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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
(RULE 13d-101)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 2)*
Harmony Holdings, Inc.
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(Name of Issuer)
Common Stock
- --------------------------------------------------------------------------------
(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)
September 30, 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 57 Pages)
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CUSIP No. 41322310 13D Page 2 of 57 Pages
-------- --- --
- -------------------- --- --------------------
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Children's Broadcasting Corporation
41-1663712
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [ ]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
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4 SOURCE OF FUNDS*
BK
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(D) OR 2(E) [ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Minnesota
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
2,938,731
NUMBER OF -----------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY 0
EACH -----------------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON
WITH 2,938,731
-----------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,938,731
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
40.7%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
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Children's Broadcasting Corporation (the "Company") hereby amends its
statement on Schedule 13D (the "Schedule 13D") originally filed on July 31,
1997, and amended on September 23, 1997, with respect to its beneficial
ownership of shares of common stock, par value $.01 per share ("Common Stock"),
of Harmony Holdings, Inc., a Delaware corporation ("Harmony").
Items 3 through 7 of the Schedule 13D are hereby amended and restated to
read as follows:
Item 3: Source and Amount of Funds or Other Consideration.
On September 25, 1997, the Company and Glenn B. Laken ("Laken")
reached an agreement whereby Laken offered to sell, and the Company
agreed to buy, (i) 420,000 shares of Common Stock of Harmony from
Laken at $3.15 per share (the "Laken Shares"), (ii) 399,500 shares of
Common Stock of Harmony from others who are acting together with Laken
at $2.70 per share (the "Laken Control Group Shares"), and (iii)
options to purchase 200,000 shares of Common Stock of Harmony from
Laken (the "Options") at an exercise price of $1.50 per share, for an
aggregate price of $2,731,650 (collectively, the "Transaction").
The Company received executed copies of the agreements governing the
Transaction from Laken on September 30, 1997. The Transaction is
expected to close between September 30, 1997 and October 1, 1997.
Funds for the Transaction originated from an amended loan and security
agreement with Foothill Capital Corporation ("Foothill"), dated
September 24, 1997. In connection with such financing, the Company
issued a warrant to Foothill for the purchase of 200,000 shares of the
Company's Common Stock, at an exercise price of $3.76 per share, which
is exercisable for a period of four years.
Item 4: Purpose of Transaction.
The Common Stock acquired by the Company pursuant to the Transaction
was acquired for investment purposes and to increase the Company's
voting power. The Reporting Person has also reached an agreement (the
"Put/Call Agreement") for the future acquisition of up to 225,000
additional shares of Common Stock of Harmony at a price of $2.50 per
share. The Reporting Person may also be obligated to buy such shares,
at a price of $2.50 per share, on or after January 31, 1998. The
Reporting Person reserves the right to purchase additional if it deems
such action to be in its best interest.
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.
(Page 3 of 57 Pages)
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Item 5: Interest in Securities of the Issuer.
THE REPORTING PERSON
(a) As of September 30, 1997, excluding any shares which may be
acquired pursuant to the Put/Call Agreement, the Reporting Person
beneficially owned 2,938,731 shares of Common Stock of Harmony,
including 750,000 shares of Common Stock subject to currently
exercisable options, which constitute approximately 40.7% of the
outstanding Common Stock of Harmony.
(b) As of September 30, 1997, excluding any shares which may be
acquired pursuant to the Put/Call Agreement, the Reporting Person
had the sole power to vote or to direct the vote and the sole
power to dispose or to direct the disposition of 2,938,731 shares
of Common Stock of Harmony.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
CHRISTOPHER T. DAHL
(a) As of September 30, 1997, Christopher T. Dahl, the President,
Chief Executive Officer and Chairman of the Board of the
Reporting Person, beneficially owned 10,000 shares of Common
Stock of Harmony, which constitute less than 1.0% of the
outstanding Common Stock of Harmony.
(b) As of September 30, 1997, Christopher T. Dahl had the sole power
to vote or to direct the vote and the sole power to dispose or to
direct the disposition of 10,000 shares of Common Stock of
Harmony.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(Page 4 of 57 Pages)
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RICHARD W. PERKINS
(a) As of September 30, 1997, Richard W. Perkins beneficially owned
200,000 shares of Common Stock of Harmony, which constitute
approximately 3.1% of the outstanding Common Stock of Harmony.
(b) As of September 30, 1997, Richard W. Perkins, as President of
Perkins Capital Management, which is the General Partner of
Pyramid Partners, L.P. ("Pyramid"), had the sole power to vote or
to direct the vote and the sole power to dispose or to direct the
disposition of 200,000 shares of Common Stock of Harmony.
(c) On September 26, 1997, Pyramid acquired 200,000 shares of Common
Stock of Harmony from the Laken Control Group at a price of $2.50
per share in a private transaction.
(d) Not applicable.
(e) Not applicable.
Item 6: Contracts, Arrangements, Understandings or Relationships With Respect
to Securities of the Issuer.
The definitive stock purchase agreement between the parties to the
Transaction provides that neither Laken nor the Laken Control Group
will acquire any securities of Harmony or the Reporting Person for a
period of five years.
Item 7: Material to be Filed as Exhibits.
99.1 Stock Purchase Agreement between Children's Broadcasting
Corporation and Glenn B. Laken, dated September 25, 1997.
99.2 Put/Call Agreement between Children's Broadcasting Corporation
and Glenn B. Laken, dated September 25, 1997.
99.3 Letter Agreement between Children's Broadcasting Corporation and
Foothill Capital Corporation, dated September 25, 1997.
99.4 Amendment Number One to Amended and Restated Loan and Security
Agreement between Children's Broadcasting Corporation and Foothill
Capital Corporation, dated September 24, 1997.
99.5 Warrant issued by Children's Broadcasting Corporation to Foothill
Capital Corporation, dated September 25, 1997.
(Page 5 of 57 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: September 30, 1997
CHILDREN'S BROADCASTING CORPORATION
By: /s/ James G. Gilbertson
---------------------------------------------------
James G. Gilbertson
Chief Operating Officer
(Page 6 of 57 Pages)
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Exhibit Index
Exhibit
Number Description
- ------- -----------------------------------------------------------
99.1 Stock Purchase Agreement between Children's Broadcasting
Corporation and Glenn B. Laken, dated September 25, 1997.
99.2 Put/Call Agreement between Children's Broadcasting
Corporation and Glenn B. Laken, dated September 25, 1997.
99.3 Letter Agreement between Children's Broadcasting Corporation
and Foothill Capital Corporation, dated September 25, 1997.
99.4 Amendment Number One to Amended and Restated Loan and
Security Agreement between Children's Broadcasting
Corporation and Foothill Capital Corporation, dated
September 24, 1997.
99.5 Warrant issued by Children's Broadcasting Corporation to
Foothill Capital Corporation, dated September 25, 1997.
(Page 7 of 57 Pages)
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EXHIBIT 99.1
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into this 25th day of September,
1997, by and among Children's Broadcasting Corporation, a Minnesota corporation
("Purchaser"), and Glenn B. Laken, a resident of the State of Illinois
("Laken"), Steven B. Nagler, a resident of the state of Illinois ("Nagler"),
Donald Sliter, a resident of the State of Illinois ("Sliter"), and the
individuals or entities listed in Schedule A hereto (Nagler, Sliter and the
individuals listed in Schedule A hereinafter sometimes referred to as the
"Control Group," and Laken and the Control Group hereinafter sometimes
collectively referred to as "Seller" or individually as an "Individual Seller").
WHEREAS, Laken has represented that he is the owner of 420,000 shares (the
"Laken Shares") of Harmony Holdings, Inc., a Delaware corporation ("HHI"); and
WHEREAS, Laken has represented that he owns an option to purchase 200,000
shares of HHI at an exercise price of $1.50 per share (the "Laken Options"); and
WHEREAS, the Control Group represents that it owns an aggregate of 399,500
shares of HHI (the "Control Group Shares"); and
WHEREAS, Laken has offered to sell to Purchaser the Laken Shares and the
Laken Options, and the Control Group has offered to sell to Purchaser the
Control Group Shares, and Purchaser desires to accept the offers of Laken and
the Control Group, subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
1. OWNERSHIP OF HHI SECURITIES.
1.1 LAKEN SECURITIES. Laken represents and warrants that he is the
owner of the following securities of HHI:
(a) the Laken Shares, consisting of 420,000 shares of HHI common
stock and
(b) the Laken Options consisting of an option issued by HHI to
purchase 200,000 shares of HHI common stock at an exercise price of
$1.50 per share the form of which options are attached hereto as
Exhibit A. Laken
(Page 8 of 57 Pages)
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shall execute an assignment of the Laken Options, together with option
exercise letters as requested by Purchaser.
Laken represents that his entire beneficial ownership and interest in the
securities of HHI is set forth in Amendment No. 2 to the Laken Committee's
Schedule 14A on file with the Securities and Exchange Commission (the "Schedule
14A").
1.2 CONTROL GROUP SHARES. The Control Group severally represents and
warrants that its members are the owners of 399,500 shares of common stock of
HHI as follows:
(a) Nagler: 9,974 shares;
(b) Sliter: 180,732 shares;
(c) Control Group members other than Nagler and Sliter: shares
as set forth in Schedule A.
Individual Sellers other than Laken severally represent and warrant that their
entire ownership and interest in HHI is as set forth in the Schedule 14A or
Schedule A to this Agreement.
2. SALE AND PURCHASE OF THE SHARES. Subject to the terms and
conditions hereof, each Individual Seller agrees to sell to Purchaser, and
Purchaser agrees to purchase, the securities described in Sections 1.1 and 1.2.
2.1 LAKEN SHARES. The purchase price payable to Laken for the Laken
Shares shall be $3.15 per share, or an aggregate sum of $1,323,000.
2.2 LAKEN OPTIONS. The purchase price payable to Laken for the Laken
Options shall be $1.65 per option or right, or an aggregate of $330,000.
2.3 CONTROL GROUP SHARES. The purchase price for the Control Group
Shares shall be $2.70 per share, or an aggregate of $1,078,650.
The amounts to be paid pursuant to Sections 2.1, 2.2 and 2.3 are hereinafter
referred to as the "Purchase Price."
3. CLOSING. The closing of the purchase of the Laken Shares, the
Laken Options and the Control Group Shares shall take place as soon as
practicable following the wire transfer of the Purchase Price for the Shares to
Norwest Bank Minnesota, ABA #091000019, for Equity Securities Trading Co.,
Account #48565, to further credit Children's Broadcasting Corporation #127055.
Seller shall transmit the Shares to Equity Securities Trading Co., DTC #368, for
the account of Children's Broadcasting Corporation, Account #127055. Upon
receipt of the Purchase Price and the Shares, Seller and Purchaser shall
(Page 9 of 57 Pages)
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have authorized the payment of the purchase price to Seller and the delivery of
the Shares to Purchaser, pursuant to the Letter of Instructions of even date
herewith.
4. REPRESENTATIONS AND WARRANTIES BY SELLERS. Each Individual
Seller represents and warrants that:
(a) he owns or has a beneficial interest in, and has good and
marketable title to the HHI securities to be sold to Purchaser hereby, and
in the case of Laken, the Laken Options, free and clear of all liens,
security interests and encumbrances, of any kind or nature;
(b) he has duly authorized, executed and delivered this Agreement,
and that the same is the valid and binding agreement of such Seller,
enforceable against such Seller in accordance with its terms, and not in
violation of any agreement to which such Seller is a party;
(c) he has the right, power and authority to transfer, convey and
sell to Purchaser, at the Closing, or has the power to cause the transfer,
conveyance and sale to Purchaser at the Closing, the securities to be sold
by him as described in Sections 1.1 and 1.2 of this Agreement and, upon
consummation of this Agreement, Purchaser will acquire good and marketable
title to such securities, free and clear of all liens, security interests
or other covenants or agreements, other than encumbrances resulting from
actions of Purchaser.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
represents and warrants that this Agreement has been duly authorized by all
necessary action on the part of the Purchaser and is a valid and binding
agreement of Purchaser, enforceable against Purchaser in accordance with its
terms.
6. STANDSTILL AND RELEASE.
6.1 STANDSTILL. Each Individual Seller covenants and agrees that,
for a period of five years from the date of this Agreement, unless such shall
have been specifically invited in writing by the Boards of Directors, HHI or
Purchaser, neither Seller nor any affiliates of Seller, or their agents or
representatives will in any manner, directly or indirectly, (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 HHI or Purchaser or any of their subsidiaries; (ii) any tender or
exchange offer, merger or other business combination involving HHI or Purchaser
or any of their subsidiaries; (iii) any recapitalization, restructuring,
liquidation, dissolution or other extraordinary transaction with respect to HHI
or Purchaser or any of their subsidiaries (iv) 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 HHI or Purchaser or any
of their subsidiaries; or (v) any
(Page 10 of 57 Pages)
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communication with any employee of HHI or Purchaser or any of their subsidiaries
(except that this restriction shall not apply to communications to Harvey
Bibicoff on matters unrelated to HHI, its business, employees or independent
contractors, or to Purchaser); (b) form, join or in any way participate in a
"group" (as defined under the 1934 Act); (c) otherwise act, alone or in concert
with others, to seek to control or influence the management, Board of Directors
or policies of HHI or Purchaser or any of their subsidiaries; (d) take any
action which might force HHI or Purchaser or any of their subsidiaries to make a
public announcement regarding any of the types of matters set forth in (a)
above; or (e) enter into any discussions or arrangements with any third party
with respect to any of the foregoing. Seller also agrees during such period not
to request HHI or Purchaser or any of their subsidiaries (or their directors,
officers, employees or agents), directly or indirectly, to amend or waive any
provision of this paragraph (including this sentence). Each Individual Seller
covenants and agrees that he will not encourage any other shareholder of HHI to
bring actions or assert claims against HHI or Purchaser. The provisions of this
Section 6.1 shall survive the closing of the transactions contemplated by this
Agreement.
6.2 RELEASE BY SELLER. For valuable consideration, receipt of which
is hereby acknowledged, Seller jointly and severally, releases and will release
HHI, its shareholders, officers and directors, and Purchaser, and its
shareholders, officers and directors, and the respective agents, independent
contractors and representatives of the same (collectively, the "Seller Released
Parties") from and against any and all claims, costs or causes of action which
Seller or any Individual Seller has or may have against the Seller Released
Parties, known or unknown, now existing or hereafter arising or relating to this
Agreement, or the ownership or acquisition of the securities of HHI, except such
cause of action or claim as may arise subsequent to the date hereof relating to
the enforcement or performance of this Agreement.
6.3 RELEASE BY PURCHASER. For valuable consideration, receipt of
which is hereby acknowledged, Purchaser hereby releases and will release Seller
and each Individual Seller and their respective agents, independent contractors
and personal representatives (collectively, the "Purchaser Released Parties")
from and against any and all claims, costs or causes of action which Purchaser
may have against Seller or any Individual Seller, known or unknown, now existing
or hereafter arising or relating to this Agreement, or the ownership or
acquisition of the Shares or the Laken Options, except such cause of action or
claim as may arise subsequent to the date hereof relating to the enforcement or
performance of this Agreement.
7. MISCELLANEOUS.
7.1 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.
(Page 11 of 57 Pages)
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7.2 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 Seller, to Steven B. Nagler, c/o Siegel & Capitel, Ltd.,
2275 Half Day Road, Suite 320, Bannockburn, IL 60015;
(b) if to Purchaser, to Christopher T. Dahl, at 724 First Street
North, Minneapolis, Minnesota 55401, with a copy to Lance W. Riley, 724
First Street North, Minneapolis, Minnesota 55401, or at such other address
as Purchaser may specify by written notice to Seller;
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, when received.
7.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. All
representations, warranties, covenants and agreements contained herein shall
survive the execution and delivery of this Agreement, any investigation at any
time made by Purchaser on their behalf, and the sale and purchase of the Shares
and payment therefor.
7.4 LAW TO GOVERN; JURISDICTION. 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. The Seller hereby consents to
jurisdiction in the State of Minnesota.
7.5 REFERENCES. Unless the content indicates otherwise, all
references in the singular shall include the plural, and all references in the
masculine or neuter shall include the feminine.
7.6 BINDING EFFECT. This Agreement shall be binding upon, and inure
to the benefit of, the parties hereto and their respective successors and
assigns.
7.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts all of which, taken together, shall constitute one and the same
Agreement, whether or not all parties hereto have executed the same instrument.
7.8 SEVERABILITY. If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
(Page 12 of 57 Pages)
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IN WITNESS WHEREOF, Seller and Purchaser have caused this Agreement to
be duly executed as of the date first written above.
CHILDREN'S BROADCASTING CORPORATION
By /s/ James G. Gilbertson
------------------------------------
James G. Gilbertson
Chief Operating Officer
INDIVIDUAL SELLERS
/s/ Glenn B. Laken
---------------------------------------
Glenn B. Laken
/s/ Steven B. Nagler
---------------------------------------
Steven B. Nagler
/s/ Donald Sliter
---------------------------------------
Donald Sliter
/s/ Lane Laken, M.D.
---------------------------------------
Lane Laken, M.D.
/s/ Randall Berman
---------------------------------------
Randall Berman
/s/ Robert Toten
---------------------------------------
Robert Toten
/s/ Mark Lenowitz
---------------------------------------
Mark Lenowitz
/s/ Steven Justice
---------------------------------------
Steven Justice
(Page 13 of 57 Pages)
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SCHEDULE A
CONTROL GROUP
NUMBER OF HHI COMMON SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED
------------------------ ------------------
Steven Justice 15,374
Mark Lenowitz 9,000
Lane Laken, M.D. 47,500
Randall Berman 86,920
Robert Toten 50,000
(Page 14 of 57 Pages)
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EXHIBIT 99.2
AGREEMENT
THIS AGREEMENT is made and entered into this 25th day of September, 1997,
by and among Children's Broadcasting Corporation, a Minnesota corporation
("Purchaser"), and Glenn B. Laken, nominee, a resident of the State of Illinois
(hereinafter, the "Seller").
WHEREAS, Seller, as nominee and attorney-in-fact for certain individuals,
has represented that such individuals are the owners of 225,000 shares of the
common stock of Harmony Holdings, Inc., a Delaware corporation ("HHI"); and
WHEREAS, Seller and Purchaser desire to enter into a put and call
arrangement whereby Seller can require Purchaser to purchase such shares on or
after January 31, 1998, and Purchaser shall have the right to purchase such
shares on or before February 15, 1998, all subject to and upon the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
1. OWNERSHIP OF HHI SECURITIES. Seller's principals have a
beneficial interest in 225,000 shares of the common stock of HHI. Seller does
not own or have a beneficial interest in any other securities of HHI except as
set forth in Amendment No. 2 to the Laken Committee's Schedule 14A on file with
the Securities and Exchange Commission. For purposes of this Agreement, the
"Shares" shall refer to the 225,000 shares of common stock of HHI which are
owned by Seller as of the date hereof, reduced by any number of such shares sold
by Seller in brokerage transactions on or after the date hereof and prior to
receipt of a Call Notice (as hereinafter defined). If Seller shall dispose of
any of the Shares, he shall give written notice thereof to Purchaser within five
business days following such disposition. Such written notice shall specify the
number of Shares in such disposition, the name of the owner making such
disposition, the date of such disposition, and the name of the broker-dealer
through which such disposition was made.
2. PUT AGREEMENT. On or after January 31, 1998 and prior to
February 15, 1998, Seller shall have the right to require Purchaser to purchase
the Shares, and Seller shall sell the Shares, upon written notice to Purchaser
(the "Put Notice"), at a price of $2.50 per share (the "Purchase Price"). Upon
receipt of the Put Notice, Purchaser shall purchase the Shares at the Purchase
Price per Share; provided, however, that if Purchaser has not consummated the
sale of its radio stations to Global Broadcasting Company, Inc. pursuant to an
Asset Purchase Agreement dated July 16, 1997, Purchaser may, upon giving written
notice to Seller within five (5) business days following its receipt of the Put
Notice, postpone the purchase of the Shares to not later than 5:00 p.m.,
Minneapolis time, on March 31, 1998
(Page 15 of 57 Pages)
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(the "Extension Date"). Notwithstanding the foregoing, if at any time prior to
Seller's giving the Put Notice to Purchaser, the closing sale price of a Share
of common stock of HHI as quoted or published by Nasdaq, or by such other
quotation system or exchange on which the common stock of HHI may be listed or
published, shall equal or exceed $2.50 per Share (as adjusted for any stock
splits or dividends or other recapitalization events), for at least ten
consecutive trading days the right of Seller to require Purchaser to purchase
the Shares pursuant to this Agreement, or otherwise, shall terminate.
3. CALL AGREEMENT. Purchaser, at any time prior to February 15,
1998, shall have the right to purchase, and Seller agrees to sell, the Shares
(except to the extent Purchaser has previously been required to purchase the
Shares pursuant to a Put Notice) upon giving written notice to Seller (the "Call
Notice") at the Purchase Price per Share. Notwithstanding the foregoing, if at
any time prior to Purchaser's giving the Call Notice to Seller, the bid price
or, if there is no published bid price, the closing sale price of a Share of
common stock of HHI as quoted or published by Nasdaq, or by such other quotation
system or exchange on which the common stock of HHI may be listed or published,
shall equal or exceed $2.50 per Share (as adjusted for any stock splits or
dividends or other recapitalization events), for at least ten consecutive
trading days the right of Purchaser to require Seller to sell the Shares
pursuant to this Agreement, or otherwise, shall terminate.
In addition, the Seller may dispose of any or all of the shares of HHI he
owns prior to actual receipt of the call notice, and in such event, said call
shall terminate as to such shares; provided that Seller gives notice of such
sale within five (5) business days following any such transaction.
4. CLOSING. The closing of the purchase of the securities in the
case of a put by Seller as specified in Section 2 of this Agreement shall take
place on the fifth business day following Purchaser's receipt of the Put Notice,
or, in the case of a call by Purchaser pursuant to Section 3, the closing of the
purchase of the securities shall take place on the fifth business day following
Seller's receipt of the Call Notice (in either case, the "Closing") as specified
in Section 3. The Purchase Price per Share shall be wire-transferred by
Purchaser to a broker-dealer specified by Purchaser. Seller shall deliver the
Shares on the Closing Date through The Depository Trust Company ("DTC") for
delivery to the broker-dealer for the account of Purchaser. The Shares shall be
transferred to Purchaser by the broker-dealer, pursuant to a letter of
instructions from Seller and Purchaser, upon receipt of the Purchase Price by
the broker-dealer. Concurrent therewith, the broker-dealer shall pay the
Purchase Price to Seller by wire transfer.
5. REPRESENTATIONS AND WARRANTIES BY SELLERS. Seller represents and
warrants that:
(a) he is the attorney-in-fact for the beneficial owners of the
Shares;
(Page 16 of 57 Pages)
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(b) he owns, or has beneficial interest in, and has good and
marketable title to, the Shares to be sold to Purchaser hereby, free and
clear of all liens, security interests and encumbrances, of any kind or
nature;
(c) he has duly authorized, executed and delivered this Agreement,
and that the same is the valid and binding agreement of such Seller,
enforceable against such Seller in accordance with its terms, and not in
violation of any agreement to which such Seller is a party;
(d) he has the right, power and authority to transfer, convey and
sell to Purchaser, or to cause the same, at the Closing, the Shares to be
sold by him as described in Section 1 of this Agreement and, upon
consummation of this Agreement, Purchaser will acquire good and marketable
title to such shares, free and clear of all liens, security interests or
other covenants or agreements, other than encumbrances resulting from
actions of Purchaser.
6. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
represents and warrants that this Agreement has been duly authorized by all
necessary action on the part of the Purchaser and is a valid and binding
agreement of Purchaser, enforceable against Purchaser in accordance with its
terms.
7. STANDSTILL AND RELEASE.
7.1 STANDSTILL. In consideration of the covenants and agreements
contained herein, Seller, on behalf of each owner of the Shares, covenants and
agrees that, for a period of five years from the date of this Agreement, unless
such shall have been specifically invited in writing by the Boards of Directors,
HHI or Purchaser, neither he nor any of his affiliates, agents or
representatives, will in any manner, directly or indirectly, (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 HHI or Purchaser or any of their subsidiaries; (ii) any tender or
exchange offer, merger or other business combination involving HHI or Purchaser
or any of their subsidiaries; (iii) any recapitalization, restructuring,
liquidation, dissolution or other extraordinary transaction with respect to HHI
or Purchaser or any of their subsidiaries; (iv) 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 HHI or Purchaser or any
of their subsidiaries; or (v) any communication with any employee of HHI or
Purchaser or any of their subsidiaries (except that this restriction shall not
apply to communications to Harvey Bibicoff on matters unrelated to HHI, its
business, employees or independent contractors, or to Purchaser); (b) form, join
or in any way participate in a "group" (as defined under the 1934 Act);
(c) otherwise act, alone or in concert with others, to seek to control or
influence the management, Board of Directors or policies of HHI or Purchaser or
any of their subsidiaries; (d) take any action which might force HHI or
Purchaser or any of their subsidiaries to make a public announcement regarding
any of the types of matters
(Page 17 of 57 Pages)
<PAGE>
set forth in (a) above; or (e) enter into any discussions or arrangements with
any third party with respect to any of the foregoing. Seller also agrees during
such period not to request HHI or Purchaser or any of their subsidiaries (or
their directors, officers, employees or agents), directly or indirectly, to
amend or waive any provision of this paragraph (including this sentence).
Seller further covenants and agrees that Seller will not encourage other
shareholders of HHI to bring actions or assert claims against HHI or Purchaser.
The provisions of this Section 7.1 shall survive the closing of the transaction
contemplated by this Agreement.
7.2 RELEASE BY SELLER. For valuable consideration, receipt of which
is hereby acknowledged, Seller, as attorney-in-fact and Agent for each
beneficial owner of the Shares, releases and will release HHI, its shareholders,
officers and directors, and Purchaser, and its shareholders, officers and
directors, and the respective agents, independent contractors and
representatives of the same (collectively, the "Seller Released Parties") from
and against any and all claims, costs or causes of action which any of such
individual beneficial owners has or may have against the Seller Released
Parties, known or unknown, now existing or hereafter arising or relating to this
Agreement, or the ownership or acquisition of the securities of HHI, except such
cause of action or claim as may arise subsequent to the date hereof relating to
the enforcement or performance of this Agreement.
7.3 RELEASE BY PURCHASER. For valuable consideration, receipt of
which is hereby acknowledged, Purchaser hereby releases and will release Seller
and each of such beneficial owners and their respective agents, independent
contractors and personal representatives of the same (collectively, the
"Purchaser Released Parties") from and against any and all claims, costs or
causes of action which Purchaser has or may have against the Purchaser Released
Parties, known or unknown, now existing or hereafter arising or relating to this
Agreement, or the ownership or acquisition of the Shares, except such cause of
action or claim as may arise subsequent to the date hereof relating to the
enforcement or performance of this Agreement.
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 Seller, to Steven B. Nagler, c/o Siegel & Capitel, Ltd.,
2275 Half Day Road, Suite 320, Bannockburn, IL 60015;
(Page 18 of 57 Pages)
<PAGE>
(b) if to Purchaser, to Christopher T. Dahl, at 724 First Street
North, Minneapolis, Minnesota 55401, with a copy to Lance W. Riley, at 724
First Street North, Minneapolis, Minnesota 55401, or at such other address
as Purchaser may specify by written notice to Seller;
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, 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, any investigation at any
time made by Purchaser on their behalf, and the sale and purchase of the Shares
and payment therefor.
8.4 LAW TO GOVERN; JURISDICTION. 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. The Seller hereby consents to
jurisdiction in the State of Minnesota.
8.5 REFERENCES. Unless the content indicates otherwise, all
references in the singular shall include the plural, and all references in the
masculine or neuter shall include the feminine.
8.6 BINDING EFFECT. This Agreement shall be binding upon, and inure
to the benefit of, the parties hereto and their respective successors and
assigns.
8.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts all of which, taken together, shall constitute one and the same
Agreement, whether or not all parties hereto have executed the same instrument.
8.8 SEVERABILITY. If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
8.9 LAKEN'S AGENCY AND REPRESENTATIVE CAPACITY. Laken represents and
warrants that he has the authority to execute and deliver this Agreement on
behalf of certain individual owners of the Shares.
8.10 ATTORNEYS FEES. In the event of a breach of this Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees and costs
incurred in enforcing the provisions hereof.
(Page 19 of 57 Pages)
<PAGE>
IN WITNESS WHEREOF, Seller and Purchaser have caused this Agreement to
be duly executed as of the date first written above.
CHILDREN'S BROADCASTING CORPORATION
By /s/ James G. Gilbertson
-------------------------------------
James G. Gilbertson
Chief Operating Officer
/s/ Glenn B. Laken
---------------------------------------
GLENN B. LAKEN, as agent and
representative for and on behalf of the
owners of 225,000 shares of common stock
of Harmony Holdings, Inc.
(Page 20 of 57 Pages)
<PAGE>
<PAGE>
EXHIBIT 99.3
Foothill Partners II, L.P.
Foothill Partners III, L.P.
11111 Santa Monica Boulevard
Los Angeles, California 90025
Gentlemen:
This letter will confirm the agreement of Children's Broadcasting
Corporation (the "Borrower") and its undersigned subsidiaries (the "Guarantors";
the Guarantors and Borrower shall be referred to individually and collectively,
jointly and severally, as the "Company") that Foothill Partners II, L.P. and
Foothill Partners III, L.P. (the "Funds"), in connection with its acquisition of
debt of the Company, will be entitled to the following contractual rights, in
addition to rights to certain non-public financial information, inspection
rights and other rights specifically provided to all lenders under that certain
Amended and Restated Loan and Security Agreement, dated July 1, 1997, between
Foothill Capital Corporation and the Borrower, as amended by that certain
Amendment Number One to Amended and Restated Loan and Security Agreement, dated
September 24, 1997, between Foothill Capital Corporation and the Borrower (as
further amended, restated, supplemented, or otherwise modified from time to
time, the "Loan Agreement"):
(1) The Funds shall be permitted to select one representative
("Representative") to consult with and advise management of the Company on
significant business issues, including management's proposed annual operating
plans, and management will make itself available to meet with that
Representative regularly during each year by telephone and/or at the Company's
facilities at mutually agreeable times, on reasonable prior written notice, for
such consultation and advice and to review progress in achieving such plans.
(2) In the event of any material development to or affecting the Company's
business, the Company shall notify the Representative and provide the
Representative with the opportunity, on reasonable prior written notice, to
consult with and advise management of its views with respect thereto.
(3) The Representative may examine the books and records of the Company
and visit and inspect its facilities and may reasonably request information at
reasonable times and intervals concerning the general status of the Company's
financial condition and operations.
(4) On reasonable prior written notice, the Representative may discuss the
business operations, properties and financial and other condition of the Company
with the Company's officers, employees and directors and with the Company's
independent certified accountants and investment bankers.
(Page 21 of 57 Pages)
<PAGE>
(5) The Funds shall be entitled to request that the Company provide it
when available, with copies of (i) all financial statements, forecasts and
projections provided to or approved by its Board of Directors; (ii) all notices,
minutes, proxy materials, consents and correspondence and other material that it
provides to its Directors and shareholders; (iii) any letter issued to the
Company by its accountants with respect to the Company's internal controls; (iv)
any documents filed by the Company with the Securities and Exchange Commission;
(v) copies of all information, statements and reports provided to any Agent
under the Loan Agreement; and/or (vi) such other business and financial data as
the Representative may reasonably request in writing from time to time.
The Funds agree that they will not disclose to any third party any
information provided to the Funds by the Company hereunder which is not
generally available to the public or which is specifically designated by the
Company as confidential, except with the prior express approval of the Company
or as may otherwise by required by applicable law.
The rights described herein shall apply and continue for so long as the
Funds continue to hold an amount of indebtedness of the Company equal to at
least 25% of the indebtedness of the Company owned by the Funds on the date
hereof; provided that such indebtedness shall be deemed to remain outstanding
notwithstanding an exchange by the Company of such indebtedness for other
indebtedness or securities unless such exchange is in connection with a public
offering of the Company's securities or a merger or reorganization of the
Company.
Very truly yours,
CHILDREN'S BROADCASTING
CORPORATION, a Minnesota corporation
By: /s/ James G. Gilbertson
-----------------------------------
Title: Chief Operating Officer
--------------------------------
CHILDREN'S RADIO OF LOS ANGELES, INC.,
a Minnesota corporation
By: /s/ James G. Gilbertson
-----------------------------------
Title: Chief Operating Officer
--------------------------------
(Page 22 of 57 Pages)
<PAGE>
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
--------------------------------
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
--------------------------------
(Page 23 of 57 Pages)
<PAGE>
CHILDREN'S RADIO OF KANSAS CITY, INC., a
Minnesota corporation
By: /s/ James G. Gilbertson
-----------------------------------
Title: Chief Operating Officer
--------------------------------
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 24 of 57 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
--------------------------------
WZER-AM, INC.,
a Minnesota corporation
By: /s/ James G. Gilbertson
-----------------------------------
Title: Chief Operating Officer
--------------------------------
(Page 25 of 57 Pages)
<PAGE>
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
--------------------------------
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
--------------------------------
(Page 26 of 57 Pages)
<PAGE>
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
--------------------------------
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 27 of 57 Pages)
<PAGE>
AGREED AND ACCEPTED THIS
25th DAY OF SEPTEMBER, 1997.
FOOTHILL PARTNERS II, L.P.
By: /s/ Keith Alexander
-----------------------------------------
Managing General Partner
FOOTHILL PARTNERS III, L.P.
By: /s/ Keith Alexander
-----------------------------------------
Managing General Partner
(Page 28 of 57 Pages)
<PAGE>
EXHIBIT 99.4
AMENDMENT NUMBER ONE TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NUMBER ONE TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT ("Amendment"), is entered into as of September 24, 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.
WHEREAS, Borrower and Foothill are parties to that certain Amended and
Restated Loan and Security Agreement, dated as of July 1, 1997 (the "Loan
Agreement");
WHEREAS, Borrower has requested that Foothill make an additional term
loan in the amount of $5,800,000 (the "Supplemental Term Loan"), and the
proceeds of such Supplemental Term Loan will be used in part to pay Foothill the
amendment fee described in SECTION 8(c) of this Amendment. In addition,
Borrower will use an amount not to exceed $2,750,000 of the proceeds of the
Supplemental Term Loan for the acquisition of more stock of Harmony;
WHEREAS, Borrower and Foothill have agreed to combine the term loans
previously made by Foothill to Borrower and the Supplemental Term Loan into a
single term loan that will repaid by Borrower in accordance with the terms of
this Amendment; and
WHEREAS, Borrower and Foothill desire to amend the Loan Agreement as
provided in this Amendment, it being understood that no repayment of the
obligations under the Loan Agreement is being effected hereby, but merely an
amendment and restatement in accordance with the terms hereof. All capitalized
terms used herein and not defined herein shall have the meanings ascribed to
them in the Loan Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, Foothill and Borrower hereby agree as follows:
1. SECTION 1.1 of the Loan Agreement hereby is amended by adding the
following new defined terms in alphabetical order:
"ACCELERATION EVENT" means one or more of the following: (a) Borrower
fails to obtain approval from the FCC, on or before December 31, 1997, of the
314 filings in connection with the application by Borrower of transfer of
control of Borrower to Global,
(Page 29 of 57 Pages)
<PAGE>
(b) Borrower fails to obtain a fairness opinion issued by a nationally
recognized investment bank reasonably acceptable to Foothill of the fairness,
from a financial point of view, of the consideration provided by Global in the
proposed sale of Borrower to Global on or before October 31, 1997, (c) Borrower
fails to prepare a proxy to its shareholders in connection with the proposed
sale of Borrower to Global (the "Proxy") on or before October 31, 1997, (d)
Borrower fails to submit the Proxy to the Securities and Exchange Commission on
or before October 31, 1997, (e) Borrower fails to mail the Proxy to the
shareholders of Borrower on or before November 30, 1997, and (f) Borrower fails
to conduct a meeting of its shareholders on or before December 31, 1997, at
which the shareholders of Borrower approve of the proposed sale of Borrower to
Global.
"AMENDMENT DATE" means the date of the making of the Supplemental Term
Loan on or after the first date written above.
"GLOBAL" means Global Broadcasting Company.
"HARMONY STOCK VALUE" means as of the date of measurement, the average
per share trading price of the common stock of Harmony of the previous thirty
(30) calendar days MULTIPLIED by the number of shares of Harmony that Borrower
has pledged to Foothill.
"SUPPLEMENTAL TERM LOAN" shall have the meaning ascribed to such term
in the recitals of this Amendment.
"TERM LOAN" has the meaning ascribed to such term in SECTION 2.2(A)
hereof.
"TERM LOAN COMMITMENT" means $22,500,000.
"THIRD WARRANT" means a warrant agreement respecting 200,000 shares of
Borrower's common stock, in form and substance reasonably satisfactory to
Foothill.
"VCOC LETTER" means a letter agreement among Borrower, Guarantors, and
Foothill's Participants that meets the Venture Capital Operating Company
requirements and that is in form and substance reasonably satisfactory to
Foothill.
2. SECTION 2.2 of the Loan Agreement is hereby amended and restated
in its entirety as follows:
2.2 TERM LOAN.
(a) Foothill previously has made the Term Loan to Borrower. As
of the date hereof, Foothill has agreed to make the Supplemental Term Loan to
Borrower in accordance with the terms hereof. Collectively, the Supplemental
Term Loan and the prior terms loans made by Foothill to Borrower shall be known
as the "Term Loan."
(Page 30 of 57 Pages)
<PAGE>
(b) 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. Unless Foothill gives Borrower notice that an Acceleration Event
has occurred, Borrower shall repay the Term Loan in quarterly installments and
such installments shall be due and payable on the following dates in the
following amounts:
----------------------
----------------------
DATE INSTALLMENT
----------------------
3/31/98 $ 500,000
----------------------
6/30/98 $5,000,000
----------------------
9/30/98 $2,000,000
----------------------
12/31/98 $2,000,000
----------------------
3/31/99 $2,000,000
----------------------
6/30/99 $2,000,000
----------------------
9/30/99 $2,000,000
----------------------
12/31/99 $2,000,000
----------------------
3/31/00 $2,000,000
----------------------
6/30/00 $2,000,000
----------------------
9/30/00 $1,000,000
----------------------
----------------------
In the event that an Acceleration Event occurs and Foothill gives
notice to Borrower of the same, Borrower shall repay the Term Loan in quarterly
installments and such installments shall be due and payable on the following
dates in the following amounts:
(Page 31 of 57 Pages)
<PAGE>
----------------------
----------------------
DATE INSTALLMENT
----------------------
3/31/98 $ 500,000
----------------------
6/30/98 $5,000,000
----------------------
9/30/98 $4,000,000
----------------------
12/31/98 $3,000,000
----------------------
3/31/99 $2,000,000
----------------------
6/30/99 $2,000,000
----------------------
9/30/99 $2,000,000
----------------------
12/31/99 $2,000,000
----------------------
3/31/00 $1,000,000
----------------------
6/30/00 $ 500,000
----------------------
9/30/00 $ 500,000
----------------------
----------------------
3. SECTION 2.6(a) of the Loan Agreement is hereby amended and
restated in its entirety as follows:
"Interest Rate. From and after the Amendment Date, all Obligations
shall bear interest at a per annum rate of 3.75 percentage points
above the Reference Rate."
4. SECTION 2.6(c) of the Loan Agreement is hereby amended and
restated in its entirety as follows:
"Default Rate. Upon the occurrence and during the continuation of an
Event of Default, all Obligations shall bear interest at a per annum
rate of 6.75 percentage points above the Reference Rate."
5. The following shall be added to the end of SECTION 4.1 of the
Loan Agreement:
"Notwithstanding the foregoing, in the event that Borrower wishes to
dispose of an individual radio station, Foothill has established
minimum release amounts for the individual radio stations as set forth
on SCHEDULE 4.1. In any event, the sufficiency of consideration for
an individual radio station will be determined by Foothill on a case
by case basis."
(Page 32 of 57 Pages)
<PAGE>
6. The following SECTION 6.21 is hereby added to the Loan Agreement
and shall provide in its entirety as follows:
"6.21 HARMONY STOCK VALUE. Borrower shall maintain a minimum
amount of Harmony stock pledged to Foothill such that the Harmony Stock Value is
not less than $2,600,000, provided, however, that if Borrower fails to maintain
such minimum Harmony Stock Value, Borrower may cure such condition by pledging
to Foothill additional stock of Harmony or other collateral reasonably
satisfactory to Foothill within twenty (20) days of the first date on which the
Harmony Stock Value fell below such minimum amount."
7. The following SECTION 8.15 is hereby added to the Loan Agreement
and shall provide in its entirety as follows:
"8.15 If Borrower or any Guarantor fails or neglects to perform,
keep, or observe any term, provision, covenant, or agreement contained in the
VCOC Letter and applicable to it, if such failure or neglect continues for
twenty (20) days following the date that Foothill gives notice to such Person."
8. CONDITIONS PRECEDENT TO EFFECTIVENESS OF AMENDMENT. The
effectiveness of this Amendment and the obligation of Foothill to make the
Supplemental 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
Amendment Date:
(a) Foothill shall have received executed consents and
reaffirmations from each Guarantor, in form and substance satisfactory to
Foothill;
(b) Foothill shall have received the Third Warrant and such
Third Warrant shall be duly executed, and in full force and effect;
(c) Foothill shall have received an amendment fee of $350,000
which shall be earned in full and non-refundable as of the date hereof. The
payment of such amendment fee shall be paid on the Amendment Date out of the
proceeds of the Supplemental Term Loan; and
(d) Foothill shall have received the VCOC Letter and such VCOC
Letter shall be duly executed, and in full force and effect.
9. CONDITION SUBSEQUENT. As a condition subsequent to the
effectiveness of this Amendment, immediately upon the acquisition or receipt of
stock of Harmony and not later than twenty (20) days following the Amendment
Date, Borrower shall deliver an amendment to the Stock Pledge Agreement to
Foothill by which Borrower pledges 1,707,961 shares of Harmony owned by Borrower
to Foothill.
10. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Foothill that (a) the execution, delivery, and performance of this
Amendment,
(Page 33 of 57 Pages)
<PAGE>
are within its corporate powers, have been duly authorized by all necessary
corporate action, and are not in contravention of any law, rule, or regulation,
or any order, judgment, decree, writ, injunction, or award of any arbitrator,
court, or governmental authority, or of the terms of its charter or bylaws, or
of any contract or undertaking to which it is a party or by which any of its
properties may be bound or affected, and (b) the Loan Agreement, as amended by
this Amendment, constitute Borrower's legal, valid, and binding obligation,
enforceable against Borrower in accordance with its terms.
11. FURTHER ASSURANCES. Borrower shall execute and deliver all
agreements, documents, and instruments, in form and substance satisfactory to
Foothill, and take all actions as Foothill may reasonably request from time to
time, to perfect and maintain the perfection and priority of Foothill's security
interests in the Collateral, and to fully consummate the transactions
contemplated under the Loan Agreement and this Amendment.
12. EFFECT ON LOAN AGREEMENT. The Loan Agreement, as amended hereby,
shall be and remain in full force and effect in accordance with its respective
terms and hereby is ratified and confirmed in all respects. The execution,
delivery, and performance of this Amendment shall not operate as a waiver of or,
except as expressly set forth herein, as an amendment, of any right, power, or
remedy of Lender under the Loan Agreement, as in effect prior to the date
hereof.
13. MISCELLANEOUS.
a. Upon the effectiveness of this Amendment, each reference in
the Agreement to "this Agreement", "hereunder", "herein", "hereof" or words of
like import referring to the Agreement shall mean and refer to the Loan
Agreement as amended by this Amendment.
b. Upon the effectiveness of this Amendment, each reference in
the Loan Documents to the "Loan Agreement", "thereunder", "therein", "thereof"
or words of like import referring to the Agreement shall mean and refer to the
Loan Agreement as amended by this Amendment.
c. This Amendment shall be governed by and construed in
accordance with the laws of the State of California.
d. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Amendment by signing
any such counterpart.
(Page 34 of 57 Pages)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first written above.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ Tricia McLoughlin
---------------------------------------------------
Title: Senior Vice President
-----------------------------------------------
CHILDREN'S BROADCASTING CORPORATION, a
Minnesota corporation
By /s/ James G. Gilbertson
----------------------------------------------------
Title: Chief Operating Officer
------------------------------------------------
(Page 35 of 57 Pages)
<PAGE>
CONSENT, RATIFICATION, AND REAFFIRMATION BY GUARANTORS
Each of the undersigned Guarantors hereby consents to the execution,
delivery, and performance of the foregoing Amendment Number One to 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 36 of 57 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 37 of 57 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 38 of 57 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 39 of 57 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 40 of 57 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 41 of 57 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 42 of 57 Pages)
<PAGE>
EXHIBIT 99.5
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), 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 THE ACT AND SUCH LAWS COVERING THE SECURITIES OR THE COMPANY
RECEIVES AN OPINION OF COUNSEL 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 THE ACT
AND SUCH LAWS.
WARRANT
TO PURCHASE 200,000 SHARES OF
COMMON STOCK OF
CHILDREN'S BROADCASTING CORPORATION
THIS CERTIFIES THAT, for good and valuable consideration, Foothill Capital
Corporation ("Foothill"), or its registered assigns, is entitled to subscribe
for and purchase from Children's Broadcasting Corporation, a Minnesota
corporation (the "Company"), at any time commencing September 25, 1997, up to
and including November 25, 2001, Two Hundred Thousand (200,000) fully paid and
nonassessable shares of the Common Stock of the Company at the price of Three
and 76/100 Dollars ($3.76) per share (the "Warrant Exercise Price"), subject to
the antidilution provisions of Section 5 of this Warrant. Reference is made to
this Warrant in the Amended and Restated Loan and Security Agreement dated July
1, 1997, as amended by that certain Amendment Number One to Amended and Restated
Loan Agreement, dated September 25, 1997 (the "Loan Agreement"), by and between
the Company and Foothill. The shares which may be acquired upon exercise of
this Warrant are referred to herein as the "Warrant Shares." As used herein,
the term "Holder" means Foothill, any party who acquires all or a part of this
Warrant as a registered transferee of Foothill, or any record holder or holders
of the Warrant Shares issued upon exercise, whether in whole or in part, of the
Warrant; the term "Common Stock" means and includes the Company's presently
authorized Common Stock, and shall also include any capital stock of any class
of the Company hereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the Holders thereof to participate in
dividends or in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution, or winding up of the Company.
This Warrant is subject to the following provisions, terms and conditions:
(Page 43 of 57 Pages)
<PAGE>
1. EXERCISE; TRANSFERABILITY.
(a) The rights represented by this Warrant may be exercised by the Holder
hereof, in whole or in part (but not as to a fractional share of Common Stock),
by written notice of exercise (in the form attached hereto) delivered to the
Company at the principal office of the Company prior to the expiration of this
Warrant and accompanied or preceded by the surrender of this Warrant along with
payment of the Warrant Exercise Price for such shares (a) in cash, by check or
by wire transfer of federal funds, (b) to the extent permitted by law, by offset
of the Obligations (as defined in the Loan Agreement), or (c) by a combination
of the methods specified in clauses (a) and (b).
(b) This Warrant may not be sold, transferred, assigned, hypothecated or
divided except as provided in Section 7 hereof.
2. EXCHANGE AND REPLACEMENT. Subject to Sections 1 and 7 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the Company
at its office for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of Warrant Shares purchasable
hereunder, each of such new Warrants to represent the right to purchase such
number of Warrant Shares (not to exceed the aggregate total number purchasable
hereunder) as shall be designated by the Holder at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction, or mutilation of this Warrant, and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver a new Warrant of like tenor, in lieu of this Warrant;
provided, however, that if Foothill shall be such Holder, an agreement of
indemnity by such Holder shall be sufficient for all purposes of this Section 2.
This Warrant shall be promptly canceled by the Company upon the surrender hereof
in connection with any exchange or replacement. The Company shall pay all
expenses, taxes (other than stock transfer taxes), and other charges payable in
connection with the preparation, execution, and delivery of Warrants pursuant to
this Section 2.
3. ISSUANCE OF THE WARRANT SHARES.
(a) The Company agrees that the shares of Common Stock purchased hereby
shall be and are deemed to be issued to the Holder as of the close of business
on the date on which this Warrant shall have been surrendered and the payment
made for such Warrant Shares as provided herein. Subject to the provisions of
the next section, certificates for the Warrant Shares so purchased shall be
delivered to the Holder within a reasonable time, not exceeding fifteen (15)
days after the rights represented by this Warrant shall have been so exercised,
and, unless this Warrant has expired, a new Warrant representing the right to
purchase the number of Warrant Shares, if any, with respect to which this
Warrant shall not then have been exercised shall also be delivered to the Holder
within such time.
(b) Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for Warrant Shares upon exercise of this
Warrant except in
(Page 44 of 57 Pages)
<PAGE>
accordance with exemptions from the applicable securities registration
requirements or registrations under applicable securities laws. Nothing herein,
however, shall obligate the Company to effect registrations under federal or
state securities laws, except as provided in Section 9. If registrations are
not in effect and if exemptions are not available when the Holder seeks to
exercise the Warrant, the Warrant exercise period will be extended, if need be,
to prevent the Warrant from expiring, until such time as either registrations
become effective or exemptions are available, and the Warrant shall then remain
exercisable for a period of at least 45 calendar days from the date the Company
delivers to the Holder written notice of the availability of such registrations
or exemptions. The Holder agrees to execute such documents and make such
representations, warranties, and agreements as may be required solely to comply
with the exemptions relied upon by the Company, or the registrations made, for
the issuance of the Warrant Shares.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees that all
Warrant Shares will, upon issuance, be duly authorized and issued, fully paid,
nonassessable, and free from all taxes, liens, and charges with respect to the
issue thereof. The Company further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved for the purpose of issue
or transfer upon exercise of the purchase rights evidenced by this Warrant a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant.
5. ANTIDILUTION ADJUSTMENTS. The provisions of this Warrant are subject
to adjustment from time to time as provided in this Section 5.
(a) The Warrant Exercise Price shall be adjusted from time to time such
that in case the Company shall hereafter:
(i) pay any dividends on any class of stock of the Company payable in
Common Stock or securities convertible into Common Stock;
(ii) subdivide its then outstanding shares of Common Stock into a
greater number of shares; or
(iii) combine outstanding shares of Common Stock, by reclassification
or otherwise;
then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event (including the maximum number of shares of
Common Stock issuable in respect of any then outstanding securities convertible
into Common Stock), multiplied by the then existing Warrant Exercise Price, by
(b) the total number of shares of Common Stock outstanding immediately after
such event (including the maximum number of shares of Common Stock issuable in
respect of any then
(Page 45 of 57 Pages)
<PAGE>
outstanding securities convertible into Common Stock), and the resulting
quotient shall be the adjusted Warrant Exercise Price per share. An adjustment
made pursuant to this subsection shall become effective immediately after the
record date in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification. If, as a result of an adjustment made pursuant to this
subsection, the Holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive shares of two or more classes of capital stock or
shares of Common Stock and other capital stock of the Company, the Board of
Directors (whose determination shall be conclusive) shall determine, in good
faith, which determination shall be described in a duly adopted board resolution
certified by the Company's Secretary, the allocation of the adjusted Warrant
Exercise Price between or among shares of such classes of capital stock or
shares of Common Stock and other capital stock. All calculations under this
subsection shall be made to the nearest cent or to the nearest 1/100 of a share,
as the case may be. In the event that at any time as a result of an adjustment
made pursuant to this subsection, the Holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive any shares of the
Company other than shares of Common Stock, thereafter the Warrant Exercise Price
of such other shares so receivable upon exercise of any Warrant shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to Common Stock contained in this
Section.
(b) In case the Company shall issue shares of Common Stock, or rights,
options, warrants or convertible or exchangeable securities containing the right
to subscribe for or purchase shares of Common Stock (excluding (i) shares,
rights, options, warrants, or convertible or exchangeable securities described
in subparagraphs (f) or (g) of Section 11 hereof or issued in any of the
transactions described in subparagraphs (a) or (d) of this Section 5, (ii)
shares issued upon the exercise of such rights, options or warrants or upon
conversion or exchange of such convertible or exchangeable securities, and (iii)
the Warrants and any shares issued upon exercise thereof), at a price per share
of Common Stock (determined in the case of such rights, options, warrants, or
convertible or exchangeable securities by dividing (x) the total amount
receivable by the Company in consideration of the sale and issuance of such
rights, options, warrants, or convertible or exchangeable securities, plus the
total minimum consideration payable to the Company upon exercise, conversion, or
exchange thereof by (y) the total maximum number of shares of Common Stock
covered by such rights, options, warrants, or convertible or exchangeable
securities) lower than the Market Price (as such term is defined in Section 8
hereof) per share of Common Stock on the date the Company fixes the offering
price of such shares, rights, options, warrants, or convertible or exchangeable
securities, then the Warrant Exercise Price shall be adjusted so that it shall
equal the price determined by multiplying the Warrant Exercise Price in effect
immediately prior thereto by a fraction (i) the numerator of which shall be the
sum of (A) the number of shares of Common Stock outstanding immediately prior to
such sale and issuance plus (B) the number of shares of Common Stock which the
aggregate consideration received (determined as provided below) for such sale or
issuance would purchase at such Market Price per share, and (ii) the denominator
of which shall be the total number of shares of Common Stock outstanding
immediately after such sale and issuance. Such
(Page 46 of 57 Pages)
<PAGE>
adjustment shall be made successively whenever such an issuance is made. For
the purposes of such adjustment, the maximum number of shares of Common Stock
which the holder of any such rights, options, warrants or convertible or
exchangeable securities shall be entitled to subscribe for or purchase shall be
deemed to be issued and outstanding as of the date of such sale and issuance and
the consideration received by the Company therefor shall be deemed to be the
consideration received by the Company for such rights, options, warrants, or
convertible or exchangeable securities, plus the minimum consideration or
premium stated in such rights, options, warrants, or convertible or exchangeable
securities to be paid for the shares of Common Stock covered thereby. In case
the Company shall sell and issue shares of Common Stock, or rights, options,
warrants, or convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock for a consideration consisting,
in whole or in part, of property other than cash or its equivalent, then in
determining the price per share of Common Stock and the consideration received
by the Company for purposes of the first sentence of this subparagraph (b), the
Board of Directors of the Company shall determine, in good faith, the fair value
of said property, and such determination shall be described in a duly adopted
board resolution certified by the Company's Secretary. In case the Company
shall sell and issue rights, options, warrants, or convertible or exchangeable
securities containing the right to subscribe for or purchase shares of Common
Stock together with one or more other securities as a part of a unit at a price
per unit, then in determining the price per share of Common Stock and the
consideration received by the Company for purposes of the first sentence of this
subparagraph (b), the Board of Directors of the Company shall determine, in good
faith, which determination shall be described in a duly adopted board resolution
certified by the Company's Secretary, the fair value of the rights, options,
warrants, or convertible or exchangeable securities then being sold as part of
such unit. Such adjustment shall be made successively whenever such an issuance
occurs, and in the event that such rights, options, warrants, or convertible or
exchangeable securities expire or cease to be convertible or exchangeable before
they are exercised, converted, or exchanged (as the case may be), then the
Warrant Exercise Price shall again be adjusted to the Warrant Exercise Price
that would then be in effect if such sale and issuance had not occurred, but
such subsequent adjustment shall not affect the number of Warrant Shares issued
upon any exercise of Warrants prior to the date such subsequent adjustment is
made.
(c) Upon each adjustment of the Warrant Exercise Price pursuant to
Section 5(a) or Section 5(b) above, the Holder of each Warrant shall thereafter
(until another such adjustment) be entitled to purchase at the adjusted Warrant
Exercise Price the number of shares, calculated to the nearest full share,
obtained by multiplying the number of shares specified in such Warrant (as
adjusted as a result of all adjustments in the Warrant Exercise Price in effect
prior to such adjustment) by the Warrant Exercise Price in effect prior to such
adjustment and dividing the product so obtained by the adjusted Warrant Exercise
Price.
(d) In case of any consolidation or merger to which the Company is a
party, other than a merger or consolidation in which the Company is the
continuing corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, or in the case of any statutory exchange of
(Page 47 of 57 Pages)
<PAGE>
securities with another corporation (including any exchange effected in
connection with a merger of a third corporation into the Company), there shall
be no adjustment under subsection (a) of this Section above but the Holder of
each Warrant then outstanding shall have the right thereafter to convert such
Warrant into the kind and amount of shares of stock and other securities and
property which the Holder would have owned or have been entitled to receive
immediately after such consolidation, merger, statutory exchange, sale, or
conveyance had such Warrant been converted immediately prior to the effective
date of such consolidation, merger, statutory exchange, sale, or conveyance and
in any such case, if necessary, appropriate adjustment shall be made in the
application of the provisions set forth in this Section with respect to the
rights and interests thereafter of any Holders of the Warrant, to the end that
the provisions set forth in this Section shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation to any shares of
stock and other securities and property thereafter deliverable on the exercise
of the Warrant. The provisions of this subsection shall similarly apply to
successive consolidations, mergers, statutory exchanges, sales or conveyances.
(e) Upon any adjustment of the Warrant Exercise Price, then and in each
such case, the Company shall give written notice thereof, by first-class mail,
postage prepaid, addressed to the Holder as shown on the books of the Company,
which notice shall state the Warrant Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares of
Common Stock purchasable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
6. NO VOTING RIGHTS. This Warrant shall not entitle the Holder to any
voting rights or other rights as a stockholder of the Company.
7. NOTICE OF TRANSFER OF WARRANT OR RESALE OF THE WARRANT SHARES.
(a) Subject to the sale, assignment, hypothecation, or other transfer
restrictions set forth in Section 1 hereof, the Holder, by acceptance hereof,
agrees to give written notice to the Company before transferring this Warrant or
transferring any Warrant Shares of such Holder's intention to do so, describing
briefly the manner of any proposed transfer. Promptly upon receiving such
written notice, the Company shall present copies thereof to the Company's
counsel and to counsel to the original purchaser of this Warrant. If in the
opinion of each such counsel the proposed transfer may be effected without
registration or qualification (under any federal or state securities laws), the
Company, as promptly as practicable, shall notify the Holder of such opinion,
whereupon the Holder shall be entitled to transfer this Warrant or to dispose of
Warrant Shares received upon the previous exercise of this Warrant, all in
accordance with the terms of the notice delivered by the Holder to the Company;
provided that an appropriate legend may be endorsed on the Warrant or the
certificates for such Warrant Shares respecting restrictions upon transfer
thereof necessary or advisable in the opinion of counsel and satisfactory to the
Company to prevent further transfers which would be in violation of Section 5 of
the Securities Act of 1933, as amended (the "Act"), and applicable state
securities laws; and provided further that the prospective
(Page 48 of 57 Pages)
<PAGE>
transferee or purchaser shall execute such documents and make such
representations, warranties, and agreements as may be reasonably required solely
to comply with the exemptions relied upon by the Company or the Holder for the
transfer or disposition of the Warrant or Warrant Shares.
(b) If in the opinion of counsel referred to in this Section 7, the
proposed transfer or disposition of this Warrant or such Warrant Shares
described in the written notice given pursuant to this Section 7 may not be
effected without registration or qualification of this Warrant or such Warrant
Shares, the Company shall promptly give written notice thereof to the Holder.
8. FRACTIONAL SHARES. Fractional shares shall not be issued upon the
exercise of this Warrant, but in any case where the Holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional share, the Company shall, upon the exercise of this Warrant for the
largest number of whole shares then called for, pay a sum in cash equal to the
sum of (a) the excess, if any, of the Market Price of such fractional share over
the proportional part of the Warrant Exercise Price represented by such
fractional share, plus (b) the proportional part of the Warrant Exercise Price
represented by such fractional share. For purposes of this Section, the term
"Market Price" with respect to shares of Common Stock of any class or series
means the last reported sale price or, if none, the average of the last reported
closing bid and asked prices on any national securities exchange, the Nasdaq
National Market or Nasdaq SmallCap Market, or if not listed on a national
securities exchange or quoted on Nasdaq, the average of the last reported
closing bid and asked prices as reported in the "pink sheets" or other standard
compilation of quotations by market makers in the over-the-counter market.
9. REGISTRATION RIGHTS.
(a) If at any time after September 25, 1997 and on or before November 25,
2001, the Company proposes to register under the Act (except by a Form S-4 or
Form S-8 Registration Statement or any successor forms thereto) or qualify for a
public distribution under Section 3(b) of the Act, any of its equity securities
or debt with equity features, it will give written notice to all Holders of this
Warrant, any Warrants issued pursuant to Section 2 or Section 3(a) hereof, and
any Warrant Shares of its intention to do so and, on the written request of any
such Holder given within twenty (20) days after receipt of any such notice
(which request shall specify the interest in such Warrants or the Warrant Shares
intended to be sold or disposed of by such Holder and describe the nature of any
proposed sale or other disposition thereof), the Company will use its best
efforts to cause all Warrant Shares, the Holders of which shall have requested
the registration or qualification thereof, to be included in such Registration
Statement proposed to be filed by the Company; provided, however, that if a
greater number of Warrant Shares is offered for participation in the proposed
offering than in the reasonable opinion of the managing underwriter of the
proposed offering can be accommodated without adversely affecting the proposed
offering, then the amount of Warrants and Warrant Shares proposed to be offered
by such Holders for registration, as well as the number of securities of any
other selling stockholders
(Page 49 of 57 Pages)
<PAGE>
participating in the registration, shall be proportionately reduced to a number
deemed satisfactory by the managing underwriter. For purposes of this Section
9(a), the Holders who have requested registration of Warrant Shares to be
acquired upon the exercise of Warrants not theretofore exercised shall furnish
the Company with an undertaking that they or the underwriters or other persons
to whom such Warrants will be transferred have undertaken to exercise such
Warrants and to sell, transfer or otherwise dispose of the Warrant Shares
received upon exercise of such Warrants in such registration.
(b) Upon request made any time not earlier than February 1, 1998 and on or
before November 25, 2001, by Holders of Warrants and Warrant Shares (together,
the "Securities") representing at least fifty percent (50%) of the Securities
then outstanding, the Company will, at its expense, promptly take all necessary
steps to register or qualify all of the Warrant Shares under Section 3(b) or
Section 5 of the Act and such state laws as such Holders may reasonably request
and, if so requested by such Holders, the Company shall use its best efforts to
cause such registration to be underwritten on a firm commitment basis; provided
that the Company shall not be obligated to effect more than one (1) such
registration pursuant to this Section 9(b) unless, in such initial registration,
the Company shall have been unable to effect the registration of all of the
Warrant Shares, the Holders of which have requested inclusion in such
registration, (whether then outstanding or issuable upon the exercise of
Warrants then outstanding); in which case, the Company shall be obligated to
effect one (1) additional registration pursuant to this Section 9(b) when
requested by Holders who have not sold all of their Warrant Shares. For
purposes of this Section 9(b), the Holders who have requested registration of
Warrant Shares to be acquired upon the exercise of Warrants not theretofore
exercised shall furnish the Company with an undertaking that they or the
underwriters or other persons to whom such Warrants will be transferred have
undertaken to exercise such Warrants and to sell, transfer or otherwise dispose
of the Warrant Shares received upon exercise of such Warrants in such
registration. In the event of an underwritten offering pursuant to this Section
9(b), the Holders requesting registration of the Warrant Shares being registered
(i) shall be entitled to select the underwriter; PROVIDED, that the underwriter
so selected shall be subject to approval by the Company, which approval shall
not be withheld unreasonably, and (ii) must agree to all usual and customary
underwriting terms and conditions including, but not limited to, any lock-up
period imposed on selling Holders (not to exceed 180 days); PROVIDED, HOWEVER,
that the Company shall use its reasonable best efforts to cause each Holder of a
material number of shares of Common Stock to enter into similar lock-up
agreements in respect to such offering. The Company shall keep effective and
maintain any registration, qualification, notification or approval specified in
this paragraph for such period as may be necessary for the Holders of the
Warrants and the Warrant Shares to dispose thereof and from time to time shall
amend or supplement, at the Company's expense, the prospectus used in connection
therewith to the extent necessary in order to comply with applicable law,
provided that the Company shall not be obligated to maintain any registration
for a period of more than six (6) months after effectiveness, except that a
Form S-3 Registration Statement or successor thereof shall be maintained for up
to twelve (12) months after effectiveness. Notwithstanding the foregoing, if a
greater number of securities is offered for participation in the proposed
offering pursuant to this Section 9(b) than in the reasonable
(Page 50 of 57 Pages)
<PAGE>
opinion of the managing underwriter of the proposed offering can be
accommodated without adversely affecting the proposed offering, then the
securities to be included in the proposed offering shall be included as follows:
first, the amount of the Warrants and Warrant Shares proposed to be offered by
the Holders for registration; and second, the number of other securities of the
Company and of any other selling stockholders participating in the registration
shall be proportionately reduced to a number deemed satisfactory by the managing
underwriter.
(c) With respect to each inclusion of securities in a Registration
Statement pursuant to Section 9(a) or 9(b) above, the Company shall bear the
following fees, costs, and expenses: all registration, filing and NASD fees,
Nasdaq fees, printing expenses, fees and disbursements of counsel and
accountants for the Company, reasonable fees and disbursements for one (1)
counsel for all the Holders, fees and disbursements of counsel for the
underwriter or underwriters of such securities (if the offering is underwritten
and the Company is required to bear such fees and disbursements), all internal
expenses, the premiums and other costs of policies of insurance against
liability arising out of the public offering, and legal fees and disbursements
and other expenses of complying with state securities laws of any jurisdictions
in which the securities to be offered are to be registered or qualified. Except
as set forth in the foregoing sentence, fees and disbursements of special
counsel and accountants for the selling Holders, underwriting discounts and
commissions, and transfer taxes for selling Holders and any other expenses
relating to the sale of securities by the selling Holders shall be borne by the
selling Holders.
(d) The Company hereby indemnifies each of the Holders of this Warrant and
of any Warrant Shares, and the officers and directors and each other person, if
any, who control such Holders, within the meaning of Section 15 of the Act,
against all losses, claims, damages, and liabilities caused by (1) any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus (and as amended or supplemented if the
Company shall have furnished any amendments thereof or supplements thereto), any
Preliminary Prospectus or any state securities law filings; (2) any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, or liabilities are caused by any untrue statement
or omission contained in information furnished in writing to the Company by such
Holder expressly for use therein; and each such Holder by its acceptance hereof
severally agrees that it will indemnify and hold harmless the Company, each of
its officers who signs such Registration Statement, and each person, if any, who
controls the Company, within the meaning of Section 15 of the Act, with respect
to losses, claims, damages, or liabilities which are caused by any untrue
statement or omission contained in information furnished in writing to the
Company by such Holder expressly for use therein. Unless otherwise required by
applicable law or judicial interpretation thereof, the liability of any selling
Holder hereunder shall not be greater in amount than the dollar amount of the
proceeds received by such Holder upon the sale of the Securities giving rise to
such indemnification obligation.
(Page 51 of 57 Pages)
<PAGE>
(e) The Company shall not file or permit the filing of any registration or
comparable statement which refers to any Holder by name or otherwise as the
Holder of any securities of the Company unless such reference to such Holder is
specifically required by the Act or any similar federal statute then in force.
(f) In connection with the preparation and filing of each registration
statement under the Act pursuant to this Section 9, the Company shall give the
selling Holders under such registration statement, their underwriters, if any,
and their respective counsel and accountants, the opportunity to participate in
the preparation of such registration statement, each prospectus included therein
or filed with the Securities and Exchange Commission (the "Commission"), and
each amendment thereof or supplement thereto, and will give each of them such
access to its books and records and such opportunities to discuss the business
of the Company with its officers and the independent public accountants who have
certified its financial statements as shall be necessary, in the opinion of such
Holders' and such underwriters' respective counsel, to conduct a reasonable
investigation within the meaning of the Act.
(g) If the indemnification provided for in Section 9(d) hereof from the
indemnifying party is unavailable to an indemnified party hereunder in respect
of any losses, claims, damages, liabilities, or expenses referred to herein,
then the indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of losses, claims, damages, liabilities, or expenses in such proportion
as is appropriate to reflect the relative fault of the indemnifying party and
indemnified party in connection with the actions which resulted in such losses,
claims, damages, liabilities, or expenses, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and
indemnified party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified party, and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities,
and expenses referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding. In no event shall the liability of any selling
Holder hereunder be greater in amount than the dollar amount of the proceeds
received by such Holder upon the sale of the Securities giving rise to such
contribution obligation. The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 9(g) were determined by pro
rata allocation or by any other method of allocation which does not take into
account the equitable considerations referred to in this Section 9(g). No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person or entity
who was not guilty of such fraudulent misrepresentation.
(h) The Company shall not after September 25, 1997 (the "Date of Grant"),
grant additional registration rights which conflict with the rights under this
Section 9.
(Page 52 of 57 Pages)
<PAGE>
10. RIGHT TO CONVERT WARRANT INTO COMMON STOCK; NET ISSUANCE.
(a) RIGHT TO CONVERT. In addition to and without limiting the rights
of the Holder under the terms of this Warrant, the Holder shall have the right
to convert this Warrant or any portion thereof (the "Conversion Right") into
shares of Common Stock as provided in this Section 10 at any time or from time
to time during the term of this Warrant. Upon exercise of the Conversion Right
and with respect to a particular number of shares subject to this Warrant (the
"Converted Warrant Shares"), the Company shall deliver to the Holder (without
payment by the Holder of any exercise price or any cash or other consideration)
that number of shares of fully paid and nonassessable Common Stock equal to the
quotient obtained by dividing (i) the value of this Warrant (or the specified
portion hereof) on the Conversion Date (as defined in subsection (b) hereof),
which value shall be equal to (A) the aggregate Market Price of the Converted
Warrant Shares issuable upon exercise of this Warrant (or the specified portion
hereof) on the Conversion Date less (B) the aggregate Warrant Exercise Price of
the Converted Warrant Shares immediately prior to the exercise of the Conversion
Right by (ii) the Market Price of one share of Common Stock on the Conversion
Date.
Expressed as a formula, such conversion shall be computed as follows:
X= A - B
-----
Y
Where: X = the number of shares of Common Stock that may be
issued to holder
Y = the Market Price (FMV) of one share of Common
Stock
A = the aggregate FMV (i.e., FMV x Converted Warrant
Shares)
B = the aggregate Warrant Exercise Price (i.e.,
Converted Warrant Shares x Warrant Price)
No fractional shares shall be issuable upon exercise of the Conversion
Right, and, if the number of shares to be issued determined in accordance with
the foregoing formula is other than a whole number, the Company shall pay to the
holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date. For purposes of Section 9 of this
Warrant, Warrant Shares issued pursuant to the Conversion Right shall be treated
as if they were issued upon the exercise of this Warrant.
(b) METHOD OF EXERCISE. The Conversion Right may be exercised by the
Holder by the surrender of this Warrant at the principal office of the Company
together with a written statement specifying that the Holder thereby intends to
exercise the Conversion
(Page 53 of 57 Pages)
<PAGE>
Right and indicating the number of shares subject to this Warrant which are
being surrendered (referred to in subsection (a) hereof as the Converted Warrant
Shares) in exercise of the Conversion Right. Such conversion shall be effective
upon receipt by the Company of this Warrant together with the aforesaid written
statement, or on such later date as is specified therein (the "Conversion
Date"). Certificates for the shares issuable upon exercise of the Conversion
Right and, if applicable, a new warrant evidencing the balance of the shares
remaining subject to this Warrant, shall be issued as of the Conversion Date and
shall be delivered to the holder within thirty (30) days following the
Conversion Date.
(c) DETERMINATION OF MARKET PRICE. For purposes of this Section 10,
"Market Price" of a share of Common Stock shall have the meaning set forth in
Section 8 above.
11. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants
to the Holder of this Warrant as follows:
(a) This Warrant has been duly authorized and executed by the Company and
is a valid and binding obligation of the Company enforceable in accordance with
its terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and the rules of law or principles at
equity governing specific performance, injunctive relief and other equitable
remedies;
(b) The Warrant Shares have been duly authorized and reserved for issuance
by the Company and, when issued in accordance with the terms hereof, will be
validly issued, fully paid and nonassessable;
(c) The rights, preferences, privileges and restrictions granted to or
imposed upon the Common Stock and the holders thereof are as set forth in the
articles of incorporation of the Company, as amended to the date of grant (as so
amended, the "Articles"), a true and complete copy of which has been delivered
to Foothill;
(d) The execution and delivery of this Warrant are not, and the issuance
of the Warrant Shares upon exercise of this Warrant in accordance with the terms
hereof will not be, inconsistent with the Articles or by-laws of the Company, do
not and will not contravene, in any material respect, any governmental rule or
regulation, judgment or order applicable to the Company, and do not and will not
conflict with or contravene any provision of, or constitute a default under, any
indenture, mortgage, contract or other instrument of which the Company is a
party or by which it is bound or require the consent or approval of, the giving
of notice to, the registration or filing with or the taking of any action in
respect of or by, any Federal, state or local government authority or agency or
other person, except for the filing of notices pursuant to federal and state
securities laws, which filings will be effected by the time required thereby;
(e) There are no actions, suits, audits, investigations or proceedings
pending or, to the knowledge of the Company, threatened against the Company in
any court or before
(Page 54 of 57 Pages)
<PAGE>
any governmental commission, board or authority which, if adversely determined,
will have a material adverse effect on the ability of the Company to perform its
obligations under this Warrant;
(f) The authorized capital stock of the Company consists of Fifty Million
(50,000,000) shares of Common Stock, of which Six Million Four Hundred
Twenty-Nine Thousand One Hundred Fifteen (6,429,115) shares were issued and
outstanding as of the close of business on September 19, 1997, and Two Hundred
Ninety Thousand Two Hundred Thirteen (290,213) shares of Preferred Stock, of
which all such shares were issued and outstanding as of the Date of Grant. All
such outstanding shares have been validly issued and are fully paid,
nonassessable shares free of preemptive rights;
(g) Except for the capital stock issuable pursuant to the 1991 Incentive
Stock Option Plan, the 1994 Director Stock Option Plan, the 1994 Stock Option
Plan, the 1996 Employee Stock Purchase Plan, Non-Qualified Stock Options, and
any other rights, options or warrants issuable or outstanding as of the Date of
Grant as disclosed in the Company's filings with the Commission, there are no
subscriptions, rights, options, warrants or calls relating to any shares of the
Company's capital stock, including any right of conversion or exchange under any
outstanding security or other instrument; and
(h) Except as disclosed in the Company's filings with the Commission, the
Company is not subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of its capital stock or any security
convertible into or exchangeable for any of its capital stock.
12. PUT OPTION.
(a) PUT OPTION OF THE WARRANT HOLDER. At any time on or after September
25, 1998 and during the term hereof (the "Put Exercise Period"), the holder
shall have the right (but not the obligation) to require the Company to
repurchase ("put") this Warrant from the holder at an aggregate purchase price,
equal to the product of (i) the positive difference (if any) between (A) the
Warrant Exercise Price as of September 25, 1997 PLUS Two Dollars ($2.00),
subject to adjustments pursuant to Section 12(b) hereof (as adjusted from time
to time, the "Put Option Per Share Price"), MINUS (B) the average Market Price
of one (1) share of Common Stock for the ten (10) consecutive trading days
ending on the date of the Put Notice (as defined below), MULTIPLIED BY (ii) the
number of Shares issuable upon exercise of this Warrant as of the date of the
Put Notice. Such put right shall be exercisable by written notice (the "Put
Notice") given to the Company during the Put Exercise Period. The Company shall
effect the repurchase of this Warrant pursuant to the Put Notice by paying the
purchase price therefor in cash to the holder not more than five (5) business
days after receipt by the Company of the Put Notice; and at such time the holder
shall deliver to the Company the Warrant to be repurchased, properly endorsed
for transfer.
(b) ADJUSTMENT OF THE PUT OPTION PER SHARE PRICE. Upon each adjustment in
the Warrant Price pursuant to Section 5 hereof, the Put Option Per Share Price
shall be
(Page 55 of 57 Pages)
<PAGE>
adjusted to that price determined by multiplying the Put Option Per Share Price
in effect immediately prior to such date of adjustment, by a fraction (i) the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such adjustment, and (ii) the denominator of
which shall be the total number of shares of Common Stock outstanding
immediately after such adjustment.
(Page 56 of 57 Pages)
<PAGE>
IN WITNESS WHEREOF, Children's Broadcasting Corporation has caused this
Warrant to be signed by its duly authorized officer this 25th day of September,
1997.
Children's Broadcasting Corporation
By /s/ James G. Gilbertson
------------------------------------
Name: James G. Gilbertson
Its: Chief Operating Officer
(Page 57 of 57 Pages)
