Exhibit 10.20.03

SUBORDINATION AGREEMENT

THIS AGREEMENT is entered into by and among SALEM COMMUNICATIONS CORPORATION
(“Borrower”), FIRST CALIFORNIA BANK (“Creditor”), and WELLS FARGO BANK, NATIONAL
ASSOCIATION (“Agent”), in its capacity as administrative agent for itself, the
swing line lender, L/C issuer and each lender from time to time (collectively,
the “Senior Parties”) under the Credit Agreement dated as of December 1, 2009,
as amended from time to time (the “Senior Credit Agreement,” together with all
of the Loan Documents as defined therein, the “Senior Debt Documents”), by and
among the Borrower, the Agent and the other Senior Parties thereto.

RECITALS

A. Borrower is indebted to Creditor, and Borrower proposes to obtain credit or
has obtained credit from Senior Parties; and

B. Senior Parties have indicated that they will extend or continue credit to
Borrower if certain conditions are met, including without limitation, the
requirement that Creditor execute this Agreement.

NOW, THEREFORE, as an inducement to Senior Parties to extend or continue credit
and for other valuable consideration, the parties hereto agree as follows:

1. INDEBTEDNESS SUBORDINATED. Creditor subordinates all Indebtedness now or at
any time hereafter owing under that certain Business Loan Agreement dated as of
May __, 2012 between Borrower and Creditor (as amended, modified, renewed,
extended or replaced, the “Junior Loan Agreement” and “Junior Debt”) to all
Indebtedness now or at any time hereafter owing from Borrower to Senior Parties
under the Senior Debt Documents (“Senior Debt”). Creditor irrevocably consents
and directs that all Senior Debt shall be paid in full in cash or other
immediately available funds prior to Borrower making any payment on any Junior
Debt, except such payments as are expressly permitted by this Agreement. As long
as this Agreement is in effect, Creditor will not, except to the extent
permitted herein, take any action or initiate any proceedings, judicial or
otherwise, to enforce Creditor’s rights or remedies with respect to any Junior
Debt. Nothing contained in this Agreement shall restrict Creditor’s rights and
remedies against any guarantors of the Junior Debt. Creditor may receive
payments from such guarantors and may enforce its rights and remedies against
such guarantors without regard to any restrictions set forth in this Agreement.
Such rights and remedies include the right of Creditor to accelerate the Junior
Debt in connection with enforcement actions against the guarantors even though
Creditor may be precluded from acceleration of the Junior Debt as against
Borrower.

2. INDEBTEDNESS DEFINED. The word “Indebtedness” is used herein in its most
comprehensive sense and includes any and all advances, debts, obligations and
liabilities of Borrower heretofore, now or hereafter made, incurred or created,
whether voluntary or involuntary and however arising, whether due or not due,
absolute or contingent, liquidated or unliquidated, determined or undetermined,
including under any swap, derivative, foreign exchange, hedge, deposit, treasury
management or other similar transaction or arrangement, and whether Borrower may
be liable individually or jointly with others, including without limitation,
obligations and liabilities arising from notes, repurchase agreements and trust
receipts, and any and all interest and other amounts thereon which may accrue
subsequent to Borrower becoming subject to any state or federal debtor-relief
statute.

 

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3. RESTRICTION OF PAYMENT OF JUNIOR DEBT; DISPOSITION OF PAYMENTS RECEIVED BY
CREDITOR. Borrower will not make, and Creditor will not accept or receive, any
payment or benefit in cash, by setoff or otherwise, directly or indirectly, on
account of principal, interest or any other amounts owing on any Junior Debt,
except such payments as are expressly permitted herein. Borrower is permitted to
make and Creditor to receive all regularly scheduled principal payments not to
exceed $1,250,000 per quarter and accrued interest at the non-default interest
rate thereon (“Permitted Subordinated Debt Payments”) under that certain Junior
Loan Agreement existing on the date hereof; provided however, that:

(a) Borrower shall not make, nor Creditor receive, any prepayment or accelerated
payment under the Junior Loan Agreement, and

(b) no Permitted Subordinated Debt Payment shall be made by Borrower or accepted
by Creditor if, at the time of such payment after Creditor has received written
notice from Agent that a Senior Payment Default has occurred and is continuing.

Such notice shall be sent to Creditor by overnight delivery addressed to
Mr. Matthew D. Fuhr, Senior Vice President / Deputy Chief Credit Officer, First
California Bank, 15622 Arrow Highway, Irwindale, CA 91706.

A “Senior Payment Default” means any “Event of Default” under the Senior Debt
Documents resulting from the failure of Borrower or any other loan party to pay,
on a timely basis, any principal, interest, fees or other obligations under such
Senior Debt Documents including, without limitation, any default in payment of
Senior Debt after acceleration thereof.

If any payment is made in violation of this Agreement, Creditor shall promptly
deliver the same to Agent in the form received, with any endorsement or
assignment necessary for the transfer of such payment or amounts setoff from
Creditor to Agent, to be either (in Agent’s sole discretion) held as cash
collateral securing the Senior Debt or applied in reduction of the Senior Debt
in such order as Agent shall determine, and until so delivered, Creditor shall
hold such payment in trust for and on behalf of, and as the property of, Agent.

(c) Notwithstanding any provision in Section 3(b) to the contrary, if the Senior
Payment Default has been cured and/or waived in accordance with the Senior Debt
Documents and no other Senior Payment Default has occurred and is continuing,
then Creditor shall be permitted to receive the Permitted Subordinated Debt
Payments it would have been paid had no such payment blockage been in effect.

4. DISPOSITION OF EVIDENCE OF INDEBTEDNESS. If there is any existing promissory
note or other evidence of any of the Junior Debt, including the Junior Loan
Agreement, or if any promissory note or other evidence of Indebtedness is
executed at any time hereafter with respect thereto, then Borrower and Creditor
will mark the same with a legend stating that it is subject to this Agreement.

5. AGREEMENT TO BE CONTINUING; APPLIES TO BORROWER’S EXISTING INDEBTEDNESS AND
ANY INDEBTEDNESS HEREAFTER ARISING. This Agreement shall be a continuing
agreement and shall apply to any and all Senior Debt or Junior Debt now existing
or hereafter arising.

6. TERMINATION BY CREDITOR. Creditor may, to the extent provided herein,
terminate this Agreement by delivering written notice to Agent. Any such notice
must be sent to

 

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Agent by registered U.S. mail, postage prepaid, addressed to its Ventura/Santa
Barbara Commercial Banking Office at 601 E. Daily Drive, Suite 110, Camarillo,
California 93010, or at such other address as Agent shall from time to time
designate. If such notice is received by Agent, this Agreement shall terminate
as of the date of receipt, except that the obligations of Creditor and the
rights of Senior Parties hereunder shall continue with respect to all Senior
Debt which existed at the time of Agent’s receipt of such notice, or thereafter
arose pursuant to any agreement to extend credit by which Senior Parties are
bound at the time of its receipt of such notice, and any extensions, renewals or
modifications of any such then existing or committed Senior Debt, including
without limitation, modifications to the amount of principal or interest payable
on any Senior Debt and the release of any security for or any guarantors of all
or any portion of any Senior Debt. Senior Party (to Senior Party’s knowledge)
and Borrower severally represent and warrant to Creditor that no default or
breach exists under the Senior Debt and the Senior Debt Documents and that no
event, act, or omission has occurred which with the giving of notice or the
passage of time would constitute a default or breach under the Senior Debt and
the Senior Debt Documents.

7. REPRESENTATIONS AND WARRANTIES; INFORMATION. Borrower and Creditor represent
and warrant to Agent that: (a) no interest in the Junior Debt has been assigned
or otherwise transferred to any person or entity; (b) payment of the Junior Debt
has not been heretofore subordinated to any other creditor of Borrower; and
(c) Creditor has the requisite power and authority to enter into and perform its
obligations under this Agreement. Creditor further represents and warrants to
Agent that Creditor has established adequate, independent means of obtaining
from Borrower on a continuing basis financial and other information pertaining
to Borrower’s financial condition. Creditor agrees to keep adequately informed
from such means of any facts, events or circumstances which might in any way
affect Creditor’s risks hereunder, and Creditor agrees that no Senior Party
shall have any obligation to disclose to Creditor information or material about
Borrower which is acquired by such Senior Party in any manner. Any Senior Party
may, at such Senior Party’s sole option and without obligation to do so,
disclose to Creditor any information or material relating to Borrower which is
acquired by such Senior Party by any means, and Borrower hereby agrees to and
authorizes any such disclosure by such Senior Party.

8. TRANSFER OF ASSETS OR REORGANIZATION OF BORROWER. If any petition is filed or
any proceeding is instituted by or against Borrower under any provisions of the
Bankruptcy Reform Act, Title 11 of the United States Code, or any other or
similar law relating to bankruptcy, insolvency, reorganization or other relief
for debtors, or generally affecting creditors’ rights, or seeking the
appointment of a receiver, trustee, custodian or liquidator of or for Borrower
or any of its assets, any payment or distribution of any of Borrower’s assets,
whether in cash, securities or any other property, which would be payable or
deliverable with respect to any Junior Debt, shall be paid or delivered to Agent
until all Senior Debt is paid in full in cash or other immediately available
funds.

9. OTHER AGREEMENTS; NO THIRD PARTY BENEFICIARIES. Agent shall have no direct or
indirect obligations to Creditor of any kind with respect to the manner or time
in which Agent exercises (or refrains from exercising) any of its rights or
remedies with respect to the Senior Debt, Borrower or any of Borrower’s assets.
Creditor understands that there may be various agreements between Senior Parties
and Borrower evidencing and governing the Senior Debt, and Creditor acknowledges
and agrees that such agreements are not intended to confer any benefits on
Creditor. Creditor further acknowledges that Agent may administer the Senior
Debt and any of Senior Parties’ agreements with Borrower in any way Agent deems
appropriate, without regard to Creditor or the Junior Debt. Creditor waives any
right Creditor might otherwise have to require a marshalling of any security
held by Agent for all or any part of

 

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the Senior Debt or to direct or affect the manner or timing with which Agent
enforces any of its security. Nothing in this Agreement shall impair or
adversely affect any right, privilege, power or remedy of Agent with respect to
the Senior Debt, Borrower or any assets of Borrower, including without
limitation, Agent’s right to: (a) waive, release or subordinate any of Agent’s
security or rights; (b) waive or ignore any defaults by Borrower; and/or
(c) restructure, renew, modify or supplement the Senior Debt, or any portion
thereof, or any agreement with Borrower relating to any Senior Debt. All rights,
privileges, powers and remedies of Agent may be exercised from time to time by
Agent without notice to or consent of Creditor.

10. BREACH OF AGREEMENT BY BORROWER OR CREDITOR. In the event of any breach of
this Agreement by Borrower or Creditor, then and at any time thereafter Agent
shall have the right to declare immediately due and payable all or any portion
of the Senior Debt without presentment, demand, notice of nonperformance,
protest, notice of protest or notice of dishonor, all of which are hereby
expressly waived by Borrower and Creditor. No delay, failure or discontinuance
of Agent in exercising any right, privilege, power or remedy hereunder shall be
deemed a waiver of such right, privilege, power or remedy; nor shall any single
or partial exercise of any such right, privilege, power or remedy preclude,
waive or otherwise affect the further exercise thereof or the exercise of any
other right, privilege, power or remedy. Any waiver, permit, consent or approval
of any kind by Agent with respect to this Agreement must be in writing and shall
be effective only to the extent set forth in such writing.

11. LIQUIDATED DAMAGES. Inasmuch as the actual damages which could result from a
breach by Creditor of its duties under this Agreement are uncertain and would be
impractical or extremely difficult to fix, Creditor shall pay to Agent, in the
event of any such breach by Creditor, as liquidated and agreed damages, and not
as a penalty, all sums received by Creditor in violation of this Agreement on
account of the Junior Debt, which sums represent a reasonable endeavor to
estimate a fair compensation for the foreseeable losses that might result from
such a breach.

12. COSTS, EXPENSES AND ATTORNEYS’ FEES. If any party hereto institutes any
arbitration or judicial or administrative action or proceeding to enforce any
provisions of this Agreement, or alleging any breach of any provision hereof or
seeking damages or any remedy, the losing party or parties shall pay to the
prevailing party or parties all costs and expenses, including reasonable
attorneys’ fees (to include outside counsel fees and all allocated costs of such
prevailing party’s in-house counsel), expended or incurred by the prevailing
party or parties in connection therewith, whether incurred at the trial or
appellate level, in an arbitration proceeding or otherwise, and including any of
the foregoing incurred in connection with any bankruptcy proceeding (including
without limitation, any adversary proceeding, contested matter or motion brought
by Agent or any other person) relating to Borrower, Creditor or any other person
or entity.

13. SUCCESSORS; ASSIGNS; AMENDMENT. This Agreement shall be binding upon and
inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties. This Agreement may be
amended or modified only in writing signed by all parties hereto.

14. OBLIGATIONS JOINT AND SEVERAL; CONSTRUCTION. If this Agreement is executed
by more than one Creditor, it shall bind them jointly and severally. All words
used herein in the singular shall be deemed to have been used in the plural
where the context so requires.

15. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be held
to be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the

 

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extent of such prohibition or invalidity, without invalidating the remainder of
such waiver or other provision or any remaining provisions of this Agreement.

16. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.

17. ARBITRATION.

(a) Arbitration. The parties hereto agree, upon demand by any party, to submit
to binding arbitration all claims, disputes and controversies between or among
them (and their respective employees, officers, directors, attorneys, and other
agents), whether in tort, contract or otherwise, in any way arising out of or
relating to this Agreement and its negotiation, execution, collateralization,
administration, repayment, modification, extension, substitution, formation,
inducement, enforcement, default or termination.

(b) Governing Rules. Any arbitration proceeding will (i) proceed in a location
in California selected by the American Arbitration Association (“AAA”); (ii) be
governed by the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the documents
between the parties; and (iii) be conducted by the AAA, or such other
administrator as the parties shall mutually agree upon, in accordance with the
AAA’s commercial dispute resolution procedures, unless the claim or counterclaim
is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and
costs in which case the arbitration shall be conducted in accordance with the
AAA’s optional procedures for large, complex commercial disputes (the commercial
dispute resolution procedures or the optional procedures for large, complex
commercial disputes to be referred to herein, as applicable, as the “Rules”). If
there is any inconsistency between the terms hereof and the Rules, the terms and
procedures set forth herein shall control. Any party who fails or refuses to
submit to arbitration following a demand by any other party shall bear all costs
and expenses incurred by such other party in compelling arbitration of any
dispute. Nothing contained herein shall be deemed to be a waiver by any party
that is a bank of the protections afforded to it under 12 U.S.C. §91 or any
similar applicable state law.

(c) No Waiver of Provisional Remedies, Self-Help and Foreclosure. The
arbitration requirement does not limit the right of any party to (i) foreclose
against real or personal property collateral; (ii) exercise self-help remedies
relating to collateral or proceeds of collateral such as setoff or repossession;
or (iii) obtain provisional or ancillary remedies such as replevin, injunctive
relief, attachment or the appointment of a receiver, before during or after the
pendency of any arbitration proceeding. This exclusion does not constitute a
waiver of the right or obligation of any party to submit any dispute to
arbitration or reference hereunder, including those arising from the exercise of
the actions detailed in sections (i), (ii) and (iii) of this paragraph.

(d) Arbitrator Qualifications and Powers. Any arbitration proceeding in which
the amount in controversy is $5,000,000.00 or less will be decided by a single
arbitrator selected according to the Rules, and who shall not render an award of
greater than $5,000,000.00. Any dispute in which the amount in controversy
exceeds $5,000,000.00 shall be decided by majority vote of a panel of three
arbitrators; provided however, that all three arbitrators must actively
participate in all hearings and deliberations. The arbitrator will be a neutral
attorney licensed in the State of California or a neutral retired judge of the
state or federal judiciary of California, in either case with a minimum of ten
years experience in the substantive law applicable to the subject matter of the
dispute to be arbitrated. The arbitrator will determine whether or not an

 

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issue is arbitrable and will give effect to the statutes of limitation in
determining any claim. In any arbitration proceeding the arbitrator will decide
(by documents only or with a hearing at the arbitrator’s discretion) any
pre-hearing motions which are similar to motions to dismiss for failure to state
a claim or motions for summary adjudication. The arbitrator shall resolve all
disputes in accordance with the substantive law of California and may grant any
remedy or relief that a court of such state could order or grant within the
scope hereof and such ancillary relief as is necessary to make effective any
award. The arbitrator shall also have the power to award recovery of all costs
and fees, to impose sanctions and to take such other action as the arbitrator
deems necessary to the same extent a judge could pursuant to the Federal Rules
of Civil Procedure, the California Rules of Civil Procedure or other applicable
law. Judgment upon the award rendered by the arbitrator may be entered in any
court having jurisdiction. The institution and maintenance of an action for
judicial relief or pursuit of a provisional or ancillary remedy shall not
constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.

(e) Discovery. In any arbitration proceeding, discovery will be permitted in
accordance with the Rules. All discovery shall be expressly limited to matters
directly relevant to the dispute being arbitrated and must be completed no later
than 20 days before the hearing date. Any requests for an extension of the
discovery periods, or any discovery disputes, will be subject to final
determination by the arbitrator upon a showing that the request for discovery is
essential for the party’s presentation and that no alternative means for
obtaining information is available.

(f) Class Proceedings and Consolidations. No party hereto shall be entitled to
join or consolidate disputes by or against others in any arbitration, except
parties who have executed this Agreement or any other contract, instrument or
document relating to any Indebtedness, or to include in any arbitration any
dispute as a representative or member of a class, or to act in any arbitration
in the interest of the general public or in a private attorney general capacity.

(g) Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs
and expenses of the arbitration proceeding.

(h) Real Property Collateral; Judicial Reference. Notwithstanding anything
herein to the contrary, no dispute shall be submitted to arbitration if the
dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such dispute is not submitted to arbitration, the dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA’s selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.

(i) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators
and the parties shall take all action required to conclude any arbitration
proceeding within 180 days of the filing of the dispute with the AAA. No
arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a

 

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party required in the ordinary course of its business or by applicable law or
regulation. If more than one agreement for arbitration by or between the parties
potentially applies to a dispute, the arbitration provision most directly
related to the documents between the parties or the subject matter of the
dispute shall control. This arbitration provision shall survive termination,
amendment or expiration of any of the documents or any relationship between the
parties.

(j) Small Claims Court. Notwithstanding anything herein to the contrary, each
party retains the right to pursue in Small Claims Court any dispute within that
court’s jurisdiction. Further, this arbitration provision shall apply only to
disputes in which either party seeks to recover an amount of money (excluding
attorneys’ fees and costs) that exceeds the jurisdictional limit of the Small
Claims Court.

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
May 18, 2012.

 

BORROWER:     AGENT: SALEM COMMUNICATIONS CORPORATION     WELLS FARGO BANK,
NATIONAL ASSOCIATION By:  

/s/ EVAN D. MASYR

    By:  

/s/ PATRICK BISHOP

Name:   EVAN D. MASYR     Name:   PATRICK BISHOP Title:   SVP & CFO     Title:  
VICE PRESIDENT CREDITOR:       FIRST CALIFORNIA BANK       By:  

/s/ RICHARD R. GLASS

      Name:   RICHARD R. GLASS       Title:   SVP      

 

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