Barney Inc. have engaged in investment
banking transactions with Salem for which they have received customary
compensation, and may do so in the future.

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<PAGE> 79

LEGAL MATTERS

The validity of our Class A common stock offered hereby will be passed upon
for us by Gibson, Dunn & Crutcher LLP, Orange County, California. Debevoise &
Plimpton, New York, New York has acted as counsel to the underwriters in
connection with certain legal matters related to this offering.

EXPERTS

The consolidated financial statements of Salem at December 31, 1997 and
1998, and for each of the three years in the period ended December 31, 1998,
included in this prospectus have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included in this prospectus, and
are included in reliance upon their report given upon the authority of that firm
as experts in accounting and auditing.

ADDITIONAL INFORMATION

We have filed with the Commission, a registration statement on Form S-1
under the Securities Act of 1933 with respect to the Class A common stock
offered by this prospectus. This prospectus does not contain all of the
information included in the registration statement and the exhibits and
schedules included in the registration statement, certain portions of which are
omitted as permitted by the rules and regulations of the Commission. For further
information with respect to Salem and our Class A common stock offered hereby,
reference is made to the registration statement, including the exhibits and the
financial statements, notes and schedules filed as part of the registration
statement. Statements contained in this prospectus regarding the contents of any
contract or other document referred to in the prospectus or registration
statement are not necessarily complete. In each instance, reference is made to
the copy of such contract or other document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
such reference.

We file reports and other information with the Securities and Exchange
Commission. Such reports and other information, as well as the registration
statement, exhibits and schedules, may be inspected, without charge, or copied,
at prescribed rates, at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington D.
C. 20549, as well as at the following regional offices: Seven World Trade
Center, New York, New York 10048, and Citicorp Center, 500 W. Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
from the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington D.C. 20549, at prescribed rates. In addition, the
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of the Commission's Web site is
http://www.sec.gov.

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<PAGE> 80

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998
and March 31, 1999 (unaudited)............................ F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998 and for the three months
ended March 31, 1998 and 1999 (unaudited)................. F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1997 and 1998 and for the
three months ended March 31, 1999 (unaudited)............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998 and for the three months
ended March 31, 1998 and 1999 (unaudited)................. F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 81

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Salem Communications Corporation

We have audited the accompanying consolidated balance sheets of Salem
Communications Corporation as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Salem
Communications Corporation at December 31, 1997 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.

ERNST & YOUNG LLP

Woodland Hills, California
March 24, 1999, except for
Note 10, as to which
the date is May 26, 1999

F-2
<PAGE> 82

SALEM COMMUNICATIONS CORPORATION

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
-------------------- -----------
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,645 $ 1,917 $ 2,037
Accounts receivable (less allowance for doubtful accounts
of $1,249 in 1997, $862 in 1998 and $1,350 in 1999)..... 12,227 14,289 14,275
Other receivables......................................... 81 67 121
Prepaid expenses.......................................... 640 658 1,342
Prepaid income taxes...................................... 48 -- --
Deferred income taxes..................................... 2,254 2,443 3,163
-------- -------- --------
Total current assets........................................ 16,895 19,374 20,938
Property, plant and equipment, net.......................... 36,638 40,749 47,715
Intangible assets:
Broadcast licenses........................................ 138,837 167,870 167,880
Noncompetition agreements................................. 14,593 14,593 14,593
Customer lists and contracts.............................. 4,094 4,094 4,094
Favorable and assigned leases............................. 1,800 1,800 1,800
Goodwill.................................................. 5,999 6,689 11,176
Other intangible assets................................... 972 2,567 4,262
-------- -------- --------
166,295 197,613 203,805
Less accumulated amortization............................. 46,212 55,837 58,697
-------- -------- --------
Intangible assets, net...................................... 120,083 141,776 145,108
Notes receivable from stockholders.......................... 94 94 94
Bond issue costs............................................ 4,907 4,657 4,524
Other assets................................................ 6,196 1,100 1,018
-------- -------- --------
Total assets................................................ $184,813 $207,750 $219,397
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,050 $ 1,676 $ 2,073
Accrued expenses.......................................... 476 489 581
Accrued compensation and related.......................... 1,381 1,613 1,827
Accrued interest.......................................... 3,804 3,968 187
Deferred subscription revenue............................. -- -- 1,578
Income taxes.............................................. 341 89 226
Current portion of capital lease obligations.............. -- -- 252
Current portion of long-term debt......................... -- -- 2,810
-------- -------- --------
Total current liabilities................................... 7,052 7,835 9,534
Capital lease obligations, less current portion............. -- -- 290
Long-term debt, less current portion........................ 154,500 178,610 187,550
Deferred income taxes....................................... 12,122 11,581 13,331
Other liabilities........................................... 457 623 899
Stockholders' equity:
Class A common stock, $.01 par value; authorized
80,000,000 shares; issued and outstanding 11,107,392
shares.................................................. 111 111 111
Class B common stock, $.01 par value; authorized
20,000,000 shares; issued and outstanding 5,553,696
shares.................................................. 56 56 56
Additional paid-in capital................................ 5,665 5,665 5,665
Retained earnings......................................... 4,850 3,269 1,961
-------- -------- --------
Total stockholders' equity.................................. 10,682 9,101 7,793
-------- -------- --------
Total liabilities and stockholders' equity.................. $184,813 $207,750 $219,397
======== ======== ========
</TABLE>

See accompanying notes.

F-3
<PAGE> 83

SALEM COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
------------------------------------ -----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross broadcasting revenue.................................. $ 65,141 $ 74,830 $ 85,411 $ 19,459 $ 22,326
Less agency commissions..................................... 6,131 6,918 7,520 1,757 1,901
---------- ---------- ---------- ---------- ----------
Net broadcasting revenue.................................... 59,010 67,912 77,891 17,702 20,425
Other media revenue......................................... -- -- -- -- 1,095
---------- ---------- ---------- ---------- ----------
Total revenue............................................... 59,010 67,912 77,891 17,702 21,520
Operating expenses:
Broadcasting operating expenses........................... 33,463 39,626 42,526 9,930 11,379
Other media operating expenses............................ -- -- -- -- 1,298
Corporate expenses........................................ 4,663 6,210 7,395 1,503 1,796
Tax reimbursements to S corporation shareholders.......... 2,038 1,780 -- -- --
Depreciation and amortization (including $195 in 1999 for
other media businesses)................................. 8,394 12,803 14,058 3,337 4,111
---------- ---------- ---------- ---------- ----------
Total operating expenses.................................. 48,558 60,419 63,979 14,770 18,584
---------- ---------- ---------- ---------- ----------
Net operating income........................................ 10,452 7,493 13,912 2,932 2,936
Other income (expense):
Interest income........................................... 523 230 291 103 25
Gain (loss) on disposal of assets......................... 16,064 4,285 236 (22) --
Interest expense.......................................... (7,361) (12,706) (15,941) (3,772) (4,375)
Other expense............................................. (270) (389) (422) (105) (120)
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes and extraordinary item.... 19,408 (1,087) (1,924) (864) (1,534)
Provision (benefit) for income taxes........................ 6,655 106 (343) (290) (226)
---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary item..................... 12,753 (1,193) (1,581) (574) (1,308)
Extraordinary loss on early extinguishment of debt (net of
income tax benefit of $659 in 1997)....................... -- (1,185) -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss)........................................... $ 12,753 $ (2,378) $ (1,581) $ (574) $ (1,308)
========== ========== ========== ========== ==========
Basic and diluted income (loss) per share before
extraordinary item........................................ $ 0.77 $ (0.07) $ (0.09) $ (0.03) $ (0.08)
Extraordinary loss.......................................... -- (0.07) -- -- --
---------- ---------- ---------- ---------- ----------
Basic and diluted net income (loss) per share............... $ 0.77 $ (0.14) $ (0.09) $ (0.03) $ (0.08)
---------- ---------- ---------- ---------- ----------
Basic and diluted weighted average shares outstanding....... 16,661,088 16,661,088 16,661,088 16,661,088 16,661,088
========== ========== ========== ========== ==========

Pro forma information for 1996 and 1997 (unaudited):
Income (loss) before income taxes and extraordinary item as
reported above............................................ $ 19,408 $ (1,087)
Add back tax reimbursements to S Corporation shareholders... 2,038 1,780
---------- ----------
Pro forma income (loss) before income taxes and
extraordinary item........................................ 21,446 693
Pro forma provision (benefit) for income taxes.............. 8,608 278
---------- ----------
Pro forma income (loss) before extraordinary item........... 12,838 415
Extraordinary loss.......................................... -- (1,185)
---------- ----------
Pro forma net income (loss)................................. $ 12,838 $ (770)
========== ==========
Pro forma basic and diluted income (loss) per share before
extraordinary item........................................ $ 0.77 $ 0.02
Extraordinary loss per share................................ -- (0.07)
---------- ----------
Pro forma basic and diluted net income (loss) per share..... $ 0.77 $ (0.05)
========== ==========
Basic and diluted weighted average shares outstanding....... 16,661,088 16,661,088
========== ==========
</TABLE>

See accompanying notes.

F-4
<PAGE> 84

SALEM COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
------------------ ----------------- ADDITIONAL RETAINED
SHARES AMOUNT SHARES AMOUNT PAID-IN-CAPITAL EARNINGS TOTAL
---------- ------ --------- ------ --------------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Stockholders' equity,
January 1, 1996........ 11,107,392 $111 5,553,696 $56 $5,665 $ 7,450 $13,282
Net income............... -- -- -- -- -- 12,753 12,753
Stockholder
distributions.......... -- -- -- -- -- (5,501) (5,501)
---------- ---- --------- --- ------ ------- -------
Stockholders' equity,
December 31, 1996...... 11,107,392 111 5,553,696 56 5,665 14,702 20,534
Net loss................. -- -- -- -- -- (2,378) (2,378)
Stockholder
distributions.......... -- -- -- -- -- (7,474) (7,474)
---------- ---- --------- --- ------ ------- -------
Stockholders' equity,
December 31, 1997...... 11,107,392 111 5,553,696 56 5,665 4,850 10,682
Net loss................. -- -- -- -- -- (1,581) (1,581)
---------- ---- --------- --- ------ ------- -------
Stockholders' equity,
December 31, 1998...... 11,107,392 111 5,553,696 56 5,665 3,269 9,101
Net loss (unaudited)..... -- -- -- -- -- (1,308) (1,308)
---------- ---- --------- --- ------ ------- -------
Stockholders' equity,
March 31, 1999
(unaudited)............ 11,107,392 $111 5,553,696 $56 $5,665 $ 1,961 $ 7,793
========== ==== ========= === ====== ======= =======
</TABLE>

See accompanying notes.

F-5
<PAGE> 85

SALEM COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
------------------------------- ------------------
1996 1997 1998 1998 1999
-------- --------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES

Net income (loss)........................................... $ 12,753 $ (2,378) $ (1,581) $ (574) $ (1,308)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 8,394 12,803 14,058 3,337 4,111
Amortization of bank loan fees............................ 109 175 42 11 11
Amortization of bond issue costs.......................... -- 126 531 132 133
Deferred income taxes..................................... 6,133 (1,022) (730) (369) (382)
Loss (gain) on sale of assets............................. (16,064) (4,285) (236) 22 --
Loss on early extinguishment of debt...................... -- 1,844 -- -- --
Changes in operating assets and liabilities:
Accounts receivable..................................... (1,370) (1,572) (2,048) 923 1,285
Prepaid expenses and other current assets............... (111) (473) (18) (260) (330)
Accounts payable and accrued expenses................... 258 1,844 1,035 (3,897) (4,736)
Deferred subscription revenue........................... -- -- -- -- 56
Other liabilities....................................... 270 78 166 38 (231)
Income taxes............................................ 123 174 (204) 118 136
-------- --------- -------- ------- --------
Net cash provided by (used in) operating activities......... 10,495 7,314 11,015 (519) (1,255)
INVESTING ACTIVITIES
Capital expenditures...................................... (6,982) (7,521) (7,360) (1,982) (1,579)
Purchases of other media businesses....................... -- -- -- -- (8,372)
Purchases of radio stations............................... (21,160) (19,436) (33,682) -- --
Deposits on radio station acquisitions.................... (6,314) (4,907) 4,907 -- --
Proceeds from disposal of property, plant and equipment
and intangible assets................................... 15,867 5,120 4,226 42 --
Other assets.............................................. (334) 418 147 5 (72)
-------- --------- -------- ------- --------
Net cash used in investing activities....................... (18,923) (26,326) (31,762) (1,935) (10,023)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt and notes payable
to stockholders......................................... 23,800 222,710 40,500 6,000 13,750
Payments of long-term debt and notes payable to
stockholders............................................ (15,430) (190,100) (19,000) (3,500) (2,310)
Payments of bank loan fees................................ -- (1,025) -- -- --
Payments of costs related to debt refinancing............. -- (417) -- -- --
Payments on capital lease obligations..................... -- -- -- -- (42)
Payments of bond issue costs.............................. -- (5,033) (281) (252) --
Repayments (additions) of stockholder notes and repayment
of accrued interest receivable--net..................... 4,614 (66) (200) -- --
Proceeds from stockholder notes payable................... 1,900 100 -- -- --
Distributions to stockholders............................. (5,501) (7,474) -- -- --
-------- --------- -------- ------- --------
Net cash provided by financing activities................... 9,383 18,695 21,019 2,248 11,398
-------- --------- -------- ------- --------
Net (decrease) increase in cash and cash equivalents........ 955 (317) 272 (206) 120
Cash and cash equivalents at beginning of period.......... 1,007 1,962 1,645 1,645 1,917
-------- --------- -------- ------- --------
Cash and cash equivalents at end of period.................. $ 1,962 $ 1,645 $ 1,917 $ 1,439 $ 2,037
======== ========= ======== ======= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest................................................ $ 6,158 $ 9,523 $ 14,965 $ 7,381 $ 7,715
Income taxes............................................ 400 295 591 -- 20
Noncash transactions:
Acquisition of radio station (KWRD-FM in 1996, KIEV-AM in
1998)
Fair market value of assets acquired.................... $ 40,100 $ -- $ 33,210 $ -- $ --
Debt to seller.......................................... (30,500) -- (2,810) -- --
Fair market value of assets exchanged................... (8,000) -- -- -- --
Acquisition of other media businesses
Fair market value of assets acquired.................... -- -- -- -- 14,365
Fair market value of liabilities assumed................ -- -- -- -- (5,993)
-------- --------- -------- ------- --------
Cash paid................................................... $ 1,600 $ -- $ 30,400 $ -- $ 8,372
======== ========= ======== ======= ========
</TABLE>

See accompanying notes.

F-6
<PAGE> 86

SALEM COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Reorganization

The accompanying consolidated financial statements of Salem Communications
Corporation (Salem or the Company) include the Company and its wholly-owned
subsidiaries. Prior to the reorganization described below (the Reorganization)
the financial statements had been presented on a combined basis and included
Salem, New Inspiration Broadcasting Company, Inc. (New Inspiration), Golden Gate
Broadcasting Company, Inc. (Golden Gate) and Beltway Media Partners (Beltway),
since all of these entities were under common control. New Inspiration and
Golden Gate were S corporations for income tax purposes. Salem, New Inspiration
and Golden Gate were the partners of Beltway. The combined financial statements
were entitled Salem Broadcasting Entities. Pursuant to the Reorganization the
financial statements have been renamed and the disclosure of common stock
information has been retroactively restated for all periods presented as if the
Reorganization had been completed as of the beginning of the earliest period
presented. All significant intercompany balances and transactions have been
eliminated.

Information with respect to the three months ended March 31, 1999 and 1998
is unaudited. The accompanying unaudited consolidated financial statements have
been prepared on the same basis as the audited financial statements and, in the
opinion of management contain all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the financial position, results
of operations and cash flows of the Company and subsidiaries, for the periods
presented. The results of operations for the three month period are not
necessarily indicative of the results of operations for the full year.

The Company is a holding company with substantially no assets, operations
or cash flows other than its investments in subsidiaries. All of the Company's
subsidiaries are Guarantors of the 9 1/2% Senior Subordinated Notes due 2007
(the Notes) discussed in Note 4. The Guarantors (i) are wholly owned
subsidiaries of the Company, (ii) comprise all the Company's direct and indirect
subsidiaries and (iii) have fully and unconditionally guaranteed on a joint and
several basis, the Notes. The Company has not presented separate financial
statements and other disclosures concerning the Guarantors because management
has determined that such information is not material to investors.

In August 1997, the Company, New Inspiration and Golden Gate effected the
Reorganization pursuant to which New Inspiration and Golden Gate became
wholly-owned subsidiaries of the Company, with Beltway remaining a partnership.
The Company accounted for the Reorganization as a combination of entities under
common control, which is a method similar to a pooling of interests. In October
1998, the Company, New Inspiration and Golden Gate contributed their partnership
interests in Beltway to Salem Media of Virginia, Inc. (SMV), thereby dissolving
Beltway. SMV is an indirectly wholly-owned subsidiary of the Company.

The S Corporation status of New Inspiration and Golden Gate was terminated
in the Reorganization. Prior to the Reorganization, New Inspiration and Golden
Gate distributed cash and promissory notes to their respective shareholders in
the aggregate amount of

F-7
<PAGE> 87

SALEM COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

$8.5 million. Of such amount, $1.8 million, equal to the estimated federal and
state income tax liability of the S corporation shareholders on the earnings of
New Inspiration and Golden Gate, was paid by New Inspiration and Golden Gate in
cash. The balance, $6.7 million representing the balance of the net income of
New Inspiration and Golden Gate that had previously been taxed, but not
distributed to the shareholders, was paid in the form of promissory notes. In
September 1997, the Company financed the repayment of these promissory notes by
an additional borrowing.

Description of Business

Salem is a domestic U.S. radio broadcast company which focuses on talk and
music programming targeted at audiences interested in religious and family
issues. Salem operated 45 and 43 radio stations across the United States at
December 31, 1998 and 1997, respectively. The Company also owns and operates
Salem Radio Network (SRN), SRN News Network (SNN), Salem Music Network (SMN) and
Salem Radio Representatives (SRR). SRN, SNN and SMN are radio networks which
produce and distribute talk, news and music programming to Salem's radio
stations and other independent radio station affiliates. SRR sells commercial
air time to national advertisers for Salem's radio stations and networks, and
for independent radio station affiliates.

The significant accounting policies of Salem are summarized below and
conform with generally accepted accounting principles and reflect practices
appropriate to the radio broadcasting industry.

Segments

The Company operates in one reportable segment.

Revenue Recognition

Revenue from radio programs and commercial advertising is recognized when
broadcast. Salem's customers principally include not-for-profit charitable
organizations and commercial advertisers.

Advertising by the radio stations exchanged for goods and services is
recorded as the advertising is broadcast and is valued at the fair market value
of goods or services received or to be received. The value of the goods and
services received in such barter transactions is charged to expense when used.
Barter revenue for the years ended December 31, 1996, 1997 and 1998, was
approximately $1,498,000, $1,743,000 and $2,510,000, respectively. Barter
expenses were approximately the same.

Cash Equivalents

Salem considers all highly liquid debt instruments with a maturity of three
months or less when purchased to be cash equivalents. The recorded amount for
cash and cash equivalents approximates the fair market value.

F-8
<PAGE> 88

SALEM COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

Property, Plant and Equipment

Property, plant and equipment are recorded at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over
estimated useful lives as follows:

<TABLE>
<S> <C>
Buildings......................................... 40 years
Office furnishings and equipment.................. 5 - 10 years
Antennae, towers and transmitting equipment....... 20 years
Studio and production equipment................... 10 years
Computer software................................. 3 - 5 years
Record and tape libraries......................... 20 years
Automobiles....................................... 5 years
Leasehold improvements............................ 15 years
</TABLE>

The carrying value of property, plant and equipment is evaluated
periodically in relation to the operating performance and anticipated future
cash flows of the underlying radio stations and businesses for indicators of
impairment. When indicators of impairment are present and the undiscounted cash
flows estimated to be generated from these assets are less than the carrying
value of these assets an adjustment to reduce the carrying value (if necessary)
to the fair market value of the assets is recorded. No adjustments to the
carrying amounts of property, plant and equipment have been made during the
years ended December 31, 1996, 1997 and 1998.

Intangible Assets

Intangible assets acquired in conjunction with the acquisition of various
radio stations are being amortized over the following estimated useful lives
using the straight-line method:

<TABLE>
<S> <C>
Broadcast licenses............................ 10 - 25 years
Noncompetition agreements..................... 3 - 5 years
Customer lists and contracts.................. 10 years
Favorable and assigned leases................. Life of the lease
Goodwill...................................... 15 - 40 years
Other......................................... 5 - 10 years
</TABLE>

The carrying value of intangibles is evaluated periodically in relation to
the operating performance and anticipated future cash flows of the underlying
radio stations and businesses for indicators of impairment. When indicators of
impairment are present and the undiscounted cash flows estimated to be generated
from these assets are less than the carrying amounts of these assets, an
adjustment to reduce the carrying value (if necessary) to the fair market value
of these assets is recorded. No adjustments to the carrying amounts of
intangible assets have been made during the year ended December 31, 1996, 1997
and 1998.

F-9
<PAGE> 89

SALEM COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

Bond Issue Costs

Bond issue costs are being amortized over the term of the Notes as an
adjustment to interest expense.

Tax Reimbursements to S Corporation Shareholders

"Tax reimbursements to S Corporation shareholders" represents additional
salary payments made in the amount necessary to satisfy individual federal and
state income tax liabilities of the S Corporation shareholders on the earnings
of New Inspiration and Golden Gate prior to the Reorganization.

Income Taxes

The Company accounts for income taxes in accordance with the Financial
Accounting Standards Board Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes." SFAS No. 109 prescribes the liability
method of providing for deferred income taxes. Deferred income taxes arise from
temporary differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements.

Federal and state income taxes (except for 1.5% state franchise tax) have
not been provided through August 12, 1997 for New Inspiration and Golden Gate
because they were S Corporations and income tax attributes of these S
Corporations were passed through to their shareholders.

Basic and Diluted Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing net income (loss)
by the weighted average number of common stock shares outstanding. Diluted net
income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common stock shares and common stock share
equivalents outstanding. There were no common stock share equivalents
outstanding in any of the periods presented and, as such, basic and diluted net
income (loss) per share are the same.

F-10
<PAGE> 90

SALEM COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

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

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31
------------------------------------ -----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income (loss).... $ 12,753 $ (2,378) $ (1,581) $ (574) $ (1,308)
Denominator:
Weighted average
shares............ 16,661,088 16,661,088 16,661,088 16,661,088 16,661,088
---------- ---------- ---------- ---------- ----------
Basic and diluted net
income (loss) per
share................ $ 0.77 $ (0.14) $ (0.09) $ (0.03) $ (0.08)
========== ========== ========== ========== ==========
</TABLE>

Concentrations of Business and Credit Risks

The majority of the Company's operations are conducted in several locations
across the country. The Company's credit risk is spread across a large number of
customers, none of which accounted for a significant volume of revenue or
outstanding receivables. The Company does not normally require collateral on
credit sales; however, credit histories are reviewed before extending
substantial credit to any customer. The Company establishes an allowance for
doubtful accounts based on customers' payment history and perceived credit
risks. Bad debts have been within management's expectations.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Reclassifications

Certain reclassifications were made to the prior year financial statements
to conform to the current year presentation.

2. ACQUISITIONS AND DISPOSITIONS OF ASSETS

Pro forma information to present operating results as if the acquisitions
discussed below had occurred at the beginning of the year acquired is not
presented because the Company, generally, changes the programming format of the
radio stations such that the source and nature of revenue and operating expenses
are significantly different than they were prior to the acquisition and,
accordingly, historical and pro forma financial

F-11
<PAGE> 91

SALEM COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

information is not considered meaningful by management. Pro forma and historical
financial information of radio stations acquired where the format was not
changed is not significant to the consolidated financial position or operating
results of the Company.

In January 1999, the Company purchased the assets of OnePlace, LLC
("OnePlace"), for $6.2 million, and all the outstanding shares of stock of CCM
Communications, Inc. ("CCM"), for $1.9 million. OnePlace is engaged in the
business of applying Internet, e-commerce, consumer profiling and other
information technologies in the Christian products industry. CCM publishes
magazines which follow the contemporary Christian music industry. The purchases
were financed primarily by an additional borrowing. OnePlace earns its revenue
by selling products and services on the Internet and licensing its e-commerce,
search engines and imaging applications. CCM earns its revenue by selling
advertising in and subscriptions to its publications. In March 1999, the Company
acquired the assets of Christian Research Report for $300,000. The publications
of Christian Research Report follow the contemporary Christian music industry.
The revenue and operating expenses of these businesses are reported as "other
media" on our consolidated statements of operations.

During the year ended December 31, 1998, the Company purchased the assets
(principally intangibles) of the following radio stations:

<TABLE>
<CAPTION>
PURCHASE
ACQUISITION DATE STATION MARKET SERVED PRICE
---------------- ------- ------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
August 21, 1998............. KKMO-AM Seattle-Tacoma, WA $ 500
August 26, 1998............. KIEV-AM Los Angeles, CA 33,210
October 30, 1998............ KYCR-AM Minneapolis-St. Paul, MN 500
October 30, 1998............ KTEK-AM Houston-Galveston, TX 2,061
-------
$36,271
=======
</TABLE>

The aggregate purchase price has been allocated to the assets acquired as
follows:

<TABLE>
<CAPTION>
ASSET AMOUNT
----- --------------
(IN THOUSANDS)
<S> <C>
Property and equipment........................... $ 4,507
Broadcast licenses............................... 29,627
Goodwill and other intangibles................... 2,137
-------
$36,271
=======
</TABLE>

In 1998, the Company sold the assets (principally intangibles) of radio
stations KTSL-FM (Spokane, WA) for $1.3 million and KAVC-FM (Lancaster, CA) for
$1.6 million.

F-12
<PAGE> 92

SALEM COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

During the year ended December 31, 1997, the Company purchased the assets
(principally intangibles) of the following radio stations:

<TABLE>
<CAPTION>
PURCHASE
ACQUISITION DATE STATION MARKET SERVED PRICE
---------------- ------- ------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
January 21, 1997.................... WHK-AM Cleveland, OH $ 6,220
February 20, 1997................... WHK-FM Canton, OH 5,903
February 20, 1997................... WHLO-AM Akron, OH 1,995
February 28, 1997................... WEZE-AM Boston, MA 7,030
April 2, 1997....................... KTKZ-AM Sacramento, CA 1,385
July 18, 1997....................... WITH-AM Baltimore, MD 1,114
July 18, 1997....................... WTSJ-AM Cincinnati, OH 1,114
October 24, 1997.................... WCCD-AM Cleveland, OH 700
-------
$25,461
=======
</TABLE>

The aggregate purchase price has been allocated to the assets acquired as
follows:

<TABLE>
<CAPTION>
ASSET AMOUNT
----- --------------
(IN THOUSANDS)
<S> <C>
Property and equipment........................... $ 3,634
Broadcast licenses and other intangibles......... 21,827
-------
$25,461
=======
</TABLE>

In November 1997, the Company sold the assets (principally intangibles) of
radio station WPZE-AM (Boston, MA) for $5 million. Proceeds from the sale
(included in other assets as a deposit at December 31, 1997) were initially
being held by a qualified intermediary under a like-kind exchange agreement to
preserve the Company's ability to effect a tax-deferred exchange. The Company
did not effect a tax-deferred exchange and received the proceeds from the sale
in 1998.

F-13
<PAGE> 93

SALEM COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

During the year ended December 31, 1996, the Company purchased the assets
(principally intangibles) (and in the case of KBIQ-FM, all of the outstanding
shares of common stock) of the following radio stations:

<TABLE>
<CAPTION>
PURCHASE
ACQUISITION DATE STATION MARKET SERVED PRICE
---------------- ------- ------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
February 1, 1996... KTSL-FM Spokane, WA $ 900
February 1, 1996... KLTE-FM Kirksville, MO 550
February 1, 1996... KPRZ-FM Colorado Springs, CO 1,400
March 1, 1996...... KGFT-FM Colorado Springs, CO 3,000
March 15, 1996..... KNUS-AM Denver-Boulder, CO 1,100
October 5, 1996.... KPXQ-AM Phoenix, AZ 6,500
October 25, 1996... KBIQ-FM Colorado Springs, CO 2,825
December 6, 1996... KKMS-AM Minneapolis-St. Paul, MN 1,894
December 30,
1996............. KWRD-FM Dallas-Ft. Worth, TX 40,100
April 3, 1996...... Standard News Network Washington, D.C. --
August 1, 1996..... The Word in Music([) Colorado Springs, CO 120
August 23, 1996.... Morningstar Radio Network Nashville, TN 1,232
-------
$59,621
=======
</TABLE>

The aggregate purchase price has been allocated to the assets acquired as
follows:

<TABLE>
<CAPTION>
ASSET AMOUNT
----- --------------
(IN THOUSANDS)
<S> <C>
Property and equipment........................... $ 3,767
Broadcast licenses............................... 53,116
Goodwill and other intangibles................... 2,738
-------
$59,621
=======
</TABLE>

In 1996, the Company sold the assets (principally intangibles) of radio
stations WTJY-FM (Columbus, Ohio), for $1.5 million, KLTE-FM (Kirksville,
Missouri), for $550,000 and KDBX-FM (Portland, Oregon), for $14 million. In
addition, KDFX-AM (Dallas, Texas), was exchanged as part of the purchase price
of KWRD-FM. The Company received approximately $8 million of value of KDFX-AM
towards the total purchase price of KWRD-FM of $40.1 million, resulting in a
gain recognized of approximately $4.0 million.

F-14
<PAGE> 94

SALEM COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

3. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following at December 31:

<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31,
------------------ 1999
1997 1998 (UNAUDITED)
------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Land..................................... $ 325 $ 1,440 $ 1,443
Buildings................................ 1,477 1,417 1,434
Office furnishings and equipment......... 8,902 9,775 10,977
Antennae, towers and transmitting
equipment.............................. 25,652 25,665 25,857
Studio and production equipment.......... 14,033 14,817 15,692
Computer software........................ -- -- 5,252
Record and tape libraries................ 442 511 511
Automobiles.............................. 68 69 114
Leasehold improvements................... 3,684 3,797 3,868
Construction-in-progress................. 4,054 8,767 9,327
------- ------- -------
58,637 66,258 74,475
Less accumulated depreciation............ 21,999 25,509 26,760
------- ------- -------
$36,638 $40,749 $47,715
======= ======= =======
</TABLE>

4. LONG-TERM DEBT

Long-term debt consisted of the following at:

<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31,
-------------------- 1999
1997 1998 (UNAUDITED)
-------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revolving line of credit with banks.... $ 2,500 $ 24,000 $ 36,750
9 1/2% Senior Subordinated Notes due
2007................................. 150,000 150,000 150,000
Obligation to acquire KIEV-AM
property............................. -- 2,810 2,810
Unsecured note payable to stockholder
with interest at 9% in 1997 and
8 1/4% in 1998....................... 2,000 1,800 800
-------- -------- --------
154,500 178,610 190,360
Less current portion................... -- -- 2,810
-------- -------- --------
$154,500 $178,610 $187,550
======== ======== ========
</TABLE>

Since the note payable to stockholder and revolving line of credit carry
floating interest rates, the carrying amount approximates their fair market
value. The Notes were issued in September 1997 at par. At December 31, 1998,
their fair market value was approximately $156.8 million.

Revolving Line of Credit with Banks

In September 1997, Salem entered into a new credit agreement with five
banks (the Credit Agreement) to provide for borrowing capacity of up to $75
million under a revolving line of credit (reduced to $72.3 million as of
December 31, 1998). The

F-15
<PAGE> 95

SALEM COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

maximum amount that the Company may borrow under the Credit Agreement is limited
by the Company's debt to cash flow ratio, adjusted for recent radio station
acquisitions as defined in the Credit Agreement (the Adjusted Debt to Cash Flow
Ratio). At December 31, 1998, the maximum Adjusted Debt to Cash Flow Ratio
allowed under the Credit Agreement was 6.75 to 1.00. The Company's ability to
borrow for the purpose of acquiring a radio station is further limited by the
Credit Agreement in that the Company may not borrow for an acquisition if the
Adjusted Debt to Cash Flow Ratio is greater than 6.00 to 1.00. At December 31,
1998, the Adjusted Debt to Cash Flow Ratio was 5.99 to 1.00, resulting in total
borrowing availability (i.e., in addition to amounts already outstanding) of
approximately $22.6 million, approximately $483,000 of which can currently be
used for radio station acquisitions. At March 31, 1999, the Adjusted Debt to
Cash Flow Ratio was 6.65 to 1.00, resulting in total borrowing availability of
approximately $10.2 million, none of which can currently be used for radio
station acquisitions. The note evidencing the indebtedness bears interest at a
fluctuating base rate plus a spread that was determined by Salem's Adjusted Debt
to Cash Flow Ratio. At Salem's option, the base rate is either a bank's prime
rate or LIBOR. For purposes of determining the interest rate the prime rate
spread ranges from 0% to 1.75%, and the LIBOR spread ranges from 1% to 3%. At
December 31, 1998, the interest rate on amounts outstanding under the Credit
Agreement was 8.25%. Interest is payable quarterly. Commencing March 31, 1999,
the commitment under the Credit Agreement reduces by $2.5 million quarterly
through December 31, 2003, and by $6.25 million quarterly through June 30, 2004.
The Credit Agreement expires August 31, 2004. The classification of the amounts
due under the revolving line of credit in the accompanying balance sheet at
December 31, 1998 is based on the terms of the Credit Agreement.

In January 1999, the Credit Agreement was amended to increase the maximum
Adjusted Debt to Cash Flow Ratio to 7.00 to 1.00 through June 29, 1999. The
interest rate spreads were also amended. The prime rate spread ranges from 0% to
2.25%, and the LIBOR spread ranges from 1% to 3.5%.

The Credit Agreement with the banks (a) provides for restrictions on
additional borrowings and leases; (b) prohibits Salem, without prior approval
from the banks, from paying dividends, liquidating, merging, consolidating or
selling its assets or business, and (c) requires Salem to maintain certain
financial ratios and other covenants. Salem has pledged all of its assets as
collateral under the Credit Agreement. Additionally, all the Company's stock
holdings in its subsidiaries are pledged as collateral.

In September 1997, in connection with the issuance of the Notes and the
Credit Agreement the Company repaid all amounts due under its previous revolving
line of credit with the banks. The Company wrote off certain deferred financing
costs and terminated all of its interest rate swap and cap agreements associated
with the line of credit (see Note 5). The write-off and termination fees of
$1,185,000, net of a $659,000 income tax benefit, was recorded as an
extraordinary item in the accompanying statement of operations for the year
ended December 31, 1997.

F-16
<PAGE> 96

SALEM COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

9 1/2% Senior Subordinated Notes due 2007

The Notes bear interest at 9 1/2% per annum, with interest payment dates on
April 1 and October 1, commencing April 1, 1998. Principal is due on the
maturity date, October 1, 2007. The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after October 1, 2002, at the
redemption prices (including applicable redemption premium) specified in the
indenture. The Notes are fully and unconditionally guaranteed, jointly and
severally, on a senior subordinated basis by the Guarantors (the Company's
subsidiaries). The Notes are general unsecured obligations of the Company,
subordinated in right of payment to all existing and future senior indebtedness,
including the Company's obligations under the Credit Agreement. The indenture
limits the incurrence of additional indebtedness by the Company, the payment of
dividends, the use of proceeds of certain asset sales, and contains certain
other restrictive covenants affecting the Company. In March 1998, the Company
consummated an exchange offer for the original notes (Original Notes) which were
issued in September 1997. The exchange offer commenced when the Company's
registration statement under the Securities Act of 1933 was declared effective.
The Notes are identical in all material respects to the Original Notes except
that the Notes do not contain terms with respect to transfer restrictions. The
Notes are fully and unconditionally guaranteed, jointly and severally, on a
senior subordinated basis by the Guarantors.

Other Debt

In August 1998, in connection with the Company's acquisition of KIEV-AM,
the Company agreed to lease the real property on which the station's towers and
transmitter are located for $10,000 per month. The Company also agreed to
purchase the property for $3 million in February 2000. The Company recorded this
transaction in a manner similar to a capital lease. The amount recorded as a
long-term obligation at December 31, 1998, represents the present value of the
future commitments under the lease and purchase contract, discounted at 8.5%.

At December 31, 1998 and 1997, the Company owed $1.8 million and $2
million, respectively, to one of its stockholders. Interest is payable monthly.
The note is payable upon demand by the stockholder. The Company intends to
refinance the borrowing if demanded by the stockholder with the proceeds from a
borrowing under the Credit Agreement. Accordingly, the amount is reflected as
long-term debt in the accompanying balance sheet at December 31, 1998,
consistent with the terms of the Credit Agreement.

F-17
<PAGE> 97

SALEM COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

Maturities of Long-Term Debt

Principal repayment requirements under all long-term debt agreements
outstanding at December 31, 1998 and March 31, 1999, for each of the next five
years and thereafter are as follows:

<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, 1999
1998 (UNAUDITED)
-------------- -----------
(IN THOUSANDS)
<S> <C> <C>
1999.......................................... $ -- $ --
2000.......................................... 2,810 2,810
2001.......................................... -- --
2002.......................................... -- 5,250
2003.......................................... 3,500 10,000
Thereafter.................................... 172,300 172,300
-------- --------
$178,610 $190,360
======== ========
</TABLE>

5. INTEREST RATE CAP AND SWAP AGREEMENTS

In 1996 and 1997 Salem had entered into interest rate swap and cap
agreements to reduce the impact of changes in interest rates on its
floating-rate long-term debt. In September 1997, in connection with the issuance
of the Notes and the Credit Agreement the Company terminated all of its interest
rate swap and cap agreements for aggregate fees of $417,000. The Company wrote
off these costs (unamortized swap fee of $201,000 and the swap termination fee
of $417,000) in September 1997. This write-off, net of income tax benefit, was
included in the extraordinary loss in the accompanying statement of operations
for the year ended December 31, 1997 (see Note 4).

6. INCOME TAXES

As discussed in Note 1, prior to the Reorganization, New Inspiration and
Golden Gate were S Corporations for income tax purposes. Accordingly, any
federal and state income tax liability on net income of the S Corporations has
been the liability of shareholders of the S Corporations. The S Corporation
status of New Inspiration and Golden Gate was terminated in the Reorganization,
which was effective August 13, 1997, and the income of New Inspiration and
Golden Gate will thereafter be subject to federal and state income taxes. The
accompanying consolidated statements of operations include an unaudited pro
forma income tax adjustment, using an estimated combined effective tax rate of
approximately 40%, to reflect the estimated income tax expense of the Company as
if New Inspiration and Golden Gate had been subject to federal and state income
taxes for the periods presented. In connection with the Reorganization, which
resulted in the termination of the S Corporation status of New Inspiration and
Golden Gate, the Company recorded a deferred tax liability and provision of
approximately $609,000 in December 1997.

F-18
<PAGE> 98

SALEM COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

The consolidated provision (benefit) for income taxes for Salem consisted
of the following at December 31:

<TABLE>
<CAPTION>
1996 1997 1998
------ ------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal...................................... $ 189 $ (149) $ --
State........................................ 333 618 387
------ ------- -----
522 469 387
Deferred:
Federal...................................... 5,737 (1,162) (467)
State........................................ 396 140 (263)
------ ------- -----
6,133 (1,022) (730)
Current tax benefit reflected in net
extraordinary loss........................... -- (659) --
------ ------- -----
Income tax provision (benefit)................. $6,655 $ 106 $(343)
====== ======= =====
</TABLE>

The consolidated deferred tax asset and liability consisted of the
following at December 31:

<TABLE>
<CAPTION>
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Financial statement accruals not currently
deductible...................................... $ 610 $ 665
Net operating loss, AMT credit and other
carryforwards................................... 2,224 2,367
State taxes........................................ 197 122
------- -------
Total deferred tax assets............................ 3,031 3,154
Valuation allowance for deferred tax assets.......... (95) (95)
------- -------
Net deferred tax assets.............................. 2,936 3,059
Deferred tax liabilities:
Excess of net book value of property, plant and
equipment for financial reporting purposes over
tax basis....................................... 3,806 4,263
Excess of net book value of intangible assets for
financial reporting purposes over tax basis..... 8,118 7,305
Other.............................................. 880 629
------- -------
Total deferred tax liabilities....................... 12,804 12,197
------- -------
Net deferred tax liabilities......................... $ 9,868 $ 9,138
======= =======
</TABLE>

F-19
<PAGE> 99

SALEM COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

A reconciliation of the statutory federal income tax rate to the effective
tax rate, as a percentage of income before income taxes, is as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
--------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate................. 34% (34)% (34)%
State income taxes, net........................... 3 49 4
Nondeductible expenses............................ -- 5 7
Exclusion of income taxes of S corporations and
the Partnership................................. (7) (76) --
Change in taxable entity (S corporation to C
corporation).................................... -- 56 --
Other, net........................................ 4 10 5
-- --- ---
34% 10% (18)%
== === ===
</TABLE>

The S Corporations had book income (loss) before income taxes of $3,800,000
and $2,400,000 in 1996 and 1997, respectively. These amounts include the S
Corporations' 85% ownership interest in Beltway.

At December 31, 1998, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $5,800,000 which expire in years
2010 through 2018 and for state income tax purposes of approximately $4,600,000
which expire in years 1999 through 2013. The Company has federal alternative
minimum tax credit carryforwards of approximately $147,000. For financial
reporting purposes, a valuation allowance of $95,000 has been provided in 1998
and 1997 to offset a portion of the deferred tax assets related to the state net
operating loss carryforwards.

7. COMMITMENTS AND CONTINGENCIES

Salem leases various land, offices, studios and other equipment under
operating leases that expire over the next 10 years. The majority of these
leases are subject to escalation clauses and may be renewed for successive
periods ranging from one to five years on terms similar to current agreements
and except for specified increases in lease payments. Rental expense included in
operating expense under all lease agreements was $3,800,000, $4,800,000 and
$4,800,000 in 1996, 1997, and 1998 respectively.

F-20
<PAGE> 100

SALEM COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

Future minimum rental payments required under operating leases that have
initial or remaining noncancelable lease terms in excess of one year as of
December 31, 1998, are as follows:

<TABLE>
<CAPTION>
RELATED
PARTIES OTHER TOTAL
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
1999...................................... $1,102 $ 3,895 $ 4,997
2000...................................... 1,102 3,421 4,523
2001...................................... 1,102 2,696 3,798
2002...................................... 747 2,165 2,912
2003...................................... 690 1,961 2,651
Thereafter................................ 1,100 10,440 11,540
------ ------- -------
$5,843 $24,578 $30,421
====== ======= =======
</TABLE>

The Company is involved in certain legal actions and claims arising in the
normal course of business. It is the opinion of management that such litigation
and claims will be resolved without material effect on the Company's
consolidated financial position, operations and cash flows.

The Company has a deferred compensation agreement with one of its officers,
which provides for retirement payments to the officer for a period of ten
consecutive years, if he remains employed by the Company until age 60. The
retirement payments are based on a formula defined in the agreement. The
estimated obligation under the deferred compensation agreement is being provided
for over the service period. At December 31, 1997 and 1998, a liability of
approximately $370,000 and $432,000 respectively, is included in other
liabilities in the accompanying balance sheets for the amounts earned under this
agreement.

8. RELATED PARTY TRANSACTIONS

In December 1996, the Company borrowed $1.9 million from one of its
principal stockholders. The Company repaid the note for the borrowing, including
interest at 9 1/4%, in January 1997, with proceeds from a borrowing under its
credit facility.

In December 1997, the Company borrowed $2 million from a stockholder
pursuant to a promissory note with a revolving principal amount of up to $2.5
million. The outstanding balance on the note as of December 31, 1998 and 1997
was $1.8 million and $2 million, respectively (see Note 4). The note is a demand
note which bears interest at a floating rate (8 1/4% at December 31, 1998).
During the term of the note, the interest rate will at all times be 1% lower
than the rate for base rate borrowings under the Company's Credit Agreement. The
Company will borrow under the Credit Agreement when the stockholder demands
repayment.

In January 1998, the Company borrowed $1.5 million from another stockholder
pursuant to another promissory note with a revolving principal amount of up to

F-21
<PAGE> 101

SALEM COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

$2.5 million. The Company repaid all amounts outstanding in May 1998. There were
no amounts outstanding at December 31, 1998 and 1997. The note is a demand note
which bears interest at a floating rate. During the term of the note, the
interest rate will at all times be 1% lower than the rate for base rate
borrowings under the Company's Credit Agreement. The Company will borrow under
the Credit Agreement when the stockholder demands repayment of any amounts
outstanding.

A stockholder's trust owns real estate on which certain assets of two radio
stations are located. Salem, in the ordinary course of its business, entered
into two separate lease agreements with this trust. Rental expense included in
operating expense for 1996, 1997 and 1998 amounted to $57,000, $57,000 and
$60,000, respectively.

Land and buildings occupied by various Salem radio stations are leased from
the stockholders of Salem. Rental expense under these leases included in
operating expense for 1996, 1997 and 1998 amounted to $800,000, $1,000,000 and
$1,000,000, respectively.

In August 1997, the Company assigned its contract with a tower construction
company to build a broadcast tower in Houston, Texas to a corporation owned by
the principal stockholders subject to the principal stockholders obtaining
financing. The principal stockholders obtained such financing on December 31,
1997 and reimbursed the Company for its costs and expenses under the contract,
which amounted to approximately $3.7 million.

At December 31, 1995, notes receivable from stockholders totaled
approximately $3,400,000. The notes bore interest at the Applicable Federal Rate
and were payable upon demand. In December 1996, New Inspiration and Golden Gate
distributed $5.5 million to the stockholders, of which $4.8 million was used by
the stockholders to repay the notes receivable and accrued interest.

In June 1997, the Company entered into a local marketing agreement (LMA)
with a corporation, Sonsinger, Inc. (Sonsinger), owned by two of Salem's
stockholders for radio station KKOL-AM. The stockholders and the Company are
parties to an Option to Purchase Agreement whereunder the Company has been
granted an option to purchase KKOL-AM from the stockholders at any time on or
before December 31, 1999 at a price equal to the lower of the cost of the
station to the stockholders, $1.4 million, and its fair market value as
determined by an independent appraisal. Under the LMA, Salem programs KKOL-AM
and sells all the airtime. Salem retains all of the revenue and incurs all of
the expenses related to the operation of KKOL-AM and incurred approximately
$64,000 and $164,000 in 1997 and 1998, respectively in LMA fees to Sonsinger.

From time to time, the Company rents an airplane and a helicopter from a
company which is owned by one of the principal stockholders. As approved by the
independent members of the Company's board of directors, the Company rents these
aircraft on an hourly basis at below-market rates and uses them for general
corporate needs. Total rental expense for these aircraft for 1996, 1997 and 1998
amounted to approximately $38,000, $60,000 and $69,000, respectively.

F-22
<PAGE> 102

SALEM COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

9. DEFINED CONTRIBUTION PLAN

In 1993, the Company established a 401(k) defined contribution plan (the
Plan), which covers all eligible employees (as defined in the Plan).
Participants are allowed to make nonforfeitable contributions up to 15% of their
annual salary, but may not exceed the annual maximum contribution limitations
established by the Internal Revenue Service. The Company currently matches 10%
of the amounts contributed by each participant but does not match participants'
contributions in excess of 10% of their compensation per pay period. Effective
January 1, 1999 the Company matches 25% of the amounts contributed by each
participant but does not match participants' contributions in excess of 6% of
their compensation per pay period. The Company contributed and expensed $48,000,
$80,000 and $87,000 to the Plan in 1996, 1997 and 1998 respectively.

10. STOCKHOLDERS' EQUITY

On March 31, 1999, the Company changed its domicile from California to
Delaware (the Reincorporation). In conjunction with the Reincorporation, the
Company's capital structure was changed to authorize 80,000,000 shares of Class
A common stock, $0.01 par value, 20,000,000 shares of Class B common stock,
$0.01 par value, and 10,000,000 shares of preferred stock, $0.01 par value. In
the Reincorporation, the previously outstanding 5,553,696 shares of common stock
were converted into 11,107,392 shares of Class A common stock and 5,553,696
shares of Class B common stock.

In April 1999, the Company filed a registration statement for an initial
public offering (the Offering) of its Class A common stock with the Securities
and Exchange Commission. In connection with the Offering, the Company's board of
directors approved a 67-for-one stock dividend on the Company's Class A and
Class B common stock. All references in the accompanying financial statements to
Class A and Class B common stock and per share amounts have been retroactively
adjusted to give effect to the stock dividend.

Holders of Class A common stock are entitled to one vote per share and
holders of Class B common stock are entitled to ten votes per share, except for
specified related party transactions. Holders of Class A common stock and Class
B common stock vote together as a single class on all matters submitted to a
vote of stockholders, except that holders of Class A common stock vote
separately for two independent directors.

The Company established, subject to the completion of the Offering, the
1999 Stock Incentive Plan under which awards of stock options, performance
awards, restricted stock, stock appreciation rights, stock payments, dividend
equivalents, stock bonuses, stock sales, phantom stock and other stock-based
benefits may be granted. An aggregate of 1,000,000 shares of Class A common
stock will be reserved for issuance under the plan.

On May 26, 1999, the Company awarded 75,000 shares of Class A common stock
to an officer of the Company. The Company also agreed to pay the individual
federal and state income tax liabilities associated with the stock award. The
Class A common stock award will be valued based on the initial public offering
price and along with the compensation resulting from the payment of the
individual federal and state income taxes

F-23
<PAGE> 103

SALEM COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

associated with the award will be recognized as compensation expense during the
quarter ended June 30, 1999.

11. SUBSEQUENT EVENTS (UNAUDITED)

In April 1999, the Company purchased KKOL-AM, Seattle-Tacoma, Washington,
for $1.4 million from a corporation owned by our principal stockholders. The
Company financed this acquisition primarily by a borrowing under its credit
facility. The Company also agreed to purchase the real estate at the transmitter
site for KKOL-AM for $400,000.

In April 1999, the Company entered into an agreement to purchase radio
station KGME-AM, Phoenix, Arizona, for $5 million. The Company anticipates this
purchase will close in July 1999. This radio station currently operates under
the call letters KFDJ-AM and upon closing, the call letters will be changed to
KCTK-AM.

In April 1999, the Company entered into letters of intent to purchase radio
stations KAIM-AM, KAIM-FM, KGU-AM and KHNR-AM, Honolulu, Hawaii, and WLSY-FM and
WRVI-FM, Louisville, Kentucky, in separate transactions for a total of $8.4
million. Subject to the execution of mutually acceptable purchase agreements,
the Company anticipates these purchases will close in July or August 1999.

F-24
<PAGE> 104

You may rely only on the information contained in this prospectus. We have not
authorized anyone to provide information different from that contained in this
prospectus. Neither the delivery of this prospectus nor the sale of Class A
common stock means that information contained in this prospectus is correct
after the date of this prospectus. This prospectus is not an offer to sell or
solicitation of an offer to buy these shares in any circumstances under which
the offer or solicitation is unlawful.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY............................... 1
RISK FACTORS.......................... 8
FORWARD-LOOKING STATEMENTS............ 12
USE OF PROCEEDS....................... 13
DIVIDEND POLICY....................... 13
CAPITALIZATION........................ 14
DILUTION.............................. 15
SELECTED CONSOLIDATED FINANCIAL
INFORMATION......................... 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 19
BUSINESS.............................. 31
MANAGEMENT............................ 53
TRANSACTIONS INVOLVING OFFICERS,
DIRECTORS AND PRINCIPAL
STOCKHOLDERS........................ 60
SECURITY OWNERSHIP OF SELLING
STOCKHOLDERS, BENEFICIAL OWNERS AND
MANAGEMENT.......................... 64
DESCRIPTION OF CAPITAL STOCK.......... 65
SHARES ELIGIBLE FOR FUTURE SALE....... 69
CERTAIN U.S. FEDERAL TAX
CONSIDERATIONS FOR NON-U.S. HOLDERS
OF CLASS A COMMON STOCK............. 70
UNDERWRITING.......................... 73
LEGAL MATTERS......................... 77
EXPERTS............................... 77
ADDITIONAL INFORMATION................ 77
INDEX TO FINANCIAL STATEMENTS......... F-1
</TABLE>

Dealer Prospectus Delivery Obligation:

Until July 25, 1999 (25 days after the date of this prospectus), all dealers
that buy, sell or trade in these shares of Class A common stock, whether or not
participating in this offering, may be required to deliver a prospectus. Dealers
are also obligated to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.

[SALEM LOGO]

8,400,000 Shares

Class A Common Stock
Deutsche Banc Alex. Brown

ING Barings

Salomon Smith Barney
PROSPECTUS

JUNE 30, 1999