<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Rule 13d-101)
Under the Securities Exchange Act of 1934
(Amendment No. )*
---------
Harmony Holdings, Inc.
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(Name of Issuer)
Common Stock
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(Title of Class of Securities)
41322310
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(CUSIP Number)
Avron L. Gordon, Esq.
Brett D. Anderson, Esq.
Briggs and Morgan, P.A.
2400 IDS Center
Minneapolis, MN 55402
(612) 334-8400
--------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
July 21, 1997
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the following
box / /.
- ------------------------------
*The remainder of this cover page shall be filed out for a reporting person's
initial filing on this form with respect to the subject class of securities,
and for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section
of the Act but shall be subject to all other provisions of the Act (however,
SEE the NOTES).
(Continued on following pages)
Page 1 of 142 Pages
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CUSIP No. 41322310 13D Page 2 of 142 Pages
--------- --- ---
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(1) Name of Reporting Person.
S.S. or I.R.S. Identification Nos. of Above Person
Children's Broadcasting Corporation
41-1663712
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(2) Check the Appropriate Box if a Member (a) / /
of a Group* (b) / /
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(3) SEC Use Only
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(4) Source of Funds*
WD, BK, OO
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(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(D) or 2(E) / /
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(6) Citizenship or Place of Organization
MINNESOTA
- -------------------------------------------------------------------------------
Number of Shares (7) Sole Voting Power
Beneficially Owned 1,919,231
by Each Reporting --------------------------------------------------
Person With (8) Shared Voting Power
0
--------------------------------------------------
(9) Sole Dispositive Power
1,919,231
--------------------------------------------------
(10) Shared Dispositive Power
0
- -------------------------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting Person
1,919,231
- -------------------------------------------------------------------------------
(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares*
/ /
- -------------------------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11)
27.4%
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(14) Type of Reporting Person*
CO
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*SEE INSTRUCTION BEFORE FILLING OUT!
<PAGE>
Item 1: Security and Issuer.
The title of the class of equity securities to which this statement
relates is Common Stock. The issuer of such securities is Harmony
Holdings, Inc. ("Harmony"), a Delaware corporation, with its principal
executive offices at 1990 Westwood Boulevard, Suite 310, Los Angeles,
California 90025.
Item 2: Identity and Background.
This statement is filed by Children's Broadcasting Corporation (the
"Company"), a Minnesota corporation, which is a full-time national
broadcaster of children's radio in the United States with its
principal business and principal executive offices at 724 First Street
North, Minneapolis, Minnesota 55401.
The attached Schedule I is a list of the executive officers and
directors of the Company which contains the following information
regarding each person listed on such schedule:
(a) name;
(b) residence or business address;
(c) present principal occupation or employment and, if other
than Children's Broadcasting Corporation, the name,
principal business and address of any corporation or other
organization in which such employment is conducted; and
(d) citizenship.
During the past five years, neither the Company nor, to the best of
the Company's knowledge, any person named in Schedule I has been
convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors) or been a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction as a result
of which it was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting or mandating activities
subject to, federal or state securities laws or finding any violation
with respect to such laws.
Item 3: Source and Amount of Funds or Other Consideration.
On July 21, 1997, the Company, Harvey Bibicoff ("Bibicoff") and
Harmony entered into an agreement (the "Bibicoff Stock Purchase
Agreement") whereby Bibicoff agreed to sell, and the Company agreed to
buy, 600,000 shares of Common Stock of Harmony (the "Bibicoff
Shares"), together with options to purchase 550,000 shares of Common
Stock of Harmony (the "Options") at an exercise price of $1.50 per
share, for $1,760,000. In addition
(Page 3 of 142 Pages)
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to such cash consideration, the Company issued 60,000 shares
of its Common Stock, par value $.02 per share, to Bibicoff. Such
shares had a fair market value of $247,500 based upon the last
reported sale price for such stock on July 22, 1997.
On July 21, 1997, the Company and Unimedia S.A. ("Unimedia"), a
privately held societe anonyme organized and existing under the laws
of France, entered into an agreement (the "Unimedia Stock Purchase
Agreement") whereby Unimedia agreed to sell, and the Company agreed to
buy, 1,000,000 shares of Common Stock of Harmony (the "Unimedia
Shares") and Unimedia agreed to dismiss the litigation entitled
UNIMEDIA S.A. V. HARMONY HOLDINGS, INC. AND HARVEY BIBICOFF, case no.
CV 96-7109 JGD (RNBx), pending in the United States District Court for
the Central District of California, for $2,600,000. The Company
assigned its right to buy 230,769 of the Unimedia Shares to Harmony,
thereby reducing the number of issued and outstanding shares of Common
Stock of Harmony and resulting in a purchase price to the Company of
$2,000,000.
The closing on the purchase of the Bibicoff Shares and the Options
occurred on July 22, 1997. The closing on the purchase of the
Unimedia Shares occurred on July 25, 1997.
Funds for the transactions described above originated from multiple
sources: (i) $2,400,000 pursuant to the Company's Amended and
Restated Loan and Security Agreement with Foothill Capital
Corporation, (ii) $500,000 pursuant to a loan from Pyramid Partners,
L.P., an entity controlled by Richard W. Perkins, a director of the
Company, (iii) $500,000 pursuant to a loan from Rodney P. Burwell, a
director of the Company, (iv) $250,000 pursuant to a loan from William
M. Toles, a shareholder of the Company, and (v) $110,000 of the
Company's working capital. The 10.0% percent one-year loans listed in
items (ii) through (iv) above are secured by 192,308, 192,308 and
96,154 shares of Harmony's Common Stock reported herein, respectively.
In addition to receiving promissory notes from the Company, such
lenders received five-year warrants to purchase 50,000, 50,000 and
25,000 shares of the Company's Common Stock, respectively, at an
exercise price of $4.00 per share. The Company's Board of Directors
has approved the related party transactions listed in items (ii) and
(iii).
Item 4: Purpose of Transaction.
The Common Stock acquired by the Company pursuant to the Bibicoff
Stock Purchase Agreement and the Unimedia Stock Purchase Agreement
(collectively, the "Stock Purchase Agreements") has been acquired for
investment purposes. The Reporting Person reserves the right to
purchase additional shares or to sell shares if it deems such action
to be in its best interest.
Immediately following the closing of the transactions described in the
Stock Purchase Agreements, Bibicoff resigned as Chairman of the Board
and as a
(Page 4 of 142 Pages)
<PAGE>
director of Harmony. The other members of the Board of Directors
of Harmony, before resigning, elected Christopher T. Dahl, a
director of the Company, as a director of Harmony and appointed
him Chairman of the Board of Harmony. Mr. Dahl appointed two
directors, Richard W. Perkins, a director of the Company, and
William M. Toles, a shareholder of the Company, to fill the
vacancies on the Board of Directors of Harmony. The new Board of
Directors created one new board position and appointed William E.
Cameron to fill such position. Prior to the closing on the
purchase of the Bibicoff Shares and the Options, Bibicoff entered
into an amended and restated employment agreement with Harmony to
serve as Harmony's Chief Executive Officer for a period of two
years.
Other than the information disclosed above, the Company does not
presently have plans or proposals which relate to, or would result in,
any of the matters listed in Paragraphs (a) through (j) of Item 4 of
Schedule 13D.
Item 5: Interest in Securities of the Issuer.
(a) As of the date of this Schedule 13D, the Reporting Person owns
1,919,231 shares of Common Stock of Harmony, including 550,000
shares of Common Stock subject to currently exercisable options,
which constitute approximately 27.4% of the outstanding Common
Stock of Harmony.
(b) The Reporting Person has the sole power to vote or to direct the
vote and the sole power to dispose or to direct the disposition
of 1,919,231 shares of Common Stock of Harmony.
(c) Not applicable.
(d) In the event of default under the promissory notes described
above, Pyramid Partners, L.P., Rodney P. Burwell and William M.
Toles have the right to receive or the power to direct the
receipt of dividends from, or the proceeds from the sale of,
192,308, 192,308, and 96,154 shares of Common Stock, reported
herein, respectively.
(e) Not applicable.
Item 6: Contracts, Arrangements, Understandings or Relationships With Respect
to Securities of the Issuer.
The Reporting Person acquired a portion of the shares of Common Stock
of Harmony reported herein pursuant to the Bibicoff Stock Purchase
Agreement. Such agreement provides that Bibicoff will not acquire any
securities of Harmony for a period of three years, other than shares
of Common Stock to be acquired upon the exercise of stock options
currently held by him.
The Reporting Person and Harmony entered into a Registration Rights
Agreement pursuant to which Harmony has agreed to register the shares
of Common Stock reported herein, including the shares of Common Stock
underlying derivative securities reported herein, and such other
shares of
(Page 5 of 142 Pages)
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Common Stock of Harmony which may be acquired by the Company
from Unimedia, Bibicoff, Philip Bibicoff, or Harmony.
Item 7: Material to be Filed as Exhibits.
(1) Stock Purchase Agreement among Children's Broadcasting
Corporation, Harvey Bibicoff and Harmony Holdings, Inc., dated
July 21, 1997.
(2) Stock Purchase Agreement among Children's Broadcasting
Corporation and Unimedia S.A., dated July 21, 1997.
(3) Amended and Restated Loan and Security Agreement by and between
Children's Broadcasting Corporation and Foothill Capital
Corporation, dated as of July 1, 1997.
(4) Promissory Note with Pyramid Partners, L.P.
(5) Promissory Note with Rodney P. Burwell.
(6) Promissory Note with William M. Toles.
(7) Registration Rights Agreement by and among Children's
Broadcasting Corporation and Harmony Holdings, Inc., dated July
22, 1997.
(Page 6 of 142 Pages)
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SIGNATURE
After reasonable inquiring and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: July 31, 1997
CHILDREN'S BROADCASTING CORPORATION
By: /s/ Christopher T. Dahl
-------------------------------------------------
Christopher T. Dahl
Chairman of the Board, President and
Chief Executive Officer
(Page 7 of 142 Pages)
<PAGE>
Schedule I
Executive Officers and Directors of Children's Broadcasting Corporation
The name, business address, principal occupation or employment and
citizenship of each executive officer and director is set forth below.
<TABLE>
<CAPTION>
Residence Address or
Principal Business Occupation or
Address and, if Employment or Citizenship
different, Address Principal or Place of
Name of Principal Office Business Organization
- ----------------------- ----------------------- --------------- --------------
<S> <C> <C> <C>
EXECUTIVE OFFICERS OF CHILDREN'S BROADCASTING CORPORATION:
Christopher T. Dahl 724 First Street North President, Chief U.S.A.
Minneapolis, MN 55401 Executive Officer
and Chairman of
the Board
James G. Gilbertson 724 First Street North Chief Operating U.S.A.
Minneapolis, MN 55401 Officer, Chief
Financial Officer
and Treasurer
Lance W. Riley 724 First Street North General Counsel U.S.A.
Minneapolis, MN 55401 and Secretary
Gary W. Landis 724 First Street North Executive Vice U.S.A.
Minneapolis, MN 55401 President of
Programming
Melvin E. Paradis 724 First Street North Executive Vice U.S.A.
Minneapolis, MN 55401 President of
Operations
Barbara A. McMahon 724 First Street North Executive Vice U.S.A.
Minneapolis, MN 55401 President of
Affiliate
Relations
Rick E. Smith 724 First Street North Executive Vice U.S.A.
Minneapolis, MN 55401 President of
National Sales
Denny J. Manrique 724 First Street North Executive Vice U.S.A.
Minneapolis, MN 55401 President of
(Page 8 of 142 Pages)
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Sales Development
DIRECTORS OF CHILDREN'S BROADCASTING CORPORATION:
Christopher T. Dahl 724 First Street North President, Chief U.S.A.
Minneapolis, MN 55401 Executive Officer
and Chairman of
the Board
Richard W. Perkins 730 East Lake Street President and U.S.A.
Wayzata, MN 55391 CEO of Perkins
Capital Management, Inc.
(a registered
investment
adviser)
Rodney P. Burwell 7901 Xerxes Ave. S. Chairman of U.S.A.
Minneapolis, MN 55431 Xerxes
Corporation (a
manufacturer of
fiberglass
tanks)
Mark A. Cohn 7101 Winnetka Ave. N. Co-founder and U.S.A.
Minneapolis, MN 55428 CEO of Damark
International, Inc.
(a direct marketer
of brand name
and general
merchandise
products)
Russell Cowles II(1) 2754 W. Lake of the Trustee of the U.S.A.
Isles Pkwy. Cowles Family
Minneapolis, MN 55416 Voting Trust
(holder of a
majority share
of the voting
stock of Cowles
Media Corporation,
a newspaper,
magazine and
book publisher
- -----------------------
(1) Subject to the approval of the Federal Communications Commission.
(Page 9 of 142 Pages)
<PAGE>
and information
service provider)
</TABLE>
(Page 10 of 142 Pages)
<PAGE>
Exhibit Index
Exhibit
Number Description
- --------- -------------------------------------------------------------
1 Stock Purchase Agreement among Children's Broadcasting
Corporation, Harvey Bibicoff and Harmony Holdings, Inc.,
dated July 21, 1997.
2 Stock Purchase Agreement among Children's Broadcasting
Corporation and Unimedia S.A., dated July 21, 1997.
3 Amended and Restated Loan and Security Agreement by and
between Children's Broadcasting Corporation and Foothill
Capital Corporation, dated as of July 1, 1997.
4 Promissory Note with Pyramid Partners, L.P.
5 Promissory Note with Rodney P. Burwell.
6 Promissory Note with William M. Toles.
7 Registration Rights Agreement by and among Children's
Broadcasting Corporation and Harmony Holdings, Inc., dated July
22, 1997.
(Page 11 of 142 Pages)
<PAGE>
Exhibit 1
STOCK PURCHASE AGREEMENT
This Agreement (hereinafter referred to as this Agreement) is made and
entered into as of the 21st day of July, 1997, among Children's Broadcasting
Corporation, a Minnesota corporation (hereinafter referred to as the Purchaser),
Harvey Bibicoff, an individual (hereinafter referred to as the Seller), and
Harmony Holdings, Inc., a Delaware corporation (hereinafter referred to as
Harmony).
RECITALS
FIRST: Purchaser desires to acquire from Seller, and Seller desires to sell
to Purchaser, 600,000 of the authorized and outstanding shares of common stock,
par value $.01 per share (hereinafter referred to as the Common Stock) of
Harmony held by Seller (such 600,000 shares being hereinafter sometimes referred
to as the Shares). Purchaser also desires to acquire from Seller, and Seller
also desires to sell to Purchaser, options owned by Seller, as described in
Schedule 1 attached to this Agreement, to purchase from Harmony 550,000 shares
of Common Stock (hereinafter referred to as the Options). Purchaser,
concurrently, also desires to acquire from Unimedia, S.A., a corporation with
its SIEGE SOCIAL in the Republic of France (hereinafter referred to as
Unimedia), or an affiliate of Unimedia, 1,000,000 shares of Common Stock held by
Unimedia (hereinafter referred to as the Unimedia Shares).
SECOND: Harmony, Seller and Unimedia are parties to litigation in the
action entitled UNIMEDIA S.A. V. HARMONY HOLDINGS, INC. AND HARVEY BIBICOFF
(Case No. 96-7109 JGD (RNBx) (hereinafter referred to as the Pending Litigation)
in the United States District Court for the Central District of California.
Purchaser has, at the request of Harmony, agreed to negotiate with Unimedia to
secure the dismissal of the Pending Litigation, for the purpose of bringing to
an end what the parties to this Agreement believe will be costly litigation and
of eliminating the risks to Harmony and Seller associated therewith. Harmony and
Seller acknowledge that they will benefit substantially from the termination of
the Pending Litigation.
THIRD: Upon acquiring the Shares and the Unimedia Shares, Purchaser desires
to effect certain changes in the management of Harmony. Harmony and Purchaser
also desire to secure the continued employment of Seller and Seller has agreed
to remain in the employ of Harmony.
FOURTH: Harmony is a reporting company as that term is understood in
connection with the Securities and Exchange Act of 1934, as amended (hereinafter
referred to as the 1934 Act) and shares of the Common Stock appear in reports
furnished by the National Association of Securities Dealers, Inc. in the Small
Cap section of the National Market List of NASDAQ.
(Page 12 of 142 Pages)
<PAGE>
FIFTH: Purchaser is a reporting company as that term is understood in
connection with the Securities and Exchange Act of 1934, as amended (hereinafter
referred to as the 1934 Act) and its Common Stock par value $0.02 per share
(hereinafter sometimes referred to as Common Shares), appear in reports
furnished by the National Association of Securities Dealers, Inc. in the
National Market List of NASDAQ.
SIXTH: In addition to the monetary consideration hereinafter in this
Agreement set forth to be paid by Purchaser to Seller upon the purchase of the
Shares, Purchaser will issue and deliver to Seller 60,000 of its Common Shares
(hereinafter referred to as CBC Shares).
NOW, THEREFORE, in consideration of the foregoing and the covenants,
representations and warranties hereinafter in this Agreement set forth, the
parties hereto hereby agree as follows:
1. OWNERSHIP AND SALE OF SHARES AND OPTIONS.
(a) Seller represents that he is the owner of 950,000 shares of Common
Stock and that he does not own any other shares of Common Stock. Seller
represents and covenants that prior to the closing (as that term is
hereinafter defined) of the transactions contemplated by this Agreement, he
will not acquire any additional shares of Common Stock. Seller further
represents that he is the owner of options to purchase 825,000 shares of
Common Stock, of which the Options are a part. Seller further represents
and warrants that the Options are freely assignable and transferable to
Purchaser. Seller will not, prior to the closing (as that term is so
defined), assign or transfer any of the options retained by him exercisable
for 275,000 shares of Common Stock.
(b) Subject to the terms and conditions hereinafter in this Agreement
set forth, Seller agrees to sell, assign and transfer the Shares to
Purchaser on the closing date (as that term is hereinafter defined), free
and clear of all security interests, liens and encumbrances, and Seller
similarly agrees to sell, assign and transfer the Options to the Purchaser
on the Closing Date. The number of shares comprising the Shares and the
purchase price thereof set forth in subsection (a) of Section 2 of this
Agreement shall be subject to adjustment in the event of any subdivision or
combination of shares of Common Stock, any dividend thereon payable in
stock or any reorganization or recapitalization affecting the outstanding
shares of Common Stock.
2. PURCHASE AND CONSIDERATION.
(a) On the basis of the representations and warranties, and subject to
the terms and conditions set forth in this Agreement, Purchaser agrees to
purchase the Shares from Seller on the Closing Date. The purchase price
payable to Seller for each of the Shares is Two Dollars and Fifty Cents
($2.50), subject to adjustment as provided in Section 1 of this Agreement
and Purchaser will issue and deliver to Seller one or more certificates
representing the CBC Shares. On the basis of the representations and
warranties, and subject to the terms and conditions set forth in this
Agreement, Purchaser agrees to purchase the Options from Seller on the
Closing
(Page 13 of 142 Pages)
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Date. The purchase price payable to Seller for the Options is Two
Hundred Sixty Thousand ($260,000) Dollars.
(b) Harmony and Seller acknowledge that as additional consideration
for Purchaser's services in negotiating the termination of the Pending
Litigation, Harmony shall, if such negotiations are successful and the
Pending Litigation shall be dismissed by Unimedia with prejudice, execute
and deliver to the Purchaser a registration rights agreement in the form of
the form attached to this Agreement as Exhibit 1 and incorporated herein by
reference as if set forth in full (hereinafter sometimes referred to as the
Registration Rights Agreement).
3. CLOSING.
(a) The Closing of the transactions contemplated by this Agreement
("the Closing") shall take place at the offices of Troy & Gould, 1801
Century Park East, 16th Floor, Los Angeles, CA 90067 at 9:00 o'clock in the
forenoon, Pacific Daylight time, on July 22, 1997 (such date of Closing is
hereinafter sometimes referred to as the Closing Date). The Closing shall
be subject to the satisfaction of all of the conditions to Purchaser's
obligations set forth in Section 9 of this Agreement (hereinafter referred
to as Purchaser's Conditions).
AT THE CLOSING:
(i) Seller shall deliver, assign and transfer to Purchaser
certificates representing the Shares, appropriately endorsed or
accompanied by a separate instrument or instruments of assignment in
writing, in proper form for registration of transfer, against payment
to Seller of the purchase price in funds immediately available in Los
Angeles, CA;
(ii) Seller shall deliver, assign and transfer the Options to
Purchaser against payment of the sum of Two Hundred Sixty Thousand
($260,000) Dollars. in funds available as set forth in clause (i) of
subsection (a) of this Section 3.
(iii) Purchaser will issue and deliver to Seller one or more
certificates registered in the name of the Seller representing the CBC
Shares.
(iii) Harmony shall execute and deliver the Registration Rights
Agreement to Purchaser against delivery to Harmony or its counsel of
an executed document of dismissal with prejudice of the Pending
Litigation.
(iv) Seller shall deliver the resignations referred to in Section
9 of this Agreement.
(v) Seller shall execute and deliver the employment agreement in
the form of the form of the agreement attached to this Agreement as
Exhibit 2 and incorporated herein by reference as if set forth in full
(hereinafter
(Page 14 of 142 Pages)
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sometimes referred to as the Employment Agreement) (this Agreement,
the Registration Rights Agreement and the Employment Agreement are
hereinafter sometimes referred to as the Transaction Documents).
The purchase price for the Shares and Options shall be sent by wire
transfer, value dated the date of transmission or the Closing Date,
whichever shall be earlier, to such account or accounts in one or more
banks in the United States of America as Seller shall specify in writing
delivered to Purchaser not less that forty-eight (48) hours prior to the
Closing Date; otherwise such purchase price shall be payable in cash or by
instruments in or under which funds shall be immediately available in Los
Angeles, CA.
(b) [Intentionally omitted]
4. REPRESENTATION, WARRANTIES AND COVENANTS OF HARMONY.
To induce Purchaser to enter into this Agreement and to carry out the
transactions contemplated by this Agreement to be carried out by Purchaser,
Harmony hereby represents and warrants to Purchaser, or covenants with
Purchaser, or both, that:
4.1 ORGANIZATION, STANDING, ETC. Harmony and each Subsidiary is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization and has the requisite
corporate power and authority to own its properties and to carry on its
business in all material respects as now being conducted. Harmony has the
requisite corporate power and authority to perform its obligations under
this Agreement. Harmony and each Subsidiary is duly qualified to do
business and in good standing (or its equivalent) in all jurisdictions in
which its ownership of property or the character of its business requires
such qualification. Copies of the Certificate of Incorporation of Harmony,
including all amendments to the date of this Agreement, certified by the
Secretary of State of the State of Delaware, copies of the Certificate or
Articles of Incorporation of each Subsidiary, including all amendments to
the date of this Agreement, certified by the Secretary of State or similar
official of the respective jurisdictions of organization of each
Subsidiary, and copies of the By-laws of Harmony and each Subsidiary
including all amendments to the date of this Agreement, certified by the
respective secretaries thereof, have been or will be delivered prior to the
Closing to Purchaser.
4.2 SUBSIDIARIES, ETC. Subsidiary means a corporation a majority or
more of whose outstanding shares of capital stock entitling the holders
thereof to vote in the election of directors of such corporation is owned,
directly or indirectly, by Harmony, or by one or more other subsidiaries or
by Harmony and one or more other subsidiaries. The Subsidiaries, their
respective jurisdictions of organization and the percentage of outstanding
shares of capital stock held by Harmony and other Subsidiaries are as
follows:
(Page 15 of 142 Pages)
<PAGE>
PERCENTAGE OF CAPITAL
JURISDICTION OF STOCK OWNED BY HARMONY
NAME OF SUBSIDIARY ORGANIZATION AND SUBSIDIARIES
- ----------------------------- --------------- ----------------------
Harmony Pictures, Inc. California 100%
The End, Inc. California 100%
Curious Pictures Corporation New York 99%
Harmony Media Communications. California 100%
Inc.
The End (London) Ltd. United Kingdom 100%
4.3 PUBLIC INFORMATION ETC. Harmony has delivered to Purchaser its
Annual Report to the Securities and Exchange Commission (hereinafter
referred to as the SEC) for the fiscal year ended June 30, 1996, on Form
10-K and its Quarterly Report to the SEC for the quarter ended March 31,
1997, on Form 10-Q, as well as the latest registration statement filed with
the SEC on Form S-1 and the latest registration statement so filed on Form
S-8. All such filings were made in conformity with the requirements
relating thereto at the time of such filing and contained all information
required to be set forth therein. In addition, Harmony has delivered or
will deliver to Purchaser copies of all press releases issued by Harmony
from and after March 31, 1997. From and after March 31, 1997, Harmony
represents, and from and after the date of this Agreement, Harmony
covenants, that it has not and will not, as the case may be, taken or take
or suffered or suffer any action which would require it to file a report
with the SEC relating thereto or to issue a press release in respect
thereof, or both, except as may be required because of the execution of
this Agreement and the carrying out of the transactions contemplated
hereby.
Such reports and registration statements and any other forms,
registration statements, reports and other documents filed by Harmony with
the SEC (i) were prepared in accordance with the requirements of the
Securities Act of 1933 as amended (hereinafter sometimes referred to as the
Act) and the 1934 Act, as the case may be, and the rules and regulations
adopted by the SEC thereunder and (ii) did not at the time they were filed,
or will not at the time they are filed, contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were or are made, not
misleading. Each of the consolidated financial statements (including, in
each case, any notes thereto) contained in the reports and registration
statements was prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as may be indicated in the notes thereto) and each fairly presented
the consolidated financial position, results of operations and cash flows
of Harmony and its consolidated subsidiaries as the case may be, as at the
respective dates thereof and for the respective periods indicated therein
(subject, in the case of
(Page 16 of 142 Pages)
<PAGE>
unaudited statements, to normal and recurring year-end adjustments that
were not and are not expected, individually or in the aggregate, to be
material in amount).
4.4 SHARES AND UNIMEDIA SHARES. The Shares and the Unimedia Shares
have been duly authorized, are validly issued and outstanding and fully-
paid and nonassessable.
4.5 CHANGES, DIVIDENDS, ETC. Except for the transactions contemplated
by this Agreement and except as set forth in Schedule 4.5 attached to this
Agreement, since March 31, 1997 neither Harmony nor any Subsidiary has: (i)
incurred any debts, obligations or liabilities, absolute, accrued or
contingent and whether due or to become due, except current liabilities
incurred in the ordinary course of business which (individually or in the
aggregate) will not materially and adversely affect the business,
properties or prospects of Harmony or any Subsidiary; (ii) paid any
obligation or liability other than, or discharged or satisfied any liens or
encumbrances other than those securing current liabilities, in each case in
the ordinary course of business; (iii) declared or made any payment to or
distribution to its Stockholders as such, or purchased or redeemed any of
its shares of capital stock, or obligated itself to do so; (iv) mortgaged,
pledged or subjected to lien, charge, security interest or other
encumbrance any of its assets, tangible or intangible, except in the
ordinary course of business; (v) sold, transferred or leased any of its
assets except in the ordinary course of business; (vi) suffered any
physical damage, destruction or loss (whether or not covered by insurance)
materially and adversely affecting the properties, business or prospects of
Harmony or any Subsidiary; (vii) entered into any transaction other than in
the ordinary course of business; (viii) encountered any labor difficulties
or labor union organizing activities: (ix) issued or sold any shares of
capital stock or other securities or granted any options, warrants or other
purchase rights with respect thereto: (x) made any acquisition or
disposition of any material assets or become involved in any other material
transaction, other than for fair value in the ordinary course of business;
(xi) increased the compensation payable, or to become payable, to any of
its directors or employees, or made any bonus payment or similar
arrangement with any directors or employees or increased the scope or
nature of any fringe benefits provided for its employees or directors; or
(xii) agreed to do any of the foregoing other than pursuant to this
Agreement. There has not been any material adverse change in the financial
condition, operations, results of operations or business of Harmony or any
Subsidiary since March 31, 1997.
4.6 OPTIONS. Upon surrender of the instrument or instruments embodying
or representing the Options endorsed or assigned in the same manner as the
Shares as set forth in clause (i) of subsection (a) of Section 3 of this
Agreement, Harmony will issue and deliver to Purchaser on the Closing Date
new option agreements, containing the same terms, conditions and dates as
the Options.
4.7 CORPORATE ACTS AND PROCEEDINGS. This Agreement has been, or on the
Closing Date will have been, duly authorized by all necessary corporate
action on behalf of Harmony, has been duly executed and delivered by
officers of Harmony thereunto duly authorized, and is a valid and binding
agreement on Harmony
(Page 17 of 142 Pages)
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enforceable against it, except as the enforceability thereof may be
limited by bankruptcy, insolvency, moratoria, reorganization or other
similar laws affecting the enforcement of creditors' rights generally
and to judicial limitations on the enforcement of the remedy of specific
performance and other equitable remedies.
4.8 CORPORATE EXISTENCE. Until the Closing date, Harmony will maintain
its corporate existence and the corporate existence of each Subsidiary, in
good standing.
4.9 INSPECTION. Harmony will permit Purchaser or any representatives
designated by it and reasonably satisfactory to Harmony, to visit and
inspect, at Purchaser's expense, any of the properties of Harmony,
including its books and records (and to make photocopies thereof or make
extracts therefrom), and to discuss its affairs, finances and accounts with
its officers, lawyers and accountants, all to such reasonable extent and at
such reasonable times and intervals as Purchaser may reasonably request.
4.10 ABSENCE OF CHANGE OF CONTROL PROVISIONS. The acquisition by
Purchaser of the Shares, the Unimedia Shares and the Options will not(i)
cause any payment to be made by Harmony to any person or entity, or (ii)
cause Harmony to issue any securities or rights to purchase its securities,
or (iii) result in the termination of any contract or arrangement to which
Harmony or any Subsidiary is a party, or (iv) cause the loss of any rights
under any contract to which any of Harmony or any Subsidiary is bound,
under any "change of control" or similar provisions of any contract,
document or plan by which Harmony or any Subsidiary is bound.
4.11 TAKEOVER LAWS. Harmony will take all reasonable steps to assist
Purchaser in any action by Purchaser to challenge, either as a plaintiff or
defendant, the validity or applicability of any state "takeover" or similar
law or regulation to Purchaser's acquisition.
4.12 PROCEEDINGS AND CLAIMS. Other than the Pending Litigation and
litigation described in any of the Reports referred to in subsection 4.3 of
this Section 4, and except as set forth in Schedule 4.12 attached to this
Agreement, (a) there are not any legal actions, suits, arbitrations or
other legal, administrative or governmental proceedings or investigations
pending, or to the knowledge of Harmony or Seller, threatened against
Harmony or any Subsidiary, or their respective properties or businesses;
(b) neither Harmony nor Seller is aware of any facts which might result in
or form the basis for any such action, suit or other proceeding; (c)
Harmony is not in default with respect to any judgment, order or decree of
any court or any governmental agency or instrumentality; (d) neither
Harmony nor any Subsidiary nor any of their respective officers has filed a
case under any federal bankruptcy or insolvency laws for the restructuring
of its or his or her debts within the past five (5) years, nor has any
involuntary case for such restructuring been filed against Harmony or any
Subsidiary or any of their respective officers pursuant to any such
bankruptcy or insolvency laws within such five (5) year period; (e) no
legal action or suit alleging fraud or improper business dealings has been
filed against any of the officers of Harmony or any Subsidiary during the
past five (5) years; (f) neither Harmony nor
(Page 18 of 142 Pages)
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any officer or director of Harmony or any Subsidiary has been
permanently or temporarily enjoined by any order, judgment or decree of
any court or governmental agency, authority or body from engaging in or
continuing any conduct or practice in connection with the business of
Harmony or any Subsidiary; and (g) there is not in existence on the date
of this Agreement any order, judgment or decree of any court, tribunal
or agency enjoining or requiring Harmony or any Subsidiary to take any
action of any kind with respect to its business, assets or properties.
5. REPRESENTATIONS AND WARRANTIES OF SELLER.
To induce Purchaser to enter into this Agreement, Seller hereby
represents and warrants to Purchaser, or covenants with Purchaser that:
5.1 SHARES. Seller represents and warrants that the Shares are owned
by Seller and that upon transfer of the Shares to Purchaser on the Closing
Date pursuant to this Agreement, Purchaser will obtain absolute title to
the Shares, free and clear of all liens, pledges, security interests,
claims, charges, options, encumbrances or other adverse claims of any kind
whatsoever.
5.2 OPTIONS. Seller hereby makes the same warranties and
representations with respect to the Options as are made with respect to the
Shares in subsection 5.1 of this Section 5.
5.3 [Intentionally omitted]
5.4 NON-DISTRIBUTION INTENT. The CBC Shares are being purchased for
Seller's own account and not with a view to, or for resale in connection
with, any distribution or public offering thereof within the meaning of the
Act. Seller understands that the CBC Shares and the sale thereof as
contemplated by this Agreement have not been registered under the Act or
qualified under any state or territorial securities laws. Purchaser has
provided to Seller, and Seller acknowledges that he has received and
reviewed, the information specified in Section 7.6.
6. NO BROKERS OR FINDERS.
Each of the parties to this Agreement represents and warrants to the other
parties to this Agreement that not any person, firm or corporation will have, as
a result of any act or omission by any of the parties to this Agreement, any
valid claim against the other parties to this Agreement for any commission, fee
or other compensation as a broker or finder in connection with the transactions
contemplated by this Agreement, except that Seller has certain obligations to
Richard Alan Incorporated in respect of the transactions contemplated by this
Agreement. Seller covenants to satisfy the claims of Richard Alan Incorporated.
Each party to this Agreement hereby indemnifies and agrees to harmless the other
parties to this Agreement against any and all liability with respect to any
such commission, fee or other compensation which may be payable or determined to
be payable in connection with the transactions contemplated by this Agreement,
arising from the act or omission of such indemnifying party.
(Page 19 of 142 Pages)
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7. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
To induce Harmony and Seller to enter into this Agreement, Purchaser
hereby represents and warrants to Harmony and Seller, or covenants with
Harmony and Seller that:
7.1 ORGANIZATION. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Minnesota, and
has all requisite power and authority (corporate and otherwise) to own its
properties and to carry on its business as now being conducted. A copy of
the Certificate of Incorporation of Purchaser, including all amendments to
the date of this Agreement, certified by the Secretary of State of the
State of Minnesota and a copy of the By-laws of Purchaser, including all
amendments to the date of this Agreement, certified by the Secretary of
Purchaser, have been or will be delivered prior to the Closing to Seller.
7.2 NON-DISTRIBUTION INTENT. The Shares are being purchased for
Purchaser's own account and not with a view to, or for resale in connection
with, any distribution or public offering thereof within the meaning of the
Act. Purchaser understands that the Shares and the sale thereof as
contemplated by this Agreement have not been registered under the Act or
qualified under any state or territorial securities laws.
7.3 ACTS AND PROCEEDINGS. This Agreement has been duly authorized by
all necessary action on the part of the Purchaser and has been duly
executed and delivered by its officers thereunto duly authorized, and is a
valid and binding agreement of the Purchaser enforceable in accordance with
its terms.
7.4 ACCESS TO INFORMATION. Purchaser acknowledges that it has been
furnished with information about Harmony which would be disclosed in a
registration statement on a general form filed by Harmony with the SEC
under the Act, that it has had the opportunity to ask questions of, and
receive answers from, officers and employees of Harmony about the business
and affairs of Harmony and that it has been granted access to the books and
records of Harmony.
7.5 INVESTMENT COMPANY. Purchaser is not an investment company or an
affiliate of an investment company as that term is defined and used in the
Investment Company Act of 1940, as amended and the rules and regulations
issued by the SEC thereunder.
7.6 PUBLIC INFORMATION ETC. Purchaser has delivered to Seller its
Annual Report to the Securities and Exchange Commission (hereinafter
referred to as the SEC) for the fiscal year ended December 31, 1996, on
Form 10-KSB and its Quarterly Report to the SEC for the quarter ended March
31, 1997, on Form 10-QSB, as well as the latest registration statement
filed with the SEC on Form S-1 and the prospectus contained in the latest
registration statement so filed on Form S-3. All such filings were made in
conformity with the requirements relating thereto at the time of such
filing and contained all information required to be set forth therein. In
addition, Purchaser has delivered or will deliver to Seller copies of all
press releases issued by Purchaser from and after January 1, 1997.
(Page 20 of 142 Pages)
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Such reports and registration statements and any other forms,
registration statements, reports and other documents filed by Purchaser
with the SEC (i) were prepared in accordance with the requirements of
the Act and the 1934 Act, as the case may be, and the rules and
regulations adopted by the SEC thereunder and (ii) did not at the time
they were filed, or will not at the time they are filed, contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which
they were or are made, not misleading. Each of the consolidated
financial statements (including, in each case, any notes thereto)
contained in the reports and registration statements was prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except as may be
indicated in the notes thereto) and each fairly presented the
consolidated financial position, results of operations and cash flows of
Harmony and its consolidated subsidiaries as the case may be, as at the
respective dates thereof and for the respective periods indicated
therein (subject, in the case of unaudited statements, to normal and
recurring year-end adjustments that were not and are not expected,
individually or in the aggregate, to be material in amount.
7.7 CBC SHARES. The CBC Shares have been duly authorized, and, when
certificates therefor shall have been issued and delivered in accordance
with this Agreement, will be validly issued and outstanding and
fully-paid and nonassessable.
8. PRE-CLOSING COVENANTS.
The parties to this Agreement agree with respect to the period from and
after the execution of this Agreement to and including the Closing:
8.1 GENERAL. Seller will use reasonable efforts to take all actions
and to do all things necessary in order to consummate and make effective
the transactions contemplated by this Agreement.
8.2 EXCLUSIVE DEALING. Seller agrees that he will not, directly or
indirectly, through any agent, representative or otherwise, (a) solicit,
initiate or encourage submission of proposals or offers from any person
relating to the acquisition or purchase of all or a material part of the
Shares or Options, or both, or (b) participate in any discussions or
negotiations regarding, or furnish to any other person any non-public
information with respect or otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any
other person to do or to seek to do any of the foregoing. Seller agrees
promptly to notify Purchaser of any such proposal or offer, or any inquiry
or contact with respect thereto received by Seller.
9. CONDITION OF PURCHASER'S OBLIGATIONS.
The obligation of the Purchaser to consummate the transactions contemplated
by this Agreement is subject to the fulfillment prior to or on the Closing Date
of the following
(Page 21 of 142 Pages)
<PAGE>
Purchaser Conditions, any of which may be waived in whole or in part in
writing by the Purchaser:
9.1 NO ERRORS, ETC. The representations and warranties of Harmony and
Seller shall be true in all material respects as of the Closing Date with
the same effect as though made on and as of the Closing Date.
9.2 COMPLIANCE WITH AGREEMENT. Seller and Harmony shall have performed
and complied with all agreements, covenants or conditions required by this
Agreement to be performed and complied with by them prior to or as of the
Closing Date.
9.3 CERTIFICATE OF OFFICERS. Harmony shall have delivered to Purchaser
a certificate, dated the Closing Date, which shall be executed by the Chief
Executive Officer and the Chief Financial Officer of Harmony and which
shall certify to the satisfaction of the conditions applicable to Harmony
specified in subsections 9.1 and 9.2 of this Section 9.
9.4 OPINION OF COUNSEL. On the Closing Date, Harmony shall have
delivered to Purchaser an opinion, satisfactory to Purchaser, of counsel to
Harmony, dated the Closing Date, to the effect that:
(a) Harmony has been organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware
and has the power and authority to carry out the provisions of this
Agreement.
(b) This Agreement and the Transaction Documents have been duly
authorized, executed and delivered by Harmony, are the legal, valid
and binding obligations of Harmony and Seller and are enforceable in
accordance with their terms, subject to the effect of applicable
bankruptcy, insolvency, moratoria and other similar laws affecting
generally the enforcement of creditors' rights.
(c) Harmony has obtained the approval or consent of all
governmental agencies or bodies required for the legal and valid
execution and delivery of this Agreement and for the performance of
the obligations of Harmony under all provisions of this Agreement.
Harmony is not in violation of any term, provision or condition of its
Certificate of Incorporation or, to the best of such counsel's
knowledge, after due inquiry, in violation of any agreement or other
instrument to which Harmony is a party or by which it is bound or to
which any of its properties, assets or business is subject or any
judgment, decree or order or any statute, rule or regulation. The
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated by this Agreement will
not result in any breach or violation of the terms or provisions of,
or constitute a default under, the Certificate of Incorporation of
Harmony or any statute or, to the best of such counsel's knowledge,
after due inquiry, any rule or regulation affecting Harmony.
(Page 22 of 142 Pages)
<PAGE>
(d) Harmony's Board of Directors has approved Purchaser's
acquisition of the Unimedia Shares, the Shares and the Options, for
the purposes of Section 203(a) of the Delaware General Corporation
Law.
(e) To the best knowledge of such counsel, after due inquiry, the
Shares and the Unimedia Shares have been duly authorized, are validly
issued and outstanding, full paid and non-assessable. The Shares and
Options will, upon receipt of all consideration to be paid or provided
to Seller under the provisions of this Agreement will, based solely on
those matters and documents which may be required and examined by a
professional transfer agent for securities in the process of
registration of transfer of shares of capital or common stock, be
transferred to Purchaser, free and clear of all liens, pledges,
security interests, claims, charges, options, encumbrances or other
adverse claims of any kind.
(f) the Options have been duly authorized and are validly
outstanding;
(g) the Options are assignable and transferable by the Seller to
Purchaser, free and clear of all restrictions;
(h) the Options represent, and when transferred, sold and
assigned to Purchaser will represent, the valid and binding
obligations of Harmony, enforceable in accordance with their terms.
9.5 ACTION BY HARMONY'S BOARD OF DIRECTORS.
(a) Harmony's Board of Directors, prior to the Closing Date,
shall have met and duly adopted resolutions, subject to the
consummation of the transactions contemplated by this Agreement: (i)
to accept the resignation of Seller as Chairman of the Board and as a
director of Harmony; (ii) to elect Christopher T. Dahl (hereinafter
sometimes referred to as Dahl) as a director of Harmony and as
Chairman of the Board of Harmony; (iii) to accept the resignation of
each director of Harmony, other than Dahl, to be effective immediately
following the Closing or at such other time as may be specified by
Purchaser.
(b) Harmony's Board of Directors shall have also met, prior to
the Closing Date, and shall have approved the following:
(1) the Registration Rights Agreement in the form of the
form attached to this Agreement as Exhibit 1; and
(2) the Employment Agreement in the form of the form
attached to this Agreement as Exhibit 2.
(c) Prior to the Closing Date, Harmony's Board of Directors shall
have also met and approved for the purposes of Section 203(a) of the
Delaware
(Page 23 of 142 Pages)
<PAGE>
General Corporation Law, Purchaser's acquisition, as an "interested
stockholder", of the Shares, the Unimedia Shares, the Options and the
550,000 shares of Common Stock issuable on the exercise thereof.
(d) Prior to the Closing Date, Harmony's Board of Directors shall
have also met and amended Harmony's 1991 Stock Option Plan so as to
permit the Options freely to be transferable and assignable.
9.6 ACTIONS BY SELLER.
(a) Seller shall have tendered written resignations from his
positions as a director and Chairman of the Board of Harmony, as a
director of Harmony, and as a director, officer and employee of each
Subsidiary (hereinafter sometimes collectively referred to as the
Resignations).
(b) Seller shall have executed and delivered the Employment
Agreement.
9.7 RESIGNATIONS OF CURRENT BOARD. the remaining members of Harmony's
Board of Directors (other than Dahl) shall have tendered their resignations
as directors immediately following the actions described in subsection 9.5
of this Section 9.
9.8 SUPPORTING DOCUMENTS. Purchaser shall have received the following:
(a) a copy of the resolutions adopted by the Board of Directors
of Harmony certified by the Secretary of Harmony authorizing and
approving the execution, delivery and performance of this Agreement
and the actions and documents referred to in subsection 9.5 of this
Section 9.
(b) Such additional supporting documentation and other
information with respect to the transactions contemplated by this
Agreement as Purchaser may reasonably request.
9.9 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings and
actions in connection with the transactions contemplated by this Agreement
and all certificates, opinions. agreements, instruments and documents
mentioned in this Agreement or incident to any transaction shall be
satisfactory to Purchaser in form and substance.
9.10 REGISTRATION RIGHTS AGREEMENT. Harmony shall have executed and
delivered the Registration Rights Agreement in exchange for the delivery to
Harmony or its counsel of the dismissal referred to in subsection 2(b).
9.11 TRANSFER OF OPTIONS. Harmony shall have issued to Purchaser new
option agreement(s) in accordance with subsection 4.6 of Section 4 of this
Agreement,
(Page 24 of 142 Pages)
<PAGE>
except that the purchase price or exercise price set forth in such new
agreement or agreements shall be $1.50 per share of Common Stock.
9.12 PARTIES TO TAKE ACTIONS. Harmony and Seller shall use all
reasonable efforts and shall take all actions necessary to satisfy
Purchaser's Conditions and to complete, execute and deliver the Transaction
Documents.
9A CONDITION OF SELLER'S OBLIGATIONS. The obligation of the Seller to
consummate the transactions contemplated by this Agreement is subject to
the fulfillment prior to or on the Closing Date of the following Seller
conditions, any of which may be waived in whole or in part in writing by
the Seller:
9A.1 NO ERRORS, ETC. The representations and warranties of Purchaser
shall be true in all material respects as of the Closing Date with the same
effect as though made on and as of the Closing Date.
9A.2 COMPLIANCE WITH AGREEMENT. Purchaser shall have performed and
complied with all agreements, covenants or conditions required by this
Agreement to be performed and complied with by them prior to or as of the
Closing Date.
9A.3 CERTIFICATE OF OFFICERS. Purchaser shall have delivered to Seller
a certificate, dated the Closing Date, which shall be executed by the Chief
Executive Officer of Purchaser and which shall certify to the satisfaction
of the conditions specified in subsections 9A.1 and 9A.2 of this Section 9.
9A.4 OPINION OF COUNSEL. On the Closing Date, Purchaser shall have
delivered to Seller an opinion, satisfactory to Seller, of counsel to
Purchaser, dated the Closing Date, to the effect that:
(a) Purchaser has been organized and is validly existing as a
corporation in good standing under the laws of the State of Minnesota
and has the power and authority to carry out the provisions of this
Agreement.
(b) This Agreement and the Transaction Documents have been duly
authorized, executed and delivered by Purchaser, are the legal, valid
and binding obligations of Purchaser and are enforceable in accordance
with their terms, subject to the effect of applicable bankruptcy,
insolvency, moratoria and other similar laws affecting generally the
enforcement of creditors' rights.
(c) Purchaser has obtained the approval or consent of all
governmental agencies or bodies requires for the legal and valid
execution and delivery of this Agreement and for the performance of
the obligations of Purchaser under all provisions of this Agreement.
Purchaser is not in violation of any term, provision or condition of
its Certificate of Incorporation or, to the best of such counsel's
knowledge, after due inquiry, in violation of any agreement or other
instrument to which Purchaser is a party or by which it is bound or to
which any of its properties, assets or business is subject or any
judgment, decree or
(Page 25 of 142 Pages)
<PAGE>
order or any statute, rule or regulation. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated by this Agreement will not result in any breach or
violation of the terms or provisions of, or constitute a default
under, the Certificate of Incorporation of Purchaser or any statute
or, to the best of such counsel's knowledge, after due inquiry, any
rule or regulation affecting Harmony.
(d) the CBC Shares have been duly authorized, and upon issue and
delivery of certificates therefor in accordance with this Agreement,
will be validly issued and outstanding, fully paid and non-ssessable,
free and clear of all liens, pledges, security interests, claims,
charges, options, encumbrances or other adverse claims of any kind.
9A.5 ACTION BY PURCHASER'S BOARD OF DIRECTORS. Purchaser's Board of
Directors shall have also met, prior to the Closing Date, and shall have
approved a registration rights agreement in favor of the Seller in the form
of the form attached to this Agreement as Exhibit 1, MUTATIS MUTANDIS.
9A.6 SUPPORTING DOCUMENTS. Seller shall have received the following:
(a) a copy of the resolutions adopted by the Board of Directors
of Purchaser certified by the Secretary of Purchaser authorizing and
approving the execution, delivery and performance of this Agreement
and the document referred to in subsection 9A.5 of this Section 9A.
(b) Such additional supporting documentation and other
information with respect to the transactions contemplated by this
Agreement as Seller may reasonably request.
9A.7 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
and actions in connection with the transactions contemplated by this
Agreement and all certificated, opinions. agreements, instruments and
documents mentioned in this Agreement or incident to any transaction shall
be satisfactory in form and substance to Seller.
10. INDEMNIFICATION.
10.1 INDEMNIFICATION BY SELLER. Seller hereby indemnifies and agrees
to hold harmless Purchaser from and against all claims, damages, losses,
liabilities, costs and expenses (including, without limitation, settlement
costs and any legal, accounting or other expenses of investigating or
defending any actions or threatened actions) (hereinafter sometimes
collectively referred to as Losses) in connection with each of the
following (hereinafter sometimes referred to as Breach of Warranty),
provided, however, that Seller shall not have any obligation under this
subsection 10.1 unless the aggregate Losses amount to more than $100,000
(if the Losses exceed $100,000,
(Page 26 of 142 Pages)
<PAGE>
the indemnification obligation set forth in this subsection 10.1
shall include all such Losses and not only those in excess of $100,000,
provided, further that all such Losses shall be limited to $1,460,000:
(a) any material misrepresentation or breach of warranty of any
representation, warranty or covenant made by Seller in Section 1,
Section 5 and subsections 9.2 and 9.12 of Section 9 of this Agreement;
and
(b) any breach of any covenant, agreement or obligation of Seller
contained in this Agreement or in the Transaction Documents.
10.2 INDEMNIFICATION BY HARMONY. Harmony hereby indemnifies and agrees
to hold harmless the Purchaser from and against any and all Losses in
connection with each of the following:
(a) any misrepresentation or breach of any representation or
warranty made by Harmony in Section 4 of this Agreement; and
(b) any breach of any covenant, agreement or obligation of
Harmony contained in this Agreement or any other agreement, instrument
or document contemplated by this Agreement; provided, however, that
Seller shall not have any obligation under this subsection 10.2 unless
the aggregate Losses amount to more than $100,000, and, provided,
further, that the obligation of Harmony under this subsection 10.2
shall not in any event exceed $3,460,000.
10.3 INDEMNIFICATION BY PURCHASER. Purchaser hereby indemnifies and
agrees to hold harmless the Seller from and against any and all Losses in
connection with each of the following:
(a) any misrepresentation or breach of any representation or
warranty made by Purchaser in Section 7 of this Agreement; and
(b) any breach of any covenant, agreement or obligation of Purchaser
contained in this Agreement or any other agreement, instrument or document
contemplated by this Agreement; provided, however, that Purchaser shall not
have any obligation under this subsection 10.3 unless the aggregate Losses
amount to more than $30,000, and, provided, further, that the obligation of
Purchaser under this subsection 10.3 shall not in any event exceed
$300,000.
10.4 CLAIMS FOR INDEMNIFICATION. whenever any claim shall arise for
indemnification under this Section 10, the indemnified party (hereinafter
sometimes referred to as Indemnified Party) shall promptly notify the party
against whom indemnification is sought (hereinafter sometimes referred to
as the Indemnifying Party) of the claim and, when known, the facts
constituting the basis for such claim. In the event of any such claim for
indemnification under this Agreement resulting from or in connection with
any claim or legal proceedings by a third party, the notice shall specify,
if known, the amount or an estimate of the amount of liability arising
(Page 27 of 142 Pages)
<PAGE>
therefrom. The Indemnified Party shall not settle or compromise any claim
by a third party in respect of which it is entitled to indemnification
under this Agreement without the prior written consent of the Indemnifying
Party, which consent shall not be unreasonable withheld or delayed;
provided, however, that if action or suit shall have been instituted
against the Indemnified Party and the Indemnifying Party shall not have
taken control of such action or suit as provided in subsection 10.5 of this
Section 10 after notification thereof,Indemnified Party shall have the
right to settle or compromise such claim after giving notice to the
Indemnifying Party as provided in said subsection 10.5
10.5 DEFENSE BY INDEMNIFYING PARTY. In connection with any claim that
may give rise to a right of indemnification under this Section 10 resulting
from or arising out of any claim or legal proceeding by a person other than
the Indemnified Party, the Indemnifying Party, at its or his sole cost and
expense, may, upon written notice to the Indemnified Party, assume the
defense of any such claim or legal proceeding if the Indemnifying Party
acknowledges to the Indemnified Party in writing the obligation to
indemnify the Indemnified Party with respect to all elements of such claim
or legal proceeding. If the Indemnifying Party shall assume the defense of
any such claim or legal proceeding, the Indemnifying Party shall select
counsel reasonably acceptable to the Indemnified Party to conduct the
defense of such claim or legal proceeding at the sole cost and expense of
the Indemnifying Party, who shall take all steps necessary in the defense
or settlement thereof. If the Indemnifying Party shall be the Seller,
Seller shall not consent to a settlement of, or the entry of judgment
arising from, any such claim or legal proceeding without the prior written
consent of Purchaser (which consent shall not be unreasonable withheld or
delayed). An Indemnified Party shall be entitled to participate in (but
not control) the defense of any such claim or legal proceeding with its
own counsel and at its own expense. If the Indemnifying Party shall be the
Seller, and Seller shall not assume the defense of such claim or legal
proceeding within 30 days after notice thereof shall have been given to
Seller in accordance with this subsection 10.5: (a) Purchaser may defend
such claim or legal proceeding in such manner as it may deem appropriate,
including, but not limited to, the settlement of such claim or legal
proceeding, after giving notice of the same to Seller, on such terms as
Purchaser may deem appropriate. and (b) Seller shall be entitled to
participate in (but not control) the defense of such claim or legal
proceeding with his own counsel and at his own expense.
11. STANDSTILL PROVISION.
Seller agrees that, for a period of three years from the date of this
Agreement, unless this requirement shall have been specifically waived in
writing by Harmony, neither Seller nor any of his affiliates, agents or
representatives will in any manner, (a) effect or seek, offer or propose
(whether publicly or otherwise) to effect, or cause or participate in or in
any way assist any other person to effect or seek, offer or propose (whether
publicly or otherwise) to effect, or cause or participate in, (i) any
acquisition of any securities (or beneficial ownership thereof) or assets of
Harmony or any of its Subsidiaries, except such shares of common stock of
Harmony as may be acquired upon the exercise of stock option agreements held
by Seller immediately following the Closing of the transactions
(Page 28 of 142 Pages)
<PAGE>
contemplated hereby; or (ii) any "solicitation" of "proxies" (as such terms
are used in the proxy rules of the Securities and Exchange Commission) or
consents to vote any voting securities of Harmony; (b) form or join in a
"group" (as defined under the 1934 Act); or (c) seek to control or influence
the management, Board of Directors or policies of Harmony.
12. MISCELLANEOUS.
12.1 CHANGES, WAIVERS, ETC. Neither this Agreement nor any provision
thereof may be changed, amended, waived, discharged or terminated orally,
but only by a statement in writing signed by the party against which
enforcement of the change, amendment, waiver, discharge or termination is
sought.
12.2 NOTICES. All notices, requests, demands and other communications
required or permitted to be given under this Agreement shall be in writing
and shall be deemed given to the party to whom addressed (i) when delivered
personally to such party, (ii) on the business day after being sent within
the country of origin, and three days after being sent to a destination
outside the country of origin, to such party by overnight courier or
overnight mail, charges prepaid (iii) by facsimile transmission, charge
prepaid or chargeable to the transmitting party, confirmed by the sending
apparatus, (iv) on the next business day after being sent to such party by
telegraph, telex or cable, toll prepaid, or (v) five business days after
being sent to such party by registered or certified first class mail, or
the equivalent (return receipt requested or equivalent service, postage
prepaid) (provided that if such mailed material shall bear an address in
other than the country in which it is deposited in the mail, then it shall
be sent by registered or certified first class air mail, PROVIDED, HOWEVER,
that this requirement shall not apply to mail bearing an address in, and
originating from, Canada, the United States of America or the Republic of
Mexico, in each case addressed as follows:
(i)if to Purchaser: Children's Broadcasting
Corporation
724 First Street North
Minneapolis, MN 55401
Attention: Lance W Riley,
Secretary and General Counsel
with a copy to: Avron Gordon, Esq.
Briggs and Morgan
2400 IDS CENTER
80 South 8th Street
Minneapolis, MN 55402
(Page 29 of 142 Pages)
<PAGE>
(ii) if to Harmony: Harmony Holdings, Inc..
1990 Westwood Boulevard
Suite 310
Los Angeles, California 90025-4676
Attention: Harvey Bibicoff
Chairman of the Board
With a copy to: Edmund A. Hamburger, P.C.
10540 Wilshire Boulevard
Suite 605
Los Angeles, CA 90024-4554
(iii) if to Seller: Harvey Bibicoff
4101 Clarinda Drive
Tarzana, CA 91356
With a copy to: Edmund A. Hamburger, P.C.
10540 Wilshire Boulevard
Suite 605
Los Angeles, CA 90024-4554
Any party may change the address to which such communications are to be
directed to it, by giving written notice to the other parties hereto in the
manner provided in this subsection 12.2.
12.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. All
representations, warranties, covenants and agreements contained in this
Agreement shall survive the execution and delivery of this Agreement, any
investigation at any time made by Purchaser and the sale and purchase of
the Shares and payment therefor.
12.4 GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Delaware, without
regard to its conflict of laws rules.
12.5 BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and
assigns.
12.6. ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules attached hereto and any instrument, agreement or document
referred to in this Agreement) constitutes the entire agreement and
understanding of the parties to this Agreement with respect to the subject
matter of this Agreement, and supersedes all prior agreements and
understandings of the parties to this Agreement, written or oral, with
respect thereto.
12.7. NO ASSIGNMENT. This Agreement shall be binding upon and inure
solely to the benefit of the parties to this Agreement, and their
respective successors and permitted assigns, and nothing in this Agreement,
express or implied, is intended or
(Page 30 of 142 Pages)
<PAGE>
shall be construed to confer upon any other person or entity any right or
remedy under this Agreement or by reason of this Agreement, except as
aforesaid. Neither this Agreement nor any right, remedy, obligation or
liability arising under this Agreement or by reason of this Agreement may
be assigned by any party to this Agreement, provided, however, that
Purchaser may assign to Christopher T. Dahl and R. W. Perkins, severally,
its rights under this Agreement to purchase all or a part of the Shares
and all or a part of the Options, or either of them.
(Page 31 of 142 Pages)
<PAGE>
IN WITNESS WHEREOF, Purchaser and Harmony have caused this Agreement to
be executed on their respective behalf by their respective officers thereunto
duly authorized, and Seller has executed this Agreement, all as of the date
first above written.
CHILDREN'S BROADCASTING CORPORATION
By /s/ Christopher T. Dahl
--------------------------------------
Christopher T. Dahl
Chief Executive Officer
HARMONY HOLDINGS, INC.
By /s/ Harvey Bibicoff
--------------------------------------
Harvey Bibicoff
Chief Executive Officer
/s/ Harvey Bibicoff
-----------------------------------------
Harvey Bibicoff
Seller's spouse has executed this Agreement, all as of the date first
above written, to indicate that she is bound by this Agreement with respect
to any interest she may have in the Shares and Options, but does not make any
of the representations, warranties and covenants made by Seller in this
Agreement.
/s/ Jacqueline Bibicoff
-----------------------------------------
Jacqueline Bibicoff
(Page 32 of 142 Pages)
<PAGE>
SCHEDULE 1
A. Options represented by Option Agreement dated October 1, 1996
between Harmony and Seller exercisable for 325,000 shares of Common Stock at
$1.50 per share and expiring October 1, 2001.
B. Options represented by Option Agreement dated February 12, 1996
between Harmony and Gary Horowitz, and assigned to Seller, exercisable for
225,000 shares of Common Stock at $1.50 per share and expiring May 1, 2001.
(Page 33 of 142 Pages)
<PAGE>
SCHEDULE 4.5
Harmony guaranteed repayment of amounts due under a $250,000.00 line of
credit from Imperial Bank to Cinequanon Pictures, Inc. The guarantee is
secured by a lien on the receivables of Cinequanon Pictures, Inc.
(Page 34 of 142 Pages)
<PAGE>
Exhibit 2
AGREEMENT
THIS AGREEMENT is made and entered into this 21st day of July, 1997, by and
between Children's Broadcasting Corporation, a Minnesota (U.S.A.) corporation
("Purchaser"), and Unimedia S.A., a privately held societe anonyme organized and
existing under the laws of France ("Unimedia").
1. AGREEMENT TO SELL COMMON STOCK. Unimedia is the owner of 1,000,000
shares of common stock (the "Shares") of Harmony Holdings, Inc., a Delaware
corporation ("Harmony"). Unimedia agrees to sell to Purchaser, and Purchaser
agrees to buy from Unimedia, the Shares, on the terms and conditions set forth
herein. The Shares are registered in the name of Universal Independent
Holdings, Limited ("Universal") as security for Unimedia's obligations to
Universal. At Closing, Universal will deliver a certificate representing the
Shares to Oxford Transfer & Registrar Agency, Inc., Harmony's transfer agent
("OTR"), where such certificate will be cancelled and reissued pursuant to the
terms of the Amended and Restated Escrow Agreement dated July 25, 1997 (the
"Escrow Agreement"). The actual number of Shares shall be subject to adjustment
in the event of any stock split, stock dividend, combination, reorganization or
recapitalization affecting the outstanding common stock of Harmony prior to the
Closing Date as defined below.
2. PURCHASE PRICE. On the Closing Date, Purchaser shall pay or cause to
be paid Two Million Six Hundred Thousand Dollars U.S. ($2,600,000), subject to
adjustment as provided in Section 1.
3. PAYMENT FOR THE SHARES. Two Million Six Hundred Thousand Dollars U.S.
($2,600,000), will be wire transferred to U.S. Bank of Oregon, Oxford Transfer &
Registrar Agency, Inc. Client Trust, Account #1560101618, ABA #123000220;
reference: Harmony Holdings, Inc., where it will be held in escrow by OTR.
Pursuant to the terms of the Escrow Agreement, OTR will release the Funds of
which OTR will cause $2,200,000 to be wire transferred to Universal and $400,000
to be wire transferred to Unimedia. Concurrent with the release of the Funds,
OTR shall transmit, via overnight courier, certificates representing the Shares,
such certificates being dated the Closing Date, pursuant to the terms of the
Escrow Agreement.
4. CLOSING. The closing (the "Closing") shall take place at the offices
of Troy & Gould, 1801 Century Park East, 16th Floor, Los Angeles, CA 90067, at
2:00 p.m., Pacific Daylight Time, on July 25, 1997, or such later date as the
Closing on the purchase of the Shares shall occur (the "Closing Date"), provided
each of the conditions to Purchaser's obligation set forth in Section 7 shall
have been satisfied. Such conditions are hereinafter referred to as the
"Purchaser Conditions." In the course of the Closing, OTR shall send, via
facsimile, to Purchaser's counsel, Briggs and Morgan, Professional Association,
Attention: Brett D. Anderson, Esq., facsimile number (612) 334-8650, the
proposed certificates for the Shares, including the faces of the certificates
and the reverse sides thereof, for inspection as to form and content.
(Page 35 of 142 Pages)
<PAGE>
5. REPRESENTATIONS AND WARRANTIES BY UNIMEDIA. In order to induce
Purchaser to enter into this Agreement and to induce the purchase of the Shares,
Unimedia hereby represents and warrants to the Purchaser that:
5.1 AUTHORITY AND POWER. Unimedia is a privately held French societe
anonyme with requisite power and authority to execute, deliver and perform
this Agreement. Unimedia has good and marketable title to the Shares free
and clear of any mortgage, pledge, lien, charge, security interest,
encumbrance or restriction, other than as identified in Section 1.
5.2 STATUS OF THE SHARES. To the best of Unimedia's knowledge, the
Shares are duly authorized, validly issued and outstanding, fully paid, and
nonassessable.
6. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and
warrants that:
6.1 INVESTMENT INTENT. The Shares are being purchased by Purchaser
for its own account and not with the view to, or for resale in connection
with, any distribution or public offering thereof within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). Purchaser
understands that the Shares have not been registered under the Securities
Act or any applicable state laws.
6.2 ACTS AND PROCEEDINGS. This Agreement has been duly authorized by
all necessary action on the part of the Purchaser and has been duly
executed and delivered by it, and is a valid and binding agreement of
Purchaser enforceable in accordance with its terms.
7. CONDITIONS OF PURCHASER'S OBLIGATION. Purchaser's obligations under
this Agreement are subject to the fulfillment prior to or on the Closing Date of
the following conditions, any of which may be waived in whole or in part by
Purchaser:
7.1 NO ERRORS, ETC. The representations, covenants and warranties of
Unimedia under this Agreement shall be true in all material respects as of
the Closing Date with the same effect as though made on and as of the
Closing Date.
7.2 DISMISSAL OF PENDING LITIGATION. Unimedia shall settle and
compromise the litigation entitled UNIMEDIA S.A. V. HARMONY HOLDINGS, INC.
AND HARVEY BIBICOFF, case no. CV 96-7109 JGD (RNBx), pending in the United
States District Court for the Central District of California (the
"Litigation"). On the date on which Unimedia confirms receipt of the funds
that were wire transferred by OTR, Unimedia shall file a stipulation for
dismissal, with prejudice, of the Litigation, which stipulation shall have
been jointly executed by counsel for Unimedia, Harmony, and Harvey
Bibicoff.
7.3 MUTUAL GENERAL RELEASE. Unimedia, Harmony, and Harvey Bibicoff
shall have executed and exchanged a mutual general release, releasing and
discharging each other and their officers and directors, employees,
representatives,
(Page 36 of 142 Pages)
<PAGE>
heirs and assigns, individually and in their respective capacities, from
any and all claims or causes of action that each has against the other,
including, but not limited to, claims arising out of the subject matter of
an agreement between Unimedia, Harmony and Harvey Bibicoff dated July 27,
1996 and the related Subscription Agreement dated on or about such date
(the "1996 Agreements"), pursuant to which Unimedia purchased from Harmony
the Shares. Such release shall include mutual releases relating to any
obligation relative to the then proposed acquisition from Unimedia
shareholders of all of the issued and outstanding ordinary shares of
Unimedia in exchange for securities of Harmony pursuant to the 1996
Agreements.
8. MISCELLANEOUS.
8.1 CHANGES, WAIVERS, ETC. Neither this Agreement nor any provision
hereof may be changed, amended, waived, discharged or terminated orally,
but only by a statement in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought.
8.2 NOTICES. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing and
shall be delivered, or mailed first-class postage prepaid, registered or
certified mail:
(a) if to Unimedia, at Immeuble le Levant, 2 rue du Nouveau
Bercy, 94220 Charenton, France (33-1) 43-53-69-99, Attention: Gilles
Assouline; with a copy to Barry G. West, Esq., at Gaims, Weil, West &
Epstein, LLP, 1875 Century Park East, Suite 1200, Los Angeles,
California 90067; and
(b) if to Purchaser, at 724 First Street North, Minneapolis,
Minnesota 55401, Attention: Christopher T. Dahl; with a copy to Lance
W. Riley, Esq., at 724 First Street North, Minneapolis, Minnesota
55401; or at such other address as Purchaser may specify by written
notice to Unimedia;
and such notices and other communications shall for all purposes of this
Agreement be treated as being effective or having been given if delivered
personally, or, if sent by mail or facsimile, when received.
8.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. All
representations, warranties, covenants and agreements contained herein
shall survive the execution and delivery of this Agreement.
8.4 LAW TO GOVERN. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of Minnesota without
regard to principles of conflict of laws.
8.5 ASSIGNABILITY. Prior to the Closing, the Purchaser may assign
its right to purchase the Shares to any combination of parties, including,
but not limited to, a combination of Purchaser and Harmony, although no
such assignment shall relieve the Purchaser of any liabilities or
obligations under this Agreement. This Agreement
(Page 37 of 142 Pages)
<PAGE>
shall be binding upon, and inure to the benefit of, the parties hereto and
their respective successors and assigns.
8.6 COUNTERPARTS. This Agreement may be signed by facsimile and in
counterparts, each of which shall be deemed an original which shall become
effective when Purchaser and Unimedia have signed and exchanged
counterparts.
IN WITNESS WHEREOF, Unimedia and Purchaser have caused this Agreement to be
duly executed as of the date first written above.
CHILDREN'S BROADCASTING
CORPORATION
By /s/ Christopher T. Dahl
---------------------------------------
Christopher T. Dahl
Chief Executive Officer
UNIMEDIA S.A.
By /s/ Gilles Assouline
---------------------------------------
Gilles Assouline,
Chairman, Chief Executive
Officer and President du
Directoire
(Page 35 of 142 Pages)
<PAGE>
Exhibit 3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FOOTHILL.
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
CHILDREN'S BROADCASTING CORPORATION
AND
FOOTHILL CAPITAL CORPORATION
DATED AS OF JULY 1, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Page 39 of 142 Pages)
<PAGE>
TABLE OF CONTENTS
PAGE(S)
-------
1. DEFINITIONS AND CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . 28
1.3 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
1.4 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
1.5 Schedules and Exhibits . . . . . . . . . . . . . . . . . . . . . . 29
2. LOAN AND TERMS OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . 29
2.1 Revolving Advances . . . . . . . . . . . . . . . . . . . . . . . . 29
2.2 Term Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.3 Appraisals; Mandatory Prepayments of the Term Loan . . . . . . . . 30
2.4 [Intentionally omitted]. . . . . . . . . . . . . . . . . . . . . . 31
2.5 Overadvances . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.6 Interest: Rates, Payments, and Calculations . . . . . . . . . . . 31
2.7 Collection of Accounts . . . . . . . . . . . . . . . . . . . . . . 32
2.8 Crediting Payments; Application of Collections . . . . . . . . . . 32
2.9 Designated Account.. . . . . . . . . . . . . . . . . . . . . . . . 33
2.10 Maintenance of Loan Account; Statements of Obligations . . . . . . 33
2.11 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3. CONDITIONS; TERM OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . 34
3.1 Conditions Precedent to the Initial Advance and the Term Loan. . . 34
3.1A Conditions Precedent to the Term Loan. . . . . . . . . . . . . . . 38
3.2 Conditions Precedent to all Advances and the Term Loan . . . . . . 39
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3.3 Condition Subsequent . . . . . . . . . . . . . . . . . . . . . . . 39
3.4 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
3.5 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . 40
3.6 Early Termination by Borrower. . . . . . . . . . . . . . . . . . . 40
3.7 Termination Upon Event of Default. . . . . . . . . . . . . . . . . 40
4. CREATION OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . 41
4.1 Grant of Security Interest . . . . . . . . . . . . . . . . . . . . 41
4.2 Negotiable Collateral. . . . . . . . . . . . . . . . . . . . . . . 41
4.3 Collection of Accounts, General Intangibles, and Negotiable
Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.4 Delivery of Additional Documentation Required. . . . . . . . . . . 42
4.5 Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . 42
4.6 Right to Inspect . . . . . . . . . . . . . . . . . . . . . . . . . 43
(Page 40 of 142 Pages)
<PAGE>
5. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . 43
5.1 No Encumbrances. . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.2 Eligible Accounts. . . . . . . . . . . . . . . . . . . . . . . . . 44
5.3 Licenses and Permits . . . . . . . . . . . . . . . . . . . . . . . 44
5.4 Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.5 Location of Inventory and Equipment. . . . . . . . . . . . . . . . 44
5.6 [intentionally omitted]. . . . . . . . . . . . . . . . . . . . . . 44
5.7 Location of Chief Executive Office; FEIN . . . . . . . . . . . . . 45
5.8 Due Organization and Qualification; Subsidiaries . . . . . . . . . 45
5.9 Due Authorization; No Conflict . . . . . . . . . . . . . . . . . . 46
5.10 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.11 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . 47
5.12 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
5.13 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . . 48
5.14 Environmental Condition. . . . . . . . . . . . . . . . . . . . . . 48
5.15 Key Leases; Tower Leases . . . . . . . . . . . . . . . . . . . . . 49
5.16 LPMA; Network Affiliates . . . . . . . . . . . . . . . . . . . . . 49
5.17 No Default In Communication Franchise Agreements . . . . . . . . . 49
5.18 Governmental Authority . . . . . . . . . . . . . . . . . . . . . . 49
6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.1 Accounting System. . . . . . . . . . . . . . . . . . . . . . . . . 50
6.2 Collateral Reporting . . . . . . . . . . . . . . . . . . . . . . . 50
6.3 Financial Statements, Reports, Certificates. . . . . . . . . . . . 50
6.4 Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.5 Guarantor Reports. . . . . . . . . . . . . . . . . . . . . . . . . 52
6.6 Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.7 Title to Equipment . . . . . . . . . . . . . . . . . . . . . . . . 53
6.8 Maintenance of Equipment . . . . . . . . . . . . . . . . . . . . . 53
6.9 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.10 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.11 No Setoffs or Counterclaims. . . . . . . . . . . . . . . . . . . . 55
6.12 Location of Inventory and Equipment. . . . . . . . . . . . . . . . 55
6.13 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . 56
6.14 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . . 56
6.15 Leases.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.16 Government Authorization . . . . . . . . . . . . . . . . . . . . . 57
6.17 Off-the-Air Reports. . . . . . . . . . . . . . . . . . . . . . . . 57
6.18 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.19 Permitted Acquisitions; Permitted Unrestricted Subsidiary
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.20 License Renewals . . . . . . . . . . . . . . . . . . . . . . . . . 58
7. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 58
7.1 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
7.2 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
7.3 Restrictions on Fundamental Changes. . . . . . . . . . . . . . . . 59
(Page 41 of 142 Pages)
<PAGE>
7.4 Disposal of Assets . . . . . . . . . . . . . . . . . . . . . . . . 60
7.5 Change Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.6 Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.7 Nature of Business . . . . . . . . . . . . . . . . . . . . . . . . 60
7.8 Prepayments and Amendments . . . . . . . . . . . . . . . . . . . . 60
7.9 Change of Control. . . . . . . . . . . . . . . . . . . . . . . . . 60
7.10 Consignments . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
7.11 Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . 61
7.12 Accounting Methods . . . . . . . . . . . . . . . . . . . . . . . . 61
7.13 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
7.14 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . 61
7.15 Suspension . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
7.16 Communication Franchise Agreements . . . . . . . . . . . . . . . . 62
7.17 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . 62
7.18 Change in Location of Chief Executive Office; Inventory and
Equipment with Bailees . . . . . . . . . . . . . . . . . . . . . . 63
7.19 No Prohibited Transactions Under ERISA . . . . . . . . . . . . . . 63
7.20 Financial Covenants. . . . . . . . . . . . . . . . . . . . . . . . 64
7.21 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . 65
8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
9. FOOTHILL'S RIGHTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . . 68
9.1 Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . 68
9.2 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . 71
10. TAXES AND EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . 72
11. WAIVERS; INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . 72
11.1 Demand; Protest; etc.. . . . . . . . . . . . . . . . . . . . . . . 72
11.2 Foothill's Liability for Collateral. . . . . . . . . . . . . . . . 72
11.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 73
12. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. . . . . . . . . . . . . . . 74
14. DESTRUCTION OF OBLIGORS' DOCUMENTS. . . . . . . . . . . . . . . . . . . 75
15. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 75
15.1 Effectiveness. . . . . . . . . . . . . . . . . . . . . . . . . . . 75
15.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 75
15.3 Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . 76
15.4 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . 76
15.5 Severability of Provisions . . . . . . . . . . . . . . . . . . . . 76
15.6 Amendments in Writing. . . . . . . . . . . . . . . . . . . . . . . 76
15.7 Counterparts; Telefacsimile Execution. . . . . . . . . . . . . . . 76
(Page 42 of 142 Pages)
<PAGE>
15.8 Revival and Reinstatement of Obligations . . . . . . . . . . . . . 76
15.9 Integration. . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
SCHEDULES AND EXHIBITS
Schedule P-1 Permitted Liens
Schedule R-1 Guarantor Real Property Collateral
Schedule 5.3 Licenses and Permits and Renewals thereof
Schedule 5.7 FEINs
Schedule 5.8 Subsidiaries and Capital Stock thereof
Schedule 5.10 Litigation
Schedule 5.13 ERISA Benefit Plans
Schedule 5.14 Environmental Condition
Schedule 5.15(a) Key Leases
Schedule 5.15(b) Tower Leases
Schedule 5.16(a) LPMAs
schedule 5.16(b) Network Affiliates
Schedule 6.12 Location of Inventory and Equipment
Schedule 7.1 Permitted Indebtedness
Schedule 7.14 Permitted Transactions with Affiliates
Exhibit A-1 Form of Borrower's Affiliation Agreement
Exhibit C-1 Form of Compliance Certificate
(Page 43 of 142 Pages)
<PAGE>
LOAN AND SECURITY AGREEMENT
---------------------------
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (THIS
"AGREEMENT"), is entered into as of July 1, 1997, between FOOTHILL CAPITAL
CORPORATION, a California corporation ("Foothill"), with a place of business
located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California
90025-3333 and CHILDREN'S BROADCASTING CORPORATION, a Minnesota corporation
("Borrower"), with its chief executive office located at 724 First Street,
Fourth Floor, Minneapolis, Minnesota 55401.
R E C I T A L S:
----------------
WHEREAS, Borrower and Foothill are parties to that certain Loan and
Security Agreement, dated as of November 25, 1996 as heretofore amended (the
"Existing Loan Agreement");
WHEREAS, Foothill made a term loan to Borrower pursuant to the
Existing Loan Agreement in the original principal amount of (i) $11,500,000
PLUS (ii) the amount of the Closing Fee under SECTION 2.11(a) (the "Existing
Term Loan"). As of the date hereof, the amount outstanding on the Existing
Term Loan is $11,279,900;
WHEREAS, on or about June 27, 1997, Foothill made an acquisition
term loan to Borrower in the amount of $2,400,000 (the "Acquisition Loan");
WHEREAS, Borrower has requested that Foothill make an additional
term loan to Borrower in the amount of $3,000,000 (the "New Term Loan");
WHEREAS, Borrower and Foothill have agreed to combine the Existing
Term Loan, the Acquisition Loan, and the New Term Loan into a single term
loan that will be repaid by Borrower in accordance with the terms of this
Agreement;
WHEREAS, Borrower and Foothill desire to amend and restate the
Existing Loan Agreement in its entirety as provided in this Agreement, it
being understood that no repayment of the obligations under the Existing Loan
Agreement is being effected hereby, but merely an amendment and restatement
in accordance with the terms hereof.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
"ABC PARTIES" has the meaning set forth in the definition of
"Eligible Accounts."
(Page 44 of 142 Pages)
<PAGE>
"ACCOUNT DEBTOR" means any Person who is or who may become
obligated under, with respect to, or on account of, an Account.
"ACCOUNTS" means all currently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to an
Obligor arising out of the sale or lease of goods or the rendition of
services by an Obligor, irrespective of whether earned by performance, and
any and all credit insurance, guaranties, or security therefor.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person
existing at the time such Person becomes an Unrestricted Subsidiary or is
assumed in connection with the acquisition of assets or properties from such
Person, and not incurred by such Person in connection with, or in
anticipation of, such acquisition or such Person becoming an Unrestricted
Subsidiary.
"ACQUIRED SYSTEM" has the meaning set forth in SECTION 6.19.
"ACQUISITION" means any purchase or other acquisition by the
Borrower of the assets or stock of any other Person, other than the purchase
of inventory or equipment in the ordinary course of business.
"ACQUISITION LOAN" shall have the meaning ascribed to such
term in the recitals of this Agreement.
"ADVANCES" has the meaning set forth in SECTION 2.1(a).
"ADVERTISING AGENCY ACCOUNT DEBTOR" means any Account Debtor
that is an advertising agency.
"AFFILIATE" means, as applied to any Person, any other Person
who directly or indirectly controls, is controlled by, is under common
control with or is a director or officer of such Person. For purposes of
this definition, "control" means the possession, directly or indirectly, of
the power to vote 5% or more of the securities having ordinary voting power
for the election of directors or the direct or indirect power to direct the
management and policies of a Person.
"AFFILIATION AGREEMENT" means an Affiliation Agreement between
Borrower and a Network Affiliate, substantially in the form of EXHIBIT A-1.
"AGREEMENT" has the meaning set forth in the preamble hereto.
"ALTERNATIVE LIQUIDATION VALUE" means, in respect of any
asset, the net liquidation value of such asset as determined pursuant to a
Permitted Liquidation Value Dispute Resolution. Any determination of the net
liquidation value of such asset that is not made in strict compliance with
each of the procedures set forth in the definition of "Permitted Liquidation
Value Dispute Resolution" shall not constitute an Alternative Liquidation
Value.
(Page 45 of 142 Pages)
<PAGE>
"AMENDED CLOSING DATE" means the date of the first to occur of
the making of the initial Advance or the initial funding of the Term Loan on
or after the first date written above.
"AUTHORIZED PERSON" means any officer or other employee of
Borrower.
"AVERAGE UNUSED PORTION OF MAXIMUM REVOLVING AMOUNT" means, as
of any date of determination, (a) the Maximum Revolving Amount, LESS (b) the
average Daily Balance of Advances that were outstanding during the
immediately preceding month.
"BANKRUPTCY CODE" means the United States Bankruptcy Code (11
U.S.C. Section 101 ET SEQ.), as amended, and any successor statute.
"BENEFIT PLAN" means a "defined benefit plan" (as defined in
Section 3(35) of ERISA) for which Borrower, any Subsidiary of Borrower, or
any ERISA Affiliate has been an "employer" (as defined in Section 3(5) of
ERISA) within the past six years.
"BIA" means Broadcast Investment Advisors.
"BOOKS" means all of the Obligors' books and records
including: ledgers; records indicating, summarizing, or evidencing the
Obligors' properties or assets (including the Collateral) or liabilities; all
information relating to the Obligors' business operations or financial
condition; and all computer programs, disk or tape files, printouts, runs, or
other computer prepared information.
"BORROWER" has the meaning set forth in the preamble to this
Agreement.
"BORROWER COLLATERAL" means all right, title, or interest with
respect of Borrower with respect to the following:
(a) the Accounts,
(b) the Books,
(c) the Equipment,
(d) the General Intangibles,
(e) the Inventory,
(f) the Negotiable Collateral,
(g) the Real Property Collateral,
(Page 46 of 142 Pages)
<PAGE>
(h) any money, or other assets of one or more of Borrower
that now or hereafter come into the possession, custody, or control of
Foothill, and
(i) the proceeds and products, whether tangible or
intangible, of any of the foregoing, including proceeds of insurance covering
any or all of the Collateral, and any and all Accounts, Books, Equipment,
General Intangibles, Inventory, Negotiable Collateral, Real Property, money,
deposit accounts, or other tangible or intangible property resulting from the
sale, exchange, collection, or other disposition of any of the foregoing, or
any portion thereof or interest therein, and the proceeds thereof.
"BORROWER PERSONAL PROPERTY COLLATERAL" means all Borrower
Collateral other than the Borrower Real Property Collateral.
"BORROWER REAL PROPERTY COLLATERAL" means any Real Property
now owned or hereafter acquired by Borrower.
"BROADCAST SYSTEM" means all of the properties and operating
rights constituting a complete, fully integrated system for transmitting
radio signals from a transmitter licensed by the FCC, together with any
sub-system which is ancillary to any system referred to above.
"BROOKFIELD TOWER LEASE" means the Tower Lease entered into
between Group and Milwaukee Telephone Company with respect to the broadcast
tower located at 3545 N. 124th Street, Brookfield, Wisconsin.
"BUSINESS DAY" means any day that is not a Saturday, Sunday,
or other day on which national banks are authorized or required to close.
"CERTIFICATE OF DESIGNATION" means Borrower's Certificate of
Designation of Preferences and Rights of Convertible Preferred Stock Series
1993-A.
"CHANGE OF CONTROL" shall be deemed to have occurred at such
time as (a) Borrower shall cease to own and control, beneficially, directly,
and of record, all of the issued and outstanding capital stock of each of the
Guarantors, or (b) a "person" or "group" (within the meaning of Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934), directly or indirectly, of more than 10% of the total voting
power of all classes of stock then outstanding of Borrower entitled to vote
in the election of directors.
"CLOSING DATE" means November 25, 1996.
"CODE" means the California Uniform Commercial Code.
"COLLATERAL" means the Borrower Collateral and the Guarantor
Collateral.
(Page 47 of 142 Pages)
<PAGE>
"COLLATERAL ACCESS AGREEMENT" means a landlord waiver,
mortgagee waiver, bailee letter, or acknowledgement agreement of any
warehouseman, processor, lessor, consignee, or other Person in possession of,
having a Lien upon, or having rights or interests in the Equipment or
Inventory, in each case, in form and substance satisfactory to Foothill.
"COLLATERAL ASSIGNMENTS OF KEY LEASES" means one or more
collateral assignments, mortgages, or deeds of trust, in form and substance
reasonably satisfactory to Foothill, between one or more of the Obligors
(including Borrower) and Foothill respecting the hypothecation of such
Obligor's rights under the Key Leases.
"COLLATERAL ASSIGNMENTS OF TOWER LEASES" means one or more
collateral assignments, mortgages, or deeds of trust, in form and substance
reasonably satisfactory to Foothill, between one of the Obligors and Foothill
respecting the hypothecation of such Obligor's rights under the Tower Leases.
"COLLECTIONS" means all cash, checks, notes, instruments, and
other items of payment (including, insurance proceeds, proceeds of cash
sales, rental proceeds, and tax refunds).
"COMMUNICATIONS FRANCHISE" means a franchise, license, right,
permit, authorization, consent, or other instrument granted by the United
States (including FCC Licenses), or any state, city, town, county, or other
municipality or other political subdivision thereof, whether pursuant to or
in any franchise, ordinance, license or other agreement or otherwise,
pursuant to which a Person has, or is given, the right to construct, maintain
or operate a Communications System, or any part thereof.
"COMMUNICATION FRANCHISE AGREEMENTS" means all of the
Obligors' agreements related to any Communications Franchise or Communication
System.
"COMMUNICATIONS SYSTEM" means any Broadcast System or any
business or activity (including the ownership or leasing of property)
directly relating to the ownership or operation thereof other than the
development or syndication of programming for others.
"COMPLIANCE CERTIFICATE" means a certificate substantially in
the form of EXHIBIT C-1 and delivered by the chief accounting officer of
Borrower to Foothill.
"CONCENTRATION ACCOUNT" means account number 6355036114 of
Borrower maintained with the Concentration Account Bank.
"CONCENTRATION ACCOUNT AGREEMENT" means an agreement in form
and substance reasonably satisfactory to Foothill, among Borrower, Foothill,
and the Concentration Account Bank.
(Page 48 of 142 Pages)
<PAGE>
"CONCENTRATION ACCOUNT BANK" means Norwest Bank Minnesota,
National Association.
"CONSOLIDATED CURRENT ASSETS" means, as of any date of
determination, the aggregate amount of all current assets of Borrower that
would, in accordance with GAAP, be classified on a balance sheet as current
assets.
"CONSOLIDATED CURRENT LIABILITIES" means, as of any date of
determination, the aggregate amount of all current liabilities of Borrower
that would, in accordance with GAAP, be classified on a balance sheet as
current liabilities. For purposes of this definition, all Obligations
outstanding under this Agreement shall be deemed to be current liabilities
without regard to whether they would be deemed to be so under GAAP.
"CONTROL AGREEMENTS" means the agreements with financial
intermediaries or depositaries required under SECTION 3.1(c)(12) hereof.
"COPYRIGHT SECURITY AGREEMENT" means a Copyright Security
Agreement executed and delivered by Borrower, the form and substance of which
is reasonably satisfactory to Foothill.
"CRLA" means Children's Radio of Los Angeles, Inc., a
Minnesota corporation.
"CRNY" means Children's Radio of New York, Inc., a New Jersey
corporation.
"DAHL" means Mr. Christopher Dahl.
"DAILY BALANCE" means the amount of an Obligation owed at the
end of a given day.
"DEEMS ITSELF INSECURE" means that the Person deems itself
insecure in accordance with the provisions of Section 1208 of the Code.
"DEFAULT" means an event, condition, or default that, with the
giving of notice, the passage of time, or both, would be an Event of Default.
"DESIGNATED ACCOUNT" means account number 180192002426 of
Borrower maintained with Borrower's Designated Account Bank, or such other
deposit account of Borrower (located within the United States) which has been
designated, in writing and from time to time, by Borrower to Foothill.
"DESIGNATED ACCOUNT BANK" means First Bank System of
Minnesota, whose office is located at 601 Second Avenue South, Minneapolis,
Minnesota 55402, and whose ABA number is 091-000-022.
(Page 49 of 142 Pages)
<PAGE>
"DILUTION" means, in each case based upon the experience of
the immediately prior 3 months, the result of dividing the Dollar amount of
(a) bad debt write-downs, discounts, advertising, returns, promotions,
credits, or other dilution with respect to the Accounts, by (b) the Obligors'
Collections (excluding extraordinary items) plus the Dollar amount of clause
(a).
"DISBURSEMENT LETTER" means an instructional letter executed
and delivered by Borrower to Foothill regarding the extensions of credit to
be made on the Amended Closing Date, the form and substance of which shall be
satisfactory to Foothill.
"DOLLARS OR $" means United States dollars.
"EARLY TERMINATION PREMIUM" has the meaning set forth in
SECTION 3.6.
"ELIGIBLE ACCOUNTS" means those Accounts created by an Obligor
(net of reserves for offsets in respect of barter transactions) in the
ordinary course of business, that arise out of an Obligor's rendition of
services, that strictly comply with each and all of the representations and
warranties respecting Accounts made to Foothill in the Loan Documents, and
that are and at all times continue to be acceptable to Foothill in all
respects; PROVIDED, HOWEVER, that standards of eligibility may be fixed and
revised from time to time by Foothill in Foothill's reasonable credit
judgment. Eligible Accounts shall not include the following:
(a) Accounts that the Account Debtor has failed to pay within
120 days of invoice date or Accounts with selling terms of more than 30 days;
(b) (i) Accounts owed by an Account Debtor or its Affiliates
(other than an Advertising Agency Account Debtor or its Affiliates) where 50%
or more of all Accounts owed by that Account Debtor (or its Affiliates) are
deemed ineligible under clause (a) above;
(ii) Accounts, that were created on behalf of a
particular client of an Advertising Agency Account Debtor, owed by an
Advertising Agency Account Debtors where 50% or more of the Accounts owed by
that Advertising Agency Account Debtor (or its Affiliates) related to that
particular client are deemed ineligible under clause (a) above or where 50%
or more of all Accounts owed by that Advertising Agency Account Debtor (or
its Affiliates) are deemed ineligible under clause (a) above;
(c) Accounts owed by an Advertising Agency Account Debtor or
its Affiliates to the extent of advertising commissions owed thereto;
(d) Accounts owed by an Account Debtor or its Affiliates to
the extent of finance charges in respect thereof;
(Page 50 of 142 Pages)
<PAGE>
(e) Accounts owed by the American Broadcasting Corporation
(ABC) or its Affiliates (including The Walt Disney Company, Capital
Cities/ABC Inc., ABC Holding Company, Inc., and ABC Radio Network, Inc.)
(collectively, the "ABC Parties");
(f) Accounts with respect to which the Account Debtor is an
employee, Affiliate, or agent of an Obligor;
(g) Accounts with respect to which the payment by the Account
Debtor may be conditional;
(h) Accounts that are not payable in Dollars or with respect
to which the Account Debtor: (i) does not maintain its chief executive office
in the United States, or (ii) is not organized under the laws of the United
States or any State thereof, or (iii) is the government of any foreign
country or sovereign state, or of any state, province, municipality, or other
political subdivision thereof, or of any department, agency, public
corporation, or other instrumentality thereof, unless (y) the Account is
supported by an irrevocable letter of credit satisfactory to Foothill (as to
form, substance, and issuer or domestic confirming bank) that has been
delivered to Foothill and is directly drawable by Foothill, or (z) the
Account is covered by credit insurance in form and amount, and by an insurer,
satisfactory to Foothill;
(i) Accounts with respect to which the Account Debtor is
either (i) the United States or any department, agency, or instrumentality of
the United States (exclusive, however, of Accounts with respect to which the
applicable Obligor has complied, to the satisfaction of Foothill, with the
Assignment of Claims Act, 31 U.S.C. Section 3727), or (ii) any State of the
United States (exclusive, however, of Accounts owed by any State that does
not have a statutory counterpart to the Assignment of Claims Act);
(j) except as otherwise provided in clause (k) of this
definition, Accounts with respect to which the Account Debtor is a creditor
of an Obligor, has or has asserted a right of setoff, has disputed its
liability, or has made any claim with respect to the Account;
(k) Accounts with respect to an Account Debtor whose total
obligations owing to all Obligors exceed 10% of all Eligible Accounts, to the
extent of the obligations owing by such Account Debtor in excess of such
percentage;
(l) Accounts with respect to which the Account Debtor is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business;
(m) Accounts the collection of which Foothill, in its
reasonable credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition;
(Page 51 of 142 Pages)
<PAGE>
(n) Accounts with respect to which the services giving rise
to such Account have not been performed and accepted by the Account Debtor,
or the Account otherwise does not represent a final sale;
(o) Accounts with respect to which the Account Debtor is
located in the states of New Jersey, Minnesota, Indiana, or West Virginia (or
any other state that requires a creditor to file a Business Activity Report
or similar document in order to bring suit or otherwise enforce its remedies
against such Account Debtor in the courts or through any judicial process of
such state), unless the applicable Obligor has qualified to do business in
New Jersey, Minnesota, Indiana, West Virginia, or such other states, or has
filed a Notice of Business Activities Report with the applicable division of
taxation, the department of revenue, or with such other state offices, as
appropriate, for the then-current year, or is exempt from such filing
requirement; and
(p) Accounts that represent progress payments or other
advance billings that are due prior to the completion of performance by an
Obligor of the subject contract for services.
"EQUIPMENT" means all of the Obligors' present and hereafter
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including motor vehicles and trailers), tools, parts,
goods (other than consumer goods, farm products, or Inventory), wherever
located, including, (a) any interest of any of the Obligors in any of the
foregoing, and (b) all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of
1974, 29 U.S.C. Sections 1000 et seq., amendments thereto, successor
statutes, and regulations or guidance promulgated thereunder.
"ERISA AFFILIATE" means (a) any corporation subject to ERISA
whose employees are treated as employed by the same employer as the employees
of Borrower under IRC Section 414(b), (b) any trade or business subject to
ERISA whose employees are treated as employed by the same employer as the
employees of Borrower under IRC Section 414(c), (c) solely for purposes of
Section 302 of ERISA and Section 412 of the IRC, any organization subject to
ERISA that is a member of an affiliated service group of which Borrower is a
member under IRC Section 414(m), or (d) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any party subject to ERISA that is a party
to an arrangement with Borrower and whose employees are aggregated with the
employees of Borrower under IRC Section 414(o).
"ERISA EVENT" means (a) a Reportable Event with respect to any
Benefit Plan or Multiemployer Plan, (b) the withdrawal of Borrower, any of
its Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan year
in which it was a "substantial employer" (as defined in Section 4001(a)(2) of
ERISA), (c) the providing of notice of intent to terminate a Benefit Plan in
a distress termination (as described in Section 4041(c) of ERISA), (d) the
institution by the PBGC of proceedings to terminate a Benefit Plan or
Multiemployer Plan, (e) any event or condition (i) that provides a
(Page 52 of 142 Pages)
<PAGE>
basis under Section 4042(a)(1), (2), or (3) of ERISA for the termination of,
or the appointment of a trustee to administer, any Benefit Plan or
Multiemployer Plan, or (ii) that may result in termination of a Multiemployer
Plan pursuant to Section 4041A of ERISA, (f) the partial or complete
withdrawal within the meaning of Sections 4203 and 4205 of ERISA, of
Borrower, any of its Subsidiaries or ERISA Affiliates from a Multiemployer
Plan, or (g) providing any security to any Plan under Section 401(a)(29) of
the IRC by Borrower or its Subsidiaries or any of their ERISA Affiliates.
"EVENT OF DEFAULT" has the meaning set forth in SECTION 8.
"EXISTING LENDER" means Bank of Denver.
"EXISTING LENDER PAY-OFF LETTER" means a letter, in form and
substance reasonably satisfactory to Foothill, from Existing Lender
respecting the amount necessary to repay in full all of the obligations of
Group owing to Existing Lender (other than a mortgage financing of
approximately $225,000) and obtain a termination or release of all of the
Liens existing in favor of Existing Lender (other than Liens with respect to
the Real Property that secures the mortgage financing) on the properties or
assets of the Obligors.
"EXISTING LOAN AGREEMENT" shall have the meaning ascribed to
such term in the recitals of this Agreement.
"EXISTING TERM LOAN" shall have the meaning ascribed to such
term in the recitals of this Agreement.
"FCC" means the United States Federal Communications
Commission (or any successor agency, commission, bureau, department, or other
political subdivision of the United States).
"FCC LICENSE" means any license, permit, certificate of
compliance, franchise, approval, or authorization, rented or issued by the
FCC for the operation of a Broadcast System.
"FEIN" means Federal Employer Identification Number.
"FIRST AMENDMENT DATE" means February 13, 1997.
"FOOTHILL" has the meaning set forth in the preamble to this
Agreement.
"FOOTHILL ACCOUNT" has the meaning set forth in SECTION 2.7.
"FOOTHILL EXPENSES" means all: actual costs or expenses
(including taxes, and insurance premiums) required to be paid by any Obligor
under any of the Loan Documents that are paid or incurred by Foothill;
reasonable fees or charges paid or incurred by Foothill in connection with
Foothill's transactions with any Obligor,
(Page 53 of 142 Pages)
<PAGE>
including, fees or charges for photocopying, notarization, couriers and
messengers, telecommunication, public record searches (including tax lien,
litigation, and UCC searches and including searches with the patent and
trademark office, the copyright office, or the department of motor vehicles),
filing, recording, publication, appraisal (including periodic collateral
appraisals), real estate surveys, real estate title policies and
endorsements, and environmental audits; actual costs and expenses incurred by
Foothill in the disbursement of funds to Borrower (by wire transfer or
otherwise); actual charges paid or incurred by Foothill resulting from the
dishonor of checks; reasonable costs and expenses paid or incurred by
Foothill to correct any default or enforce any provision of the Loan
Documents, or in gaining possession of, maintaining, handling, preserving,
storing, shipping, selling, preparing for sale, or advertising to sell the
Collateral, or any portion thereof, irrespective of whether a sale is
consummated; reasonable costs and expenses paid or incurred by Foothill in
examining the Books; reasonable costs and expenses of third party claims or
any other suit paid or incurred by Foothill in enforcing or defending the
Loan Documents or in connection with the transactions contemplated by the
Loan Documents or Foothill's relationship with Borrower or any guarantor; and
Foothill's reasonable attorneys fees and expenses incurred in advising,
structuring, drafting, reviewing, administering, amending, terminating,
enforcing (including attorneys fees and expenses incurred in connection with
a "workout," a "restructuring," or an Insolvency Proceeding concerning any
Obligor), defending, or concerning the Loan Documents, irrespective of
whether suit is brought.
"FORT WORTH TOWER LEASE" means the Tower Lease entered into
between Group and Bell Communications with respect to the broadcast tower
located at 6116 Douglas Street, Fort Worth, Texas.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States, consistently applied.
"GENERAL INTANGIBLES" means all of the Obligors' present and
future general intangibles and other personal property (including contract
rights, rights arising under common law, statutes, or regulations, choses or
things in action, goodwill, patents, trade names, trademarks, servicemarks,
copyrights, blueprints, drawings, purchase orders, customer lists, monies due
or recoverable from pension funds, route lists, rights to payment and other
rights under any royalty or licensing agreements (including all FCC
Licenses), Communications Franchise Agreements, infringement claims, computer
programs, information contained on computer disks or tapes, literature,
reports, catalogs, deposit accounts, insurance premium rebates, tax refunds,
and tax refund claims), other than goods, Accounts, and Negotiable Collateral.
"GOVERNING DOCUMENTS" means the certificate or articles of
incorporation, by-laws, or other organizational or governing documents of any
Person.
"GROUP" means Children's Radio Group, Inc., a Minnesota
corporation.
(Page 54 of 142 Pages)
<PAGE>
"GUARANTOR COLLATERAL" means all right, title, or interest of
any Guarantor with respect to the following:
(a) the Accounts,
(b) the Books,
(c) the Equipment,
(d) the General Intangibles,
(e) the Inventory,
(f) the Negotiable Collateral,
(g) the Real Property Collateral,
(h) any money, or other assets of one or more of the
Guarantors that now or hereafter come into the possession, custody, or
control of Foothill, and
(i) the proceeds and products, whether tangible or
intangible, of any of the foregoing, including proceeds of insurance covering
any or all of the Guarantor Collateral, and any and all Accounts, Books,
Equipment, General Intangibles, Inventory, Negotiable Collateral, Real
Property, money, deposit accounts, or other tangible or intangible property
resulting from the sale, exchange, collection, or other disposition of any of
the foregoing, or any portion thereof or interest therein, and the proceeds
thereof.
"GUARANTOR PERSONAL PROPERTY COLLATERAL" means all Guarantor
Collateral other than the Guarantor Real Property Collateral.
"GUARANTOR REAL PROPERTY COLLATERAL" means the parcels of real
property and the related improvements thereto identified on SCHEDULE R-1 and
any Real Property hereafter acquired by one or more of the Guarantors
(including the Real Property that is to be acquired by CRLA and that is
referred to as the "Mira Loma site."
"GUARANTOR SECURITY AGREEMENT" means that certain Security
Agreement, dated as of even date herewith, made by the Guarantors in favor of
Foothill, pursuant to which they grant to Foothill a security interest in all
the Guarantor Personal Property Collateral to secure their present and future
obligations to Foothill pursuant to the Guaranty.
"GUARANTOR STOCK PLEDGE AGREEMENT" means that certain Stock
Pledge Agreement made by the Guarantors (other than License Subs) in favor of
Foothill, pursuant to which they grant to Foothill a security interest in, among
other
(Page 55 of 142 Pages)
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things, all the capital stock of the License Subs in order to secure their
present and future obligations to Foothill pursuant to the Guaranty.
"GUARANTORS" means any one or more of CRLA, CRNY, CHILDREN'S
RADIO OF MINNEAPOLIS, INC. a Minnesota corporation, CHILDREN'S RADIO OF
GOLDEN VALLEY, INC., a Minnesota corporation, CHILDREN'S RADIO OF MILWAUKEE,
INC., a Minnesota corporation, CHILDREN'S RADIO OF DENVER, INC., a Minnesota
corporation, CHILDREN'S RADIO OF KANSAS CITY, INC., a Minnesota corporation,
CHILDREN'S RADIO OF DALLAS, INC., a Minnesota corporation, CHILDREN'S RADIO
OF HOUSTON, INC., a Minnesota corporation, CHILDREN'S RADIO OF PHILADELPHIA,
INC., a Minnesota corporation, CHILDREN'S RADIO OF DETROIT, INC., a Minnesota
corporation, CHILDREN'S RADIO OF CHICAGO, INC., a Minnesota corporation,
CHILDREN'S RADIO OF PHOENIX, INC., a Minnesota corporation, WWTC-AM, INC., a
Minnesota corporation, KYCR-AM, INC., a Minnesota corporation, WZER-AM, INC.,
a Minnesota corporation, KKYD-AM, INC., a Minnesota corporation, KCNW-AM,
INC., a Minnesota corporation, KAHZ-AM, INC., a Minnesota corporation,
KTEK-AM, INC., a Minnesota corporation, WPWA-AM, INC., a Minnesota
corporation, WCAR-AM, INC., a Minnesota corporation, WJDM-AM, INC., a
Minnesota corporation, KPLS-AM, INC., a Minnesota corporation, WAUR-AM, INC.,
a Minnesota corporation, KIDR-AM, INC., a Minnesota corporation, and each
other Subsidiary of Borrower formed or acquired from time to time.
"GUARANTY" means that certain Guaranty, dated as of even date
herewith, made by each of the Guarantors in favor of Foothill, pursuant to
which they guaranty the payment and performance of all present and future
Obligations.
"HARMONY" means Harmony Holdings, Inc., a Los Angeles-based
holding company whose Subsidiaries are producers of television commercials.
"HARMONY ACQUISITION" means the acquisition by Borrower of
20-25% of the common stock of Harmony for cash consideration not to exceed
$2,400,000, on the terms disclosed to Foothill prior to June 26, 1997,
including the replacement upon consummation of such acquisition of the
existing CEO of Harmony with a manager selected by Borrower, and including
the immediate pledge and delivery of the acquired common stock to Foothill as
additional Collateral.
"HAZARDOUS MATERIALS" means (a) substances that are defined or
listed in, or otherwise classified pursuant to, any applicable laws or
regulations as "hazardous substances," "hazardous materials," "hazardous
wastes," "toxic substances," or any other formulation intended to define, list,
or classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that
(Page 56 of 142 Pages)
<PAGE>
contains any oil or dielectric fluid containing levels of polychlorinated
biphenyls in excess of 50 parts per million.
"HMSPA" means, collectively, Hessian McKasy & Soderberg, P.A.,
for itself and its co-counsel representing Borrower in the litigation between
Borrower and one or more of the ABC Parties described in SCHEDULE 5.10.
"INDEBTEDNESS" means: (a) all obligations of one or more of
the Obligors for borrowed money, (b) all obligations of one or more of the
Obligors evidenced by bonds, debentures, notes, or other similar instruments
and all reimbursement or other obligations of one or more of the Obligors in
respect of letters of credit, bankers acceptances, interest rate swaps, or
other financial products, (c) all obligations of one or more of the Obligors
under capital leases, (d) all obligations or liabilities of others secured by
a Lien on any property or asset of one or more of the Obligors, irrespective
of whether such obligation or liability is assumed, (e) any obligation of one
or more of the Obligors guaranteeing or intended to guarantee (whether
guaranteed, endorsed, co-made, discounted, or sold with recourse to one or
more of the Obligors) any indebtedness, lease, dividend, letter of credit, or
other obligation of any other Person, and (f) any Prohibited Preferred Stock.
"INSOLVENCY PROCEEDING" means any proceeding commenced by or
against any Person under any provision of the Bankruptcy Code or under any
other bankruptcy or insolvency law, assignments for the benefit of creditors,
formal or informal moratoria, compositions, extensions generally with
creditors, or proceedings seeking reorganization, arrangement, or other
similar relief.
"INVENTORY" means all present and future inventory in which
one or more of the Obligors has any interest, including goods held for sale
or lease or to be furnished under a contract of service and all of the
Obligors' present and future raw materials, work in process, finished goods,
and packing and shipping materials, wherever located.
"INVESTMENT PROPERTY" means "investment property" as that term
is defined in Section 9-115 of the Uniform Commercial Code and as defined in
California Senate Bill 1591 which was approved by the Governor on September
14, 1996 and will be effective on January 1, 1997.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"KCAZ LPMA" means the LPMA between Borrower and Group, on the
one hand, and KBEA/KXTR Broadcasting Companies, on the other hand, in respect
of the KCAZ-AM Communications System.
"KEY LEASES" means (a) that certain lease between Borrower and
5501 Building Co., a partnership, relative to the lease by Borrower of its
broadcasting studio located in Saint Louis Park, Minnesota, (b) that certain
lease between Borrower
(Page 57 of 142 Pages)
<PAGE>
and 724 Associates, a partnership, relative to the lease by Borrower of its
administrative offices located in Saint Louis Park, Minnesota, and (c) any
and all contracts, licenses, leases, or other agreements relative to any
Obligor's use or operation of satellite dishes, satellite up-link systems,
satellite down-link systems, or other broadcasting facilities.
"KPLS SELLERS" means any one or more of Daniel Villanueva, the
D. Villanueva Family Trust, James Villanueva, the J. Villanueva Family Trust,
and the Niebla Family Trust.
"KPLS SELLERS' COLLATERAL" means the assets of Borrower and
CRLA in which, as of the Closing Date, the KPLS Sellers have a Lien to secure
the KPLS Sellers Indebtedness of CRLA.
"KPLS SELLERS' INDEBTEDNESS" means (a) the $315,489.72 of
Indebtedness owed by CRLA to the KPLS Sellers pursuant to the Non-Competition
Agreement, and (b) the option to purchase CRLA granted by Borrower and CRLA
to the KPLS Sellers pursuant to the Option Agreement, which option is
exercisable if, among other things, Borrower fails to redeem, in the
approximate aggregate amount of $2,902,130, all of the 1993-A Preferred Stock
at the time set forth in and in accordance with the Certificate of
Designation.
"KPLS SELLERS' PAY-OFF LETTER" means a letter, in form and
substance reasonably satisfactory to Foothill, from the KPLS Sellers
respecting the amount necessary to repay in full all of the KPLS Sellers'
Indebtedness and obtain a termination or release of all of the Liens existing
in favor of the KPLS Sellers on the KPLS Sellers' Collateral.
"LEGAL FEE STOCK" means the 200,000 shares of common stock of
Borrower issued by Borrower to HSMPA as a retainer for legal fees incurred or
to be incurred by HMSPA in connection with the litigation between Borrower
and one or more of the ABC Parties described in SCHEDULE 5.10.
"LICENSE SUB" means a separate, special purpose Subsidiary
formed and solely owned by an Obligor owning and operating a Broadcast System
for the purpose of holding, as that Subsidiary's sole asset, the FCC
License(s) in respect of such Broadcast System.
"LIEN" means any interest in property securing an obligation owed
to, or a claim by, any Person other than the owner of the property, whether such
interest shall be based on the common law, statute, or contract, whether such
interest shall be recorded or perfected, and whether such interest shall be
contingent upon the occurrence of some future event or events or the existence
of some future circumstance or circumstances, including the lien or security
interest arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, security agreement, adverse
claim or charge, conditional sale or trust receipt, or from a lease,
consignment, or bailment for security purposes and also including reservations,
(Page 58 of 142 Pages)
<PAGE>
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases, and other title exceptions and encumbrances affecting
Real Property.
"LIQUIDATION VALUE" means, in respect of any asset, (a) the
net liquidation value of such asset as determined by BIA or a similarly
qualified appraisal company selected by Foothill, or (b) if applicable, the
Alternative Liquidation Value of such asset; it being understood and agreed
that, in the event that Borrower and Foothill fail to agree in good faith on
the identity of the Acceptable Appraiser (as defined in the definition of
"Permitted Liquidation Value Dispute Resolution") within the period allowed
therefor, the Liquidation Value of such asset shall be the value set forth in
item (a) of this definition.
"LOAN ACCOUNT" has the meaning set forth in SECTION 2.10.
"LOAN DOCUMENTS" means this Agreement, the Disbursement
Letter, the Concentration Account Agreement, the Mortgages, the Collateral
Assignments of Key Leases, the Collateral Assignments of Tower Leases, the
Guaranty, the Guarantor Security Agreement, the Guarantor Stock Pledge
Agreement, the Control Agreements, the Stock Pledge Agreement, the Trademark
Security Agreement, (if and when executed and delivered pursuant hereto) the
Copyright Security Agreement, any note or notes executed by Borrower and
payable to Foothill, and any other agreement entered into, now or in the
future, in connection with this Agreement.
"LPMA" means a local programming and marketing agreement
between an Obligor and the owner of a Broadcast System relative to the
operation by Obligor of such Broadcast System.
"MATERIAL ADVERSE CHANGE" means, with respect to any Obligor,
(a) a material adverse change in the business, prospects, operations, results
of operations, assets, liabilities or condition (financial or otherwise) of
such Obligor, (b) the material impairment of such Obligor's ability to
perform its obligations under the Loan Documents to which it is a party or of
Foothill to enforce the Obligations or the "Guarantied Obligations" (as
defined in the Guaranty) or realize upon that Obligor's Collateral, (c) a
material adverse effect on the value of that Obligor's Collateral or the
amount that Foothill would be likely to receive (after giving consideration
to delays in payment and costs of enforcement) in the liquidation of such
collateral, or (d) a material impairment of the priority of Foothill's Liens
with respect to that Obligor's Collateral.
"MATURITY DATE" has the meaning set forth in SECTION 3.4.
"MAXIMUM AMOUNT" means, as of any date of determination, the
sum of (a) the Maximum Revolving Amount, and (b) the then outstanding
principal balance of the Term Loan plus any unadvanced balance of the Term
Loan Commitment.
"MAXIMUM REVOLVING AMOUNT" means $500,000.
(Page 59 of 142 Pages)
<PAGE>
"MCGUINNESS PAY-OFF LETTER" means a letter, in form and
substance reasonably satisfactory to Foothill, from Mr. Joseph McGuinness
respecting the amount necessary to repay in full all of the obligations of
Group owing to him under the consulting agreement referenced in item
(a)(i)(y) of SECTION 7.17 and obtain a termination or release of all of the
Liens existing in favor of him on the properties or assets of the Obligors.
"MORTGAGES" means one or more mortgages, deeds of trust, or
deeds to secure debt, executed by an Obligor in favor of Foothill, the form
and substance of which shall be satisfactory to Foothill, that encumber the
Real Property Collateral and the related improvements thereto.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" (as defined
in Section 4001(a)(3) of ERISA) to which Borrower, any of its Subsidiaries,
or any ERISA Affiliate has contributed, or was obligated to contribute,
within the past six years.
"NEGOTIABLE COLLATERAL" means all of the Obligors' present and
future letters of credit, notes, drafts, instruments, Investment Property,
documents, personal property leases (wherein an Obligor is the lessor),
chattel paper, and Books relating to any of the foregoing.
"NET ISSUANCE PROCEEDS" means, in respect of any issuance of
equity securities, cash proceeds received in connection therewith, net of
reasonable out-of-pocket costs and expenses paid or incurred in connection
therewith in favor of any Person not an Affiliate of any Obligor, such costs
and expenses to be consistent with standard investment banking practices for
similar issuances.
"NETWORK AFFILIATE" means a Person (that is not an Affiliate
of any Obligor) to whom Borrower grants, pursuant to an Affiliation
Agreement, the exclusive license to broadcast Borrower's programming over the
air within the exclusive broadcast area represented by such Person's radio
station signal contour as identified in such Affiliation Agreement.
"NEWCO" has the meaning set forth within the definition of
"Restructuring Transactions."
"NEW TERM LOAN" shall have the meaning ascribed to such term
in the recitals of this Agreement.
"NEW YORK TOWER LEASES" means each of the Tower Leases
(pre-existing and the recently agreed upon lease) relative to the WJDM-AM
Elizabeth, New Jersey (serving the New York City broadcast area)
Communications System.
"1993-A PREFERRED STOCK" means Borrower's Convertible
Preferred Stock Series 1993-A.
(Page 60 of 142 Pages)
<PAGE>
"NON-COMPETITION AGREEMENT" means that certain Non-Competition
Agreement, dated August 23, 1994, among Borrower and the KPLS Sellers.
"OBLIGATIONS" means all loans, Advances, debts, principal,
interest (including any interest that, but for the provisions of the
Bankruptcy Code, would have accrued), contingent reimbursement obligations
under any outstanding Letters of Credit, premiums (including Early
Termination Premiums), liabilities (including all amounts charged to
Borrower's Loan Account pursuant hereto), obligations, fees, charges, costs,
or Foothill Expenses (including any fees or expenses that, but for the
provisions of the Bankruptcy Code, would have accrued), lease payments,
guaranties, covenants, and duties owing by Borrower to Foothill of any kind
and description (whether pursuant to or evidenced by the Loan Documents or
pursuant to any other agreement between Foothill and Borrower, and
irrespective of whether for the payment of money), whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including any debt, liability, or obligation owing
from Borrower to others that Foothill may have obtained by assignment or
otherwise, and further including all interest not paid when due and all
Foothill Expenses that Borrower is required to pay or reimburse by the Loan
Documents, by law, or otherwise.
"OBLIGORS" means Borrower and the Guarantors, or any of them.
"OLD NEW YORK TOWER LEASE" means the Tower Lease entered into
between CRNY and Elizabeth Water Company with respect to the broadcast tower
located at Morris Ave. and Hammocks Field, Union, New Jersey.
"OPTION AGREEMENT" means that certain Option and Repurchase
Agreement, dated August 23, 1994, among Borrower, CRLA, and the KPLS Sellers.
"ORDINARY COURSE DISPOSITIONS" means the sale, exchange, or
other disposition, free and clear of Foothill's security interest (other than
its security interest in the proceeds of such sale, exchange, or other
disposition) of (a) Inventory in the ordinary course of the Obligors'
business, and (b) Equipment that is substantially worn, damaged, or obsolete
in the ordinary course of the Obligors' business.
"OVERADVANCE" has the meaning set forth in SECTION 2.5.
"PARTICIPANT" means any Person to which Foothill has sold a
participation interest in its rights under the Loan Documents.
"PBGC" means the Pension Benefit Guaranty Corporation as
defined in Title IV of ERISA, or any successor thereto.
"PERMITTED ACQUISITION" means an Acquisition of all or
substantially all of the assets or stock of another Person made by Borrower so
long as (a) no Default or Event of Default shall have occurred and be continuing
or would result from the consummation of the proposed Acquisition, (b) the
assets being acquired, or the Person whose capital stock is being acquired, are
useful in or engaged in, as applicable, the
(Page 61 of 142 Pages)
<PAGE>
business of the Obligors as such business exists on the Closing Date, (c)
Borrower has provided Foothill with confirmation, supported by detailed
calculations, that on a PRO FORMA basis created by adding the historical
consolidated financial statements of Borrower (including the consolidated
financial statements of any other Person or assets that were the subject of a
prior Permitted Acquisition during the relevant period) to the historical
consolidated financial statements of the Person to be acquired (or the
historical financial statements related to the assets to be acquired)
pursuant to the proposed Acquisition, Borrower would have been in compliance
with the financial covenants in SECTION 7.20 hereof for the 12 months ending
as of the fiscal quarter ended immediately prior to the proposed date of
consummation of such proposed Acquisition, (d) Foothill has completed its
audit, appraisal, and standard due diligence with respect to the assets or
Person that is to be the subject of the proposed Acquisition and the results
thereof are reasonably satisfactory to Foothill, (e)(i) in the case of the
acquisition of capital stock of a Person, such Person is acquired directly by
Borrower, (ii) in the case of the acquisition of the assets of a Person,
Borrower has formed a new Station Sub and a new License Sub to acquire such
assets, and (iii) in either such case, Borrower and such new Subsidiaries
shall have complied with SECTION 6.19, and (f) in connection with such
proposed Acquisition, Borrower may not use directly or indirectly the
proceeds of Advances in connection with the consummation of such proposed
Acquisition and shall provide an officer's certificate certifying that no
such proceeds have been used, directly or indirectly, to consummate such
Acquisition. The foregoing notwithstanding, the Harmony Acquisition is a
Permitted Acquisition.
"PERMITTED LIENS" means (a) Liens held by Foothill, (b) Liens
for unpaid taxes that either (i) are not yet due and payable or (ii) are the
subject of Permitted Protests, (c) Liens set forth on SCHEDULE P-1, (d) the
interests of lessors under operating leases and purchase money Liens of
lessors under capital leases to the extent that the acquisition or lease of
the underlying asset is permitted under SECTION 7.21 and so long as the Lien
only attaches to the asset purchased or acquired and only secures the
purchase price of the asset, (e) Liens arising by operation of law in favor
of warehousemen, landlords, carriers, mechanics, materialmen, laborers, or
suppliers, incurred in the ordinary course of business of the Obligors and
not in connection with the borrowing of money, and which Liens either (i) are
for sums not yet due and payable, or (ii) are the subject of Permitted
Protests, (f) Liens arising from deposits made in connection with obtaining
worker's compensation or other unemployment insurance, (g) Liens or deposits
to secure performance of bids, tenders, or leases (to the extent permitted
under this Agreement), incurred in the ordinary course of business of the
Obligors and not in connection with the borrowing of money, (h) Liens arising
by reason of security for surety or appeal bonds in the ordinary course of
business of the Obligors, (i) Liens of or resulting from any judgment or
award that would not have a Material Adverse Effect and as to which the time
for the appeal or petition for rehearing of which has not yet expired, or in
respect of which an Obligor is in good faith prosecuting an appeal or
proceeding for a review, and in respect of which a stay of execution pending
such appeal or proceeding for review has been secured, (j) Liens with respect
to the Real Property Collateral that are exceptions to the commitments for
title insurance issued in connection with the Mortgages, as accepted by
Foothill, (k) with respect to any Real Property that is not part of the Real
Property Collateral, easements,
(Page 62 of 142 Pages)
<PAGE>
rights of way, zoning and similar covenants and restrictions, and similar
encumbrances that customarily exist on properties of Persons engaged in
similar activities and similarly situated and that in any event do not
materially interfere with or impair the use or operation of the Collateral by
the Obligors or the value of Foothill's Lien thereon or therein, or
materially interfere with the ordinary conduct of the business of the
Obligors, (l) Liens of Existing Lender in and to the Real Property that
secures the mortgage financing provided by Existing Lender to Group, and (m)
Liens securing Permitted Unrestricted Subsidiary Indebtedness so long as the
Lien only attaches to the assets and properties of the relevant Unrestricted
Subsidiary.
"PERMITTED LIQUIDATION VALUE DISPUTE RESOLUTION" means, in
respect of any asset, the following process: (a) in the event that Foothill
shall notify Borrower in writing of the Liquidation Value of such asset
determined under an appraisal performed by or on behalf of Foothill (the date
that Foothill so notifies Borrower being the "Foothill Value Notice Date")
and Borrower disputes such Liquidation Value, Borrower shall notify Foothill
in writing of the existence of such dispute within 2 Business Days following
the Foothill Value Notice Date (the date that Borrower so notifies Foothill
being the "Disputed Value Notice Date"); (b) Borrower shall identify in
writing to Foothill another appraisal company acceptable to Foothill and with
nationally recognized experience in respect of the appraisal of radio
broadcasting enterprises (the "Acceptable Appraiser") within 5 Business Days
following the Disputed Value Notice Date (the date that Borrower so
identifies to Foothill and Foothill accepts in writing the Acceptable
Appraiser being the "Appraiser Acceptance Date"); and (c) the Acceptable
Appraiser shall determine the net liquidation value of such asset within 2
weeks following the Appraiser Acceptance Date pursuant to procedures and
methods reasonably acceptable to Borrower and Foothill, which determination
shall be binding on Borrower and Foothill.
"PERMITTED NETWORK AFFILIATE INVESTMENTS" means one or more
acquisitions by Borrower of not more than 20% (on a fully diluted basis) of
the issued and outstanding equity Securities of any Network Affiliate in the
ordinary course of Borrower's business and not for speculative purposes;
PROVIDED, HOWEVER, that the aggregate amount of all Permitted Network
Affiliate Investments shall not exceed $1,000,000 at any time outstanding.
"PERMITTED PROTEST" means the right of an Obligor to protest
any Lien other than any such Lien that secures the Obligations, tax (other
than payroll taxes or taxes that are the subject of a United States federal
tax lien), or rental payment, provided that (a) a reserve with respect to
such obligation is established on the books of the applicable Obligor in an
amount that is reasonably satisfactory to Foothill, (b) any such protest is
instituted and diligently prosecuted by such Obligor in good faith, and (c)
Foothill is satisfied that, while any such protest is pending, there will be
no impairment of the enforceability, validity, or priority of any of the
Liens of Foothill in and to the Collateral.
"PERMITTED LEGAL FEE STOCK REDEMPTIONS" means redemptions by
Borrower of the Legal Fee Stock in an aggregate amount not to exceed $1,000,000
for
(Page 63 of 142 Pages)
<PAGE>
the purpose of satisfying the invoiced amount of fees and costs incurred by
HMSPA in connection with the litigation between Borrower and one or more of
the ABC Parties described in SCHEDULE 5.10.
"PERMITTED UNRESTRICTED SUBSIDIARY ACQUISITION" means an
Acquisition made by one of the Unrestricted Subsidiaries so long as (a) no
Default or Event of Default shall have occurred and be continuing or would
result from the consummation of the proposed Acquisition, (b) at least 10
days prior to the consummation of any proposed Permitted Unrestricted
Subsidiary Acquisition, Borrower shall have provided Foothill with a written
description, in reasonable detail, of the proposed Permitted Unrestricted
Subsidiary Acquisition, (c) Borrower may not use, directly or indirectly, the
proceeds of any Advances in connection with the consummation of such proposed
Acquisition and shall provide an officer's certificate certifying that no
such proceeds have been used, directly or indirectly, to consummate such
Acquisition in whole or in part, (d) the assets or properties being acquired,
or the Person whose Securities are being acquired, are useful in or engaged
in, as applicable, the operation of one or more Communications Systems, (e)
in the case of the acquisition of Securities of a Person, at or prior to the
consummation of such Acquisition, either (i) such Person is merged with and
into an existing Unrestricted Subsidiary, with such Unrestricted Subsidiary
being the surviving entity in such merger, or (ii) such Person is designated
as a Unrestricted Subsidiary in a writing sent to Foothill by Borrower, and,
at or prior to the consummation of such Acquisition, Borrower and such new
Subsidiaries shall have complied with SECTION 6.19; PROVIDED, HOWEVER, that
if any such Unrestricted Subsidiary is incurring Permitted Unrestricted
Subsidiary Indebtedness in connection with the consummation of such
Acquisition and to the extent the holder of such Indebtedness requires that
such Indebtedness be secured by a first priority Lien in favor of such holder
on all material assets of such Unrestricted Subsidiary, the holder of such
Permitted Unrestricted Subsidiary Indebtedness shall consent to a second
priority Lien in favor of Foothill with respect to the subject assets until
the related Permitted Unrestricted Subsidiary Indebtedness is repaid, at
which time Foothill shall have a first priority Lien with respect thereto,
(f) in the case of the acquisition of assets or properties of a Person, (i)
such assets or properties are acquired by an existing Station Sub and an
existing License Sub that are Unrestricted Subsidiaries, or (ii) such assets
or properties are acquired by a newly formed Station Sub and a newly formed
License Sub that are Unrestricted Subsidiaries identified in a writing sent
to Foothill by Borrower, and, at or prior to the consummation of such
Acquisition, Borrower and such new Subsidiaries shall have complied with
SECTION 6.19; PROVIDED, HOWEVER, that if any such Unrestricted Subsidiary is
incurring Permitted Unrestricted Subsidiary Indebtedness in connection with
the consummation of such Acquisition and to the extent the holder of such
Indebtedness requires that such Indebtedness be secured by a first priority
Lien in favor of such holder on all material assets of such Unrestricted
Subsidiary, the holder of such Permitted Unrestricted Subsidiary Indebtedness
shall consent to a second priority Lien in favor of Foothill with respect to
the subject assets until the related Permitted Unrestricted Subsidiary
Indebtedness is repaid, at which time Foothill shall have a first priority
Lien with respect thereto.
(Page 64 of 142 Pages)
<PAGE>
"PERMITTED UNRESTRICTED SUBSIDIARY INDEBTEDNESS" means
Indebtedness incurred by an Unrestricted Subsidiary (including Acquired
Indebtedness) to Persons other than an Obligor in connection with the
consummation of a Permitted Unrestricted Subsidiary Acquisition, so long as
(a) no Default or Event of Default exists at the time of the incurrence
thereof, or would exist after giving effect thereto, (b) such Indebtedness is
on terms and conditions satisfactory to Foothill, in its reasonable
discretion, and (c) such Indebtedness is in an amount, with respect to each
Permitted Unrestricted Subsidiary Acquisition, not to exceed at any time 70%
of the sum of (i) the purchase price paid in connection with such Permitted
Unrestricted Subsidiary Acquisition, and (ii) the aggregate costs of any
renovations made with respect to the assets or properties acquired in such
Permitted Unrestricted Subsidiary Acquisition, PROVIDED, HOWEVER, that (y)
such Indebtedness shall be non-recourse to any Obligor (other than for any
customary carve-outs for environmental and "bad deed" indemnities by any
Unrestricted Subsidiary), but may be recourse to the applicable Unrestricted
Subsidiary (which Unrestricted Subsidiary shall have no material
Indebtedness, assets, or properties, other than those acquired in connection
with Permitted Unrestricted Subsidiary Acquisitions), and (z) if required by
the holder of such Indebtedness, such Indebtedness may be secured by a first
priority Lien upon in favor of such holder on all material assets of such
Unrestricted Subsidiary only.
"PERMITTED UNRESTRICTED SUBSIDIARY INVESTMENTS" means, so long
as no Default or Event of Default has occurred and is continuing, loans or
capital contributions by Borrower in or to any of the Unrestricted
Subsidiaries in an amount not to exceed, in the aggregate, an amount equal
to: (a) in respect of the Unrestricted Subsidiaries consisting of one new
Station Sub and one new License Sub to be formed and used in connection with
Borrower's Acquisition of the WAUR-AM 930, Sandwich, Illinois Communications
System (serving the Chicago broadcast area), $2,000,000; and (b) in respect
of all other Unrestricted Subsidiaries, $2,000,000.
"PERSON" means and includes natural persons, corporations,
limited liability companies, limited partnerships, general partnerships,
limited liability partnerships, joint ventures, trusts, land trusts, business
trusts, or other organizations, irrespective of whether they are legal
entities, and governments and agencies and political subdivisions thereof.
"PERSONAL PROPERTY COLLATERAL" means the Borrower Personal
Property Collateral and the Guarantor Personal Property Collateral.
"PLAN" means any employee benefit plan, program, or
arrangement maintained or contributed to by Borrower or with respect to which
it may incur liability.
"PREFERRED STOCK" means the capital stock of any class or
classes (however designated) that is preferred as to the payment of
dividends, or as to the distribution of assets upon any voluntary or
involuntary liquidation or dissolution of the issuing Person, over shares of
capital stock of any other class of such Person.
(Page 65 of 142 Pages)
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"PROHIBITED PREFERRED STOCK" means and refers to any Preferred
Stock that by its terms is mandatorily redeemable for consideration other
than preferred stock of the same class or common stock or is subject to any
other payment obligation (including any obligation to pay dividends, other
than dividends of preferred stock of the same class and series payable in
kind or dividends of common stock) or is redeemable at the option of the
holder thereof for cash or assets or securities (other than distributions in
kind of preferred stock of the same class and series or of common stock) of
the issuer or any of its Subsidiaries.
"QUALIFIED TRANSACTION" means (a) an underwritten registered
public offering of equity securities (other than Prohibited Preferred Stock)
of Borrower, or (b) the consummation of an investment in Borrower by one or
more Strategic Partners.
"REAL PROPERTY" means any estates or interests in real
property now owned or hereafter acquired by one or more of the Obligors.
"REAL PROPERTY COLLATERAL" means Borrower Real Property
Collateral and Guarantor Real Property Collateral.
"REFERENCE RATE" means the variable rate of interest, per
annum, most recently announced by Norwest Bank Minnesota, National
Association, or any successor thereto, as its "base rate," irrespective of
whether such announced rate is the best rate available from such financial
institution.
"REPORTABLE EVENT" means any of the events described in
Section 4043(c) of ERISA or the regulations thereunder other than a
Reportable Event as to which the provision of 30 days notice to the PBGC is
waived under applicable regulations.
"RESTRICTED SUBSIDIARY" shall mean any Subsidiary of Borrower
that is not an Unrestricted Subsidiary.
"RESTRUCTURING TRANSACTIONS" means the following transactions,
(a)(i) the due organization by Borrower of a new, directly owned Subsidiary
("Newco") of Borrower and the contribution and transfer by Borrower to Newco of
all of the assets of Borrower relative to the operation of the WWTC-AM,
Minneapolis, Minnesota Communications System, (ii) the due organization by Newco
of a License Sub and the contribution and transfer by Newco to such License Sub
of the FCC License in respect of the WWTC-AM, Minneapolis, Minnesota
Communications System, (iii) the due organization by CRLA of a License Sub and
the contribution and transfer by CRLA to such License Sub of the FCC License in
respect of the KPLS-AM, Orange, California Communications System, (iv) the due
organization by CRNY of a License Sub and the contribution and transfer by CRNY
to such License Sub of the FCC License in respect of the WJDM-AM, Elizabeth, New
Jersey Communications System, (v) the due organization by Group of 7 separate
Station Subs and the contribution and transfer by Group to each such Station Sub
of all of the assets of one of the Communications Systems owned and operated by
Group (other than the FCC Licenses in respect
(Page 66 of 142 Pages)
<PAGE>
thereof) and (vi) the due organization by Group of 7 separate License Subs
and the contribution and transfer by Group to each such License Sub of one of
the FCC Licenses in respect of each of the Communications Systems owned and
operated by Group, (b) the execution and delivery by Newco, each such Station
Sub, and each such License Sub of a joinder to the Guaranty, a joinder to the
Guarantor Security Agreement, UCC-1 financing statements, fixture filings,
Collateral Access Agreements, Collateral Assignments of Tower Leases,
Collateral Assignments of Key Leases, and Mortgages, (c) the execution and
delivery by Borrower of an appropriate amendment to the Stock Pledge
Agreement and the delivery to Foothill of possession of the original stock
certificates respecting all of the issued and outstanding shares of stock of
Newco together with stock powers with respect thereto endorsed in blank, (d)
the execution and delivery by each Guarantor of the Guarantor Stock Pledge
Agreement and the delivery to Foothill of possession of the original stock
certificates respecting all of the issued and outstanding shares of stock of
each such Station Sub and each such License Sub together with stock powers
with respect thereto endorsed in blank, (e) the receipt by the Obligors of
the necessary FCC approvals to the transfer of such licenses to such License
Subs, and (f) upon the completion of each of the foregoing transactions, the
merger of Group with and into Borrower, with Borrower as the surviving entity.
"RETIREE HEALTH PLAN" means an "employee welfare benefit plan"
within the meaning of Section 3(1) of ERISA that provides benefits to
individuals after termination of their employment, other than as required by
Section 601 of ERISA.
"SECOND WARRANT AGREEMENT" means a warrant agreement
respecting 100,000 shares of Borrower's common stock, in form and substance
reasonably satisfactory to Foothill.
"SECURITIES ACCOUNT" means a "securities account" as that term
is defined in Section 8-501 of the uniform Code and as defined in California
Senate Bill 1591 which was approved by the Governor on September 14, 1996 and
will be effective on January 1, 1997.
"SECURITY" shall have the meaning set forth in Section 2(1) of
the Securities Act of 1933, as amended.
"SOLVENT" means, with respect to any Person on a particular date,
that on such date (a) at fair valuations, all of the properties and assets of
such Person are greater than the sum of the debts, including contingent
liabilities, of such Person, (b) the present fair salable value of the
properties and assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person is able to realize upon its
properties and assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (d) such Person does not intend to, and does not believe that it will,
incur debts beyond such Person's ability to pay as such debts mature, and
(e) such Person is not engaged in business or a transaction, and is not about to
engage in business or a transaction, for which such Person's properties and
assets would constitute unreasonably small capital after giving
(Page 67 of 142 Pages)
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due consideration to the prevailing practices in the industry in which such
Person is engaged. In computing the amount of contingent liabilities at any
time, it is intended that such liabilities will be computed at the amount
that, in light of all the facts and circumstances existing at such time,
represents the amount that reasonably can be expected to become an actual or
matured liability.
"STATION SUB" means a separate, special purpose Subsidiary
formed and solely owned by Borrower for the purpose of owning and operating
an individual Broadcast System.
"STOCK PLEDGE AGREEMENT" means a Stock Pledge Agreement, dated
as of even date herewith, between Borrower and Foothill, pursuant to which
Borrower grants Foothill a security interest in, among other things, all of
the issued and outstanding capital stock of the Guarantors.
"STOCKHOLDER EQUITY" means, as of any date of determination,
Borrower's total stockholder's equity.
"STRATEGIC PARTNER" means a Person that (a) is not an
Affiliate of any Obligor, (b) is not a bank, finance company, insurance or
other financial institution or fund that is engaged in making, purchasing or
otherwise investing in commercial loans in the ordinary course of its
business, and (c) is in the telecommunications business, the entertainment
programming business, or a business reasonably related to the foregoing.
"SUBSIDIARY" of a Person means a corporation, partnership,
limited liability company, or other entity in which that Person directly or
indirectly owns or controls the shares of stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors
(or appoint other comparable managers) of such corporation, partnership,
limited liability company, or other entity.
"TERM LOAN" has the meaning set forth in SECTION 2.2.
"TERM LOAN COMMITMENT" means $16,700,000.
"TOWER LEASES" means (a) that certain lease between Borrower
and Dahl relative to the lease by Borrower of the tower or antenna, and
related real property, at which Borrower transmits the broadcasting signals
for its WWTC-AM, Communications System, (b) that certain lease between Group
and Dahl relative to the lease by Group of the tower or antenna, and related
real property, at which Group transmits the broadcasting signals for its
KYCR-AM Communications System, and (c) any and all other present or future
leases between an Obligor and a third Person relative to the lease by such
Obligor of a transmitting tower, antenna, or the real property on which
either or both is situated.
"TRADEMARK SECURITY AGREEMENT" means a Trademark Security
Agreement executed and delivered by Borrower, the form and substance of which
is reasonably satisfactory to Foothill.
(Page 68 of 142 Pages)
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"TRIGGERING EVENT" means any of (a) the occurrence and
continuation of an Event of Default, or (b) Foothill deems itself insecure.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of Borrower
that is formed or acquired after the Closing Date in connection with the
consummation of a Permitted Unrestricted Subsidiary Acquisition and that (a)
is designated as being an "Unrestricted Subsidiary" in a writing delivered by
Borrower to Foothill at the time of such formation or acquisition, (b) except
as otherwise provided in the definition of "Permitted Unrestricted Subsidiary
Indebtedness," all of such Subsidiary's liabilities are non-recourse to
Borrower or any Restricted Subsidiary, and (c) no Affiliate of Borrower owns
any capital stock (or other interests) of such Subsidiary (except that any
Station Sub that is an Unrestricted Subsidiary may own the capital stock of
the related License Sub that is an Unrestricted Subsidiary).
"VOIDABLE TRANSFER" has the meaning set forth in SECTION 15.8.
"WARRANT AGREEMENT" means a warrant agreement respecting
50,000 shares of Borrower's common stock, in form and substance reasonably
satisfactory to Foothill.
"WORKING CAPITAL" means the result of (a) Consolidated Current
Assets MINUS (b) Consolidated Current Liabilities.
1.2 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. When used herein,
the term "financial statements" shall include the notes and schedules
thereto. Whenever the term "Borrower" is used in respect of a financial
covenant or a related definition, it shall be understood to mean Borrower on
a consolidated basis unless the context clearly requires otherwise.
1.3 CODE. Any terms used in this Agreement that are defined in
the Code shall be construed and defined as set forth in the Code unless
otherwise defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references
to the singular include the plural, the term "including" is not limiting, and
the term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. An Event of
Default shall "continue" or be "continuing" until such Event of Default has
been waived in writing by Foothill. Section, subsection, clause, schedule,
and exhibit references are to this Agreement unless otherwise specified. Any
reference in this Agreement or in the Loan Documents to this Agreement or any
of the Loan Documents shall include all alterations, amendments, changes,
extensions,
(Page 69 of 142 Pages)
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modifications, joinders, renewals, replacements, substitutions, and
supplements, thereto and thereof, as applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVING ADVANCES.
(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to make advances ("Advances") to Borrower in an amount
outstanding not to exceed at any one time the Maximum Revolving Amount, MINUS
the aggregate amount of reserves, if any, established by Foothill under
SECTION 2.1(b).
(b) Anything to the contrary in SECTION 2.1(a) above
notwithstanding, Foothill may create reserves against the Maximum Revolving
Amount without declaring an Event of Default if there occurs a material
increase in Dilution or if Foothill determines that there has occurred a
Material Adverse Change.
(c) Foothill shall have no obligation to make Advances
hereunder to the extent they would cause the outstanding Obligations to
exceed the Maximum Amount.
(d) Amounts borrowed pursuant to this SECTION 2.1 may be
repaid and, subject to the terms and conditions of this Agreement, reborrowed
at any time during the term of this Agreement.
2.2 TERM LOAN.
(a) Foothill previously has made the Existing Term Loan to
Borrower. In addition, Foothill previously has made the Acquisition Loan to
Borrower. As of the date hereof, Foothill has agreed to make the New Term
Loan to Borrower. Collectively, the Existing Term Loan, the Acquisition
Loan, and the New Term Loan shall be known as the "Term Loan."
(b) The Term Loan shall be repaid in monthly installments of
principal of $220,100.00 each. Each such installment shall be due and
payable on the first day of each month commencing on March 1, 1998 and
continuing on the first day of each succeeding month until and including the
date on which the unpaid balance of the Term Loan is paid in full. The
outstanding principal balance and all accrued and unpaid interest under the
Term Loan shall be due and payable upon the termination of this Agreement,
whether by its terms, by prepayment, by acceleration, or otherwise. All
amounts outstanding under the Term Loan shall constitute Obligations.
(Page 70 of 142 Pages)
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In addition to the monthly installments of $220,100 each, Borrower
shall repay the Term Loan in monthly installments and such installments shall
be due and payable on the first day of the following months in the following
amounts:
MONTH/YEAR INSTALLMENT
--------------------------
January 1998 $1,000,000
--------------------------
February 1998 $1,000,000
--------------------------
March 1998 $1,000,000
--------------------------
April 1998 $1,000,000
--------------------------
May 1998 $1,000,000
--------------------------
June 1998 $ 500,000
--------------------------
July 1998 $ 500,000
--------------------------
August 1998 $ 500,000
--------------------------
September 1998 $ 500,000
--------------------------
October 1998 $ 160,800
--------------------------
2.3 APPRAISALS; MANDATORY PREPAYMENTS OF THE TERM LOAN. Foothill
shall have the right to have each Broadcast System of the Obligors
reappraised by BIA (or a similarly qualified appraisal company selected by
Foothill) from time to time after the Closing Date for the purpose of
redetermining the Liquidation Value of such Broadcast Systems. In the
absence of the occurrence and continuation of an Event of Default, such
appraisals shall occur no more frequently than annually. To the extent that
the then extant outstanding aggregate principal amount under the Term Loan
exceeds 33.33% of the aggregate Liquidation Value of all Broadcast Systems
that are owned and operated by Borrower and the Restricted Subsidiaries,
Borrower shall repay the Term Loan by an amount equal to such excess, and
such prepayments shall be applied to the scheduled installments of the Term
Loan in inverse order of their maturity until the Term Loan is paid in full.
2.4 [INTENTIONALLY OMITTED].
2.5 OVERADVANCES. If, at any time or for any reason, the amount
of Obligations owed by Borrower to Foothill pursuant to SECTION 2.1 is
greater than either the Dollar or percentage limitations set forth in SECTION
2.1 (an "Overadvance"), Borrower immediately shall pay to Foothill, in cash,
the amount of such excess to be used by Foothill to repay the outstanding
Obligations.
(Page 71 of 142 Pages)
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2.6 INTEREST: RATES, PAYMENTS, AND CALCULATIONS.
(a) Interest Rate. All Obligations shall bear interest at a
per annum rate of 2.75 percentage points above the Reference Rate.
(b) [Intentionally Omitted]
(c) Default Rate. Upon the occurrence and during the
continuation of an Event of Default, all Obligations shall bear interest at a
per annum rate equal to 5.75 percentage points above the Reference Rate.
(d) Minimum Interest. In no event shall the rate of interest
chargeable hereunder for any day be less than 9.00% per annum. To the extent
that interest accrued hereunder at the rate set forth herein would be less
than the foregoing minimum daily rate, the interest rate chargeable hereunder
for such day automatically shall be deemed increased to the minimum rate.
(e) Payments. Interest payable hereunder shall be due and
payable, in arrears, on the first day of each month during the term hereof.
Borrower hereby authorizes Foothill, at its option, without prior notice to
Borrower, to charge such interest, all Foothill Expenses (as and when
incurred), the fees and charges provided for in SECTION 2.11 (as and when
accrued or incurred), and all installments or other payments due under the
Term Loan or any Loan Document to Borrower's Loan Account, which amounts
thereafter shall accrue interest at the rate then applicable to Advances
hereunder. Any interest not paid when due shall be compounded and shall
thereafter accrue interest at the rate then applicable to Advances hereunder.
(f) Computation. The Reference Rate as of the date of this
Agreement is 8.25% per annum. In the event the Reference Rate is changed
from time to time hereafter, the applicable rate of interest hereunder
automatically and immediately shall be increased or decreased by an amount
equal to such change in the Reference Rate. All interest and fees chargeable
under the Loan Documents shall be computed on the basis of a 360 day year for
the actual number of days elapsed.
(g) Intent to Limit Charges to Maximum Lawful Rate. In no
event shall the interest rate or rates payable under this Agreement, plus any
other amounts paid in connection herewith, exceed the highest rate
permissible under any law that a court of competent jurisdiction shall, in a
final determination, deem applicable. Borrower and Foothill, in executing
and delivering this Agreement, intend legally to agree upon the rate or rates
of interest and manner of payment stated within it; PROVIDED, HOWEVER, that,
anything contained herein to the contrary notwithstanding, if said rate or
rates of interest or manner of payment exceeds the maximum allowable under
applicable law, then, IPSO facto as of the date of this Agreement, Borrower
is and shall be liable only for the payment of such maximum as allowed by
law, and payment received from Borrower in excess of such legal maximum,
whenever received, shall be applied to reduce the principal balance of the
Obligations to the extent of such excess.
(Page 72 of 142 Pages)
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2.7 COLLECTION OF ACCOUNTS. Borrower shall at all times maintain
the Concentration Account and shall deposit (and cause the other Obligors to
deposit, and, by its execution and delivery of the Guaranty or a joinder
thereto, each of the Guarantors hereby agrees to deposit) all Collections
with respect to the Accounts, General Intangibles, and Negotiable Collateral
and other amounts received by any Obligor from any source immediately upon
receipt into the Concentration Account or into a deposit account of such
Obligor the proceeds of which are remitted on a daily basis to the
Concentration Account. Borrower, Foothill, and the Concentration Account Bank
shall enter into an agreement that, among other things, shall provide that
the Concentration Account Bank shall remit all proceeds received in the
Concentration Account to an account (the "Foothill Account") maintained by
Foothill at a depositary selected by Foothill. No arrangement contemplated
hereby shall be modified by any Obligor without the prior written consent of
Foothill.
2.8 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The receipt
of any Collections by Foothill (whether from transfers to Foothill by the
Concentration Account or otherwise) immediately shall be applied
provisionally to reduce the Obligations outstanding under SECTION 2.1, but
shall not be considered a payment on account unless such Collection item is a
wire transfer of immediately available federal funds and is made to the
Foothill Account or unless and until such Collection item is honored when
presented for payment. From and after the Closing Date, Foothill shall be
entitled to charge Borrower for 2 Business Days of `clearance' or `float' at
the rate set forth in SECTION 2.6(a) or SECTION 2.6(c), as applicable, on all
Collections that are received by Foothill (regardless of whether forwarded by
the Concentration Account Bank to Foothill, whether provisionally applied to
reduce the Obligations under SECTION 2.1, or otherwise). This
across-the-board 2 Business Day clearance or float charge on all Collections
is acknowledged by the parties to constitute an integral aspect of the
pricing of Foothill's financing of Borrower, and shall apply irrespective of
the characterization of whether receipts are owned by an Obligor or Foothill,
and whether or not there are any outstanding Advances, the effect of such
clearance or float charge being the equivalent of charging 2 Business Days of
interest on such Collections. Should any Collection item not be honored when
presented for payment, then Borrower shall be deemed not to have made such
payment, and interest shall be recalculated accordingly. Anything to the
contrary contained herein notwithstanding, any Collection item shall be
deemed received by Foothill only if it is received into the Foothill Account
on a Business Day on or before 11:00 a.m. California time. If any Collection
item is received into the Foothill Account on a non-Business Day or after
11:00 a.m. California time on a Business Day, it shall be deemed to have been
received by Foothill as of the opening of business on the immediately
following Business Day.
2.9 DESIGNATED ACCOUNT. Foothill is authorized to make the Advances
and the Term Loan under this Agreement based upon telephonic or other
instructions received from anyone purporting to be an Authorized Person, or
without instructions if pursuant to SECTION 2.6(e). Borrower agrees to
establish and maintain the Designated Account with the Designated Account Bank
for the purpose of receiving the proceeds of the Advances and the Term Loan
requested by Borrower and made by Foothill hereunder. Unless otherwise agreed
by Foothill and Borrower, any Advance and the
(Page 73 of 142 Pages)
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Term Loan requested by Borrower and made by Foothill hereunder shall be made
to the Designated Account.
2.10 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS.
Foothill shall maintain an account on its books in the name of Borrower (the
"Loan Account") on which Borrower will be charged with all Advances and the
Term Loan made by Foothill to Borrower or for Borrower's account, including,
accrued interest, Foothill Expenses, and any other payment Obligations of
Borrower. In accordance with SECTION 2.8, the Loan Account will be credited
with all payments received by Foothill from Borrower or for Borrower's
account, including all amounts received in the Foothill Account from the
Concentration Account Bank. Foothill shall render statements regarding the
Loan Account to Borrower, including principal, interest, fees, and including
an itemization of all charges and expenses constituting Foothill Expenses
owing, and such statements shall be conclusively presumed to be correct and
accurate and constitute an account stated between Borrower and Foothill
unless, within 30 days after receipt thereof by Borrower, Borrower shall
deliver to Foothill written objection thereto describing the error or errors
contained in any such statements.
2.11 FEES. Borrower shall pay to Foothill the following fees:
(a) Closing Fee. A closing fee of $385,000, which amount
shall be included in the Term Loan but shall be earned in full and
non-refundable as of the Closing Date; in this regard, the payment of such
closing fee as set forth above shall constitute a repayment in full of the
commitment fee previously earned by Foothill and evidenced by a promissory
note issued by Borrower to the order of Foothill;
(b) Amendment Fee. An amendment fee of $250,000 which shall
be earned in full and non-refundable as of the Amended Closing Date. The
payment of such amendment fee shall be paid on the Amended Closing Date out
of the proceeds of the New Term Loan;
(c) Annual Facility Fee. An annual fee (the "Annual Fee") on
each anniversary of the Closing Date in an amount equal to (i) on the first
anniversary of the Closing Date, 0.50% times the sum of (x) the Maximum
Revolving Amount, plus (y) the then outstanding amount of the Term Loan, (ii)
on the second anniversary of the Closing Date, 0.75% times the sum of (x) the
Maximum Revolving Amount, plus (y) the then outstanding amount of the Term
Loan; and (iii) on the third anniversary of the Closing Date, 1.00% times the
sum of (x) the Maximum Revolving Amount, plus (y) the then outstanding amount
of the Term Loan. The applicable Annual Fee would be fully-earned and
non-refundable on each anniversary of the Closing Date;
(d) Financial Examination and Appraisal Fees. Foothill's
customary fee of $650 per day per examiner, plus out-of-pocket expenses for each
financial analysis and examination (i.e., audits) of Borrower performed by
personnel employed by Foothill; Foothill's customary appraisal fee of $1,500 per
day per appraiser, plus out-of-pocket expenses for each appraisal of the
Collateral performed by personnel employed by Foothill; PROVIDED, HOWEVER, that
Borrower shall not be obligated to
(Page 74 of 142 Pages)
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reimburse Foothill with respect to appraisals of the same item of Collateral
that occur more frequently than once in any calendar year, unless an Event of
Default has occurred and is continuing, in which case Borrower shall be
obligated to reimburse Foothill with respect to as many appraisals as Lender
deems necessary to conduct; and, the actual charges paid or incurred by
Foothill if it elects to employ the services of one or more third Persons to
perform such financial analyses and examinations (i.e., audits) of Borrower
or to appraise the Collateral; and
(e) Servicing Fee. On the first day of each month during the
term of this Agreement, and thereafter so long as any Obligations are
outstanding, a servicing fee in an amount equal to $2,500.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE AND THE TERM LOAN.
The obligation of Foothill to make the initial Advance or to make the Term
Loan is subject to the fulfillment, to the satisfaction of Foothill and its
counsel, of each of the following conditions on or before the Closing Date:
(a) the Closing Date shall occur on or before November 25,
1996;
(b) Foothill shall have received searches reflecting the
filing of its financing statements and fixture filings;
(c) Foothill shall have received each of the following
documents, duly executed, and each such document shall be in full force and
effect:
(1) the Concentration Account Agreement;
(2) the Disbursement Letter;
(3) the Existing Pay-Off Letter, together with UCC
termination statements and other documentation evidencing
the termination by Existing Lender of its Liens on the
properties and assets (other than Liens with respect to the
Real Property that secures mortgage financing provided by
Existing Lender to Group) of the Obligors;
(4) the KPLS Sellers Pay-Off Letter, together with UCC
termination statements and other documentation evidencing
the termination by the KPLS Sellers of its Liens on the KPLS
Sellers' Collateral;
(5) the McGuinness Pay-Off Letter, together with UCC
termination statements and other documentation evidencing
(Page 75 of 142 Pages)
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the termination by Mr. Joseph McGuinness of his Liens on the
properties and assets of the Obligors;
(6) the Warrant;
(7) each of the Mortgages, except to the extent Foothill
permits one or more of the same to be delivered after the
Closing Date pursuant to SECTION 3.3(e) hereof;
(8) each of the Collateral Assignments of Key Leases,
together with an appropriate consent to hypothecation from
the lessor under the relevant Key Lease, except to the
extent Foothill permits one or more of the same to be
delivered after the Closing Date pursuant to SECTION 3.3
hereof; it being understood that all Collateral Assignments
of Key Leases and consents thereto in respect of leases
wherein the lessor is an Affiliate of one or more Obligors
shall be delivered on or before the Closing Date;
(9) the Collateral Assignments of Tower Leases, together
with an appropriate consent to hypothecation from the lessor
under the relevant Tower Lease, except to the extent
Foothill permits one or more of the same to be delivered
after the Closing Date pursuant to SECTION 3.3 hereof; it
being understood that all Collateral Assignments of Tower
Leases and consents thereto in respect of: (y) leases
wherein the lessor is an Affiliate of one or more Obligors;
and (z) leases wherein the lessor is one or more of the KPLS
Sellers; in each case, shall be delivered on or before the
Closing Date;
(10) the Trademark Security Agreement;
(11) the Stock Pledge Agreement;
(12) Borrower, Foothill, and each applicable financial
intermediary or depositary shall enter into a control
agreement that, among other things, provides that, from and
after the giving of notice by Foothill to such financial
intermediary or depositary, it shall take instructions
solely from Foothill with respect to the applicable
Securities Account and related securities entitlements or
deposit account, as applicable. Foothill agrees that it
will not give such notice unless a Triggering Event has
occurred. Borrower agrees that it will not transfer assets
out of such Securities Accounts or deposit accounts other
than in the ordinary course of business and, if to another
financial
(Page 76 of 142 Pages)
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intermediary or depositary, unless the Borrower,
Foothill, and the substitute financial intermediary or
depositary have entered into a control agreement of the
type described above. No arrangement contemplated hereby
shall be modified by Borrower without the prior written
consent of Foothill. Upon the occurrence of a Triggering
Event, Foothill may elect to notify the financial
intermediary to liquidate the securities entitlements in
such Securities Account and may elect to notify the
financial intermediary or depositary to remit the
proceeds in the Securities Account or deposit account to
the Foothill Account;
(13) the Guarantor Security Agreement;
(14) the Guaranty; and
(15) the Guarantor Stock Pledge Agreement;
(d) Foothill shall have received possession of the shares of
stock of each of the Subsidiaries of Borrower, as well as stock powers with
respect thereto endorsed in blank;
(e) Foothill shall have received a certificate from the
Secretary of each Obligor attesting to the resolutions of such Obligor's
Board of Directors authorizing its execution, delivery, and performance of
the Loan Documents to which such Obligor is a party and authorizing specific
officers of such Obligor to execute the same;
(f) Foothill shall have received copies of each Obligor's
Governing Documents, as amended, modified, or supplemented to the Closing Date,
certified by the Secretary of the applicable Obligor;
(g) Foothill shall have received a certificate of status with
respect to each Obligor, dated within 10 days of the Closing Date, such
certificate to be issued by the appropriate officer of the jurisdiction of
organization of such Obligor, which certificate shall indicate that such Obligor
is in good standing in such jurisdiction;
(h) Foothill shall have received certificates of status with
respect to each Obligor, each dated within 15 days of the Closing Date, such
certificates to be issued by the appropriate officer of the jurisdictions in
which its failure to be duly qualified or licensed would constitute a Material
Adverse Change, which certificates shall indicate that such Obligor is in good
standing in such jurisdictions;
(i) Foothill shall have received a certificate of insurance,
together with the endorsements thereto, as are required by SECTION 6.10, the
form and substance of which shall be satisfactory to Foothill and its counsel;
(Page 77 of 142 Pages)
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(j) Foothill shall have received such Collateral Access
Agreements from lessors and other third persons as Foothill may require,
except to the extent Foothill permits one or more of the same to be delivered
after the Closing Date pursuant to SECTION 3.3(e) hereof;
(k) Foothill shall have received consolidating balance sheet
information in form reasonably acceptable to Foothill, as of the Closing
Date, for each Communications System (as if such Communications System were a
separate legal entity) and a detailed description of such Communications
System's liabilities;
(l) Foothill shall have received a copy of each LPMA, each
Key Lease, and each Tower Lease together with a certificate of the Secretary
of the relevant Obligor certifying same to be a true and correct copy thereof;
(m) Foothill shall have received an opinion of Borrower's
counsel (including FCC counsel) in form and substance satisfactory to
Foothill in its sole discretion;
(n) Foothill shall have received (i) appraisals of the Real
Property Collateral and appraisals of the individual Communications Systems,
in each case satisfactory to Foothill, and (ii) mortgagee title insurance
policies (or marked commitments to issue the same) for the Real Property
Collateral issued by a title insurance company satisfactory to Foothill (each
a "Mortgage Policy" and, collectively, the "Mortgage Policies") in amounts
satisfactory to Foothill assuring Foothill that the Mortgages on such Real
Property Collateral are valid and enforceable first priority mortgage Liens
on such Real Property Collateral free and clear of all defects and
encumbrances except Permitted Liens, and the Mortgage Policies shall
otherwise be in form and substance reasonably satisfactory to Foothill; in
each case, except to the extent Foothill permits one or more of the same to
be delivered after the Closing Date pursuant to SECTION 3.3(e) hereof;
(o) Foothill shall have received satisfactory evidence that
all tax returns required to be filed by Borrower have been timely filed and
all taxes upon Borrower or its properties, assets, income, and franchises
(including real property taxes and payroll taxes) have been paid prior to
delinquency, except such taxes that are the subject of a Permitted Protest;
and
(p) all other documents and legal matters in connection with
the transactions contemplated by this Agreement shall have been delivered,
executed, or recorded and shall be in form and substance reasonably
satisfactory to Foothill and its counsel.
3.1A CONDITIONS PRECEDENT TO THE NEW TERM LOAN. The obligation of
Foothill to make the New Term Loan is subject to the fulfillment, to the
satisfaction of Foothill and its counsel, of each of the following conditions
on or before the Amended Closing Date:
(Page 78 of 142 Pages)
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(a) Foothill shall have received executed consents and
reaffirmations from each Guarantor, in form and substance satisfactory to
Foothill; and
(b) Foothill shall have received the Second Amended Warrant
and such Second Amended Warrant shall be duly executed, and in full force and
effect.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES AND THE TERM LOAN. The
following shall be conditions precedent to all Advances and the Term Loan
hereunder:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all
material respects on and as of the date of such extension of credit, as
though made on and as of such date (except to the extent that such
representations and warranties relate solely to an earlier date);
(b) no Default or Event of Default shall have occurred and be
continuing on the date of such extension of credit, nor shall either result
from the making thereof; and
(c) no injunction, writ, restraining order, or other order of
any nature prohibiting, directly or indirectly, the extending of such credit
shall have been issued and remain in force by any governmental authority
against Borrower, Foothill, or any of their Affiliates.
3.3 CONDITION SUBSEQUENT. As conditions subsequent to initial
closing hereunder, Borrower shall perform or cause to be performed each of
the following (the failure by Borrower to so perform or cause to be performed
any of the following constituting an Event of Default):
(a) within 30 days of the Closing Date, deliver to Foothill
the certified copies of the policies of insurance, together with the
endorsements thereto, as are required by SECTION 6.10, the form and substance
of which shall be satisfactory to Foothill and its counsel.
(b) within 30 days following the First Amendment Date,
deliver to Foothill each of the Collateral Assignments of Key Leases,
together with an appropriate consent to hypothecation from the lessor under
the relevant Key Lease, to the extent the same were not required by Foothill
to be delivered on or before the Closing Date under SECTION 3.1.
(c) within 30 days following the First Amendment Date,
deliver to Foothill each of the Collateral Assignments of Tower Leases, other
than with respect to (i) the Old New York Tower Lease, (ii) the Fort Worth
Tower Lease, and (iii) the Brookfield Tower Lease, together with an
appropriate consent to hypothecation from the lessor under the relevant Tower
Lease, to the extent the same were not required by Foothill to be delivered
on or before the Closing Date under SECTION 3.1
(Page 79 of 142 Pages)
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(d) within 30 days following the First Amendment Date,
deliver to Foothill each of the Mortgages (and Foothill shall have received
opinions of Foothill's several local counsel relative thereto, each in form
and substance satisfactory to Foothill in its reasonable (from the
perspective of a secured lender) discretion), Collateral Access Agreements
(other than with respect to (i) the Old New York Tower Lease, (ii) the Fort
Worth Tower Lease, and (iii) the Brookfield Tower Lease), Mortgage Policies,
in each case, to the extent the same were not required by Foothill to be
delivered on or before the Closing Date under SECTION 3.1.
(e) within 180 days following the Closing Date, deliver to
Foothill satisfactory evidence of the consummation of each of the
Restructuring Transactions.
3.4 TERM. This Agreement shall become effective upon the
execution and delivery hereof by Borrower and Foothill and shall continue in
full force and effect for a term ending on the date that is 4 years from the
Closing Date (the "Maturity Date"), unless sooner terminated pursuant to the
terms hereof. The foregoing notwithstanding, Foothill shall have the right to
terminate its obligations under this Agreement immediately and without notice
upon the occurrence and during the continuation of an Event of Default.
3.5 EFFECT OF TERMINATION. On the date of termination of this
Agreement, all Obligations immediately shall become due and payable without
notice or demand. No termination of this Agreement, however, shall relieve
or discharge Borrower of Borrower's duties, Obligations, or covenants
hereunder, and Foothill's continuing security interests in the Borrower
Collateral and the Guarantor Collateral shall remain in effect until all
Obligations have been fully and finally discharged and Foothill's obligation
to provide additional credit hereunder is terminated.
3.6 EARLY TERMINATION BY BORROWER. The provisions of SECTION 3.4
that allow termination of this Agreement by Borrower only on the Maturity
Date notwithstanding, Borrower has the option, at any time upon 90 days prior
written notice to Foothill, to terminate this Agreement by paying to
Foothill, in cash, the Obligations, in full, together with a premium (the
"Early Termination Premium") equal to (a) on or before the second anniversary
of the Closing Date, an amount equal to the product of (i) $20,000 TIMES (ii)
the number of months (or portion thereof) between the date of such
termination and the second anniversary of the Closing Date, and (b)
thereafter, zero (-0-); PROVIDED, HOWEVER, that Borrower shall be obligated
to pay only 50% of the Early Termination Premium otherwise payable under
SECTION 3.6(a) in the event that Borrower timely exercises its option to
terminate this Agreement (and timely terminates this Agreement) under and
pursuant to this SECTION 3.6 with the proceeds received by Borrower from the
consummation of a Qualified Transaction.
3.7 TERMINATION UPON EVENT OF DEFAULT. If Foothill terminates
this Agreement upon the occurrence of an Event of Default, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Foothill's
lost profits as a result thereof,
(Page 80 of 142 Pages)
<PAGE>
Borrower shall pay to Foothill upon the effective date of such termination, a
premium in an amount equal to the Early Termination Premium. The Early
Termination Premium shall be presumed to be the amount of damages sustained
by Foothill as the result of the early termination and Borrower agrees that
it is reasonable under the circumstances currently existing. The Early
Termination Premium provided for in this SECTION 3.7 shall be deemed included
in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants to
Foothill a continuing security interest in all right, title, and interest of
Borrower in and to all currently existing and hereafter acquired or arising
Borrower Personal Property Collateral in order to secure prompt repayment of
any and all Obligations and in order to secure prompt performance by Borrower
of each of its covenants and duties under the Loan Documents. Foothill's
security interests in the Borrower Personal Property Collateral shall attach
to all Borrower Personal Property Collateral without further act on the part
of Foothill or Borrower. Anything contained in this Agreement or any other
Loan Document to the contrary notwithstanding, except for Ordinary Course
Dispositions, no Obligor has any authority, express or implied, to dispose of
any item or portion of the Personal Property Collateral or the Real Property
Collateral. Anything to the contrary in this Agreement or the other Loan
Documents notwithstanding, to the extent this Agreement or any other Loan
Document purports to grant to Foothill a security interest in the FCC
Licenses, Foothill shall only have a security interest in such FCC Licenses
at such times and to the extent that a security interest in such FCC Licenses
is not prohibited under applicable law and Foothill agrees that, to the
extent prior FCC approval is required pursuant to the Communications Act of
1934, as amended, or the rules and regulations of the FCC for (a) the
operation and effectiveness of any remedy hereunder or under any Loan
Document, or (b) taking any action that may be taken by Foothill hereunder or
under any Loan Document, such remedy or action will be subject to such prior
FCC approval having been obtained by or in favor of Foothill; and Borrower
will use, and shall cause each of the other Obligors to (and, by its
execution and delivery of the Guaranty or a joinder thereto, each of the
Guarantors hereby agrees to) use, its reasonable best efforts to obtain any
such approval as promptly as possible after Foothill first becomes entitled
to exercise such remedy or action.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower, immediately upon the request of Foothill, shall (and shall cause
each of the other Obligors to, and, by its execution and delivery of the
Guaranty or a joinder thereto, each of the Guarantors hereby agrees to)
endorse and deliver physical possession of such Negotiable Collateral to
Foothill.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND NEGOTIABLE
COLLATERAL. At any time, Foothill or Foothill's designee may (a) notify
customers or Account Debtors of the Obligors that the Accounts, General
Intangibles, or Negotiable Collateral have been assigned to Foothill or that
Foothill has a security interest therein,
(Page 81 of 142 Pages)
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and (b) collect the Accounts, General Intangibles, and Negotiable Collateral
directly and charge the collection costs and expenses to the Loan Account.
Borrower agrees that it will (and will cause each of the other Obligors to,
and, by its execution and delivery of the Guaranty or a joinder thereto, each
of the Guarantors hereby agrees to) hold in trust for Foothill, as Foothill's
trustee, any Collections that it receives and immediately will deliver said
Collections to Foothill in their original form as received by the applicable
Obligor.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time
upon the request of Foothill, Borrower shall (and shall cause each of the
other Obligors (including each new License Sub or Station Sub, whether
Restricted Subsidiary or Unrestricted Subsidiary) to, and, by its execution
and delivery of the Guaranty or a joinder thereto, each of the Guarantors
(including each new License Sub or Station Sub) hereby agrees to) execute and
deliver to Foothill all financing statements, continuation financing
statements, fixture filings, security agreements, pledges, assignments,
collateral assignments, mortgages, leasehold mortgages, deeds of trust,
leasehold deeds of trust, endorsements of certificates of title, applications
for title, affidavits, reports, notices, schedules of accounts, letters of
authority, and all other documents that Foothill reasonably may request, in
form satisfactory to Foothill, to perfect and continue perfected Foothill's
security interests in the Collateral (whether now owned or hereafter arising
or acquired), and in order to fully consummate all of the transactions
contemplated hereby and under the other Loan Documents. In this regard and
without limiting the generality of the foregoing, Foothill shall have the
right to require Borrower to: (a) obtain phase-I environmental reports and
real estate surveys with respect to the Real Property Collateral from
environmental consultants and surveyors and setting forth results, in each
case, acceptable to Foothill in its sole discretion; (b) at such time or
times as Borrower or any Guarantor acquires any copyright registered with the
United States Copyright Office or applies for registration of any copyright
with the United States Copyright Office, execute and deliver (or cause such
Guarantor to execute and deliver (and, by its execution and delivery of the
Guaranty or a joinder thereto, each of the Guarantors hereby agrees to
execute and deliver) promptly a Copyright Security Agreement or joinder or
supplement thereto in respect of such copyrights or copyright applications;
(c) cause CRLA to execute and deliver a Mortgage with respect to the Real
Property that it is to acquire in Southern California that is referred to as
the "Mira Loma site; and (d) cause CRNY to execute and deliver a Collateral
Assignment of Tower Lease with respect to its new Tower Lease.
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes,
constitutes, and appoints (and hereby causes each of the other Obligors to
make, constitute, and appoint, and, by its execution and delivery of the
Guaranty or a joinder thereto, each of the Guarantors hereby makes,
constitutes, and appoints) Foothill (and any of Foothill's officers,
employees, or agents designated by Foothill) as the Obligors' true and lawful
attorney, with power to (a) if any Obligor refuses to, or fails timely to
execute and deliver any of the documents described in SECTION 4.4, sign the
name of such Obligor on any of the documents described in SECTION 4.4, (b) at
any time that an Event of Default has occurred and is continuing or Foothill
deems itself insecure, sign any Obligor's name on any invoice or bill of
lading relating to any Account, drafts against Account Debtors,
(Page 82 of 142 Pages)
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schedules and assignments of Accounts, verifications of Accounts, and notices
to Account Debtors, (c) send requests for verification of Accounts, (d)
endorse any Obligor's name on any Collection item that may come into
Foothill's possession, (e) at any time that an Event of Default has occurred
and is continuing or Foothill deems itself insecure, notify the post office
authorities to change the address for delivery of any Obligor's mail to an
address designated by Foothill, to receive and open all mail addressed to an
Obligor, and to retain all mail relating to the Collateral and forward all
other mail to the Obligors in care of Borrower, (f) at any time that an Event
of Default has occurred and is continuing or Foothill deems itself insecure,
make, settle, and adjust all claims under the Obligors' policies of insurance
and make all determinations and decisions with respect to such policies of
insurance, and (g) at any time that an Event of Default has occurred and is
continuing or Foothill deems itself insecure, settle and adjust disputes and
claims respecting the Accounts directly with Account Debtors, for amounts and
upon terms that Foothill determines to be reasonable, and Foothill may cause
to be executed and delivered any documents and releases that Foothill
determines to be necessary. The appointment of Foothill as the Obligors'
attorney, and each and every one of Foothill's rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations have
been fully and finally repaid and performed and Foothill's obligation to
extend credit hereunder is terminated.
4.6 RIGHT TO INSPECT. Foothill (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter to
inspect the Books and to check, test, and appraise the Collateral in order to
verify any or all of the Obligors' financial condition or the amount,
quality, value, condition of, or any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Foothill to enter into this Agreement, Borrower
makes the following representations and warranties which shall be true,
correct, and complete in all respects as of the date hereof, and shall be
true, correct, and complete in all respects as of the Closing Date, and at
and as of the date of the making of each Advance or Term Loan made
thereafter, as though made on and as of the date of such Advance or Term Loan
(except to the extent that such representations and warranties relate solely
to an earlier date) and such representations and warranties shall survive the
execution and delivery of this Agreement:
5.1 NO ENCUMBRANCES. The Obligors have good and indefeasible
title to the Collateral, free and clear of Liens except for Permitted Liens.
5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide existing
obligations created by the sale and delivery of broadcasting time or the
production or syndication of radio programming to Account Debtors in the
ordinary course of the Obligors' business, unconditionally owed to one or more
of the Obligors without defenses, disputes, offsets, counterclaims, or rights of
return or cancellation. The services giving rise to such Eligible Accounts has
been fully performed. No Obligor has received any notice of actual or imminent
bankruptcy, insolvency, or material
(Page 83 of 142 Pages)
<PAGE>
impairment of the financial condition of any Account Debtor, or, in the case
of an Advertising Agency Account Debtor, of the underlying client of such
Advertising Agency Account Debtor, regarding any Eligible Account.
5.3 LICENSES AND PERMITS. All material licenses, permits, and
consents and similar rights (including FCC Licenses) required from any
Federal, state, or local governmental body for the ownership, construction,
use, and operation of the Communications Systems and other properties now
owned and operated by any of the Obligors, have been validly issued and are
in full force and effect and each Obligor is in compliance, in all material
respects, with all of the provisions thereof and none of such licenses,
permits, or consents is the subject of any pending or, to the best of
Borrower's knowledge and belief, threatened proceeding for the revocation,
cancellation, suspension, or non-renewal thereof. As of the Closing Date or
of each subsequent date on which Borrower delivers to Foothill an updated
schedule pursuant to Section 6.20, set forth on SCHEDULE 5.3 is a complete
and accurate list of all such licenses, permits, and consents, and such
schedule identifies the date by which an application for the renewal of such
license, permit, or consent must be filed and describes the status of each
such pending application. Each of the Obligors owns or possesses all
material patents, trademarks, trade names, copyrights, and other similar
rights necessary for the conduct of its business as now carried on, without
any known conflict of the rights of others.
5.4 EQUIPMENT. All of the Equipment is used or held for use in
the Obligors' business and is fit for such purposes.
5.5 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and
Equipment are not stored with a bailee, warehouseman, or similar party
(without Foothill's prior written consent) and are located only at the
locations identified on SCHEDULE 6.12 or otherwise permitted by SECTION 6.12.
5.6 [INTENTIONALLY OMITTED]
5.7 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief executive
office of Borrower and each Guarantor is located at the address indicated in
the preamble to this Agreement and the FEINs for each of the Obligors are as
set forth on SCHEDULE 5.7; PROVIDED, HOWEVER, that from time to time,
Borrower shall be entitled to update SCHEDULE 5.7 to add the FEINs of newly
created or acquired Subsidiaries.
5.8 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Borrower is duly organized and existing and in good
standing under the laws of the jurisdiction of its incorporation and
qualified and licensed to do business in, and in good standing in, any state
where the failure to be so licensed or qualified reasonably could be expected
to have a Material Adverse Change.
(b) Each Guarantor is duly organized and existing and in good
standing under the laws of the jurisdiction of its incorporation and
qualified and licensed
(Page 84 of 142 Pages)
<PAGE>
to do business in, and in good standing in, any state where the failure to be
so licensed or qualified reasonably could be expected to have a Material
Adverse Change.
(c) Set forth on SCHEDULE 5.8 is a complete and accurate list
of Borrower's direct and indirect Subsidiaries, showing: (i) the jurisdiction
of their incorporation; (ii) the number of shares of each class of common and
preferred stock authorized for each of such Subsidiaries; and (iii) the
number and the percentage of the outstanding shares of each such class owned
directly or indirectly by Borrower; PROVIDED, HOWEVER, that from time to
time, Borrower shall be entitled to update SCHEDULE 5.8 to add the required
information concerning newly created or acquired Subsidiaries. All of the
outstanding capital stock of each such Subsidiary has been validly issued and
is fully paid and non-assessable.
(d) Except as set forth on SCHEDULE 5.8, no capital stock (or
any securities, instruments, warrants, options, purchase rights, conversion
or exchange rights, calls, commitments or claims of any character convertible
into or exercisable for capital stock) of Borrower is subject to the issuance
of any security, instrument, warrant, option, purchase right, conversion or
exchange right, call, commitment or claim of any right, title, or interest
therein or thereto.
(e) Except as set forth on SCHEDULE 5.8, no capital stock (or
any securities, instruments, warrants, options, purchase rights, conversion
or exchange rights, calls, commitments or claims of any character convertible
into or exercisable for capital stock) of any direct or indirect Subsidiary
of Borrower is subject to the issuance of any security, instrument, warrant,
option, purchase right, conversion or exchange right, call, commitment or
claim of any right, title, or interest therein or thereto.
5.9 DUE AUTHORIZATION; NO CONFLICT.
(a) (i) The execution, delivery, and performance by Borrower
of this Agreement and the Loan Documents to which it is a party have been
duly authorized by all necessary corporate action. (ii) The execution,
delivery, and performance by each of the other Obligors of the Loan Documents
to which it is a party have been duly authorized by all necessary corporate
action.
(b) (i) The execution, delivery, and performance by Borrower
of this Agreement and the Loan Documents to which it is a party do not and
will not (w) violate any provision of federal, state, or local law or
regulation (including Regulations G, T, U, and X of the Federal Reserve
Board) applicable to Borrower, the Governing Documents of Borrower, or any
order, judgment, or decree of any court or other Governmental Authority
binding on any Obligor, (x) conflict with, result in a breach of, or
constitute (with due notice or lapse of time or both) a default under any
material contractual obligation or material lease of any Obligor, (y) result
in or require the creation or imposition of any Lien of any nature whatsoever
upon any properties or assets of any Obligor, other than Permitted Liens, or
(z) require any approval of stockholders or any approval or consent of any
Person under any material contractual obligation of any Obligor.
(Page 85 of 142 Pages)
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(ii) The execution, delivery, and performance by
each of the other Obligors of the Loan Documents to which it is a party do
not and will not (w) violate any provision of federal, state, or local law or
regulation (including Regulations G, T, U, and X of the Federal Reserve
Board) applicable to such Obligor, the Governing Documents of such Obligor,
or any order, judgment, or decree of any court or other Governmental
Authority binding on any Obligor, (x) conflict with, result in a breach of,
or constitute (with due notice or lapse of time or both) a default under any
material contractual obligation or material lease of any Obligor, (y) result
in or require the creation or imposition of any Lien of any nature whatsoever
upon any properties or assets of any Obligor, other than Permitted Liens, or
(z) require any approval of stockholders or any approval or consent of any
Person under any material contractual obligation of any Obligor.
(c) (i) Other than the filing of appropriate financing
statements, fixture filings, and Mortgages, the execution, delivery, and
performance by Borrower of this Agreement and the Loan Documents to which
Borrower is a party do not and will not require any registration with,
consent, or approval of, or notice to, or other action with or by, any
federal, state, foreign, or other Governmental Authority or other Person.
(ii) Other than the filing of appropriate financing
statements, fixture filings, and Mortgages, the execution, delivery, and
performance by each of the other Obligors of the Loan Documents to which such
Obligor is a party do not and will not require any registration with,
consent, or approval of, or notice to, or other action with or by, any
federal, state, foreign, or other Governmental Authority or other Person.
(d) (i) This Agreement and the Loan Documents to which
Borrower is a party, and all other documents contemplated hereby and thereby,
when executed and delivered by Borrower will be the legally valid and binding
obligations of Borrower, enforceable against Borrower in accordance with
their respective terms, except as enforcement may be limited by equitable
principles or by bankruptcy, insolvency, reorganization, moratorium, or
similar laws relating to or limiting creditors' rights generally.
(ii) The Loan Documents to which each of the other
Obligors is a party, and all other documents contemplated hereby and thereby,
when executed and delivered by such Obligor will be the legally valid and
binding obligations of such Obligor, enforceable against such Obligor in
accordance with their respective terms, except as enforcement may be limited
by equitable principles or by bankruptcy, insolvency, reorganization,
moratorium, or similar laws relating to or limiting creditors' rights
generally.
(e) (i) The Liens granted by Borrower to Foothill in and to
its properties and assets pursuant to this Agreement and the other Loan
Documents are validly created, perfected, and first priority Liens, subject
only to Permitted Liens.
(Page 86 of 142 Pages)
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(ii) The Liens granted by each of the other Obligors to
Foothill in and to its properties and assets pursuant to the Loan Documents
are validly created, perfected, and first priority Liens, subject only to
Permitted Liens.
5.10 LITIGATION. There are no actions or proceedings pending by or
against any Obligor before any court or administrative agency and neither
Borrower nor any other Obligor has any knowledge or belief of any pending,
threatened, or imminent litigation, governmental investigations, or claims,
complaints, actions, or prosecutions involving any Obligor, except for: (a)
ongoing collection matters in which one or more of the Obligors is the
plaintiff; (b) matters disclosed on SCHEDULE 5.10; and (c) matters arising
after the date hereof that, if decided adversely to such Obligor, would not
have a Material Adverse Change.
5.11 NO MATERIAL ADVERSE CHANGE. All financial statements relating
to Borrower or any guarantor of the Obligations that have been delivered by
Borrower to Foothill have been prepared in accordance with GAAP (except, in
the case of unaudited financial statements, for the lack of footnotes and
being subject to year-end audit adjustments) and fairly present Borrower's
(or such guarantor's, as applicable) financial condition as of the date
thereof and Borrower's results of operations for the period then ended.
There has not been a Material Adverse Change with respect to Borrower (or
such guarantor, as applicable) since the date of the latest financial
statements submitted to Foothill on or before the Closing Date.
5.12 SOLVENCY. (a) Borrower is Solvent. No transfer of property
is being made by Borrower and no obligation is being incurred by Borrower in
connection with the transactions contemplated by this Agreement or the other
Loan Documents with the intent to hinder, delay, or defraud either present or
future creditors of Borrower.
(b) Each of the other Obligors is Solvent. No transfer of
property is being made by such Obligor and no obligation is being incurred by
such Obligor in connection with the transactions contemplated by this
Agreement or the other Loan Documents with the intent to hinder, delay, or
defraud either present or future creditors of such Obligor.
5.13 EMPLOYEE BENEFITS. None of Borrower, any of its Subsidiaries,
or any of their ERISA Affiliates maintains or contributes to any Benefit
Plan, other than those listed on SCHEDULE 5.13. Borrower, each of its
Subsidiaries and each ERISA Affiliate have satisfied the minimum funding
standards of ERISA and the IRC with respect to each Benefit Plan to which it
is obligated to contribute. No ERISA Event has occurred nor has any other
event occurred that may result in an ERISA Event that reasonably could be
expected to result in a Material Adverse Change. None of Borrower or its
Subsidiaries, any ERISA Affiliate, or any fiduciary of any Plan is subject to
any direct or indirect liability with respect to any Plan under any
applicable law, treaty, rule, regulation, or agreement. None of Borrower or
its Subsidiaries or any ERISA Affiliate is required to provide security to
any Plan under Section 401(a)(29) of the IRC.
(Page 87 of 142 Pages)
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5.14 ENVIRONMENTAL CONDITION. None of any Obligor's properties or
assets has ever been used by any Obligor or, to the best of Borrower's
knowledge, by previous owners or operators in the disposal of, or to produce,
store, handle, treat, release, or transport, any Hazardous Materials except
as disclosed on Schedule 5.14 (and, to the extent set forth on such schedule,
any such production, storage, handling, treatment, release, or transport of
such Hazardous Materials by any Obligor is in compliance with all applicable
laws and regulations in respect thereof). None of any Obligor's properties
or assets has ever been designated or identified in any manner pursuant to
any environmental protection statute as a Hazardous Materials disposal site,
or a candidate for closure pursuant to any environmental protection statute.
No Lien arising under any environmental protection statute has attached to
any revenues or to any real or personal property owned or operated by any
Obligor. No Obligor has received a summons, citation, notice, or directive
from the Environmental Protection Agency or any other federal or state
governmental agency concerning any action or omission by any Obligor
resulting in the releasing or disposing of Hazardous Materials into the
environment.
5.15 KEY LEASES; TOWER LEASES. (a) All Key Leases of the Obligors
are identified on Schedule 5.15(a) and each Obligor party to each of the Key
Leases is in compliance in all material respects with all of the terms of
that Key Lease the failure to comply with which reasonably could be expected
to result in a termination or non-renewal thereof or a change therein
materially adverse to that Obligor.
(b) All Tower Leases of the Obligors are identified on
Schedule 5.15(b) and each Obligor party to each of the Tower Leases is in
compliance in all material respects with all of the terms of that Tower Lease
the failure to comply with which reasonably could be expected to result in a
termination or non-renewal thereof or a change therein materially adverse to
that Obligor.
5.16 LPMA; NETWORK AFFILIATES. (a) All LPMAs of the Obligors are
identified on Schedule 5.16(a) and each Obligor party to each of the LPMAs is
in compliance with all of the terms of that LPMA the failure to comply with
which reasonably could be expected to result in a termination or non-renewal
thereof or a change therein materially adverse to that Obligor.
(b) All Network Affiliates of Borrower and a description of
any Permitted Network Affiliate Investments of Borrower in such Network
Affiliates are identified on Schedule 5.16(b); PROVIDED, HOWEVER, that from
time to time, Borrower shall be entitled to update SCHEDULE 5.16(b) to add
the required information concerning new Network Affiliates or Permitted
Network Affiliate Investments.
5.17 NO DEFAULT IN COMMUNICATION FRANCHISE AGREEMENTS. No material
default by any Obligor exists under any Communication Franchise Agreement to
which it is a party and no event has occurred or exists which, with notice or
lapse of time or both, would constitute a default by Borrower thereunder and
each such Communication Franchise Agreement has been duly authorized,
executed, and delivered by such Obligor and is in full force and effect.
(Page 88 of 142 Pages)
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5.18 GOVERNMENTAL AUTHORITY. No consent, authorization, approval
or other action by, and no notice to or filing with, any governmental
authority or regulatory body or any other Person is required (i) for the
grant by any Obligor of the security interest in the Collateral granted
hereby or for the execution, delivery or performance of this Agreement and
the other Loan Documents by Borrower and the other Obligors, (ii) for the
perfection of such security interest or the exercise by Foothill of the
rights and remedies provided for in this Agreement or the other Loan
Documents, or (iii) except for the consents, authorizations, approvals,
actions, notices and filings with the FCC and other governmental authorities,
all of which have been duly obtained, taken, given or made and are in full
force and effect and are not subject to any conditions (other than those
conditions generally applicable to entities holding licenses, permits,
consents or authorizations granted or issued by the FCC and other
governmental authorities with respect to Broadcast Systems and Communications
Systems).
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, and
unless Foothill shall otherwise consent in writing, Borrower shall (and,
where applicable, cause each of the other Obligors to, and, by its execution
and delivery of the Guaranty or a joinder thereto, each of the Guarantors
hereby agrees to) do all of the following:
6.1 ACCOUNTING SYSTEM. Maintain a standard and modern system of
accounting that enables Borrower and each of the other Obligors to produce
financial statements in accordance with GAAP, and maintain records pertaining
to the Collateral that contain information as from time to time may be
requested by Foothill. The Obligors also shall keep a modern inventory
reporting system that shows all additions, sales, claims, returns, and
allowances with respect to the Inventory.
6.2 COLLATERAL REPORTING. Provide Foothill with the following
documents at the following times in form satisfactory to Foothill: (a) upon
the request of Foothill, a sales journal, collection journal, and credit
register, in each case in respect of each Communications System and the
overall radio network of the Obligors, (b) on a monthly basis and, in any
event, by no later than the 10th day of each month during the term of this
Agreement, a detailed aging, by total and in respect of each Communications
System and the overall radio network of the Obligors, of the Accounts, (c) on
a monthly basis and, in any event, by no later than the 10th day of each
month during the term of this Agreement, a summary aging, by vendor and in
respect of each Communications System and the overall radio network of the
Obligors, of each Obligor's accounts payable and any book overdraft, (d) upon
request, copies of invoices in connection with the Accounts, customer
statements, credit memos, remittance advices and reports, deposit slips, and
other documents in connection with the Accounts, (e) on a quarterly basis, a
detailed list of each Obligor's customers on a per Communications System
basis and on the basis of the overall radio network of the Obligors, (f) on a
monthly basis, a calculation of the Dilution for the prior month; and (g)
such other
(Page 89 of 142 Pages)
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reports as to the Collateral or the financial condition of the Obligors as
Foothill may request from time to time.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver to
Foothill: (a) as soon as available, but in any event within 30 days after
the end of each of the first, second, fourth, fifth, seventh, eighth, tenth,
and eleventh months during each of the Obligors' fiscal years, a company
prepared balance sheet, income statement, and statement of cash flow covering
the Obligors' operations (including the overall radio network of the
Obligors) during such period; (b) as soon as available, but in any event
within 45 days after the end of each of the third, sixth, ninth, and twelfth
months during each of the Obligors' fiscal years, a company prepared balance
sheet, income statement, and statement of cash flow covering the Obligors'
operations (including the overall radio network of the Obligors) for the
fiscal quarter then ended; and (c) as soon as available, but in any event
within 90 days after the end of each of the Obligors' fiscal years, financial
statements of the Obligors for each such fiscal year, audited by independent
certified public accountants reasonably acceptable to Foothill and certified,
without any qualifications, by such accountants to have been prepared in
accordance with GAAP, together with a certificate of such accountants
addressed to Foothill stating that such accountants do not have knowledge of
the existence of any Default or Event of Default. Such audited financial
statements shall include a balance sheet, profit and loss statement, and
statement of cash flow on a per Communications System basis as well as on the
basis of the overall radio network of the Obligors, and, if prepared, such
accountants' letter to management. In addition to the financial statements
referred to above, Borrower agrees to deliver balance sheet information in
form reasonably acceptable to Foothill and prepared on a consolidating, per
Obligor basis AND per Communications System basis, so as to present Borrower
and each such related entity separately and to present each Communications
System separately, and financial statements prepared on a consolidated basis.
Together with the above, Borrower also shall deliver to
Foothill Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports,
and Form 8-K Current Reports, and any other filings made by Borrower with the
Securities and Exchange Commission, if any, as soon as the same are filed, or
any other information that is provided by Borrower to its securitiesholders,
and any other report reasonably requested by Foothill relating to the
financial condition of Borrower or any of the other Obligors.
Each month, together with the financial statements provided
pursuant to SECTION 6.3(a) or SECTION 6.3(b), as the case may be, Borrower
shall deliver to Foothill a certificate signed by its chief financial officer
to the effect that: (i) all financial statements delivered or caused to be
delivered to Foothill hereunder have been prepared in accordance with GAAP
(except, in the case of unaudited financial statements, for the lack of
footnotes and being subject to year-end audit adjustments) and fairly present
the financial condition of Borrower, its Subsidiaries, and each of their
respective Communications Systems, (ii) the representations and warranties of
the Obligors contained in this Agreement and the other Loan Documents are
true and correct in all material respects on and as of the date of such
certificate, as though made
(Page 90 of 142 Pages)
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on and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date), (iii) for each month that also
is the date on which a financial covenant in SECTION 7.20 is to be tested, a
Compliance Certificate demonstrating in reasonable detail compliance at the
end of such period with the applicable financial covenants contained in
SECTION 7.20, and (iv) on the date of delivery of such certificate to
Foothill there does not exist any condition or event that constitutes a
Default or Event of Default (or, in the case of clauses (i), (ii), or (iii),
to the extent of any non-compliance, describing such non-compliance as to
which he or she may have knowledge and what action the relevant Obligor has
taken, is taking, or proposes to take with respect thereto).
Borrower (and, if required, each of the other Obligors) shall
have issued written instructions to its independent certified public
accountants authorizing them to communicate with Foothill and to release to
Foothill whatever financial information concerning the Obligors that Foothill
may request. Borrower hereby irrevocably authorizes and directs (and hereby
agrees to cause promptly each of the other Obligors to irrevocably authorize
and direct, and, by its execution and delivery of the Guaranty or a joinder
thereto, each of the Guarantors hereby irrevocably authorizes and directs)
all auditors, accountants, or other third parties to deliver to Foothill, at
Borrower's expense, copies of the Obligors' financial statements, papers
related thereto, and other accounting records of any nature in their
possession, and to disclose to Foothill any information they may have
regarding the Obligors' business affairs and financial conditions.
Deliver to Foothill not less than 10 Business Days prior to the
closing of any proposed Permitted Acquisition each of the following (a) a
detailed description of the assets or stock that are the subject of such
proposed Permitted Acquisition, (b) a term sheet or other description setting
forth the essential terms and basic structure of the proposed Permitted
Acquisition (including, purchase consideration and method and structure of
payment; in this regard, if the purchase price includes a seller note,
non-compete agreement, or other right to payment, Borrower shall detail the
economic terms thereof), (c) projected statements of income for the Person or
assets that are proposed to be acquired for at least a 1 year period
following such proposed Permitted Acquisition (including a summary of
assumptions or PRO FORMA adjustments for such projections), and (d) a sources
and uses calculation showing the proposed amount of Indebtedness, if any, to
be utilized in connection with the consummation of the proposed Permitted
Acquisition.
6.4 TAX RETURNS. Deliver to Foothill copies of each of the
Obligors' future federal income tax returns, and any amendments thereto,
within 30 days of the filing thereof with the Internal Revenue Service.
6.5 GUARANTOR REPORTS. To the extent the same are not covered by
Section 6.3 hereof, cause any guarantor of any of the Obligations to deliver
(and by its execution and delivery of the Guaranty or a joinder thereto, each
of the Guarantors hereby agrees to deliver) its annual financial statements
at the time when Borrower provides its audited financial statements to
Foothill and copies of all federal income tax
(Page 91 of 142 Pages)
<PAGE>
returns as soon as the same are available and in any event no later than 30
days after the same are required to be filed by law.
6.6 RETURNS. Cause returns and allowances, if any, as between any
Obligor and its Account Debtors to be on the same basis and in accordance
with the usual customary practices of such Obligor, as they exist at the time
of the execution and delivery of this Agreement. If, at a time when no Event
of Default has occurred and is continuing, any Account Debtor returns any
Inventory to any Obligor, such Obligor promptly shall determine the reason
for such return and, if such Obligor accepts such return, issue a credit
memorandum (with a copy to be sent to Foothill) in the appropriate amount to
such Account Debtor. If, at a time when an Event of Default has occurred and
is continuing, any Account Debtor returns any Inventory to any Obligor, such
Obligor promptly shall determine the reason for such return and, if Foothill
consents (which consent shall not be unreasonably withheld), issue a credit
memorandum (with a copy to be sent to Foothill) in the appropriate amount to
such Account Debtor.
6.7 TITLE TO EQUIPMENT. Upon Foothill's request, immediately
deliver to Foothill, properly endorsed, any and all evidences of ownership
of, certificates of title, or applications for title to any items of
Equipment.
6.8 MAINTENANCE OF EQUIPMENT. Maintain the Equipment in good
operating condition and repair (ordinary wear and tear excepted), and make
all necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be maintained and preserved. Other than those
items of Equipment that constitute fixtures on the Closing Date, no Obligor
shall permit any item of Equipment to become a fixture to real estate or an
accession to other property, and such Equipment shall at all times remain
personal property.
6.9 TAXES. (a) Cause all assessments and taxes, whether real,
personal, or otherwise, due or payable by, or imposed, levied, or assessed
against any Obligor or any of its property to be paid in full, before
delinquency or before the expiration of any extension period, except to the
extent that the validity of such assessment or tax shall be the subject of a
Permitted Protest.
(b) Make due and timely payment or deposit of all such
federal, state, and local taxes, assessments, or contributions required of it
by law, and execute and deliver to Foothill, on demand, appropriate
certificates attesting to the payment thereof or deposit with respect thereto.
(c) Make timely payment or deposit of all tax payments and
withholding taxes required of it by applicable laws, including those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and
federal income taxes, and, upon request, furnish Foothill with proof
satisfactory to Foothill indicating that the applicable Obligor has made such
payments or deposits.
(Page 92 of 142 Pages)
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6.10 INSURANCE.
(a) At its expense, keep the Personal Property Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as are ordinarily insured
against by other owners in similar businesses. Borrower also shall, and
shall cause each Obligor to (and, by its execution and delivery of the
Guaranty or a joinder thereto, each of the Guarantors hereby agrees to),
maintain business interruption (including in respect of each Communications
System), public liability, product liability, and property damage insurance
relating to the Obligors' ownership and use of the Personal Property
Collateral, as well as insurance against larceny, embezzlement, and criminal
misappropriation.
(b) At its expense, obtain and maintain (i) insurance of the
type necessary to insure the Improvements and Chattels (as such terms are
defined in the Mortgages), for the full replacement cost thereof, against any
loss by fire, lightning, windstorm, hail, explosion, aircraft, smoke damage,
vehicle damage, earthquakes, elevator collision, and other risks from time to
time included under "extended coverage" policies, in such amounts as Foothill
may require, but in any event in amounts sufficient to prevent Borrower from
becoming a co-insurer under such policies, (ii) combined single limit bodily
injury and property damages insurance against any loss, liability, or damages
on, about, or relating to each parcel of Real Property Collateral, in an
amount of not less than $1,000,000; (iii) business rental insurance covering
annual receipts for a 12 month period for each parcel of Real Property
Collateral; and (iv) insurance for such other risks as Foothill may require.
Replacement costs, at Foothill's option, may be redetermined by an insurance
appraiser, satisfactory to Foothill, not more frequently than once every 12
months at Borrower's cost.
(c) All such policies of insurance shall be in such form,
with such companies, and in such amounts as may be reasonably satisfactory to
Foothill. All insurance required herein shall be written by companies which
are authorized to do insurance business in the State of California. All
hazard insurance and such other insurance as Foothill shall specify, shall
contain a California Form 438BFU (NS) mortgagee endorsement, or an equivalent
endorsement satisfactory to Foothill, showing Foothill as sole loss payee
thereof, and shall contain a waiver of warranties. Every policy of insurance
referred to in this SECTION 6.10 shall contain an agreement by the insurer
that it will not cancel such policy except after 30 days prior written notice
to Foothill and that any loss payable thereunder shall be payable
notwithstanding any act or negligence of any Obligor or Foothill which might,
absent such agreement, result in a forfeiture of all or a part of such
insurance payment and notwithstanding (i) occupancy or use of the Real
Property Collateral for purposes more hazardous than permitted by the terms
of such policy, (ii) any foreclosure or other action or proceeding taken by
Foothill pursuant to the Mortgages upon the happening of an Event of Default,
or (iii) any change in title or ownership of the Real Property Collateral.
Borrower shall deliver to Foothill certified copies of such policies of
insurance and evidence of the payment of all premiums therefor.
(Page 93 of 142 Pages)
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(d) Original policies or certificates thereof satisfactory to
Foothill evidencing such insurance shall be delivered to Foothill at least 30
days prior to the expiration of the existing or preceding policies. Borrower
shall give Foothill prompt notice of any loss covered by such insurance, and
Foothill shall have the right to adjust any loss. Foothill shall have the
exclusive right to adjust all losses payable under any such insurance
policies without any liability to any Obligor whatsoever in respect of such
adjustments. Any monies received as payment for any loss under any insurance
policy including the insurance policies mentioned above, shall be paid over
to Foothill to be applied at the option of Foothill either to the prepayment
of the Obligations without premium, in such order or manner as Foothill may
elect, or shall be disbursed to the applicable Obligor under stage payment
terms satisfactory to Foothill for application to the cost of repairs,
replacements, or restorations. All repairs, replacements, or restorations
shall be effected with reasonable promptness and shall be of a value at least
equal to the value of the items or property destroyed prior to such damage or
destruction. Upon the occurrence of an Event of Default, Foothill shall have
the right to apply all prepaid premiums to the payment of the Obligations in
such order or form as Foothill shall determine.
(e) Borrower shall not, and shall not cause, suffer, or
permit any of the other Obligors to (and by its execution and delivery of the
Guaranty or a joinder thereto, each of the Guarantors hereby agrees not to),
take out separate insurance concurrent in form or contributing in the event
of loss with that required to be maintained under this SECTION 6.10, unless
Foothill is included thereon as named insured with the loss payable to
Foothill under a standard California 438BFU (NS) Mortgagee endorsement, or
its local equivalent. Borrower immediately shall notify (and cause the
applicable Obligor immediately to notify, and, by its execution and delivery
of the Guaranty or a joinder thereto, each of the Guarantors hereby agrees
immediately to notify) Foothill whenever such separate insurance is taken
out, specifying the insurer thereunder and full particulars as to the
policies evidencing the same, and originals of such policies immediately
shall be provided to Foothill.
6.11 NO SETOFFS OR COUNTERCLAIMS. Make payments hereunder and
under the other Loan Documents by or on behalf of Borrower and the other
Obligors without setoff or counterclaim and free and clear of, and without
deduction or withholding for or on account of, any federal, state, or local
taxes.
6.12 LOCATION OF INVENTORY AND EQUIPMENT. Keep the Inventory and
Equipment only at the locations identified on SCHEDULE 6.12; PROVIDED,
HOWEVER, that Borrower may amend SCHEDULE 6.12 so long as such amendment
occurs by written notice to Foothill not less than 30 days prior to the date
on which the Inventory or Equipment is moved to such new location, so long as
such new location is within the continental United States, and so long as, at
the time of such written notification, the applicable Obligor provides any
financing statements or fixture filings necessary to perfect and continue
perfected Foothill's security interests in such assets and also provides to
Foothill a Collateral Access Agreement.
(Page 94 of 142 Pages)
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6.13 COMPLIANCE WITH LAWS. Comply with the requirements of all
applicable laws, rules, regulations, and orders of any governmental
authority, including the Fair Labor Standards Act and the Americans With
Disabilities Act, other than laws, rules, regulations, and orders the
non-compliance with which, individually or in the aggregate, would not have
and could not reasonably be expected to have a Material Adverse Change.
6.14 EMPLOYEE BENEFITS.
(a) Promptly, and in any event within 10 Business Days after
Borrower or any of its Subsidiaries knows or has reason to know that an ERISA
Event has occurred that reasonably could be expected to result in a Material
Adverse Change, a written statement of the chief financial officer of
Borrower describing such ERISA Event and any action that is being taking with
respect thereto by Borrower, any such Subsidiary or ERISA Affiliate, and any
action taken or threatened by the IRS, Department of Labor, or PBGC.
Borrower or such Subsidiary, as applicable, shall be deemed to know all facts
known by the administrator of any Benefit Plan of which it is the plan
sponsor, (ii) promptly, and in any event within 3 Business Days after the
filing thereof with the IRS, a copy of each funding waiver request filed with
respect to any Benefit Plan and all communications received by Borrower, any
of its Subsidiaries or, to the knowledge of Borrower, any ERISA Affiliate
with respect to such request, and (iii) promptly, and in any event within 3
Business Days after receipt by Borrower, any of its Subsidiaries or, to the
knowledge of Borrower, any ERISA Affiliate, of the PBGC's intention to
terminate a Benefit Plan or to have a trustee appointed to administer a
Benefit Plan, copies of each such notice.
(b) Cause to be delivered to Foothill, upon Foothill's
request, each of the following: (i) a copy of each Plan (or, where any such
plan is not in writing, complete description thereof) (and if applicable,
related trust agreements or other funding instruments) and all amendments
thereto, all written interpretations thereof and written descriptions thereof
that have been distributed to employees or former employees of Borrower or
its Subsidiaries; (ii) the most recent determination letter issued by the IRS
with respect to each Benefit Plan; (iii) for the three most recent plan
years, annual reports on Form 5500 Series required to be filed with any
governmental agency for each Benefit Plan; (iv) all actuarial reports
prepared for the last three plan years for each Benefit Plan; (v) a listing
of all Multiemployer Plans, with the aggregate amount of the most recent
annual contributions required to be made by Borrower or any ERISA Affiliate
to each such plan and copies of the collective bargaining agreements
requiring such contributions; (vi) any information that has been provided to
Borrower or any ERISA Affiliate regarding withdrawal liability under any
Multiemployer Plan; and (vii) the aggregate amount of the most recent annual
payments made to former employees of Borrower or its Subsidiaries under any
Retiree Health Plan.
6.15 LEASES. Pay when due all rents and other amounts payable
under any leases to which an Obligor is a party or by which an Obligor's
properties and assets are bound (including the Key Leases and the Tower
Leases), unless such payments are
(Page 95 of 142 Pages)
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the subject of a Permitted Protest. To the extent that any Obligor fails
timely to make payment of such rents and other amounts payable when due under
its leases, Foothill shall be entitled, in its discretion, to reserve an
amount equal to such unpaid amounts against the Maximum Revolving Amount.
6.16 GOVERNMENT AUTHORIZATION. Borrower shall deliver to Foothill,
as soon as practicable, and in any event within ten (10) days after the
receipt by any Obligor from the FCC or any other governmental agency having
jurisdiction over the operations of any Obligor or filing or receipt thereof
by any Obligor, (i) copies of any order or notice of the FCC or such other
agency or court of competent jurisdiction which designates any material FCC
License or other material franchise, permit, or other governmental operating
authorization of any Obligor, or any application therefor, for a hearing or
which refuses renewal or extension of, or revokes or suspends the authority
of any Obligor to construct or operate a Communications System (or portion
thereof), (ii) a copy of any competing application filed with respect to any
such FCC License or other authorization, or application therefor, of any
Obligor, or any citation, notice of violation, or order to show cause issued
by the FCC or other agency or any complaint filed by the FCC or other agency
which is available to any Obligor, and (iii) a copy of any notice or
application by any Obligor requesting authority to or notifying the FCC of
its intent to cease broadcasting on any broadcast station for any period in
excess of ten (10) days.
6.17 OFF-THE-AIR REPORTS. Borrower shall deliver promptly to
Foothill notice of each occurrence of a period of twenty-four (24)
consecutive hours or more during which any Communications System owned or
operated by any Obligor was not broadcasting.
6.18 NOTICES. Borrower promptly shall deliver, and shall cause
each of the Obligors to deliver promptly (and, by its execution and delivery
of the Guaranty or a joinder thereto, each of the Guarantors hereby agrees to
deliver promptly), to Foothill all material written notices received by it
with respect to the Collateral, including, the Communication Franchise
Agreements.
6.19 PERMITTED ACQUISITIONS; PERMITTED UNRESTRICTED SUBSIDIARY
ACQUISITIONS. In connection with any Permitted Acquisition or Permitted
Unrestricted Subsidiary Acquisition of a Communications System or Broadcast
System (an "Acquired System"), Borrower shall cause each of the following to
be satisfied: (i) organize a License Sub to hold each of the FCC Licenses in
respect of the Acquired System and organize a Station Sub to hold all assets
of the Acquired System other than the FCC Licenses; (b) cause each of such
License Sub and such Station Sub to execute and deliver all appropriate
joinder documents to make it an Obligor party to the Loan Documents
(including the Guaranty and the Guarantor Security Agreement) and of
appropriate UCC-1 financing statements, fixture filings, Collateral Access
Agreements, Collateral Assignments of Tower Leases, Collateral Assignments of
Key Leases, and Mortgages; (c) cause the execution and delivery by the
applicable Obligors of one or more appropriate supplements/joinders to the
Stock Pledge Agreement or the Guarantor Stock Pledge Agreement, and the
delivery to Foothill of possession of the
(Page 96 of 142 Pages)
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original stock certificates, respecting all of the issued and outstanding
shares of stock of such License Sub and such Station Sub, together with stock
powers with respect thereto endorsed in blank; PROVIDED, HOWEVER, that to the
extent, if any, that such shares are required to be delivered to the holder
of Permitted Unrestricted Subsidiary Indebtedness that is secured by a first
priority Lien on such shares in favor of such holder, Borrower, in lieu of
the foregoing requirement of delivery of such stock certificates and stock
powers, shall cause such holder to deliver to Foothill a duly executed bailee
agreement, in form and substance reasonably satisfactory to Foothill, in
respect of the second priority Lien in favor of Foothill on such shares.
6.20 LICENSE RENEWALS. Commencing on the date six months following
the Closing Date and continuing every six months thereafter, Borrower shall
deliver to Foothill an updated SCHEDULE 5.3 reflecting thereon, as of the
date of such delivery, the information described in Section 5.3.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations,
Borrower will not do, and will not cause, suffer, or permit any of the other
Obligors to do (and by its execution and delivery of the Guaranty or a
joinder thereto, each Guarantor hereby agrees that it will not do), any of
the following without Foothill's prior written consent:
7.1 INDEBTEDNESS. Except with respect to Permitted Unrestricted
Subsidiary Investments, create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to
any Indebtedness, except:
(a) Indebtedness evidenced by this Agreement;
(b) Indebtedness set forth on SCHEDULE 7.1 attached hereto;
(c) Indebtedness of the Obligors secured by Permitted Liens;
(d) Indebtedness of any Obligor (other than Unrestricted
Subsidiaries) owing to any other Obligor (other than Unrestricted
Subsidiaries); PROVIDED, HOWEVER, that (i) such intercompany Indebtedness
shall not be evidenced by promissory notes or any other instruments, and (ii)
such Intercompany Indebtedness shall not arise from one or a series of
related transactions between any two or more Obligors pursuant to which an
Obligor would be able to take an action that would not be permitted, or to
refrain from taking an action that would be required, under the Credit
Documents but for such transaction or transactions;
(e) Permitted Unrestricted Subsidiary Indebtedness; and
(f) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b), (c), (d), and (e) of this SECTION 7.1 (and
continuance or
(Page 97 of 142 Pages)
<PAGE>
renewal of any Permitted Liens associated therewith) so long as: (i) the
terms and conditions of such refinancings, renewals, or extensions do not
materially impair the prospects of repayment of the Obligations by Borrower
or the "Guarantied Obligations" (as defined in the Guaranty) by any
Guarantor, (ii) the net cash proceeds of such refinancings, renewals, or
extensions do not result in an increase in the aggregate principal amount of
the Indebtedness so refinanced, renewed, or extended, (iii) such
refinancings, renewals, refundings, or extensions do not result in a
shortening of the average weighted maturity of the Indebtedness so
refinanced, renewed, or extended, and (iv) to the extent that Indebtedness
that is refinanced was subordinated in right of payment to the Obligations or
such Guarantied Obligations, then the subordination terms and conditions of
the refinancing Indebtedness must be at least as favorable to Foothill as
those applicable to the refinanced Indebtedness.
Anything contained in this SECTION 7.1 to the contrary notwithstanding, in no
event shall Borrower or any of the Restricted Subsidiaries co-make, endorse,
guaranty, or otherwise become liable or have any recourse with respect to any
Indebtedness or other liabilities (including Permitted Unrestricted
Subsidiary Indebtedness) of any of the Unrestricted Subsidiaries.
7.2 LIENS. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its property or assets, of
any kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including Liens that are replacements
of Permitted Liens to the extent that the original Indebtedness is refinanced
under SECTION 7.1(e) and so long as the replacement Liens only encumber those
assets or property that secured the original Indebtedness).
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Enter into any merger,
consolidation, reorganization, or recapitalization, or reclassify its capital
stock, or liquidate, wind up, or dissolve itself (or suffer any liquidation
or dissolution), or convey, sell, assign, lease, transfer, or otherwise
dispose of, in one transaction or a series of transactions, all or any
substantial part of its property or assets (collectively, a "Fundamental
Change Transaction"), except for: (a) the Restructuring Transactions; (b)
Permitted Acquisitions permitted under SECTION 7.13; (c) Permitted
Unrestricted Subsidiary Acquisitions; and (d) Fundamental Change Transactions
involving solely Unrestricted Subsidiaries.
7.4 DISPOSAL OF ASSETS. Except for Ordinary Course Dispositions,
sell, lease, assign, transfer, or otherwise dispose of any properties or
assets of any of the Obligors.
7.5 CHANGE NAME. Change any Obligor's name, FEIN, corporate
structure (within the meaning of Section 9402(7) of the Code), or identity,
or add any new fictitious name.
7.6 GUARANTEE. Guarantee or otherwise become in any way liable with
respect to the obligations of any third Person except by endorsement of
instruments or
(Page 98 of 142 Pages)
<PAGE>
items of payment for deposit to the account of an Obligor subject to a
Concentration Account Agreement or which are transmitted or turned over to
Foothill.
7.7 NATURE OF BUSINESS. Make any change in the principal nature
of Borrower's and the other Obligors' business, taken as a whole, without the
prior written consent of Foothill, which shall not be unreasonably (from the
perspective of a secured lender) withheld. Without limiting the generality
of the foregoing, Borrower and the Obligors shall be permitted to change the
format of programming of one or more of their Broadcast Systems from any
non-"children's format" programming to "children's format" programming.
7.8 PREPAYMENTS AND AMENDMENTS.
(a) Except in connection with a refinancing permitted by
SECTION 7.1(D), prepay, redeem, retire, defease, purchase, or otherwise
acquire any Indebtedness owing to any third Person, other than the
Obligations in accordance with this Agreement; and
(b) Directly or indirectly, amend, modify, alter, increase,
or change any of the terms or conditions of any agreement, instrument,
document, indenture, or other writing evidencing or concerning Indebtedness
permitted under SECTIONS 7.1(b), (c), OR (d).
7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.10 CONSIGNMENTS. Consign any Inventory or sell any Inventory on
bill and hold, sale or return, sale on approval, or other conditional terms
of sale.
7.11 DISTRIBUTIONS. Make any distribution or declare or pay any
dividends (in cash or other property, other than capital stock) on, or
purchase, acquire, redeem, or retire any capital stock of any Obligor, of any
class, whether now or hereafter outstanding; PROVIDED, HOWEVER, that any
Subsidiary of Borrower may pay dividends or other distributions to Borrower;
PROVIDED FURTHER that Borrower may make Permitted Legal Fee Stock Redemptions
from time to time so long as Borrower delivers to Foothill concurrently
therewith a certificate of the Secretary of Borrower certifying that Borrower
has elected to satisfy its obligations under the relevant invoices of HMSPA
referenced therein by means of a Permitted Legal Fee Stock Redemption and
attesting to the aggregate amount of Permitted Legal Fee Stock Redemptions
made by Borrower (after giving effect to the subject redemption).
7.12 ACCOUNTING METHODS. Modify or change its method of accounting
or enter into, modify, or terminate any agreement currently existing, or at
any time hereafter entered into with any third party accounting firm or
service bureau for the preparation or storage of any Obligor's accounting
records without said accounting firm or service bureau agreeing to provide
Foothill information regarding the Collateral or such Obligor's financial
condition. Borrower hereby waives, and hereby agrees to cause
(Page 99 of 142 Pages)
<PAGE>
the other Obligors to waive (and by its execution and delivery of the
Guaranty or a joinder thereto, each Guarantor hereby waives), the right to
assert a confidential relationship, if any, it may have with any accounting
firm or service bureau in connection with any information requested by
Foothill pursuant to or in accordance with this Agreement or any other Loan
Document, and agrees that Foothill may contact directly any such accounting
firm or service bureau in order to obtain such information.
7.13 INVESTMENTS. Except for Permitted Unrestricted Subsidiary
Investments, directly or indirectly make, acquire, or incur any liabilities
(including contingent obligations) for or in connection with (a) except for
Permitted Network Affiliate Investments, the acquisition of the securities
(whether debt or equity) of, or other interests in, a Person, (b) loans,
advances, capital contributions, or transfers of property to a Person, or (c)
the acquisition of all or substantially all of the properties or assets of a
Person; PROVIDED, HOWEVER, that the foregoing shall not prohibit any Obligor
from making any such investment in any other Obligor, so long as all of the
issued and outstanding capital stock of any Guarantor is and continues to be
owned by only one other Obligor.
7.14 TRANSACTIONS WITH AFFILIATES. Except for those transactions
described on SCHEDULE 7.14 attached hereto, directly or indirectly enter into
or permit to exist any material transaction with any Affiliate of the
Obligors (other than an Obligor) except for transactions that are in the
ordinary course of the Obligors' business, upon fair and reasonable terms,
that are fully disclosed to Foothill, and that are no less favorable to the
Obligors, or any of them, than would be obtained in an arm's length
transaction with a non-Affiliate.
7.15 SUSPENSION. Suspend or go out of a substantial portion of its
business.
7.16 COMMUNICATION FRANCHISE AGREEMENTS. Except solely as, and
solely to the extent, expressly permitted pursuant to this Agreement (i)
cancel or terminate any of the Communication Franchise Agreements or consent
to or accept any cancellation or termination thereof, (ii) sell, assign, or
otherwise dispose of (by operation of law or otherwise) any part of its
respective interest or rights under any Communication Franchise Agreements,
(iii) amend, supplement, or otherwise modify any of the Communication
Franchise Agreements in any way that could reasonably be expected to be
materially adverse to any Obligor, (iv) waive any material default under or
breach of any of the Communication Franchise Agreements or waive, fail to
enforce, forgive, or release any material right, interest, or entitlement of
any kind, howsoever arising under or in respect of any of the Communication
Franchise Agreements or vary or agree to the variation in any respect of any
of the material provisions of any of the Communication Franchise Agreements
in a manner that would be materially adverse to any Obligor, or (v) petition,
request, or take any other legal or administrative action which seeks, or may
reasonably be expected, to rescind, terminate, or suspend any of the
Communication Franchise Agreements or amend or modify any of the
Communication Franchise Agreements in any respect of any of the material
provisions of any of the Communication Franchise Agreements in a manner that
would be
(Page 100 of 142 Pages)
<PAGE>
materially adverse to any Obligor. Borrower, at its expense, will, and will
cause each of the other Obligors to (and by its execution and delivery of the
Guaranty or a joinder thereto, each Guarantor hereby agrees that it will),
perform and comply, in all material respects, with all terms and provisions
of each of the Communication Franchise Agreements required to be performed or
complied with by it, will maintain each of the Communication Franchise
Agreements in full force and effect, will enforce each of the Communication
Franchise Agreements in accordance with their respective terms.
7.17 USE OF PROCEEDS. Use the proceeds of the Advances and the
Term Loan made hereunder for any purpose other than (i) on the Closing Date,
(w) to repay in full the outstanding principal, accrued interest, and accrued
fees and expenses owing to Existing Lender (other than a mortgage financing
of approximately $225,000), (x) to repay in full the KPLS Sellers'
Indebtedness owing to the KPLS Sellers, (y) to repay in full the obligations
of Group under a Consulting Agreement, dated October 29, 1993, as amended,
between Group and Mr. John McGuinness, and (z) to pay transactional costs,
expenses, and fees incurred in connection with this Agreement, and (ii)
thereafter, consistent with the terms and conditions hereof, for its lawful
and permitted corporate purposes; PROVIDED, HOWEVER, that in no event shall
the proceeds of any Advance be used to finance, in whole or in part, directly
or indirectly, any Permitted Unrestricted Subsidiary Acquisition.
7.18 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND
EQUIPMENT WITH BAILEES. Relocate its chief executive office to a new
location without providing 30 days prior written notification thereof to
Foothill, unless, at the time of such written notification, the applicable
Obligor provides any financing statements or fixture filings necessary to
perfect and continue perfected Foothill's security interests and also
provides to Foothill a Collateral Access Agreement with respect to such new
location. The Inventory and Equipment shall not at any time now or hereafter
be stored with a bailee, warehouseman, or similar party without Foothill's
prior written consent.
7.19 NO PROHIBITED TRANSACTIONS UNDER ERISA. Directly or
indirectly:
(a) engage, or permit any Subsidiary of Borrower to engage,
in any prohibited transaction which is reasonably likely to result in a civil
penalty or excise tax described in Sections 406 of ERISA or 4975 of the IRC
for which a statutory or class exemption is not available or a private
exemption has not been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan any
accumulated funding deficiency (as defined in Sections 302 of ERISA and 412
of the IRC), whether or not waived;
(c) fail, or permit any Subsidiary of Borrower to fail, to
pay timely required contributions or annual installments due with respect to
any waived funding deficiency to any Benefit Plan;
(Page 101 of 142 Pages)
<PAGE>
(d) terminate, or permit any Subsidiary of Borrower to
terminate, any Benefit Plan where such event would result in any liability of
Borrower, any of its Subsidiaries or any ERISA Affiliate under Title IV of
ERISA;
(e) fail, or permit any Subsidiary of Borrower to fail, to make
any required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of Borrower to fail, to pay
any required installment or any other payment required under Section 412 of the
IRC on or before the due date for such installment or other payment;
(g) amend, or permit any Subsidiary of Borrower to amend, a Plan
resulting in an increase in current liability for the plan year such that either
of Borrower, any Subsidiary of Borrower or any ERISA Affiliate is required to
provide security to such Plan under Section 401(a)(29) of the IRC; or
(h) withdraw, or permit any Subsidiary of Borrower to withdraw,
from any Multiemployer Plan where such withdrawal is reasonably likely to result
in any liability of any such entity under Title IV of ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of Borrower, any of its
Subsidiaries or any ERISA Affiliate in excess of $10,000.
7.20 FINANCIAL COVENANTS. Fail to maintain:
(a) Stockholder Equity. Stockholder Equity, measured on a
fiscal quarter-end basis, of at least the amount set forth below:
- -------------------------------------------------------
- -------------------------------------------------------
Qtr/Yr Minimum Stockholder Equity
- -------------------------------------------------------
Q4/1996 $14,100,000
- -------------------------------------------------------
Q1/1997 $14,100,000
- -------------------------------------------------------
Q2/1997 $14,100,000
- -------------------------------------------------------
Q3/1997 $14,100,000
- -------------------------------------------------------
Q4/1997 $14,100,000
- -------------------------------------------------------
Q1/1998 $13,200,000
- -------------------------------------------------------
Q2/1998 $13,200,000
- -------------------------------------------------------
Q3/1998 $13,200,000
- -------------------------------------------------------
Q4/1998 $13,200,000
- -------------------------------------------------------
Q1/1999 $12,700,000
- -------------------------------------------------------
(Page 102 of 142 Pages)
<PAGE>
- -------------------------------------------------------
- -------------------------------------------------------
Qtr/Yr Minimum Stockholder Equity
- -------------------------------------------------------
Q2/1999 $12,700,000
- -------------------------------------------------------
Q3/1999 $12,700,000
- -------------------------------------------------------
Q4/1999 $12,700,000
- -------------------------------------------------------
Q1/2000 $12,700,000
- -------------------------------------------------------
Q2/2000 $12,700,000
- -------------------------------------------------------
Q3/2000 $12,700,000
- -------------------------------------------------------
Q4/2000 $12,700,000
- -------------------------------------------------------
- -------------------------------------------------------
(b) Working Capital. Working Capital, measured on a fiscal
quarter-end basis, of at least the amount set forth below:
- ------------------------------------------------------
- ------------------------------------------------------
Qtr/Yr Minimum Stockholder Capital
- ------------------------------------------------------
Q4/1996 $2,000,000
- ------------------------------------------------------
Q1/1997 $2,000,000
- ------------------------------------------------------
Q2/1997 $2,000,000
- ------------------------------------------------------
Q3/1997 $2,000,000
- ------------------------------------------------------
Q4/1997 $2,000,000
- ------------------------------------------------------
Q1/1998 $900,000
- ------------------------------------------------------
Q2/1998 $900,000
- ------------------------------------------------------
Q3/1998 $900,000
- ------------------------------------------------------
Q4/1998 $900,000
- ------------------------------------------------------
Q1/1999 $4,000,000
- ------------------------------------------------------
Q2/1999 $4,000,000
- ------------------------------------------------------
Q3/1999 $4,000,000
- ------------------------------------------------------
Q4/1999 $4,000,000
- ------------------------------------------------------
Q1/2000 $14,000,000
- ------------------------------------------------------
Q2/2000 $14,000,000
- ------------------------------------------------------
Q3/2000 $14,000,000
- ------------------------------------------------------
Q4/2000 $14,000,000
- ------------------------------------------------------
- ------------------------------------------------------
(Page 103 of 142 Pages)
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7.21 CAPITAL EXPENDITURES. Make capital expenditures in any fiscal
year in excess of (a) $1,250,000 during 1997, and (b) $750,000 during any other
fiscal year.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
8.1 (a) If Borrower fails to pay when due and payable or when
declared due and payable, any portion of the Obligations (whether of principal,
interest (including any interest which, but for the provisions of the Bankruptcy
Code, would have accrued on such amounts), fees and charges due Foothill,
reimbursement of Foothill Expenses, or other amounts constituting Obligations);
PROVIDED, HOWEVER, that in the case of Overadvances that are caused by the
charging of interest, fees, or Foothill Expenses to Borrower's loan account with
Foothill, such event shall not constitute an Event of Default unless, within
three (3) Business Days telephonic notice of such Overadvance, Borrower fails to
prepay, or otherwise eliminate, such Overadvance; or
(b) If any other Obligor fails to pay when due and payable or
when declared due and payable, any portion of the "Guarantied Obligations" (as
defined in the Guaranty) (whether in respect of principal, interest (including
any interest which, but for the provisions of the Bankruptcy Code, would have
accrued on such amounts), fees and charges due Foothill, reimbursement of
Foothill Expenses, or other amounts constituting Obligations);
8.2 (a) If Borrower or any other Obligor fails or neglects to
perform, keep, or observe, in any material respect, any term, provision,
condition, covenant, or agreement contained in SECTIONS 6.2 (Collateral
Reports), 6.3 (Financial Statements), 6.16 (Governmental Authorization), 6.18
(Notices), or 6.20 (License Renewals) of this Agreement and such failure
continues for a period of five (5) days from the date Foothill sends Borrower
telephonic or written notice of such failure or neglect; (b) If Borrower or any
other Obligor fails or neglects to perform, keep, or observe, in any material
respect, any term, provision, condition, covenant, or agreement contained in
SECTIONS 6.4 (Tax Returns), 6.5 (Guarantor Reports), 6.7 (Title to Equipment),
6.12 (Location of Inventory and Equipment), 6.13 (Compliance with Laws), 6.14
(Employee Benefits), or 6.15 (Leases) of this Agreement and such failure
continues for a period of fifteen (15) days from the date of such failure or
neglect; (c) If Borrower or any other Obligor fails or neglects to perform,
keep, or observe, in any material respect, any term, provision, condition,
covenant, or agreement contained in SECTIONS 6.1 (Accounting System), 6.6
(Returns), or 6.8 (Maintenance of Equipment) of this Agreement and such failure
continues for a period of fifteen (15) days from the date Foothill sends
Borrower telephonic or written notice of such failure or neglect; or (d) If
Borrower or any other Obligor fails or neglects to perform, keep, or observe, in
any material respect, any other term, provision, condition, covenant, or
agreement contained in this Agreement, in any of the Loan Documents, or in any
other present or future agreement between one or more of the Obligors and
Foothill (other than any such term, provision, condition, covenant, or agreement
that is the subject of another provision of this SECTION 8);
(Page 104 of 142 Pages)
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8.3 If there is a Material Adverse Change;
8.4 If any material portion of any Obligor's properties or assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any third Person;
8.5 If an Insolvency Proceeding is commenced by any Obligor;
8.6 If an Insolvency Proceeding is commenced against any Obligor and
any of the following events occur: (a) such Obligor consents to the institution
of the Insolvency Proceeding against it; (b) the petition commencing the
Insolvency Proceeding is not timely controverted; (c) the petition commencing
the Insolvency Proceeding is not dismissed within 45 calendar days of the date
of the filing thereof; PROVIDED, HOWEVER, that, during the pendency of such
period, Foothill shall be relieved of its obligation to extend credit hereunder;
(d) an interim trustee is appointed to take possession of all or a substantial
portion of the properties or assets of, or to operate all or any substantial
portion of the business of, any Obligor; or (e) an order for relief shall have
been issued or entered therein;
8.7 If any Obligor is enjoined, restrained, or in any way prevented
by court order from continuing to conduct all or any material part of its
business affairs;
8.8 If a notice of Lien, levy, or assessment is filed of record with
respect to any properties or assets of any of the Obligors by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, or if any taxes or debts owing
at any time hereafter to any one or more of such entities becomes a Lien,
whether choate or otherwise, upon any properties or assets of any of the
Obligors and the same is not paid on the payment date thereof;
8.9 If a judgment or other claim becomes a Lien or encumbrance upon
any material portion of any Obligor's properties or assets;
8.10 If there is a default in any material agreement to which an
Obligor is a party with one or more third Persons and such default (a) occurs at
the final maturity of the obligations thereunder, or (b) results in a right by
such third Person(s), irrespective of whether exercised, to accelerate the
maturity of an Obligor's obligations thereunder;
8.11 If an Obligor makes any payment on account of Indebtedness that
has been contractually subordinated in right of payment to the payment of the
Obligations, except to the extent such payment is permitted by the terms of the
subordination provisions applicable to such Indebtedness;
8.12 If any material misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or report made to Foothill
by any
(Page 105 of 142 Pages)
<PAGE>
Obligor or any officer, employee, agent, or director of any Obligor, or if
any such warranty or representation is withdrawn;
8.13 If the obligation of any Guarantor or other third Person under
its guaranty or other Loan Document is limited or terminated by operation of law
or by such Guarantor or other third Person thereunder, or any such other third
Person becomes the subject of an Insolvency Proceeding; or
8.14 If any Obligor fails to keep in full force and effect, suffers
the termination or revocation of, terminates, forfeits, or suffers a materially
adverse amendment to, any Communications Franchise or Communications Franchise
Agreement at any time held by any Obligor that is necessary to the operation of
any Communications System owned by any Obligor.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the
continuation, of an Event of Default Foothill may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrower (and hereby caused by Borrower to be
authorized by each of the other Obligors (and, by its execution and delivery of
the Guaranty or a joinder thereto, each of the Guarantors hereby authorizes
same)):
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable;
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, under any of the Loan Documents, or
under any other agreement between Borrower and Foothill;
(c) Terminate this Agreement and any of the other Loan Documents
as to any future liability or obligation of Foothill, but without affecting
Foothill's rights and security interests in the Personal Property Collateral or
the Real Property Collateral and without affecting the Obligations;
(d) Settle or adjust disputes and claims directly with Account
Debtors for amounts and upon terms which Foothill considers advisable, and in
such cases, Foothill will credit Borrower's Loan Account with only the net
amounts received by Foothill in payment of such disputed Accounts after
deducting all Foothill Expenses incurred or expended in connection therewith;
(e) Borrower agrees that, upon the occurrence of and during the
continuance of an Event of Default and at Foothill's request, Borrower will, and
will cause each other Obligor to (and, by its execution and delivery of the
Guaranty or a joinder thereto, each of the Guarantors hereby agrees to),
immediately file such
(Page 106 of 142 Pages)
<PAGE>
applications for approval and shall take all other and further actions
required by Foothill to obtain such approvals or consents of regulatory
authorities as are necessary to transfer ownership and control to Foothill,
of the FCC Licenses held by it, or its interest in any Person holding any
such FCC License. To enforce the provisions of this SECTION 9.1(e), Foothill
is empowered to request the appointment of a receiver from any court of
competent jurisdiction. Such receiver shall be instructed to seek from the
FCC an involuntary transfer of control of any FCC License for the purpose of
seeking a bona fide purchaser to whom control will ultimately be transferred.
Borrower hereby agrees to authorize, and shall cause each other Obligor to
authorize (and, by its execution and delivery of the Guaranty or a joinder
thereto, each of the Guarantors hereby agrees to authorize), such an
involuntary transfer of control upon the request of the receiver so appointed
and, if Borrower or such other Obligor shall refuse to authorize the
transfer, its approval may be required by the court. Upon the occurrence and
continuance of an Event of Default, Borrower shall, and shall cause each of
the other Obligors to (and, by its execution and delivery of the Guaranty or
a joinder thereto, each of the Guarantors hereby agrees to), further use its
reasonable best efforts to assist in obtaining approval of the FCC, if
required, for any action or transactions contemplated by this Agreement or
the Loan Documents, including, preparation, execution, and filing with the
FCC of the assignor's or transferor's portion of any application or
applications for consent to the assignment of any FCC License or transfer of
control necessary or appropriate under the FCC's rules and regulations for
approval of the transfer or assignment of any portion of the Collateral,
together with any FCC License or other authorization. Borrower acknowledges,
and shall cause each of the other Obligors to acknowledge (and, by its
execution and delivery of the Guaranty or a joinder thereto, each of the
Guarantors hereby acknowledges), that the assignment or transfer of FCC
Licenses is integral to Foothill's realization of the value of the
Collateral, that there is no adequate remedy at law for failure by Borrower
or any other Obligor to comply with the provisions of this SECTION 9.1(e) and
that such failure would not be adequately compensable in damages, and
therefore agrees that the agreements contained in this SECTION 9.1(e) may be
specifically enforced.
(f) Cause Borrower or any other Obligor to hold all Inventory in
trust for Foothill, segregate all Inventory from all other property of the
Obligors or in the Obligors' possession and conspicuously label said Inventory
as the property of Foothill;
(g) Without notice to or demand upon any Obligor or any other
guarantor, make such payments and do such acts as Foothill considers necessary
or reasonable to protect its security interests in the Collateral. Borrower
agrees to assemble, and cause each of the other Obligors to (and, by its
execution and delivery of the Guaranty or a joinder thereto, each of the
Guarantors hereby agrees to) assemble, the Personal Property Collateral if
Foothill so requires, and to make the Personal Property Collateral available to
Foothill as Foothill may designate. Borrower authorizes, and hereby agrees to
cause each of the other Obligors promptly to authorize (and, by its execution
and delivery of the Guaranty or a joinder thereto, each of the Guarantors hereby
authorizes), Foothill to enter the premises where the Personal Property
Collateral is located, to take and maintain possession of the Personal Property
(Page 107 of 142 Pages)
<PAGE>
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or Lien that in Foothill's determination appears to
conflict with its security interests and to pay all expenses incurred in
connection therewith. With respect to any owned or leased premises of any of
the Obligors, Borrower hereby grants, and hereby causes each of the other
Obligors immediately to grant (and, by its execution and delivery of the
Guaranty or a joinder thereto, each of the Guarantors hereby grants), Foothill a
license to enter into possession of such premises and to occupy the same,
without charge, for up to 120 days in order to exercise any of Foothill's rights
or remedies provided herein, at law, in equity, or otherwise;
(h) Without notice to any Obligor (such notice hereby being
expressly waived by Borrower and caused by Borrower to be waived by each of the
other Obligors, and, by its execution and delivery of the Guaranty or a joinder
thereto, each of the Guarantors hereby waives same), and without constituting a
retention of any collateral in satisfaction of an obligation (within the meaning
of Section 9505 of the Code), set off and apply to the Obligations any and all
(i) balances and deposits of Borrower or any of the other Obligors held by
Foothill, or (ii) indebtedness at any time owing to or for the credit or the
account of Borrower or any of the other Obligors held by Foothill;
(i) Hold, as cash collateral, any and all balances and deposits
of Borrower or any of the other Obligors held by Foothill to secure the full and
final repayment of all of the Obligations;
(j) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Personal Property Collateral. Borrower hereby grants, and agrees to
cause each of the other Obligors to grant (and, by its execution and delivery of
the Guaranty or a joinder thereto, each of the Guarantors hereby grants), to
Foothill a license or other right to use, without charge, the Obligors' labels,
patents, copyrights, rights of use of any name, trade secrets, trade names,
trademarks, service marks, and advertising matter, or any property of a similar
nature, as it pertains to the Personal Property Collateral, in completing
production of, advertising for sale, and selling any Personal Property
Collateral and the Obligors' rights under all licenses and all franchise
agreements shall inure to Foothill's benefit;
(k) Sell the Personal Property Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for cash
or on terms, in such manner and at such places (including any of the Obligors'
premises) as Foothill determines is commercially reasonable. It is not
necessary that the Personal Property Collateral be present at any such sale;
(l) Foothill shall give notice of the disposition of the
Personal Property Collateral as follows:
(1) Foothill shall give the applicable Obligor and each
holder of a security interest in the Personal Property Collateral who has filed
with
(Page 108 of 142 Pages)
<PAGE>
Foothill a written request for notice, a notice in writing of the time and
place of public sale, or, if the sale is a private sale or some other
disposition other than a public sale is to be made of the Personal Property
Collateral, then the time on or after which the private sale or other
disposition is to be made;
(2) The notice shall be personally delivered or mailed,
postage prepaid, to such Obligor as provided in SECTION 12, at least 5 days
before the date fixed for the sale, or at least 5 days before the date on or
after which the private sale or other disposition is to be made; no notice needs
to be given prior to the disposition of any portion of the Personal Property
Collateral that is perishable or threatens to decline speedily in value or that
is of a type customarily sold on a recognized market. Notice to Persons
claiming an interest in the Personal Property Collateral shall be sent to such
addresses as they have furnished to Foothill;
(3) If the sale is to be a public sale, Foothill also shall
give notice of the time and place by publishing a notice one time at least 5
days before the date of the sale in a newspaper of general circulation in the
countfy in which the sale is to be held;
(m) Foothill may credit bid and purchase at any public sale; and
(n) Any deficiency that exists after disposition of the Personal
Property Collateral as provided above will be paid immediately by Borrower. Any
excess will be returned, without interest and subject to the rights of third
Persons, by Foothill to Borrower.
9.2 REMEDIES CUMULATIVE. Foothill's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Foothill shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Foothill of one
right or remedy shall be deemed an election, and no waiver by Foothill of any
Event of Default shall be deemed a continuing waiver. No delay by Foothill
shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If any Obligor fails to pay any monies (whether taxes, assessments,
insurance premiums, or, in the case of leased properties or assets, rents or
other amounts payable under such leases) due to third Persons, or fails to make
any deposits or furnish any required proof of payment or deposit, all as
required under the terms of this Agreement or any other Loan Document, then, to
the extent that Foothill determines that such failure by that Obligor could
result in a Material Adverse Change, in its discretion and without prior notice
to any Obligor, Foothill may do any or all of the following: (a) make payment
of the same or any part thereof; (b) set up such reserves in Borrower's Loan
Account as Foothill deems necessary to protect Foothill from the exposure
created by such failure; or (c) obtain and maintain insurance policies of the
type described in SECTION 6.10, and take any action with respect to such
policies
(Page 109 of 142 Pages)
<PAGE>
as Foothill deems prudent. Any such amounts paid by Foothill shall
constitute Foothill Expenses. Any such payments made by Foothill shall not
constitute an agreement by Foothill to make similar payments in the future or a
waiver by Foothill of any Event of Default under this Agreement. Foothill need
not inquire as to, or contest the validity of, any such expense, tax, or Lien
and the receipt of the usual official notice for the payment thereof shall be
conclusive evidence that the same was validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of accounts, documents, instruments, chattel paper, and guarantees at any time
held by Foothill on which Borrower or any other Obligor may in any way be
liable.
11.2 FOOTHILL'S LIABILITY FOR COLLATERAL. Borrower hereby agrees
that, and agrees to cause each of the other Obligors to agree that (and, by its
execution and delivery of the Guaranty or a joinder thereto, each of the
Guarantors hereby agrees that), so long as Foothill complies with its
obligations, if any, under Section 9207 of the Code, Foothill shall not in any
way or manner be liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage thereto occurring or arising in any manner or
fashion from any cause; (c) any diminution in the value thereof; or (d) any act
or default of any carrier, warehouseman, bailee, forwarding agency, or other
Person. All risk of loss, damage, or destruction of the Collateral shall be
borne by Borrower and the other Obligors.
11.3 INDEMNIFICATION. Borrower shall pay, indemnify, defend, and hold
Foothill, each Participant, and each of their respective officers, directors,
employees, counsel, agents, and attorneys-in-fact (each, an "Indemnified
Person") harmless (to the fullest extent permitted by law) from and against any
and all claims, demands, suits, actions, investigations, proceedings, and
damages, and all reasonable attorneys fees and disbursements and other costs and
expenses actually incurred in connection therewith (as and when they are
incurred and irrespective of whether suit is brought), at any time asserted
against, imposed upon, or incurred by any of them in connection with or as a
result of or related to the execution, delivery, enforcement, performance, and
administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (INCLUDING THE NEGLIGENCE OF
BORROWER) (all the foregoing, collectively, the "Indemnified Liabilities").
Borrower shall have no obligation to any Indemnified Person under this SECTION
11.3 with respect to any Indemnified Liability that a court of competent
jurisdiction finally determines to have resulted proximately from the gross
negligence or willful misconduct of such Indemnified Person. This provision
shall survive the termination of this Agreement and the repayment of the
Obligations.
(Page 110 of 142 Pages)
<PAGE>
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other Loan Document shall be in
writing and (except for financial statements and other informational documents
which may be sent by first-class mail, postage prepaid) shall be personally
delivered or sent by registered or certified mail (postage prepaid, return
receipt requested), overnight courier, or telefacsimile to Borrower or to
Foothill, as the case may be, at its address set forth below:
IF TO BORROWER: CHILDREN'S BROADCASTING CORPORATION
724 First Street, Fourth Floor
Minneapolis, Minnesota 55401
Attn: Mr. James G. Gilbertson
Fax No. 612.338.4318
WITH COPIES TO: CHILDREN'S BROADCASTING CORPORATION
724 First Street, Fourth Floor
Minneapolis, Minnesota 55401
Attn: Lance W. Riley, Esq.
Fax No. 612.330.9558
IF TO FOOTHILL: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. 310.478.9788
WITH COPIES TO: BROBECK, PHLEGER & HARRISON LLP
550 South Hope Street
Los Angeles, California 90071
Attn: John Francis Hilson, Esq.
Fax No. 213.745.3345
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given
to the other. All notices or demands sent in accordance with this SECTION
12, other than notices by Foothill in connection with Sections 9504 or 9505
of the Code, shall be deemed received on the earlier of the date of actual
receipt or 3 days after the deposit thereof in the mail. Borrower, for
itself and each of the other Obligors, acknowledges and agrees that notices
sent by Foothill in connection with Sections 9504 or 9505 of the Code shall
be deemed sent when deposited in the mail or personally delivered, or, where
permitted by law, transmitted telefacsimile or other similar method set forth
above.
(Page 111 of 142 Pages)
<PAGE>
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN AN ANOTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE
RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING
HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED
UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED
AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF
LOS ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF FOOTHILL, IN ANY
OTHER COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS
AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY.
EACH OF BORROWER (FOR ITSELF AND ON BEHALF OF EACH OF THE OTHER OBLIGORS) AND
FOOTHILL WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH
MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE
TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13.
BORROWER (FOR ITSELF AND ON BEHALF OF EACH OF THE OTHER OBLIGORS) AND
FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY
OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.
EACH OF BORROWER (FOR ITSELF AND ON BEHALF OF EACH OF THE OTHER OBLIGORS) AND
FOOTHILL REPRESENTS THAT IT HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED
AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF OBLIGORS' DOCUMENTS.
All documents, schedules, invoices, agings, or other papers
delivered to Foothill may be destroyed or otherwise disposed of by Foothill 4
months after they are delivered to or received by Foothill, unless the
applicable Obligor requests, in writing, the return of said documents,
schedules, or other papers and makes arrangements, at Borrower's expense, for
their return.
(Page 112 of 142 Pages)
<PAGE>
15. GENERAL PROVISIONS.
15.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrower and Foothill.
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure
to the benefit of the respective successors and assigns of each of the
parties; PROVIDED, HOWEVER, that Borrower may not assign this Agreement or
any rights or duties hereunder without Foothill's prior written consent and
any prohibited assignment shall be absolutely void. No consent to an
assignment by Foothill shall release Borrower from its Obligations. Foothill
may assign this Agreement and the other Loan Documents and its rights and
duties hereunder and thereunder and no consent or approval by Borrower or any
other Obligor is required in connection with any such assignment. Foothill
reserves the right to sell, assign, transfer, negotiate, or grant
participations in all or any part of, or any interest in Foothill's rights
and benefits hereunder and under the other Loan Documents. In connection
with any such assignment or participation, Foothill may disclose all
documents and information which Foothill now or hereafter may have relating
to any Obligor or any Obligor's business. To the extent that Foothill
assigns its rights and obligations hereunder or under any other Loan Document
to a third Person, Foothill thereafter shall be released from such assigned
obligations to the relevant Obligor and such assignment shall effect a
novation between the relevant Obligor and such third Person.
15.3 SECTION HEADINGS. Headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the
context, everything contained in each section applies equally to this entire
Agreement.
15.4 INTERPRETATION. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Foothill or Borrower
or any other Obligor, whether under any rule of construction or otherwise.
On the contrary, this Agreement has been reviewed by all parties (including
Borrower for itself and on behalf of each of the other Obligors) and shall be
construed and interpreted according to the ordinary meaning of the words used
so as to fairly accomplish the purposes and intentions of all parties hereto.
15.5 SEVERABILITY OF PROVISIONS. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the
purpose of determining the legal enforceability of any specific provision.
15.6 AMENDMENTS IN WRITING. This Agreement can only be amended by
a writing signed by both Foothill and Borrower.
15.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to
be an original, and all of which, when taken together, shall constitute but
one and the same Agreement. Delivery of an executed counterpart of this
Agreement by telefacsimile
(Page 113 of 142 Pages)
<PAGE>
shall be equally as effective as delivery of an original executed counterpart
of this Agreement. Any party delivering an executed counterpart of this
Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect
of this Agreement. The foregoing shall apply to each other Loan Document
MUTATIS MUTANDIS.
15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence
or payment of the Obligations by Borrower or any guarantor of the Obligations
or the transfer by either or both of such parties to Foothill of any property
of either or both of such parties should for any reason subsequently be
declared to be void or voidable under any state or federal law relating to
creditors' rights, including provisions of the Bankruptcy Code relating to
fraudulent conveyances, preferences, and other voidable or recoverable
payments of money or transfers of property (collectively, a "Voidable
Transfer"), and if Foothill is required to repay or restore, in whole or in
part, any such Voidable Transfer, or elects to do so upon the reasonable
advice of its counsel, then, as to any such Voidable Transfer, or the amount
thereof that Foothill is required or elects to repay or restore, and as to
all reasonable costs, expenses, and attorneys fees of Foothill related
thereto, the liability of Borrower or such guarantor automatically shall be
revived, reinstated, and restored and shall exist as though such Voidable
Transfer had never been made.
15.9 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to
the transactions contemplated hereby and shall not be contradicted or
qualified by any other agreement, oral or written, before the date hereof.
[remainder of page intentionally left blank]
(Page 114 of 142 Pages)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the date first written above.
CHILDREN'S BROADCASTING CORPORATION, a
Minnesota corporation
By /s/ James G. Gilbertson
-----------------------------------
Title: Chief Operating Officer
--------------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ Keith Alexander
------------------------------------
Title: Vice President
--------------------------------
(Page 115 of 142 Pages)
<PAGE>
CONSENT, RATIFICATION, AND REAFFIRMATION BY GUARANTORS
Each of the undersigned Guarantors hereby consents to the
execution, delivery, and performance of the foregoing Amended and Restated
Loan and Security Agreement and agrees, ratifies, and reaffirms that its
obligations as a guarantor with respect to the Loan Documents, as heretofore
amended, and as amended by the foregoing amendment, remain in full force and
effect and are not impaired, diminished, or discharged in any respect.
Dated as of the date first set forth above:
CHILDREN'S RADIO OF LOS ANGELES, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------
Title: Chief Operating Officer
---------------------------------
CHILDREN'S RADIO OF NEW YORK, INC.,
a New Jersey corporation
By /s/ James G. Gilbertson
------------------------------------
Title: Chief Operating Officer
---------------------------------
CHILDREN'S RADIO OF MINNEAPOLIS, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------
Title: Chief Operating Officer
---------------------------------
(Page 116 of 142 Pages)
<PAGE>
CHILDREN'S RADIO OF GOLDEN VALLEY, INC., a
Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------
Title: Chief Operating Officer
---------------------------------
CHILDREN'S RADIO OF MILWAUKEE, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------
Title: Chief Operating Officer
---------------------------------
CHILDREN'S RADIO OF DENVER, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------
Title: Chief Operating Officer
---------------------------------
CHILDREN'S RADIO OF KANSAS CITY, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------
Title: Chief Operating Officer
---------------------------------
(Page 117 of 142 Pages)
<PAGE>
CHILDREN'S RADIO OF DALLAS, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------
Title: Chief Operating Officer
---------------------------------
CHILDREN'S RADIO OF HOUSTON, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
-----------------------------------
Title: Chief Operating Officer
---------------------------------
CHILDREN'S RADIO OF PHILADELPHIA, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------
Title: Chief Operating Officer
---------------------------------
CHILDREN'S RADIO OF DETROIT, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------
Title: Chief Operating Officer
---------------------------------
(Page 118 of 142 Pages)
<PAGE>
CHILDREN'S RADIO OF CHICAGO, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------
Title: Chief Operating Officer
---------------------------------
CHILDREN'S RADIO OF PHOENIX, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------
Title: Chief Operating Officer
---------------------------------
WWTC-AM, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------
Title: Chief Operating Officer
---------------------------------
KYCR-AM, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------
Title: Chief Operating Officer
---------------------------------
(Page 119 pf 142 Pages)
<PAGE>
WZER-AM, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------
Title: Chief Operating Officer
---------------------------------
KKYD-AM, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------
Title: Chief Operating Officer
---------------------------------
KCNW-AM, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------
Title: Chief Operating Officer
---------------------------------
KAHZ-AM, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------
Title: Chief Operating Officer
---------------------------------
(Page 120 of 142 Pages)
<PAGE>
KTEK-AM, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------
Title: Chief Operating Officer
---------------------------------
WPWA-AM, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------
Title: Chief Operating Officer
---------------------------------
WCAR-AM, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------
Title: Chief Operating Officer
---------------------------------
WJDM-AM, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------
Title: Chief Operating Officer
---------------------------------
(Page 121 of 142 Pages)
<PAGE>
KPLS-AM, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------
Title: Chief Operating Officer
---------------------------------
WAUR-AM, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------
Title: Chief Operating Officer
---------------------------------
KIDR-AM, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------
Title: Chief Operating Officer
---------------------------------
(Page 122 of 142 Pages)
<PAGE>
Exhibit 4
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
OFFERED, PLEDGED OR OTHERWISE DISTRIBUTED FOR VALUE UNLESS THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND SUCH LAWS COVERING SUCH
SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO THE COMPANY STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT,
OFFER, PLEDGE OR OTHER DISTRIBUTION FOR VALUE IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
PROMISSORY NOTE
SERIES FOUR
$500,000.00 MINNEAPOLIS, MINNESOTA
JULY 25, 1997
FOR VALUE RECEIVED, the undersigned, CHILDREN'S BROADCASTING
CORPORATION, a Minnesota corporation ("Company"), promises to pay to the
order of PYRAMID PARTNERS, L.P. (the "Payee"), at Minneapolis, Minnesota, or
at such other place as the Payee shall designate in writing, the principal
amount of Five Hundred Thousand and NO/100 Dollars ($500,000.00), plus
accrued interest thereon. The Company shall pay to the Payee interest on the
unpaid principal balances of this Note at an annual rate equal to ten percent
(10%) (computed on the basis of actual days elapsed in a 365-day year).
Unless prepaid or extended as hereinafter provided, principal and
accrued interest shall be payable on July 25, 1998.
1. PREPAYMENT OR EXTENSION; NOTICE TO PAYEE. The Note may be prepaid,
in whole or in part, without the payment of premium or penalty.
2. INVESTMENT INTENT. Other than pursuant to registration under
federal and any applicable state securities laws or an exemption from such
registration, this Note may not be sold, pledged, assigned or otherwise
disposed of (whether voluntarily or involuntarily). The Company may
condition such sale, pledge, assignment or other disposition on the receipt
from the party to whom this Note is to be so transferred of any
representations and agreements requested by the Company in order to permit
such transfer to be made pursuant to exemptions from registration under
federal and applicable state securities laws. The Lender, by acceptance
hereof, agrees to give written notice to the Company before transferring this
Note of the Lender's intention to do so, describing briefly the manner of any
proposed transfer. Within ten (10) days
(Page 123 of 142 Pages)
<PAGE>
after receiving such written notice, the Company shall notify the Lender as
to whether such transfer may be effected and of the conditions to any such
transfer.
3. EVENTS OF DEFAULT. As used herein, "Event of Default" shall mean:
(a) the default in the payment of any principal on the Note when it becomes
due and payable and the continuance of such a default for a period of thirty
(30) days after Payee has given to Company written notice of such default by
certified mail; or (b) the default in the payment of any interest on the Note
when it becomes due and payable and the continuance of such a default for a
period of thirty (30) days after Payee has given to Company written notice of
such default by certified mail; (c) default in the performance, or breach, of
any covenant or agreement of the Company in the Note or in the Stock Pledge
Agreement between the parties hereto of even date herewith and the
continuance of such default or breach for a period of thirty (30) days after
Payee has given to Company written notice of such default by certified mail;
or (d) the Company shall be adjudicated a bankrupt, or make an assignment for
the benefit of creditors, or the Company shall apply for or consent to the
appointment of any receiver, trustee, or similar officer for it or for all or
any substantial part of its property, or such receiver, trustee or similar
officer shall be appointed without the application or consent of the Company
and such appointment shall continue undischarged for a period of sixty (60)
days, or the Company shall institute (by petition, application, answer,
consent or otherwise) any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution, liquidation or similar
proceeding relating to it under the laws of any jurisdiction; or any such
proceeding shall be instituted (by petition, application or otherwise)
against the Company and shall remain undismissed for a period of sixty (60)
days. In the event of default, the Company shall reimburse the Payee for all
costs of collection reasonably incurred, including reasonable attorneys fees.
4. ACCELERATION. Upon the occurrence of an Event of Default, the
Payee, at its sole option, and upon written notice to the Company may declare
the entire outstanding principal balance hereof, with accrued interest
thereon immediately due and payable in full.
5. BOOKS AND RECORDS OF COMPANY. During the period that this Note is
outstanding and provided that the Company is then in default under this Note,
Payee shall have the right to inspect the books and records of Company and to
audit such books and records, all at the expense of Payee, provided that
Payee enters into a confidentiality agreement with Company which is
reasonably acceptable to Company. In addition, during the term of this Note,
Company agrees to provide Payee with (a) unaudited quarterly financial
statements of Company within 45 days after the end of each quarter, (b)
annual audited financial statements within one hundred and twenty (120) days
after the end of each fiscal year, and (c) a summary of the annual budget
within forty five (45) days after the beginning of each fiscal year. The
financial statements to be provided hereunder shall consist of a balance
sheet, cash flow statement and profit and loss statement.
6. NOTICES. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be delivered,
or mailed first-class postage prepaid, registered or certified mail, to the
appropriate party at the following addresses:
(Page 124 of 142 Pages)
<PAGE>
the "Company"
Children's Broadcasting Corporation
724 North First Street
Fourth Floor
Minneapolis, Minnesota 55401
Attention: Mr. Christopher T. Dahl
with copy to:
Children's Broadcasting Corporation
724 North First Street
Fourth Floor
Minneapolis, Minnesota 55401
Attention: Lance W. Riley, Esq.
the "Payee"
Pyramid Partners, L.P.
730 East Lake Street
Wayzata, Minnesota 55391
Attention: Managing Partner
or at such other address as the party may specify by written notice to the
other party, and such notice and other communications shall for all purposes
of the Note be treated as being effective or having been given if delivered
personally, or, if sent by mail, when received.
7. CHOICE OF LAW. It is the intention of the parties that the
internal laws of Minnesota shall govern the validity of the Note, the
construction of its terms and the interpretation of the rights and duties of
the parties.
8. This Note is secured by a pledge agreement ("Pledge Agreement") in
the form attached hereto as Exhibit A.
[THIS SPACE LEFT INTENTIONALLY BLANK.]
(Page 125 of 142 Pages)
<PAGE>
IN WITNESS WHEREOF, the parties have executed the Note as of the date
first above written.
COMPANY:
CHILDREN'S BROADCASTING
CORPORATION
BY: /s/ Christopher T. Dahl
------------------------------------
Christopher T. Dahl
ITS: Chairman of the Board, President and
Chief Executive Officer
PAYEE:
PYRAMID PARTNERS, L.P.
BY: /s/ Richard W. Perkins
------------------------------------
ITS: General Partner
(Page 126 of 142 Pages)
<PAGE>
Exhibit 5
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
OFFERED, PLEDGED OR OTHERWISE DISTRIBUTED FOR VALUE UNLESS THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND SUCH LAWS COVERING SUCH
SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO THE COMPANY STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT,
OFFER, PLEDGE OR OTHER DISTRIBUTION FOR VALUE IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
PROMISSORY NOTE
SERIES FOUR
$500,000.00 MINNEAPOLIS, MINNESOTA
JULY 25, 1997
FOR VALUE RECEIVED, the undersigned, CHILDREN'S BROADCASTING
CORPORATION, a Minnesota corporation ("Company"), promises to pay to the
order of RODNEY P. BURWELL (the "Payee"), at Minneapolis, Minnesota, or at
such other place as the Payee shall designate in writing, the principal
amount of Five Hundred Thousand and NO/100 Dollars ($500,000.00), plus
accrued interest thereon. The Company shall pay to the Payee interest on the
unpaid principal balances of this Note at an annual rate equal to ten percent
(10%) (computed on the basis of actual days elapsed in a 365-day year).
Unless prepaid or extended as hereinafter provided, principal and accrued
interest shall be payable on July 25, 1998.
1. PREPAYMENT OR EXTENSION; NOTICE TO PAYEE. The Note may be prepaid, in
whole or in part, without the payment of premium or penalty.
2. INVESTMENT INTENT. Other than pursuant to registration under
federal and any applicable state securities laws or an exemption from such
registration, this Note may not be sold, pledged, assigned or otherwise
disposed of (whether voluntarily or involuntarily). The Company may
condition such sale, pledge, assignment or other disposition on the receipt
from the party to whom this Note is to be so transferred of any
representations and agreements requested by the Company in order to permit
such transfer to be made pursuant to exemptions from registration under
federal and applicable state securities laws. The Lender, by acceptance
hereof, agrees to give written notice to the Company before transferring this
Note of the Lender's intention to do so, describing briefly the manner of any
proposed transfer. Within ten (10) days after receiving such written notice,
the Company shall notify the Lender as to whether such transfer may be
effected and of the conditions to any such transfer.
(Page 127 of 142 Pages)
<PAGE>
3. EVENTS OF DEFAULT. As used herein, "Event of Default" shall mean:
(a) the default in the payment of any principal on the Note when it becomes
due and payable and the continuance of such a default for a period of thirty
(30) days after Payee has given to Company written notice of such default by
certified mail; or (b) the default in the payment of any interest on the Note
when it becomes due and payable and the continuance of such a default for a
period of thirty (30) days after Payee has given to Company written notice of
such default by certified mail; (c) default in the performance, or breach, of
any covenant or agreement of the Company in the Note and or in the Stock
Pledge Agreement between the parties hereto of even date herewith and the
continuance of such default or breach for a period of thirty (30) days after
Payee has given to Company written notice of such default by certified mail;
or (d) the Company shall be adjudicated a bankrupt, or make an assignment for
the benefit of creditors, or the Company shall apply for or consent to the
appointment of any receiver, trustee, or similar officer for it or for all or
any substantial part of its property, or such receiver, trustee or similar
officer shall be appointed without the application or consent of the Company
and such appointment shall continue undischarged for a period of sixty (60)
days, or the Company shall institute (by petition, application, answer,
consent or otherwise) any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution, liquidation or similar
proceeding relating to it under the laws of any jurisdiction; or any such
proceeding shall be instituted (by petition, application or otherwise)
against the Company and shall remain undismissed for a period of sixty (60)
days. In the event of default, the Company shall reimburse the Payee for all
costs of collection reasonably incurred, including reasonable attorneys fees.
4. ACCELERATION. Upon the occurrence of an Event of Default, the Payee,
at its sole option, and upon written notice to the Company may declare the
entire outstanding principal balance hereof, with accrued interest thereon
immediately due and payable in full.
5. BOOKS AND RECORDS OF COMPANY. During the period that this Note is
outstanding and provided that the Company is then in default under this Note,
Payee shall have the right to inspect the books and records of Company and to
audit such books and records, all at the expense of Payee, provided that Payee
enters into a confidentiality agreement with Company which is reasonably
acceptable to Company. In addition, during the term of this Note, Company
agrees to provide Payee with (a) unaudited quarterly financial statements of
Company within 45 days after the end of each quarter, (b) annual audited
financial statements within one hundred and twenty (120) days after the end of
each fiscal year, and (c) a summary of the annual budget within forty five (45)
days after the beginning of each fiscal year. The financial statements to be
provided hereunder shall consist of a balance sheet, cash flow statement and
profit and loss statement.
6. NOTICES. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be delivered, or
mailed first-class postage prepaid, registered or certified mail, to the
appropriate party at the following addresses:
(Page 128 of 142 Pages)
<PAGE>
the "Company"
Children's Broadcasting Corporation
724 North First Street
Fourth Floor
Minneapolis, Minnesota 55401
Attention: Mr. Christopher T. Dahl
with copy to:
Children's Broadcasting Corporation
724 North First Street
Fourth Floor
Minneapolis, Minnesota 55401
Attention: Lance W. Riley, Esq.
the "Payee"
Mr. Rodney P. Burwell
c/o Burwell Enterprises
7901 Xerxes Avenue South
Suite 201
Minneapolis, Minnesota 55431
or at such other address as the party may specify by written notice to the other
party, and such notice and other communications shall for all purposes of the
Note be treated as being effective or having been given if delivered personally,
or, if sent by mail, when received.
7. CHOICE OF LAW. It is the intention of the parties that the internal
laws of Minnesota shall govern the validity of the Note, the construction of its
terms and the interpretation of the rights and duties of the parties.
8. This Note is secured by a pledge agreement ("Pledge Agreement") in the
form attached hereto as Exhibit A.
[THIS SPACE LEFT INTENTIONALLY BLANK.]
(Page 129 of 142 Pages)
<PAGE>
IN WITNESS WHEREOF, the parties have executed the Note as of the date first
above written.
COMPANY:
CHILDREN'S BROADCASTING
CORPORATION
BY: /S/ CHRISTOPHER T. DAHL
----------------------------------------
Christopher T. Dahl
ITS: Chairman of the Board, President and
Chief Executive Officer
PAYEE:
/s/ Rodney P. Burwell
----------------------------------------
Rodney P. Burwell
(Page 130 of 142 Pages)
<PAGE>
Exhibit 6
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
OFFERED, PLEDGED OR OTHERWISE DISTRIBUTED FOR VALUE UNLESS THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND SUCH LAWS COVERING SUCH
SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO THE COMPANY STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT,
OFFER, PLEDGE OR OTHER DISTRIBUTION FOR VALUE IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
PROMISSORY NOTE
SERIES FOUR
$250,000.00 MINNEAPOLIS, MINNESOTA
JULY 22, 1997
FOR VALUE RECEIVED, the undersigned, CHILDREN'S BROADCASTING
CORPORATION, a Minnesota corporation ("Company"), promises to pay to the
order of WILLIAM M. TOLES (the "Payee"), at Minneapolis, Minnesota, or at
such other place as the Payee shall designate in writing, the principal
amount of Two Hundred Fifty Thousand and NO/100 Dollars ($250,000.00), plus
accrued interest thereon. The Company shall pay to the Payee interest on the
unpaid principal balances of this Note at an annual rate equal to ten percent
(10%) (computed on the basis of actual days elapsed in a 365-day year).
Unless prepaid or extended as hereinafter provided, principal and accrued
interest shall be payable on July 22, 1998.
1. PREPAYMENT OR EXTENSION; NOTICE TO PAYEE. The Note may be prepaid, in
whole or in part, without the payment of premium or penalty.
2. INVESTMENT INTENT. Other than pursuant to registration under
federal and any applicable state securities laws or an exemption from such
registration, this Note may not be sold, pledged, assigned or otherwise
disposed of (whether voluntarily or involuntarily). The Company may
condition such sale, pledge, assignment or other disposition on the receipt
from the party to whom this Note is to be so transferred of any
representations and agreements requested by the Company in order to permit
such transfer to be made pursuant to exemptions from registration under
federal and applicable state securities laws. The Lender, by acceptance
hereof, agrees to give written notice to the Company before transferring this
Note of the Lender's intention to do so, describing briefly the manner of any
proposed transfer. Within ten (10) days after receiving such written
notice, the Company shall notify the Lender as to whether such transfer may
be effected and of the conditions to any such transfer.
(Page 131 of 142 Pages)
<PAGE>
3. EVENTS OF DEFAULT. As used herein, "Event of Default" shall mean:
(a) the default in the payment of any principal on the Note when it becomes
due and payable and the continuance of such a default for a period of thirty
(30) days after Payee has given to Company written notice of such default by
certified mail; or (b) the default in the payment of any interest on the Note
when it becomes due and payable and the continuance of such a default for a
period of thirty (30) days after Payee has given to Company written notice of
such default by certified mail; (c) default in the performance, or breach, of
any covenant or agreement of the Company in the Note or in the Stock Pledge
Agreement between the parties hereto of even date herewith and the
continuance of such default or breach for a period of thirty (30) days after
Payee has given to Company written notice of such default by certified mail;
or (d) the Company shall be adjudicated a bankrupt, or make an assignment for
the benefit of creditors, or the Company shall apply for or consent to the
appointment of any receiver, trustee, or similar officer for it or for all or
any substantial part of its property, or such receiver, trustee or similar
officer shall be appointed without the application or consent of the Company
and such appointment shall continue undischarged for a period of sixty (60)
days, or the Company shall institute (by petition, application, answer,
consent or otherwise) any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution, liquidation or similar
proceeding relating to it under the laws of any jurisdiction; or any such
proceeding shall be instituted (by petition, application or otherwise)
against the Company and shall remain undismissed for a period of sixty (60)
days. In the event of default, the Company shall reimburse the Payee for all
costs of collection reasonably incurred, including reasonable attorneys fees.
4. ACCELERATION. Upon the occurrence of an Event of Default, the Payee,
at its sole option, and upon written notice to the Company may declare the
entire outstanding principal balance hereof, with accrued interest thereon
immediately due and payable in full.
5. BOOKS AND RECORDS OF COMPANY. During the period that this Note is
outstanding and provided that the Company is then in default under this Note,
Payee shall have the right to inspect the books and records of Company and to
audit such books and records, all at the expense of Payee, provided that Payee
enters into a confidentiality agreement with Company which is reasonably
acceptable to Company. In addition, during the term of this Note, Company
agrees to provide Payee with (a) unaudited quarterly financial statements of
Company within 45 days after the end of each quarter, (b) annual audited
financial statements within one hundred and twenty (120) days after the end of
each fiscal year, and (c) a summary of the annual budget within forty five (45)
days after the beginning of each fiscal year. The financial statements to be
provided hereunder shall consist of a balance sheet, cash flow statement and
profit and loss statement.
6. NOTICES. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be delivered, or
mailed first-class postage prepaid, registered or certified mail, to the
appropriate party at the following addresses:
(Page 132 of 142 Pages)
<PAGE>
the "Company"
Children's Broadcasting Corporation
724 North First Street
Fourth Floor
Minneapolis, Minnesota 55401
Attention: Mr. Christopher T. Dahl
with copy to:
Children's Broadcasting Corporation
724 North First Street
Fourth Floor
Minneapolis, Minnesota 55401
Attention: Lance W. Riley, Esq.
the "Payee"
Mr. William M. Toles
c/o Tol-O-Matic, Inc.
3800 County Road 116
Hamel, Minnesota 55340
or at such other address as the party may specify by written notice to the other
party, and such notice and other communications shall for all purposes of the
Note be treated as being effective or having been given if delivered personally,
or, if sent by mail, when received.
7. CHOICE OF LAW. It is the intention of the parties that the internal
laws of Minnesota shall govern the validity of the Note, the construction of its
terms and the interpretation of the rights and duties of the parties.
8. This Note is secured by a pledge agreement ("Pledge Agreement") in the
form attached hereto as Exhibit A.
[THIS SPACE LEFT INTENTIONALLY BLANK.]
(Page 133 of 142 Pages)
<PAGE>
IN WITNESS WHEREOF, the parties have executed the Note as of the date first
above written.
COMPANY:
CHILDREN'S BROADCASTING
CORPORATION
BY: /s/ Christopher T. Dahl
--------------------------------------------------
Christopher T. Dahl
ITS: Chairman of the Board, President and
Chief Executive Officer
PAYEE:
/s/ William M. Toles
--------------------------------------------------
William M. Toles
(Page 134 of 142 Pages)
<PAGE>
Exhibit 7
HHI REGISTRATION RIGHTS AGREEMENT
AGREEMENT is made and entered into this 22nd day of July, 1997, by and
among Children's Broadcasting Corporation, a Minnesota corporation ("CBC"),
and Harmony Holdings, Inc., a Delaware corporation ("Harmony").
In consideration of CBC's negotiation regarding a dismissal with
prejudice of the action entitled UNIMEDIA, S.A. V. HARMONY HOLDINGS, INC. AND
HARVEY BIBICOFF (CASE NO. 96-7109 JGD (RN BX)) venued in the United States
District Court for the Central District of California (hereinafter the
"Pending Litigation"), Harmony agrees for the benefit of the holders of
record from time to time (the "Holders") of the Securities (as defined
herein), including CBC, as follows:
(a) PROVISIONS FOR REGISTRATION. CBC shall have the following rights
regarding registration of the Shares and such other shares of Common Stock of
Harmony which may be acquired by CBC from Unimedia, Harvey Bibicoff, Philip
Bibicoff, or Harmony, including, but not limited to, shares of Common Stock
underlying derivative securities of Harmony, (collectively, the "Securities").
1.1 REQUIRED REGISTRATION. At any time and upon request of the
Holders of at least 100,000 shares of the Securities not theretofore
registered under the Securities Act of 1993, as amended (the "Securities
Act"), Harmony shall prepare and file a registration statement under the
Securities Act covering resale of the Securities which are the subject
of such requests and use its reasonable best efforts to cause such
registration statement to become effective. In addition, upon the
receipt of the aforementioned request, Harmony shall promptly give
written notice to all other Holders that such registration statement is
to be filed. Harmony shall include in such registration statement such
Securities for which it has received written requests to register by
such other Holders within fifteen (15) days after Harmony's written
notice to such persons. Harmony shall be obligated to prepare, file and
cause to become effective only one registration statement pursuant to
this Section 1.1. In the event that the Holders of a majority of the
Securities for which registration has been requested pursuant to this
Section 1.1 determine for any reason not to proceed with a registration
at any time before the registration statement has been declared
effective by the Securities and Exchange Commission (the "Commission"),
and such Holders thereafter request Harmony to withdraw such
registration statement, the Holders of such Securities agree to bear
their own expenses incurred in connection therewith and to reimburse
Harmony for the expenses incurred by it attributable to such
registration statement, then, and in such event, the Holders of such
Securities shall not be deemed to have exercised their right to require
Harmony to register Securities pursuant to this Section 1.1.
(Page 135 of 142 Pages)
<PAGE>
1.2 INCIDENTAL REGISTRATION. Each time Harmony shall determine to
proceed with the actual preparation and filing of a registration
statement under the Securities Act in connection with the proposed offer
and sale for money of any of its Common Stock by it or any of its
security holders, Harmony will give written notice of its determination
to all Holders of the Securities. Upon the written request of a Holder
of any Securities given within fifteen (15) days after receipt of any
such notice from Harmony, Harmony will, except as herein provided, cause
all such Securities, the Holders of which have so requested registration
thereof, to be included in such registration statement, all to the
extent requisite to permit the sale or other disposition by the
prospective seller or sellers of the Securities to be so registered;
provided, however, that (i) nothing herein shall prevent Harmony from,
at any time, abandoning or delaying any such registration initiated by
it; and (ii) if Harmony determines not to proceed with a registration
after the registration statement has been filed with the Commission and
Harmony's decision not to proceed is primarily based upon the
anticipated public offering price of the securities to be sold by
Harmony, Harmony shall promptly complete the registration for the
benefit of those Holders who wish to proceed with a public offering of
their Securities and who bear all expenses in excess of $20,000 incurred
by Harmony as the result of such registration after Harmony has decided
not to proceed. If any registration pursuant to this Section 1.2 shall
be underwritten in whole or in part, Harmony may require that the
Securities requested for inclusion pursuant to this Section 1.2 be
included in the underwriting on the same terms and conditions as the
securities otherwise being sold through the underwriters. If in the
good faith judgment of the managing underwriter of such public offering
the inclusion of all of the Securities originally covered by a request
for registration would reduce the number of shares to be offered by
Harmony or interfere with the successful marketing of the shares offered
by Harmony, the number of Securities otherwise to be included in the
underwritten public offering may be ratably reduced among the Holders
thereof requesting such registration to a number that the managing
underwriter believes will not adversely affect the sale of shares by
Harmony or the managing underwriter may exclude all of such Securities
from the underwritten public offering. Those Securities which are thus
excluded from the underwritten public offering shall be withheld from
the market by the Holders thereof for a period, not to exceed ninety
(90) days, which the managing underwriter reasonably determines is
necessary in order to effect the underwritten public offering.
1.3 REGISTRATION PROCEDURES. Whenever Harmony is required by the
provisions of Section 1.1 or Section 1.2 to effect the registration of any
Securities under the Securities Act, Harmony will:
(i) prepare and file with the Commission a registration
statement with respect to such Securities, and use its best efforts
to cause such registration statement to become and remain effective
for such
(Page 136 of 142 Pages)
<PAGE>
period as may be reasonably necessary to effect the sale
of such Securities, not to exceed six (6) months;
(ii) prepare and file with the Commission such amendments to
such registration statement and supplements to the prospectus
contained therein as may be necessary to keep such registration
statement effective for such period as may be reasonably necessary to
effect the sale of such Securities, not to exceed six (6) months;
(iii) furnish to the Holders participating in such registration
such reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other documents as
such Holders may reasonably request in order to facilitate the public
offering of such Securities;
(iv) use its reasonable best efforts to register or qualify
the Securities covered by such registration statement under such state
securities or blue sky laws of up to six (6) jurisdictions as the
Holders participating in such registration may reasonably request
within twenty (20) days following the original filing of such
registration statement, except that Harmony shall not for any purpose
be required to execute a general consent to service of process or to
qualify to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified;
(v) notify the Holders participating in such registration,
promptly after it shall receive notice thereof, of the time when such
registration statement has become effective or a supplement to any
prospectus forming a part of such registration statement has been
filed;
(vi) notify the Holders participating in such registration
promptly of any request by the Commission for the amending or
supplementing of such registration statement or prospectus or for
additional information;
(vii) prepare and file with the Commission, promptly upon the
request of any Holder participating in such registration, any
amendments or supplements to such registration statement or prospectus
which, in the opinion of counsel for such holder (and concurred in by
counsel for Harmony), is required under the Securities Act or the
rules and regulations thereunder in connection with the distribution
of the Securities;
(viii) prepare and promptly file with the Commission and
promptly notify the Holders participating in such registration of
the filing of such amendments or supplements to such registration
statement or
(Page 137 of 142 Pages)
<PAGE>
prospectus as may be necessary to correct any statements or omissions
if, at the time when a prospectus relating to the Securities is
required to be delivered under the Securities Act, any event shall
have occurred as the result of which any such prospectus or any other
prospectus as then in effect would include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances in which they
were made, not misleading;
(ix) advise the Holders participating in such registration,
promptly after it shall receive notice or obtain knowledge thereof, of
the issuance of any stop order by the Commission suspending the
effectiveness of such registration statement or the initiation or
threatening of any proceeding for that purpose and promptly use its
best efforts to prevent the issuance of any stop order or to obtain
its withdrawal if such stop order should be issued; and
(x) not file any amendment or supplement to such registration
statement or prospectus to which a majority in interest of the Holders
participating in such registration shall have reasonably objected on
the grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act or the
rules and regulations thereunder, after having been furnished with a
copy thereof at least five (5) business days prior to the filing
thereof, unless in the opinion of counsel for Harmony the filing of
such amendment or supplement is reasonably necessary to protect
Harmony from any liabilities under any applicable federal or state law
and such filing will not violate applicable law.
1.4 EXPENSES. With respect to any registration requested pursuant to
Section 1.1 (except as otherwise provided in such section with respect to
registrations voluntarily terminated at the request of the requesting
holders) and with respect to each inclusion of Securities in a registration
statement pursuant to Section 1.2 (except as otherwise provided in Section
1.2 with respect to registrations terminated by Harmony), Harmony shall
bear the following fees, costs and expenses: all registration, filing and
fees imposed by the National Association of Securities Dealers, printing
expenses, fees and disbursements of counsel and accountants for Harmony,
fees and disbursements of counsel for the underwriter or underwriters of
such securities (if Harmony or the Holders participating in such
registration are required to bear such fees and disbursements), all
internal Harmony expenses, the premiums and other costs of policies of
insurance against liability arising out of the public offering, and all
legal fees and disbursements and other expenses of complying with state
securities or blue sky laws of any jurisdictions in which the securities to
be offered are to be registered or qualified. Fees and disbursements of
counsel and
(Page 138 of 142 Pages)
<PAGE>
accountants for the Holders participating in such registration,
underwriting discounts and commissions and transfer taxes for the Holders
participating in such registration and any other expenses incurred by the
Holders participating in such registration not expressly included above
shall be borne by such Holders.
1.5 COPIES OF PROSPECTUS; AMENDMENTS OF PROSPECTUS. Harmony will
furnish the Holders participating in such registration with a reasonable
number of copies of any prospectus and a reasonable number of copies of any
registration statement and will amend or supplement the same as required
during the nine (9) month period following the effective date of the
registration statement; provided, that the expenses of any amendment or
supplement made or filed more than six (6) months after the effective date
of the registration statement, at the request of the Holders participating
in such registration, shall be borne by such Holders.
1.6 CONDITIONS OF HARMONY'S OBLIGATIONS. It shall be a condition of
Harmony's obligation to register the Securities hereunder that CBC agrees
to cooperate with Harmony in the preparation and filing of any such
registration statement, or in its efforts to establish that the proposed
sale is exempt under the Securities Act, as to any proposed distribution.
It shall also be a condition of Harmony's obligations under this Agreement
that, in the case of the filing of any registration statement, and to the
extent permissible under the Securities Act, and controlling precedent
thereunder, Harmony and CBC provide cross-indemnification agreements to
each other in customary scope covering the accuracy and completeness of the
information furnished by each.
(b) INDEMNIFICATION AND CONTRIBUTION.
2.1 INDEMNIFICATION BY HARMONY. Harmony hereby indemnifies and
agrees to hold harmless, to the full extent permitted by law, each Holder
from and against all losses, claims, damages, liabilities and expenses
(including without limitation reasonable legal fees and expenses incurred
by Holder) (collectively, the "Damages") to which Holder may become subject
under the Act or otherwise, insofar as such Damages (or proceedings in
respect thereat) arise out of or are based upon any untrue statement of
material fact contained in any registration statement (or any amendment
thereto) pursuant to which Securities were registered under the Act, or
caused by any omission to state therein a material fact necessary to make
the statements therein in light of the circumstances under which they were
made not misleading, or caused by any untrue statement of a material fact
contained in any prospectus (as amended or supplemented if Harmony shall
have furnished any amendments or supplements thereto), or caused by any
omission to state therein a material fact necessary to make the statements
therein in light of the circumstances under which they were made not
misleading, except insofar as such Damages arise out of or are based upon
any
(Page 139 of 142 Pages)
<PAGE>
such untrue statement or omission based upon information relating to
Holder furnished in writing to Harmony by Holder specifically for use
therein; PROVIDED, HOWEVER, that Harmony shall not be liable to Holder
under this Section 2.1 to the extent that any such Damages were caused by
the fact that Holder sold Securities to a person as to whom it shall be
established that there was not sent or given, at or prior to the written
confirmation of such sale, a copy of the prospectus as then amended or
supplemented if, but only if, (A) Harmony has previously furnished copies
of such amended or supplemented prospectus to Holder and (B) such Damages
were caused by any untrue statement or omission contained in any earlier
prospectus which was corrected in the amended or supplemented prospectus.
2.2 INDEMNIFICATION BY THE HOLDER. Holder hereby indemnifies and
agrees to hold harmless Harmony, its stockholders, directors, officers and
each person, if any, who controls Harmony within the meaning of either
Section 15 of the Act or Section 20 of the Exchange Act to the same extent
as the foregoing indemnity from Harmony to Holder, but only with reference
to information relating to Holder furnished in writing to Harmony by Holder
specifically for use in any registration statement (or any amendment
thereto) or any prospectus (or any amendment or supplement thereto);
PROVIDED, HOWEVER, that Holder shall not be obligated to fulfill such
indemnity to the extent that such Damages result from the failure of
Harmony to promptly amend or take action to correct or supplement any such
registration statement or prospectus on the basis of corrected or
supplemental information provided by Holder to Harmony expressly for such
purpose. In no event shall the liability of Holder hereunder be greater in
amount than the amount of the proceeds received by Holder upon the sale of
the Securities giving rise to such indemnification obligation.
2.3 CONTRIBUTION. To the extent that the indemnification provided
for in Section 2.1 or Section 2.2 is unavailable to an indemnified party or
insufficient in respect of any Damages, then each indemnifying party under
such paragraph, in lieu of indemnifying such indemnified party thereunder,
shall contribute to the amount paid or payable by such indemnified party as
a result of such Damages in such proportion as is appropriate to reflect
the relative fault of Harmony on the one hand and Holder on the other hand
in connection with the statements or omissions that resulted in such
Damages, as well as any other relevant equitable considerations. The
relative fault of Harmony on the one hand and of Holder on the other hand
shall be determined by reference to, among other things, whether the untrue
statement of a material fact or the omission to state a material fact
relates to information supplied by Harmony or by Holder and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(Page 140 of 142 Pages)
<PAGE>
If indemnification is available under Section 2.1 or Section 2.2, the
indemnifying parties shall indemnify each indemnified party to the full
extent provided in such paragraphs without regard to the relative fault of
said indemnifying party or indemnified party or any other equitable
consideration provided for in this Section 2.3. Harmony and Holder agree
that it would not be just or equitable if contribution pursuant to this
Section 2.3 were determined by pro rata allocation or by any other method
of allocation that does not take account of the equitable considerations
referred to herein.
(c) NOTICES. Any notice or other document required or permitted to be
given or delivered to CBC shall be delivered or sent by certified mail to the
principal office of CBC at 724 First Street North, Fourth Floor, Minneapolis,
Minnesota 55401; Attention: Lance W. Riley, Secretary and General Counsel.
Any notice or other document required or permitted to be given or delivered
to Harmony shall be delivered or sent by certified or registered mail to the
principal office of Harmony at 1990 Westwood Boulevard, Suite 310, Los
Angeles, California 90025; Attention: Chairman of the Board.
(d) GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware, without
regard to conflicts of laws principles.
(e) MISCELLANEOUS. This Agreement and any provision hereof may be
changed, waived, discharged, or terminated only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against which
enforcement of the same is sought. The headings in this Agreement are for
purposes of reference only and shall not affect the meaning or construction
of any of the provisions hereof.
(f) ASSIGNMENT. CBC may assign at any time and from time to time its
rights hereunder to any one or more purchasers or transferees of the
Securities; PROVIDED, HOWEVER, that such purchaser or transferee shall, as a
condition to the effectiveness of such assignment, be required to execute a
counterpart to this Agreement agreeing to be treated as CBC hereunder
whereupon such purchaser or transferee shall have the benefits of, and shall
be subject to the restrictions contained in, this Agreement.
(Page 141 of 142 Pages)
<PAGE>
IN WITNESS WHEREOF, Harmony and CBC have caused this Agreement to be
duly executed as of the date first written above.
HARMONY HOLDINGS, INC.
By:/s/ Harvey Bibicoff
-------------------------------
Harvey Bibicoff
Chief Executive Officer
CHILDREN'S BROADCASTING
CORPORATION
By:/s/ Christopher T. Dahl
-------------------------------
Christopher T. Dahl
Chief Executive Officer
(Page 142 of 142 Pages)
