<PAGE>
As filed with the Securities and Exchange Commission on October ___, 1996
Registration No. 333-______
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
CHILDREN'S BROADCASTING CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 5961 41-1663712
(State or other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Identification Number)
Organization) Code Number)
724 FIRST STREET NORTH
MINNEAPOLIS, MINNESOTA 55401
(612) 338-3300
(Address and telephone number, including area code, of
registrant's principal executive offices)
CHRISTOPHER T. DAHL, PRESIDENT
CHILDREN'S BROADCASTING CORPORATION
724 FIRST STREET NORTH
MINNEAPOLIS, MINNESOTA 55401
(612) 338-3300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
AVRON L. GORDON, ESQ. LANCE W. RILEY, ESQ.
BRIGGS AND MORGAN, P.A. CHILDREN'S BROADCASTING
2400 IDS CENTER CORPORATION
MINNEAPOLIS, MINNESOTA 55402 724 FIRST STREET NORTH
(612) 334-8455 MINNEAPOLIS, MINNESOTA 55401
(612) 330-9521
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
---------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: /x/
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box: / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SHARE(1) PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK ($.02 PAR VALUE) . . . . 1,125,580 $5.25 $5,909,295 $2,038
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c)
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED OCTOBER__, 1996
PROSPECTUS
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1,125,580 SHARES
CHILDREN'S BROADCASTING CORPORATION
COMMON STOCK
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This Prospectus relates to 1,125,580 shares of Common Stock (the "Shares"),
par value $.02 per share (the "Common Stock), of Children's Broadcasting
Corporation (the "Company") that may be offered for sale for the account of
certain shareholders of the Company as stated herein under the heading "Selling
Shareholders." No period of time has been fixed within which the Shares may be
offered or sold. The Company's Common Stock is traded on the Nasdaq National
Market under the symbol "AAHS." On September 30, 1996, the average of the high
and low prices of the Common Stock on the Nasdaq National Market was $5.1875 per
share.
The Selling Shareholders have advised the Company that sales of the Shares
by them, or by their pledgees, donees, transferees or other successors in
interest, may be made from time to time in the over-the-counter market, through
negotiated transactions or otherwise at market prices prevailing at the time of
sale or at negotiated prices. The Shares may be sold by one or more of the
following methods: (a) a block trade in which the broker or dealer so engaged
will attempt to sell the Shares as agent but may position and resell a portion
of the block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; and (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers. Sales may be made
pursuant to this Prospectus to or through broker-dealers who may receive
compensation in the form of discounts, concessions or commissions from the
Selling Shareholders or the purchasers of Common Stock for whom such
broker-dealer may act as agent or to whom they may sell as principal, or both
(which compensation as to a particular broker-dealer may be in excess of
customary commissions). One or more supplemental prospectuses will be filed
pursuant to Rule 424 under the Securities Act of 1933, as amended (the
"Securities Act") to describe any material arrangements for the sales of the
Shares when such arrangements are entered into by any of the Selling
Shareholders and any other broker-dealers that participate in the sale of the
Shares.
The Selling Shareholders and any broker-dealers or other persons acting on
their behalf in connection with the sale of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commissions
received by them and any profit realized by them on the resale of the Shares as
principals may be deemed to be underwriting commissions under the Securities
Act. As of the date hereof, there are no special selling arrangements between
any broker-dealer or other person and any Selling Shareholder.
The Company will not receive any part of the proceeds of any sales of
Shares pursuant to this Prospectus. Pursuant to the terms of registration
rights granted to the Selling Shareholders, the Company will pay all the
expenses of registering the shares, except for selling expenses incurred by the
Selling Shareholders in connection with this offering, including any fees and
commissions payable to broker-dealers or other persons, which will be borne by
the Selling Shareholders. In addition, such registration rights provide for
certain other usual and customary terms, including indemnification by the
Company of the Selling Shareholders against certain liabilities arising under
the Securities Act.
THE SHARES INVOLVE CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 7
OF THIS PROSPECTUS.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------
THE DATE OF THIS PROSPECTUS IS _________________, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company pursuant to the Exchange
Act may be inspected and copied at the public reference facilities maintained by
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the Commission located at Seven World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
can also be obtained from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a Web site that contains reports, proxy
statements and other information regarding registrants that file electronically
with the Commission at http://www.sec.gov. In addition, the Company's Common
Stock is quoted on the NASDAQ National Market System. Reports, proxy statements
and other information concerning the Company can be inspected and copied at the
Public Reference Room of the National Association of Securities Dealers, Inc.,
1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a registration statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"). This
Prospectus does not contain all of the information, exhibits and undertakings
set forth in the Registration Statement, certain parts of which are omitted as
permitted by the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement which may be
inspected and copied in the manner and at the sources described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
pursuant to the Exchange Act are incorporated into this Prospectus by reference:
(a) The Company's Annual Report on Form 10-KSB for the year ended December
31, 1995 (File No. 0-21534) filed on March 28, 1996.
(b) The Company's Quarterly Reports on Form 10-QSB for the fiscal quarters
ended March 31, 1996 and June 30, 1996 (File No. 0-21534) filed on
May 3, 1996 and August 12, 1996, respectively, and amended by Form
10-QSB/A for the fiscal quarter ended June 30, 1996 (File No. 0-21534)
filed on October 17, 1996.
(c) The description of the Company's Common Stock contained in its
Registration Statement on Form S-2 (No. 33-80721) as filed with the
Commission on December 21, 1995 and amended by Amendment Nos. 1, 2, 3
and 4 filed on February 1, February 20, February 27 and February 28,
1996, respectively.
(d) The Company's 8-K Report filed on January 16, 1996 (File No. 0-21534),
relating to the bridge loans from Special Situations Fund III, L.P.
and Special Situations Cayman Fund, L.P.
(e) The Company's 8-K Report filed on June 19, 1996 (File No. 0-21534),
relating to acquisition of Radio Elizabeth, Inc.
(f) The Company's 8-K/A Report filed on June 21, 1996 (File No. 0-21534),
relating to acquisition of Radio Elizabeth, Inc.
(g) The Company's 8-K Report filed on June 18, 1996 (File No. 0-21534),
relating to acquisition of the assets of Radio Station WCAR-AM.
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<PAGE>
(h) The Company's 8-K/A Report filed on June 21, 1996 (File No. 0-21534),
relating to acquisition of the assets of Radio Station WCAR-AM.
(i) The Company's 8-K Report filed on July 3, 1996 (File No. 0-21534),
relating to changes in the Company's certifying accountant.
(j) The Company's 8-K Report filed on July 8, 1996 (File No. 0-21534),
relating to the safe harbor for forward-looking statements.
(k) The Company's 8-K Report filed on July 30, 1996 (File No. 0-21534),
relating to ABC Radio Networks' termination of its joint operations
agreement with the Company.
(l) The Company's 8-K Report filed on July 31, 1996 (File No. 0-21534),
relating to the Company's engagement of Southcoast Capital
Corporation.
(m) The Company's 8-K Report filed on October 3, 1996 (File No. 0-21534),
relating to the Company filing a lawsuit in United States District
Court for the District of Minnesota against The Walt Disney Company
and ABC Radio Networks, Inc.
(n) The Company's 8-K Report filed on October 17, 1996 (File No.
0-21534), relating to the Company filing Form 10-QSB/A regarding the
write-off of a deferred warrant expense resulting from the termination
by ABC RAdio Networks, Inc. of its joint operating agreement with the
Company.
(o) The Company's Definitive Schedule 14A (Proxy Statement) filed on
August 26, 1996 (File No. 0-21534), relating to the Company's Annual
Meeting of Shareholders scheduled for September 30, 1996.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering hereunder shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents.
Any statement contained herein or in a document all or any portion of which
is incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide, without charge, to each person to whom this
Prospectus is delivered, upon written or oral request of any such person, a copy
of any or all of the foregoing documents (other than exhibits to such documents
which are not specifically incorporated by reference in such documents).
Written requests for such copies should be directed to the Company at 724 First
Street North, Minneapolis, Minnesota 55401, Attention: Chief Financial Officer.
Telephone requests may be directed to the office of the Chief Financial Officer
of the Company at (612) 338-3300.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED BY THE MORE DETAILED INFORMATION AND
CONSOLIDATED FINANCIAL STATEMENTS APPEARING ELSEWHERE OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, INFORMATION IN THIS
PROSPECTUS GIVES EFFECT TO A ONE-FOR-TWO REVERSE STOCK SPLIT WITH RESPECT TO THE
COMMON STOCK EFFECTED ON JANUARY 23, 1996.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. PURCHASERS OF THE COMPANY'S COMMON STOCK ARE CAUTIONED THAT THE
COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN
THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE THOSE FACTORS DISCUSSED HEREIN UNDER "RISK FACTORS" AND
ELSEWHERE IN THE PROSPECTUS, INCLUDING THE COMPANY'S FORM 8-K REPORT FILED JULY
8, 1996, RELATING TO THE SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.
THE COMPANY
Children's Broadcasting Corporation is the only full-time national
broadcaster of children's radio programming in the United States. The Company
develops, produces and distributes programming that is entertaining and
informative, and directed to the interests and radio listening patterns of
pre-teenage children and their families. The Company's Radio AAHS-Registered
Trademark-(*) format provides 24-hour programming featuring music, stories,
call-in segments, quizzes and current events features. The programming varies
by time of day in order to attract that component of its prospective audience
most likely to be listening. The programming originates at the Company's
flagship station, WWTC in Minneapolis, Minnesota and is distributed via
satellite to a network of radio stations around the country, which includes
stations owned or operated by the Company as well as affiliated stations owned
by third parties.
The Company's strategy is to acquire radio stations in the top 15 markets,
thereby securing the network's presence and continuity in those key markets.
Pursuant to that strategy, the Company has acquired stations serving the New
York City, Los Angeles, Dallas, Detroit and Philadelphia markets and entered
into a purchase agreement on September 11, 1996, to acquire radio station
WAUR-AM in the Chicago market. During the nine months ended September 30, 1996,
the Company has acquired or contracted to acquire radio stations covering the
New York City, Detroit, Philadelphia and Chicago markets. Assuming completion
of the pending acquisition of a radio station serving the Chicago market and
commencement of broadcasting under the signed affiliation agreements, the
Company will distribute its programming to markets representing approximately
40% of the United States' population and will have a presence in the top four
markets and seven of the top ten markets in the United States.
On July 26, 1996, the Company engaged Southcoast Capital Corporation
("Southcoast") to explore strategic alternatives to enhance shareholder value.
Southcoast has and continues to hold discussions with various potential
strategic partners with a view toward entering into a joint venture, sale or
merger. There can be no assurance that the Company will be successful in
completing any transaction with a prospective strategic partner.
The Company seeks to attract listeners and advertisers to the Radio AAHS
programming format by continually refining its content and expanding the
distribution network. Elements of this strategy include (i) attracting a loyal
listenership by maintaining high quality, distinctive programming directed to
its target audience, (ii) reinforcing this loyalty by creating a brand identity
through the creation of characters which are integrated into its programming,
(iii) delivering this listenership base to national advertisers by expanding its
radio network to obtain a critical mass of U.S. population coverage, and (iv)
making opportunistic acquisitions of radio stations in key markets.
(*) Radio AAHS is the registered Trademark of Children's Broadcasting
Corporation.
4
<PAGE>
The Company derives its revenue primarily from the sale of local and
network time to advertisers. The Company believes that as its coverage of the
U.S. continues to expand, it will be able to sell national advertising time in
greater quantities and at significantly higher rates with no significant
additional operating costs. To a large extent, the Company is already incurring
the production, operating and administrative costs necessary to broadcast the
network to the entire U.S. Incremental costs as the network continues to expand
are expected to be minimal, excluding the costs of any station acquisitions or
local marketing agreements ("LMAs") which the Company may complete or enter
into.
Radio AAHS is a music-driven format which was developed and is produced for
pre-teens. In addition to this primary target market, the format has also been
strategically designed to appeal to parents and care givers. This is
accomplished through a blend of music, stories, call-in segments, interactive
quiz features, interviews and current events. Approximately two-thirds of Radio
AAHS programming consists of music which is a combination of children's music
and a mix of popular, classical, folk, jazz and other genres of music, including
adult-tested current hits and "oldies" which have also tested well with kids.
Conversely, kids' music is also tested with adults. Research conducted by the
Company, including focus groups and analysis of listener feedback, has shown
that having music as the core element of its programming is the best way to
attract and retain its target audience. The Company develops and continually
conducts focus groups and written and telephonic surveys in order to enhance its
understanding of its target audience and ensure that its programming is meeting
the demands of both kids and their parents. Management believes that
non-musical programming is appealing as well and contributes to the
"personality" of the format and to its differentiation from competing formats.
Prior to the Company's development of the Radio AAHS format, there were not
any full-time radio formats which targeted the pre-teen market. It is estimated
that over $1.0 billion in advertising dollars is directed toward children
annually, yet only a small percentage of these advertising dollars are currently
spent on radio. The Company believes that advertisers trying to reach children
have not utilized radio due to the lack of children's programming on the radio.
By providing quality programming which is appealing to both pre-teens and their
parents and by pursuing vigorous sales and marketing efforts, the Company
believes it will be able to attract an increasing portion of the annual
advertising dollars aimed at this previously underserved market segment.
The Company believes that developing a well-recognized brand identity will
enhance its network's visibility and create opportunities for the Company to
expand beyond the scope of its broadcast operations. The Company has created
characters within its programming, including AAHSIE-TM-, the Company's animated
mascot, which it has integrated into its merchandising and Internet enterprises.
The characters play roles within the programming and also interact with
listeners through telephone call-ins. The Company has developed and intends to
continue to develop strategic relationships to assist it in its brand
development efforts, and to allow the Company to exploit business opportunities
without detracting from management's focus upon the Company's core business.
Pursuant to this strategy, the Company recently entered into three year
agreements with NetRadio Network, Inc. ("NetRadio") and Precision Tapes, Inc.
which will expand the Company's interactive Internet presence and give Radio
AAHS programming Internet distribution worldwide. The Company distributes the
full 24-hour Radio AAHS format over the Internet pursuant to an agreement with
NetRadio. The Web site at which this format can be heard is www.netradio.net.
In November 1995, the Company entered into a Joint Operations Agreement
(the "Operations Agreement") with ABC Radio Networks, Inc. ("ABC") pursuant to
which ABC's affiliate development and national advertising sales staffs would
augment the Company's efforts to market the Radio AAHS format to broadcasters
and advertisers. The parties operated under the Operations Agreement until July
25, 1996, when ABC notified the Company that ABC would terminate such agreement
effective October 24, 1996. At the time of such notice, ABC also indicated its
intent to pursue other opportunities in children's radio. On September 26,
1996, the Company filed a lawsuit in the United States District Court for the
District of Minnesota against The Walt Disney Company, which recently acquired
Cap Cities/ABC, parent company of ABC, and ABC for injunctive relief and to
recover damages for their alleged attempts to misappropriate the Company's
5
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confidential information and trade secrets acquired through their strategic
relationship with the Company in order to unfairly compete with the Company in
the children's radio market. See "Risk Factors - Disney/ABC Litigation."
The Company was incorporated under the Minnesota Business Corporation Act
on February 7, 1990. All references to the Company herein include its
subsidiaries, unless otherwise noted. The Company's executive office is located
at 724 First Street North, Minneapolis, Minnesota 55401, and its telephone
number is (612) 338-3300. Its World Wide Web site is www.radio-aahs.com.
6
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RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING
RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS,
IN CONNECTION WITH AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY.
WHEN USED BELOW AND ELSEWHERE IN THIS PROSPECTUS, INCLUDING DOCUMENTS
INCORPORATED HEREIN BY REFERENCE, THE WORDS "BELIEVES," "ANTICIPATES," "WILL"
AND "INTENDS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. POTENTIAL
PURCHASERS OF THE COMPANY'S COMMON STOCK ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE
HEREOF.
COMPANY DEVELOPMENT; HISTORY OF OPERATING LOSSES. The Company is
continuing to develop its radio network and is generally subject to the risks
attendant to a new or emerging business venture. The Company has incurred net
losses since its inception in 1990 and has not generated positive cash flow
sufficient to fund its ongoing operations. For the three years ended December
31, 1993, 1994, 1995 and the six months ended June 30, 1996, the Company
incurred net losses of $3,247,000, $4,519,000, $6,108,000 and $5,245,000
respectively, and anticipates that it will continue to operate at a loss from
operations for the remainder of 1996. Due to such losses, and because the
Company has not generated positive cash flow from operations, the Company has
had frequent working capital shortages. Working capital requirements have been
met by short-term borrowings from investors, including affiliates of the
Company, and from the proceeds of public offerings of the Company's Common
Stock. The Company is seeking sources of financing for its working capital
needs and for acquisitions, although it has no current commitments for such
financing. Such arrangements could include the leveraging of Company's radio
station properties under agreements with asset-based lenders. If the Company
should be unable to obtain working capital when required, its operations and
prospects would be materially and adversely affected.
THIRD QUARTER OPERATING RESULTS; CAPITAL REQUIREMENTS. The Company has not
yet completed preparation of its financial statements as of and for the nine
months ended September 30, 1996; however, the Company's anticipated results of
operations for the third quarter of 1996 include projected revenues of
approximately $1,400,000 and a net loss of approximately $1,600,000. The
Company's liquidity, as measured by its working capital, is projected to be
approximately $500,000 at the end of the third quarter. The Company paid off
$1,268,000 of short term debt during the third quarter and used $820,000 cash to
purchase its Philadelphia radio station property.
The Company has signed a purchase agreement to acquire a radio station in
the Chicago market in January 1997. This acquisition will require approximately
$2,000,000 of capital at the time of closing. The Company is seeking additional
capital to complete this acquisition as well as to fund additional potential
acquisitions and its working capital requirements through the end of 1996 and
for 1997. While the Company does own several radio properties with relatively
little debt on its balance sheet, no assurance can be given that the required
financing will be available, or if available, that the same will be on terms
acceptable to the Company.
RISKS RELATED TO ACQUISITION OF RADIO ELIZABETH. On June 4, 1996, the
Company acquired all of the issued and outstanding stock of Radio Elizabeth,
Inc. ("REI"), which holds a Federal Communications Commission ("FCC") license
for WJDM-AM Radio Station licensed to Elizabeth, New Jersey on the 1530 kHz
frequency. REI, in addition to its license for operation on 1530 kHz, presently
has issued to it a special temporary authorization ("STA") for operation on 1660
kHz at 10 kw power, which provides coverage of a significant portion of the New
York City market. WJDM has been broadcasting the Company's Radio AAHS
programming in the nation's largest city radio market since February 1, 1996,
over its 1660 kHz frequency. The STA frequency is located in a portion of the
spectrum referred to as the expanded band ("Expanded Band") recently allocated
by the FCC and assigned to certain AM broadcasters in order to implement
Congressional policy. REI and other Expanded Band licensees are expected to
be allowed to operate on both their original frequencies and the Expanded Band
frequencies
7
<PAGE>
for a period of five years, after which time the licensee must elect which
frequency on which it will continue broadcasting. There can be no assurance
that REI will ever receive a permanent license to an Expanded Band frequency,
and failure to obtain such a license would leave the Company broadcasting from
only the existing licensed frequency, which at 1 kw power does not cover the New
York City market, thereby resulting in a substantial diminution of the value of
the Company's investment in REI. Most radio receivers produced prior to 1990
cannot receive Expanded Band frequencies.
DISNEY/ABC LITIGATION. Following the termination by ABC of the Operations
Agreement, the Company filed a lawsuit in the United States District Court for
the District of Minnesota against The Walt Disney Company and ABC for injunctive
relief and to recover damages for their alleged attempts to misappropriate the
Company's confidential information and trade secrets acquired through their
strategic relationship with the Company in order to unfairly compete with the
Company in the children's radio market. As a result of the termination by ABC
of its Operations Agreement with the Company, the Company has had to rebuild its
own affiliate development and national advertising sales staff and is in the
process of rebuilding that capability. Further, there can be no assurance that
the Company will prevail in the Disney/ABC litigation or recover any of the
damages sought. Such litigation is costly to the Company and may require the
expenditure of Company funds reducing its working capital or cause the Company
to issue securities to finance the litigation which would result in dilution to
the Company's present shareholders.
VOLATILITY OF MARKET PRICE OF COMMON STOCK. The market price of the
Company's Common Stock has been subject to significant fluctuations in response
to numerous factors, including variations in the annual or quarterly financial
results of the Company or its competitors, changes by financial research
analysts in their estimates of the earnings of the Company or its competitors,
conditions in the economy in general or in the radio industry in particular,
unfavorable publicity or changes in applicable laws and regulations (or judicial
or administrative interpretations thereof) affecting the Company or the radio
industry. There can be no assurance that purchasers of the Shares can sell the
Shares at or above the prices at which they were purchased.
ADDITIONAL FINANCING REQUIREMENTS. Part of the Company's strategy for
development and expansion of its network includes acquiring and/or operating
radio properties in key U.S. markets. There can be no assurance that the
Company will be able to complete suitable acquisitions on terms favorable or
acceptable to the Company. In the event the Company purchases additional
stations, the Company will require additional financing. Additional financing
will be required to fund future operations and the expansion of its radio
network, including the acquisition of a radio station in the Chicago market,
WAUR-AM. There can be no assurance that such additional financing will be
available to the Company when required, or if available, that it would be on
terms acceptable or favorable to the Company. Additional financing could
require the sale of equity securities, which could result in significant
dilution to the Company's shareholders.
ACCEPTANCE OF RADIO FORMAT. The Company produces and distributes a unique
24-hour children's radio format. There can be no assurance that the Company's
programming will gain acceptance by listeners and advertisers. In addition, the
Company's primary target audience is not rated by a recognized rating service.
Such ratings are generally used by potential advertisers in making advertising
decisions. The Company is working with ratings services to attempt to develop
such ratings for the pre-teen market. However, there can be no assurance that
such ratings can be developed or that the Company will be able to attract
additional national advertisers.
IMPACT OF SALE OF SHARES; SHARES ELIGIBLE FOR FUTURE SALE. The Company had
approximately 5.6 million shares of Common Stock outstanding as of September 30,
1996 and had warrants and options to purchase additional Common Stock
outstanding totaling approximately 2.6 million common shares exercisable at
prices ranging from $2.20 to $13.80 per share. On July 11, 1996, the Commission
declared effective the Company's Registration Statement on Form S-3 which
registered for a secondary offering 1.6 million common shares. The sale of the
Shares and the sale of additional Common Stock which may become eligible for
sale in the public market from time to time upon exercise of warrants and stock
options could have the effect of depressing the market prices for the Company's
Common Stock.
8
<PAGE>
DEVELOPMENT OF NATIONAL RADIO NETWORK. Since late 1992, the Company has
been developing a network of affiliated and owned or operated radio stations to
carry its satellite-transmitted programming to domestic radio markets. The
Company's affiliation agreements have terms varying from one to three years.
There can be no assurance that the Company will be able to retain existing
affiliates or attract additional affiliates. Since the inception of the network
a total of 10 former affiliate stations have discontinued their affiliation. In
cases where the Company deems it appropriate, the Company intends to seek
alternate affiliates by entering into affiliation agreements or LMAs, through
which third-party owned stations broker broadcast time to the Company, or by
acquiring stations in key markets. In addition, the Company could encounter
substantial delays, expenses or other unforeseen difficulties in establishing
its network. The Company also risks the potential loss of strategic alliances
which it has developed in connection with its strategy to develop the Company's
brand, to assist in growth of the Company's network and to pursue ancillary
business opportunities. Furthermore, the signal of the Company's affiliates and
of its owned and operated stations may not cover households in certain portions
of the markets in which such stations broadcast. In addition, the Company's
management has limited experience in the development or operation of a national
radio network.
The success and viability of the Company's network will depend upon its
ability to generate substantial revenue from network advertisers. For the year
ended December 31, 1995 and for the six months ended June 30, 1996, the
Company's network, which is in a development phase, generated $1,059,000 and
$607,000 in revenue, respectively. For the years ended December 31, 1993, 1994
and 1995 and for the six months ended June 30, 1996, approximately 45%, 51%, 42%
and 42% respectively, of the Company's revenue was derived from its radio
stations which do not carry the Radio AAHS format: KTEK-AM, Houston, Texas,
KCNW-AM, Kansas City, Kansas, WZER-AM, Milwaukee, Wisconsin and KYCR-AM,
Minneapolis, Minnesota. For each of the years in the three year period ended
December 31, 1995 and for the six months ended June 30, 1996, the Company
derived approximately 13%, 16%, 13% and 13% respectively, of its revenue from
KTEK-AM; approximately 10%, 11%, 9% and 10% respectively, of its revenue from
KCNW-AM; approximately 11%, 12% 11% and 9% respectively, of its revenue from
WZER-AM; and approximately 11%, 12%, 9% and 10% respectively, of its revenue
from KYCR-AM. If the Company converts any of these stations to the Radio AAHS
format, its revenue may be negatively affected until a new advertising base is
developed for the Radio AAHS format in those markets. No assurance can be given
that the Company will be able to acquire additional stations in major markets or
to increase the number of network affiliates to a level which would enable it to
increase network advertising, even if desired additional acquisitions are made
or affiliate relationships are created, or that the Company will be able to
generate sufficient advertising revenue to operate profitably in the future.
RELIANCE ON CURRENT MANAGEMENT. The Company is dependent on the management
services of its current management team. If the Company were to lose the
services of these individuals, its business could be adversely affected. None
of the members of the Company's current senior management team, except Barbara
A. McMahon, is subject to employment contracts with the Company. The Company
does not maintain insurance on the lives of its key employees.
POTENTIAL CONFLICTS OF INTEREST. The Company leases broadcast and office
facilities from its President, Christopher T. Dahl, and another director,
Richard W. Perkins, and the WWTC and KYCR radio transmission tower site from Mr.
Dahl. The Company also shares with Community Airwaves Corporation ("CAC"), a
corporation owned by the Company's President, Christopher T. Dahl, a director,
Richard W. Perkins, and a shareholder, Russell Cowles II, certain management
services which are provided by another entity, Radio Management Corporation
("RMC"), owned by Messrs. Dahl, Perkins and Cowles. The management services
consist of administrative, legal and accounting services. Such arrangements
involve potential conflicts of interest in connection with the pricing of
services provided. In addition, CAC may acquire interests in additional
stations. Such ownership would, under current FCC regulations, limit the number
of additional radio stations which the Company may acquire. In addition, the
Company has entered into an agreement with CAC whereby the Company is required
to obtain the consent of CAC for any acquisition of an FM station or of an AM
station located outside the largest 125 U.S. markets. Such agreement may result
in conflicts of interest with members of the Company's management and could be
detrimental to the Company.
9
<PAGE>
COMPETITION. The Company currently derives the majority of its revenue
from the sale of local radio advertising time on its owned and operated stations
to advertisers in their respective metropolitan markets and faces substantial
competition from other radio and television stations as well as other media in
those markets. Factors contributing to the Company's ability to attract local
advertisers include the success of a station in attracting listeners and the
perceived quality of the Company's programming, There can be no assurance that
the Company can successfully compete for listeners and advertising revenues with
other radio and television networks and other entertainment organizations. The
Company may also experience competition from developing technologies in the
radio industry.
In addition to the Company's current competition for local advertising, the
Company also competes for network advertising. Other entertainment
organizations, including but not limited to radio syndicators and radio
stations, many of which have greater resources than the Company, could develop a
children's radio format similar to Radio AAHS. The Walt Disney Company, which
recently acquired CapCities/ABC, parent company of ABC Radio Networks, Inc. has
announced its intention to test its own children's radio programming in certain
markets to be announced, thereby entering into direct competition with the
Company. Although radio stations must be licensed by the FCC, there are no
significant impediments to the entry of new competitors into the Company's
markets. While the Company continues to seek protection for its original
programming, where appropriate, under applicable copyright and trademark laws,
the Radio AAHS format could be imitated by others seeking to enter the
children's radio field.
FCC REGULATION. Although the radio broadcast licenses of the stations
owned by the Company are already granted, their continuation and the continued
licensing of any radio station acquired by the Company depend upon compliance
with the laws, rules and regulations of the FCC. The FCC can revoke licenses
for serious misconduct, subject to the right to an evidentiary hearing, or it
may fail to renew a license or impose monetary fines for breach of its rules.
Neither the Company nor CAC has ever been denied any FCC license or renewal, or
had a fine imposed by the FCC. In recent years, a number of competing
applications and formal and informal objections have been filed with respect to
broadcast renewal applications. Even though the vast majority of all license
renewal applications are granted, and under the Telecommunication Act of 1996
(the "1996 Act") competing applications in license renewal proceedings are no
longer allowed, there can be no assurance that renewal of the Company's licenses
will be granted. Furthermore, approvals are required for the transfer of
ownership. Three directors and attributable shareholders of the Company have
interests in AM and FM radio stations unrelated to the Company. Under current
FCC regulations, these interests are attributed to the Company and may limit the
markets in which the Company can acquire stations. The 1996 Act eliminated the
limit upon the number of stations that can be under common ownership or control
nationally. Local ownership was substantially relaxed according to market size.
See "Risk Factors -- Risks Related to Acquisition of Radio Elizabeth."
ANTI-TAKEOVER PROVISIONS. The Board of Directors, without any action by
the Company's shareholders, has the authority to issue the remaining
undesignated and unissued authorized shares and to fix the powers, preferences,
rights and limitations of such shares or any class or series thereof, without
shareholder approval. Persons acquiring such shares could have preferential
rights with respect to voting, liquidation, dissolution or dividends over
existing shareholders. The Company is subject to certain provisions of the
Minnesota Business Corporation Act which limit the voting rights of shares
acquired in "control share acquisitions" and restrict certain "business
combinations." Such provisions, as well as the ability to issue undesignated
shares, could have the effect of deterring or delaying a takeover or other
change in control of the Company, deny shareholders the receipt of a premium on
their Common Stock and depress the market price of the Company's Common Stock.
CONTROL BY PRINCIPAL SHAREHOLDERS. Approximately 34% of the Company's
outstanding Common Stock is beneficially owned by the Company's current officers
and directors. Accordingly, such persons may be able to significantly influence
the Company's business and affairs. This concentration of ownership may have
the effect of delaying, deferring or preventing a change in control of the
Company.
10
<PAGE>
NO ASSURANCE AS TO LIQUIDITY ON THE NASDAQ NATIONAL MARKET. The Common
Stock is currently listed on the Nasdaq National Market. There can be no
assurance that the Common Stock will be actively traded on such market or that,
if active trading does develop, it will be sustained.
ABSENCE OF DIVIDENDS. The Company has not paid any cash dividends since
its inception and does not anticipate paying cash dividends in the foreseeable
future. The Company presently expects to retain its earnings to finance the
development and expansion of its business. The declaration or payment by the
Company of dividends, if any, on its Common Stock in the future is subject to
the discretion of the Board of Directors and will depend on the Company's
earnings, financial condition, capital requirements and other relevant factors.
The Company issued 290,213 shares of convertible preferred stock in connection
with its merger with a California corporation, licensee of radio station
KPLS-AM, Orange, California. The convertible preferred stock ranks senior to
Common Stock and all other series of preferred stock as to payment of dividends
and as to distribution of assets upon liquidation, dissolution or winding up of
the Company, voluntary or involuntary.
11
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth, as of September 30, 1996, the name of each
Selling Shareholder, certain beneficial ownership information with respect to
the Selling Shareholders, and the number of Shares that may be sold from time to
time by each pursuant to this Prospectus. There can be no assurance that the
shares offered hereby will be sold.
<TABLE>
<CAPTION>
SHARES SHARES PERCENTAGE OF
BENEFICIALLY BENEFICIALLY OUTSTANDING SHARES
OWNED SHARES OWNED UPON BENEFICIALLY OWNED
PRIOR TO OFFERED COMPLETION OF THE UPON COMPLETION OF
SELLING SHAREHOLDER OFFERING HEREBY OFFERING THE OFFERING
- ------------------------------------ ------------ ----------- ------------------ ------------------
<S> <C> <C> <C> <C>
Christopher T. Dahl 548,252 25,000 523,252 9.4
Richard W. Perkins, Trustee UA
Dated 6-14-78 FBO Richard W.
Perkins 471,459 266,146 205,313 3.6
Russell Cowles II, Marguerite
Cowles, and First Bank National
Association as Trustees of the John
Cowles Family Trust FBO Russell
Cowles 214,042 214,042 0 0
Hessian, McKasy & Soderberg, P.A. 200,000 200,000 0 0
John G. Kinnard and Company,
Incorporated 98,300 86,250 12,050 *
Lloyd B. Roach, Inc. 79,052 79,052 0 0
Nelson Broadcasting, Inc. 75,000 75,000 0 0
Russell Cowles II 69,098 69,098 0 0
Rodney P. Burwell 68,750 25,000 43,750 *
Pyramid Partners, L.P. 46,344 46,344 0 0
Mark A. Cohn 27,500 20,000 7,500 *
Perkins Capital Management, Inc.
Profit Sharing Plan and Trust 7,759 7,759 0 0
Fernando Niebla and Olga Niebla,
Co-Trustees of the Niebla Family
Trust Dated 8-30-90 7,255 7,255 0 0
Perkins Foundation 4,634 4,634 0 0
</TABLE>
- -----------------
*Less than 1%.
Christopher T. Dahl, Richard W. Perkins, Rodney P. Burwell, and Mark A.
Cohn are all members of the Company's Board of Directors. Russell Cowles II is
a member of the Board of Directors of the Company whose election remains
contingent upon either obtaining a waiver from the FCC of the application of its
cross-ownership rules or the amendment of such rules to remove existing
restrictions. The Prospectus includes shares owned directly by Mr. Perkins,
shares beneficially owned by Mr. Perkins through the Richard W. Perkins, Trustee
UA Dated 6/14/78 FBO Richard W. Perkins, Pyramid Partners, L.P., Perkins Capital
Management, Inc. Profit Sharing Plan and Trust and Perkins Foundation. This
Prospectus also includes shares owned directly by Mr. Cowles and shares
beneficially owned by Mr. Cowles through Russell Cowles II,
12
<PAGE>
Marguerite Cowles, and First Bank National Association as Trustees of the John
Cowles Family Trust FBO Russell Cowles.
John G. Kinnard and Company, Incorporated, the underwriter of the Company's
1993 public offering, is the owner of shares included in this Prospectus.
This Prospectus includes shares owned by Lloyd B. Roach, Inc. Such shares
were issued to Lloyd B. Roach, Inc. in connection with its sale to the Company
of radio station WPWA-AM, Chester, Pennsylvania, which closed on September 25,
1996. Lloyd B. Roach, Inc. has exercised its demand registration right with
respect to such shares.
This Prospectus also includes shares owned by Nelson Broadcasting, Inc.
Such shares were issued to Nelson Broadcasting, Inc. on September 11, 1996 in
connection with the escrow agreement associated with its pending sale to the
Company of radio station WAUR-AM, Sandwich, Illinois.
Up to 200,000 shares of common stock may be sold from time to time for the
account of Hessian McKasy & Soderberg, P.A. ("HMSPA") pursuant to a retainer
agreement with the Company. In September 1996, the Company paid 200,000 shares
as a retainer to HMSPA for legal fees incurred and to be incurred in connection
with the ABC/Disney Litigation. Under the retainer agreement, HMSPA will
periodically invoice the Company for legal fees and costs incurred in connection
with the litigation. The Company will determine at such time whether it desires
to pay the billing in cash with the Company's funds or whether it will authorize
HMSPA to sell shares in satisfaction of the invoice. The number of shares which
may be sold will be equal to the amount of the particular billing divided by the
bid price of the Company's stock on Nasdaq as of the date the Company notifies
HMSPA of its authorization to pay a particular legal fee billing in shares. In
the event of the sale of shares by HMSPA to satisfy billings, any shortfall in
proceeds received from such sale shall be added to the Company's obligation to
such firm and carried forward to a future billing. In the event the proceeds
from the sale of shares by HMSPA exceed the amount of the billing for which such
shares are to be sold, such excess shall be credited to future legal fees due
such firm. In lieu of selling shares following the submission of a billing to
the Company, HMSPA may elect to retain shares in satisfaction of a billing, in
which case the market risk from the sale of such shares would be borne by the
firm. Lance W. Riley, the Company's Secretary and General Counsel, has an of
counsel relationship with HMSPA.
The Company has agreed to bear all expenses (other than selling commissions
and fees) in connection with the registration and sale of the Shares being
offered by the Selling Shareholders in over-the-counter market transactions or
in negotiated transactions. See "Plan of Distribution." The Company has filed
with the Commission a Registration Statement on Form S-3 under the Securities
Act with respect to the resale of the Shares from time to time in the
over-the-counter market transactions or in negotiated transactions. This
Prospectus forms a part of such Registration Statement.
USE OF PROCEEDS
The Shares offered hereby will be sold by the Selling Shareholders. The
Company will not receive any of the proceeds from the sale of the Shares by the
Selling Shareholders. See "Selling Shareholders."
PLAN OF DISTRIBUTION
The Shares offered hereby may be offered by the Selling Shareholders from
time to time. The Company will receive no proceeds from the sale of the Shares.
Sales may be effected by the Selling Shareholders in transactions on the Nasdaq
Stock Market, in negotiated transactions, or in a combination of such methods of
sale, at prices relating to prevailing market prices or at negotiated prices.
The Selling Shareholders may effect such transactions by selling the Shares to
or through broker-dealers, and such broker-dealers may receive compensation in
the form of discounts or commissions from the Selling Shareholders and/or the
purchasers of the Shares for whom such broker-dealers may act as agents or to
whom they sell as principal, or both (which compensation as to a particular
broker-dealer may be in excess of customary commissions).
13
<PAGE>
The Selling Shareholders and any persons who participate in the sale of the
Shares from time to time, may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act. Any commissions paid or discounts or
concessions allowed to any such persons and any profits received on resale of
the Shares, may be deemed to be underwriting compensation under the Securities
Act.
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available.
In accordance with the terms of Warrants exercisable or exercised to
purchase Common Stock by certain of the Selling Shareholders, the Company has
agreed to indemnify such Selling Shareholders and their control persons with
respect to certain liabilities in connection with the sale of the Shares
pursuant to this Prospectus, including liabilities under the Securities Act of
1933, as amended (the "Securities Act") and the Exchange Act. In addition,
certain Selling Shareholders have agreed to indemnify the Company, its
directors, officers, agents and control persons against certain liabilities
incurred as a result of information provided by the Selling Shareholders for use
in this Prospectus. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted pursuant to the foregoing provisions, the
Company has been informed that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
LEGAL MATTERS
The validity of the Shares offered hereby and certain legal matters
pertaining to the Company, including matters incorporated herein by reference
relating to the regulation of the Company by the FCC and related matters, were
passed upon on behalf of the Company by Lance W. Riley, Esq., Secretary and
General Counsel to the Company.
EXPERTS
The consolidated financial statements as of December 31, 1994 and 1995 and
for each of the three years in the period ended December 31, 1995 of Children's
Broadcasting Corporation, incorporated by reference in this Prospectus have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon (which contain an explanatory paragraph with respect to
substantial doubt about the Company's ability to continue as a going concern and
management's plans described in Note 2 to the consolidated financial
statements). Such consolidated financial statements are incorporated by
reference herein in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The financial statements of Radio Elizabeth, Inc. as of April 30, 1994 and
1995 and for each of the three years in the period ended April 30, 1995,
incorporated by reference in this Prospectus have been audited by Smolin, Lupin
& Co., P.A., Certified Public Accountants, independent auditors, as set forth in
their report thereon. Such financial statements are incorporated by reference
herein in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The financial statements of Wolpin Broadcasting Company as of December 31,
1994 and 1995 and for each of the three years in the period ended December 31,
1995, incorporated by reference in this Prospectus, have been audited by
Kleiman, Carney & Greenbaum, P.C., Certified Public Accountants, independent
auditors, as set forth in their report thereon. Such financial statements are
incorporated by reference herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
14
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER DESCRIBED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE SELLING SHAREHOLDERS. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE UNDER THIS PROSPECTUS SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR SINCE THE DATE OF ANY DOCUMENTS
INCORPORATED HEREIN BY REFERENCE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES, OR AN OFFER OR SOLICITATION IN ANY STATE TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH STATE.
---------------------
TABLE OF CONTENTS
---------------------
Page
----
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents
by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Selling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
1,125,580 SHARES
CHILDREN'S BROADCASTING
CORPORATION
COMMON STOCK
--------------------
PROSPECTUS
--------------------
_______________, 1996
<PAGE>
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses payable by the Company
in connection with the sale and distribution of the Shares being registered.
All amounts shown are estimates, except the registration fee.
SEC registration fee. . . . . . . . . . . . . . . . . . . . .$ 2,000
Legal fees and expenses . . . . . . . . . . . . . . . . . . . 10,000
Accounting fees and expenses. . . . . . . . . . . . . . . . . 5,000
Blue sky and related fees and expenses. . . . . . . . . . . . 2,000
Miscellaneous (including listing fees, if applicable) . . . . 5,000
-------
Total. . . . . . . . . . . . . . . . . . . . . . . . . .$24,000
-------
-------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant is a Minnesota corporation. Reference is made to Minnesota
Statutes Section 302A.521 which provides that a Minnesota business corporation
shall indemnify any director, officer, employee or agent of the corporation made
or threatened to be made a party to a proceeding, by reason of the former or
present official capacity (as defined) of the person, against judgments,
penalties, fines, settlements and reasonable expenses incurred by the person in
connection with the proceeding if certain statutory standards are met.
"Proceeding" means a threatened, pending or completed civil, criminal,
administrative, arbitration or investigative proceeding, including one by or in
the right of the corporation. Section 302A.521 contains detailed terms
regarding such right of indemnification and reference is made thereto for a
complete statement of such indemnification rights.
Article 6.2 of the Company's Amended and Restated Bylaws, as amended,
provides that directors, officers, employees and agents, past or present, of the
Company, and persons serving as such of another corporation or entity at the
request of the Company, shall be indemnified by the Company for such expenses
and liabilities, in such manner, under such circumstances, and to such extent as
permitted under Minnesota Statutes 302A.521.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
5.1 Opinion of Lance W. Riley, Esq.
10.1 Asset Purchase Agreement re WPWA-AM, Chester, Pennsylvania.
10.2 Asset Purchase Agreement re WAUR-AM, Sandwich, Illinois.
23.1 Consent of Lance W. Riley, Esq. (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Smolin, Lupin & Co., P.A.
23.4 Consent of Kleiman, Carney & Greenbaum, Certified Public
Accountants.
24 Power of Attorney (included on signature page to the Registration
Statement).
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
II-1
<PAGE>
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
provided, however, that the undertakings set forth in paragraphs (i) and (ii)
above do not apply if the information required to be included in a post-
effective amendment by those paragraphs is contained in periodic reports filed
by the Registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions summarized in Item 15 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel, the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that (1) for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this Registration Statement
in reliance on Rule 430A and contained in the form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the time it was
declared effective and (2) for the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis and State of Minnesota, on October 18,
1996.
CHILDREN'S BROADCASTING CORPORATION
By /s/ Christopher T. Dahl
---------------------------------
Christopher T. Dahl, President
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENT, that each person whose signature appears below
constitutes and appoints Lance W. Riley and James G. Gilbertson as his or her
true and lawful attorney-in-fact and agent, with full powers of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on the dates and
in the capacities indicated.
Signature Title Date
--------- ----- ----
/s/ Christopher T. Dahl President, Chief Executive Officer October 18, 1996
- -------------------------- and Director (Principal Executive
Christopher T. Dahl Officer)
/s/ James G. Gilbertson Chief Operating Officer and October 18, 1996
- -------------------------- Treasurer (Principal Accounting
James G. Gilbertson Officer and Principal Financial
Officer)
/s/ Richard W. Perkins Director October 18, 1996
- --------------------------
Richard W. Perkins
/s/ Rodney P. Burwell Director October 18, 1996
- --------------------------
Rodney P. Burwell
/s/ Mark A. Cohn Director October 18, 1996
- --------------------------
Mark A. Cohn
<PAGE>
EXHIBIT INDEX
Number Description
- -------- ----------------------------------------------------------------------
5.1 Opinion of Lance W. Riley, Esq.
10.1 Asset Purchase Agreement re WPWA-AM, Chester, Pennsylvania.
10.2 Asset Purchase Agreement re WAUR-AM, Sandwich, Illinois.
23.1 Consent of Lance W. Riley, Esq. (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Smolin, Lupin & Co., P.A.
23.4 Consent of Kleiman, Carney & Greenbaum, Certified Public
Accountants.
24 Power of Attorney (included on signature page to Registration
Statement).
<PAGE>
EXHIBIT 5.1
October 18, 1996
Children's Broadcasting Corporation
724 First Street North
Minneapolis, Minnesota 55401
Gentlemen:
I am General Counsel to Children's Broadcasting Corporation, a Minnesota
corporation (the "Company"), in connection with its filing of a registration
statement on Form S-3 (the "Registration Statement"), under the Securities Act
of 1933, as amended, in connection with the proposed sale by the Selling
Shareholders of 1,125,580 shares of common stock, $.02 par value, of the Company
(the "Shares"). Certain of the Shares are issuable or were issued upon the
exercise of warrants held by the Selling Shareholders.
I have examined the Registration Statement and those documents, corporate
records, and other instruments I deemed relevant as a basis for the opinion
herein expressed.
Based on the foregoing, it is my opinion that when the Registration
Statement shall have been declared effective by order of the Securities and
Exchange Commission, and the Shares have been sold as contemplated by the
Registration Statement, the Shares will be legally and validly issued, fully-
paid and nonassessable.
I hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to myself under the caption "Legal
Matters" in the Prospectus included in such Registration Statement.
/s/ Lance W. Riley
------------------
Lance W. Riley
General Counsel
Children's Broadcasting Corporation
<PAGE>
EXHIBIT 10.1
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated as of June 18, 1996, is made between LLOYD B. ROACH,
INC., a Pennsylvania corporation ("Seller"); LLOYD B. ROACH ("Shareholder");
CHILDREN'S BROADCASTING CORPORATION, a Minnesota corporation ("CBC"); and
CHILDREN'S RADIO GROUP, INC., a Minnesota corporation ("Buyer"); and
W I T N E S S E T H :
THAT, WHEREAS, Seller is the Federal Communications Commission ("FCC" or
"Commission") licensee of Radio Station WPWA-AM, licensed to Chester,
Pennsylvania (the "Station"); and
WHEREAS, Shareholder is the owner of the majority of the issued and
outstanding stock of Seller; and
WHEREAS, CBC is the owner of 100% of the issued and outstanding stock of
Buyer; and
WHEREAS, subject to and conditioned upon the consent of the FCC, Seller
desires to sell and transfer and Buyer desires to purchase and acquire the
Station and all of the tangible and intangible assets used or useable in
connection with the operation of the Station;
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions contained herein, the parties hereto hereby agree as follows:
ARTICLE 1
SALE AND TRANSFER OF ASSETS
At closing of the transaction described herein ("Closing"), Seller shall
sell, convey, assign, transfer and deliver to Buyer, free and clear of any lien,
encumbrance, mortgage or security interest of any nature whatsoever, all the
material assets of the Seller or Shareholder used or held for use in connection
with the operation of the Station, specifically excluding cash on hand and
including, without limitation, the following (collectively, the "Assets"):
1.1. All licenses, permits and authorizations ("Licenses") issued by the
Commission for the operation of or used in connection with the operation
of the Station, all of which are listed on Schedule A attached hereto;
1.2. All of Seller's real property interests including those described in
Schedule B attached hereto ("Real Property");
1.3. All tangible personal property owned by Seller used or useable in the
operation of the Station including, without limitation, that listed on
Schedule C attached hereto, and any replacements therefor or
improvements thereof acquired or constructed prior to Closing ("Personal
Property");
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1.4. All of Seller's rights and benefits under the business agreements,
leases and contracts listed on Schedule D attached hereto, including any
renewals, extensions, amendments or modifications thereof, all time
sales agreements, and any additional agreements, leases and contracts
made or entered into by Seller in the ordinary course of business
between the date of such Schedule and the Closing approved in writing by
Buyer or otherwise permitted hereunder ("Leases and Agreements");
1.5. All other licenses, permits or authorizations issued by any government
or regulatory agency other than the FCC, which are used in connection
with the operation of the Station ("Permits");
1.6. All right, title and interest of Seller in and to the use of the call
letters WPWA for the Station ("Call Letters"), to the extent they can be
conveyed; together with all common law property rights, goodwill,
copyrights, trademarks, service marks, trade names and other similar
rights used in connection with the operation of the Station, including
all accretions thereto, including but not limited to those listed on
Schedule E attached hereto ("General Intangibles"); and
1.7. All magnetic media, electronic data processing files, systems and
programs, logs, customer contracts, public files, vendor contracts,
historical billing information, record program libraries, promotional
material, supplies, customer files, correspondence, maintenance records
or any other business records relating to or used in connection with the
operation and financial condition of the Station, but not including
records pertaining to corporate affairs (including tax records) and
original journals, provided copies are supplied to Buyer. Seller shall
have reasonable access to all such records which might be in the
possession of Buyer for a period of two (2) years following the Closing,
and shall, at its own expense, have the right to make copies thereof;
1.8. All other personal assets whether tangible or intangible, not herein
before mentioned, which are owned by Seller or Shareholder and used or
held for use in connection with the day to day operation of the Station.
Seller and Shareholder agree that the Station Assets conveyed to Buyer
on the Closing Date pursuant to this Agreement will be conveyed free and
clear of all liens, charges, claims and encumbrances whatsoever,
excepting only those obligations from and after the Closing Date with
respect to obligations of Seller expressly agreed to be assumed by Buyer
hereunder. To the extent that Buyer agrees to assume any obligations
under any capital leases or installment purchase agreements, the
remaining balance owed under such agreements, including any purchase
option costs, shall be deducted from the purchase price payable at
Closing.
ARTICLE 2
PURCHASE PRICE AND PAYMENTS
2.1. PURCHASE PRICE. As the purchase price for the Assets, Buyer agrees to
pay to Seller the sum of One Million Three Hundred Thousand and no/100
Dollars ($1,300,000.00).
2.2. METHOD OF PAYMENT OF PURCHASE PRICE. The purchase price shall be paid
as follows:
2.2.1. CBC COMMON STOCK. Five Hundred Thousand and no/100 Dollars
($500,000.00) of the purchase price shall be payable by the
issuance by CBC to Seller of CBC's Common Stock (the "CBC
Stock"). The number of shares of CBC Stock to be issued shall
be equal to Five Hundred Thousand divided by the "Price Per
Share" as hereinafter defined. Any fractional share shall be
paid in cash based upon the Price Per Share. The "Price Per
Share" shall be equal to the average closing price of the CBC
Stock on the Nasdaq Stock Market for the fifteen trading days
preceding the second business day prior to the Closing Date.
Notwithstanding the foregoing, if between the date of this
Agreement and the Closing Date the outstanding shares of CBC
Stock are changed into a different number of shares or a
different class or series, by reason of any stock dividend,
subdivision, reclassification, recapitalization, split,
combination or exchange of shares, the number of
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shares of CBC Stock described above shall be correspondingly
and proportionately adjusted to reflect such stock dividend,
subdivision, reclassification, recapitalization, split,
combination or exchange of shares.
2.2.2. EARNEST MONEY ESCROW. The amount of Fifty Thousand and no/100
Dollars ($50,000.00) (the "Escrowed Funds") shall be paid into
escrow contemporaneously with the execution hereof pursuant to
the terms of that Escrow Agreement ("Escrow Agreement") a copy
of which is attached hereto as Exhibit A.
2.2.3. CASH PAYMENT AT CLOSING. Eight Hundred Thousand and no/100
Dollars ($800,000.00) of the purchase price hereunder,
including the Escrowed Funds, shall be payable in cash at
Closing.
2.3. ADJUSTMENTS AND PRORATIONS. The operations of the Station and the
income and expenses attributable thereto up to 12:01 A.M. on the day of
the Closing (the "Adjustment Time"), shall, except as otherwise provided
in this Agreement, be for the account of Seller and thereafter shall be
for the account of Buyer. Expenses such as power and utility charges,
lease rents, property taxes according to year of accrual, frequency
discounts, annual license fees (if any), wages, commissions, payroll
taxes, and other fringe benefits of employees of the Seller who enter
the employment of the Buyer, and similar deferred items shall be
prorated between the Seller and the Buyer. With specific reference to
vacation pay or vacation time, it is understood that Seller will be
responsible for paying employees any accrued vacation pay and that Buyer
will not assume the obligation to provide any accrued vacation time to
employees. Prepaid deposits shall not be prorated but shall remain the
property of Seller. Employees' employment with Seller shall be
terminated as of the Closing Date, and Buyer shall employ employees of
its choice from and after said date upon terms acceptable to Buyer and
such employees. With specific reference to payment of commissions,
Buyer shall have no obligation to pay any commissions due salesmen for
sales attributable to the period of time prior to Closing. All
prorations shall be made and paid insofar as feasible at the Closing,
with a final settlement within ninety (90) days after the Closing.
2.4 ASSUMED LIABILITIES. Except as expressly provided for in this
Agreement, at the Closing Buyer shall not assume, incur or be charged
with, in connection with the transactions herein contemplated, any
liabilities or obligations of any nature whatsoever, contingent or
otherwise. Without limitation of the foregoing, Buyer shall not assume
any obligations to Seller's or the Station's employees under any
employee benefit plans or employment contracts.
2.5. ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated
among the Assets by Buyer and Seller as set forth in the attached
Schedule F. Such allocation will be used for all purposes, including
preparation and filing of IRS Form 8594 with respect to the transactions
contemplated by this Agreement.
ARTICLE 3
FEDERAL SECURITIES LAWS MATTERS
3.1. DEFINITIONS. As used in this Article 3, the following terms shall have
the following meanings:
"ACT" means the Securities Act of 1933, as amended.
"ADVICE" has the meaning set forth in Section 3.3.
"AFFILIATE" means, with respect to any specified person, any other
person who, directly or indirectly, controls, is controlled by, or is
under common control with such specified person.
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<PAGE>
"COMMISSION" means the Securities and Exchange Commission.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor statute, and the rules and
regulations of the Commission promulgated thereunder.
"HOLDER" means (i) Seller and (ii) each person (other than CBC and its
Affiliates) to whom Seller transfers the Shares as provided in Section
3.6 hereof, if the person to whom the Shares are transferred acquires
the Shares as Registrable Securities.
"PROSPECTUS" means the prospectus included in any Registration Statement
(including without limitation, a prospectus that discloses information
previously omitted from a Prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any Prospectus
supplement, and by all other amendments and supplements to the
Prospectus, including post-effective amendments, and in each case
including all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
"REGISTRABLE SECURITIES" means the Shares; PROVIDED, HOWEVER, that any
Shares shall cease to be Registrable Securities when (i) a Registration
Statement covering such Registrable Securities has been declared
effective and such Registrable Securities have been disposed of pursuant
to such effective Registration Statement, or (ii) such Registrable
Securities become eligible for sale pursuant to Rule 144(k) (or any
similar provision then in force) under the Act, or (iii) such Securities
cease to be outstanding.
"REGISTRATION STATEMENT" means any registration statement of CBC that
covers any of the Registrable Securities pursuant to the provisions of
this Agreement and all amendments and supplements to any such
registration statement, including post-effective amendments, in each
case including the Prospectus, all exhibits, and all material
incorporated by reference or deemed to be incorporated by reference in
such registration statement.
"SHARES" means the shares of CBC Common Stock issued to the Seller
pursuant to this Agreement so long as they are owned beneficially and of
record by a Holder.
"SUSPENSION NOTICE" has the meaning set forth in Section 3.3.
3.2. RESALE REGISTRATION.
3.2.1. FILING, EFFECTIVENESS. If any Holder shall make a demand of
CBC in writing at any time after the Closing Date of the
transactions contemplated by this Agreement that it desires CBC
to register all or any portion of his Registrable Securities,
CBC shall use reasonable efforts to prepare and file one
registration statement on Form S-3 (the "Registration
Statement") under the Act covering the resale by such Holder of
its Registrable Securities pursuant to Rule 415 under the
Securities Act from time to time in transactions not involving
any underwritten public offering and use reasonable efforts (i)
to cause such Registration Statement to be declared effective
by the Commission for such Registrable Securities as soon as
practicable thereafter and (ii) to keep the Resale Registration
Statement continuously effective until the earliest of (x) the
date on which such Holder no longer holds any Registrable
Securities registered under the Resale Registration Statement
or (y) the third anniversary of the Closing Date, or such
lesser time as may be permitted under Rule 144(k) under the Act
(or any successor rule thereto) to enable Holder to sell the
Registrable Securities without restriction under the Act. CBC
shall not be required to cause a Registration Statement
requested pursuant to this Section 3.2 to become effective
prior to 90 days following the effective date of a registration
statement for a publicly underwritten
4
<PAGE>
offering of CBC Common Stock initiated by CBC if any managing
underwriter named in such registration statement for the
publicly underwritten offering has advised CBC in writing that
the registration or sale of additional securities by
stockholders of CBC within such 90-day period would have a
material adverse effect on the likelihood of success of such
underwritten offering; PROVIDED, HOWEVER, that CBC shall use
its best efforts to achieve such effectiveness promptly
following such 90-day period if the request pursuant to this
Section 3.2 has been made prior to the expiration of such
90-day period. CBC may postpone the filing of any Registration
Statement required hereunder for a reasonable period of time,
not to exceed 60 days, if CBC has been advised by outside legal
counsel that such filing would require the disclosure of a
material transaction or other matter and CBC determines
reasonably and in good faith that such disclosure would have a
material adverse effect on CBC; PROVIDED, HOWEVER, that CBC
shall (A) use reasonable efforts to disclose such material
transaction or other matter as soon as in its good faith
judgment it is prudent to do so and (B) may so postpone such
filing only if all other persons who are named as selling
securityholders under then effective registration statements
filed by CBC with the Commission and all directors of CBC are
advised of the fact that a material transaction or other matter
is not being disclosed during the length of such postponement
and of the consequences of such nondisclosure under the Act and
the Exchange Act. The disclosure to any Holder of any material
transaction, or of the existence thereof, pursuant to the
preceding sentence shall be held in confidence by Seller or
Holder until CBC or a third party not under the control of
Seller or Holder has made a public disclosure thereof.
3.2.2. EFFECTIVE REGISTRATION. A registration will not be deemed to
have been effected unless the Registration Statement has been
declared effective by the Commission; PROVIDED, HOWEVER, that
if after it has been declared effective, the offering of
Registrable Securities pursuant to a Registration Statement is
interfered with by any stop order, injunction or other order or
requirement of the Commission or any other governmental agency
or court, such Registration Statement will be deemed not to
have become effective during the period of such interference
until the offering of Registrable Securities pursuant to such
Registration Statement may legally resume.
3.3. REGISTRATION PROCEDURES. In connection with the obligations of CBC to
effect or cause the registration of any Registrable Securities pursuant
to the terms and conditions of this Agreement, CBC shall use reasonable
efforts to effect the registration and sale of such Registrable
Securities in accordance with the intended method of distribution
thereof, and in connection therewith:
(a) CBC shall prepare and file with the Commission a Registration
Statement on Form S-3 or other similar form under the
Securities Act which permits secondary sales of securities in a
"shelf registration," and use reasonable efforts to cause such
Registration Statement to become effective and remain effective
in accordance with the provisions of this Agreement;
(b) CBC shall promptly prepare and file with the Commission such
amendments and post-effective amendments to each Registration
Statement as may be necessary to keep such Registration
Statement effective and shall timely file with the Commission
all required filings under the Exchange Act as are necessary to
keep the Registration Statement effective for as long as such
registration is required to remain effective pursuant to the
terms hereof; shall cause the Prospectus to be supplemented by
any required Prospectus supplement, and, as so supplemented, to
be filed pursuant to Rule 424 under the Securities Act; and
shall comply with the provisions of the Securities Act
applicable to it with respect to the disposition of all
Registrable Securities covered by such Registration Statement
during the applicable period in accordance with the intended
methods of disposition by Holder set forth in such Registration
Statement or supplement to the Prospectus;
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(c) CBC shall promptly furnish to Holder such number of copies of
the Prospectus (including each preliminary Prospectus) and any
amendments or supplements thereto, as Holder may reasonably
request in order to facilitate the public sale or other
disposition of the Registrable Securities being sold by Holder;
(d) CBC shall promptly notify Holder, (i) when a Prospectus or any
Prospectus supplement or post-effective amendment has been
filed and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective,
(ii) of any request by the Commission or any state securities
authority for amendments and supplements to a Registration
Statement and Prospectus or for additional information after
the Registration Statement has become effective, (iii) of the
issuance by the Commission of any stop order suspending the
effectiveness of a Registration Statement, (iv) of the issuance
by any state securities commission or other regulatory
authority of any order suspending the qualification or
exemption from qualification of any of the Registrable
Securities under state securities or "blue sky" laws, and (v)
of the happening of any event which makes any statement made in
a Registration Statement or related Prospectus untrue or which
requires the making of any changes in such Registration
Statement or Prospectus so that they will not contain any
untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading. As soon as
practicable following expiration of the Suspension Period (as
defined below), CBC shall prepare and file with the Commission
and furnish a supplement or amendment to such Prospectus so
that, as thereafter deliverable to the purchasers of such
Registrable Securities, such Prospectus will not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Upon receipt of any notice (a "Suspension Notice") by Holder from CBC of
the happening of any event of the kind described in Section 3.3(d),
Holder shall forthwith discontinue disposition of the Registrable
Securities pursuant to the Resale Registration Statement covering such
Registrable Securities until such Seller's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3.3(d) or
until Holder is advised in writing (the "Advice") by CBC that the use of
the Prospectus may be resumed, and has received copies of any additional
or supplemental filings which are incorporated by reference in the
Prospectus, and, if so directed by CBC, will, or will request any
broker-dealer acting as Holder's agent to, deliver to CBC (at CBC
expense) all copies, other than permanent file copies then in Seller's
or broker-dealer's possession, of the Prospectus covering such
Registrable Securities current at the time of receipt of such notice;
PROVIDED, HOWEVER, that in no event shall the period from the date on
which Seller receives a Suspension Notice to the date on which Seller
receives either the Advice or copies of the supplemented or amended
Prospectus contemplated by Section 3.3(d) (the "Suspension Period")
exceed 60 days.
3.4. REGISTRATION EXPENSES. CBC shall bear all expenses incurred in
connection with the registration of the Registrable Shares pursuant to
Section 3.2 of this Agreement. Such expenses shall include, without
limitation, all printing, legal and accounting expenses incurred by CBC
and all registration and filing fees imposed by the Commission, any
state securities commission or the NASDAQ Stock Market. Each Holder
shall be responsible for any brokerage fees or commissions and taxes of
any kind (including, without limitation, transfer taxes) with respect to
any disposition, sale or transfer of Registrable Securities and for any
legal, accounting and other expenses incurred by such Holder.
3.5. INDEMNIFICATION AND CONTRIBUTION.
3.5.1. INDEMNIFICATION BY CBC. CBC agrees to indemnity and hold
harmless, to the full extent permitted by law, each Holder from
and against all losses, claims, damages, liabilities and
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expenses (including without limitation reasonable legal fees
and expenses incurred by Holder (collectively, the "Damages")
to which Holder may become subject under the Securities Act or
otherwise, insofar as such Damages (or proceedings in respect
thereat) arise out of or are based upon any untrue statement of
material fact contained in any Registration Statement (or any
amendment thereto) pursuant to which Registrable Securities
were registered under the Securities Act, or caused by any
omission to state therein a material fact necessary to make the
statements therein in light of the circumstances under which
they were made not misleading, or caused by any untrue
statement of a material fact contained in any Prospectus (as
amended or supplemented if CBC shall have furnished any
amendments or supplements thereto), or caused by any omission
to state therein a material fact necessary to make the
statements therein in light of the circumstances under which
they were made not misleading, except insofar as such Damages
arise out of or are based upon any such untrue statement or
omission based upon information relating to Seller furnished in
writing to CBC by Seller specifically for use therein;
PROVIDED, HOWEVER, that CBC shall not be liable to Holder under
this Section 3.5.1 to the extent that any such Damages were
caused by the fact that Holder sold Securities to a person as
to whom it shall be established that there was not sent or
given, at or prior to the written confirmation of such sale, a
copy of the Prospectus as then amended or supplemented if, but
only if, (i) CBC has previously furnished copies of such
amended or supplemented Prospectus to Holder and (ii) such
Damages were caused by any untrue statement or omission
contained in the Prospectus so delivered which was corrected in
such amended or supplemented Prospectus.
3.5.2. INDEMNIFICATION BY THE SELLER. Holder agrees to indemnify and
hold harmless CBC, its stockholders, directors, officers and
each person, if any, who controls CBC within the meaning of
either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from
CBC to Holder, but only with reference to information relating
to Holder furnished in writing to CBC by Holder specifically
for use in any Registration Statement (or any amendment
thereto) or any Prospectus (or any amendment or supplement
thereto); PROVIDED, HOWEVER, that Holder shall not be obligated
to provide such indemnity to the extent that such Damages
result from the failure of CBC to promptly amend or take action
to correct or supplement any such Registration Statement or
Prospectus on the basis of corrected or supplemental
information provided by Seller to CBC expressly for such
purpose. In no event shall the liability of Holder hereunder
be greater in amount than the amount of the proceeds received
by Holder upon the sale of the Registrable Securities giving
rise to such indemnification obligation.
3.5.3. CONTRIBUTION. To the extent that the indemnification provided
for in paragraph 3.5.1 or 3.5.2 of this Section 3.5 is
unavailable to an indemnified party or insufficient in respect
of any Damages, then each indemnifying party under such
paragraph, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such Damages in such
proportion as is appropriate to reflect the relative fault of
CBC on the one hand and Holder on the other hand in connection
with the statements or omissions that resulted in such Damages,
as well as any other relevant equitable considerations. The
relative fault of CBC on the one hand and of Holder on the
other hand shall be determined by reference to, among other
things, whether the untrue statement of a material fact or the
omission to state a material fact relates to information
supplied by CBC or by Holder and the parties' relative intent,
knowledge, access to information and opportunity to correct or
prevent such statement or omission.
If indemnification is available under paragraph 3.5.1 or 3.5.2
of this Section 3.5, the indemnifying parties shall indemnity
each indemnified party to the full extent provided in such
paragraphs without regard to the relative fault of said
indemnifying party or
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indemnified party or any other equitable consideration provided
for in this Section 3.5.3. CBC and Holder agree that it would
not be just or equitable if contribution pursuant to this
Section 3.5.3 were determined by pro rata allocation or by any
other method of allocation that does not take account of the
equitable considerations referred to herein.
3.6 TRANSFER OF REGISTRATION RIGHTS. The registration rights of Seller and
any Holder under this Article 3 may be transferred to any transferee of
Registrable Securities that acquires at least 10,000 shares of
Registrable Securities (appropriately adjusted for stock splits, stock
dividends and the like).
3.7 LIMITATIONS ON MONTHLY SALES. Seller and each Holder (collectively and
not severally) agree that they will not sell, or offer for sale,
collectively, in any calendar month, without the prior written consent
of CBC, more than an aggregate six thousand five hundred (6,500) Shares.
3.8 REPRESENTATIONS AND WARRANTIES. As a material inducement to CBC to
enter into this Agreement and to consummate the transactions
contemplated hereby, Seller makes to CBC the following representations
and warranties:
(a) Seller is acquiring the shares of CBC Common Stock to be issued
to such Seller hereunder for Seller's own account for
investment only and not with a view to, or with any intention
of, a distribution or resale thereof, in whole or in part, in
violation of the Securities Act or any rule or regulation
thereunder, as amended from time to time.
(b) Seller is not directly or indirectly controlled by, or acting
on behalf of any person which is, an "investment company"
within the meaning of the Investment Company Act of 1940 (the
"1940 Act"), as amended, required to register as such under the
1940 Act.
(c) Seller (i) has carefully reviewed the disclosure information
provided by CBC; (ii) has requested and received such other
information, as he has deemed relevant, regarding CBC for
purposes of evaluating his acquisition of CBC Common Stock to
be issued hereunder; (iii) is aware of the risks associated
with an investment in CBC Common Stock; and (iv) has not
received any form of general solicitation or advertising in
connection with his decision to acquire CBC Common Stock
hereunder. Seller has not relied in any way on any information
with respect to the CBC Common Stock or CBC generally other
than the representations of CBC contained herein or materials
furnished by CBC in writing in connection herewith.
(d) Seller acknowledges and understands that (i) the CBC Common
Stock to be issued to Seller hereunder has not been registered
under the Securities Act or any state securities laws; (ii) the
CBC Common Stock to be issued to Seller hereunder will be
subject to transfer restrictions under the Securities Act and
applicable state securities laws and may not be transferred
unless (x) subsequently registered under the Securities Act and
applicable state securities laws or (y) there is delivered to
CBC an opinion of counsel satisfactory to CBC that such
registration is not required; and (iii) CBC will place a
restrictive legend on the certificate(s) representing the CBC
Common Stock to be issued to Seller hereunder, containing the
following language:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE
ISSUED WITHOUT REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT") AND WITHOUT
REGISTRATION UNDER APPLICABLE STATE SECURITIES
LAWS, IN RELIANCE UPON EXEMPTIONS CONTAINED IN THE
ACT AND SUCH LAWS. NO TRANSFER OF THESE SHARES OR
ANY INTEREST THEREIN MAY BE MADE EXCEPT PURSUANT
TO EFFECTIVE REGISTRATION STATEMENTS UNDER SAID
LAWS UNLESS THIS CORPORATION HAS RECEIVED AN
OPINION OF COUNSEL SATISFACTORY TO IT THAT SUCH
TRANSFER OR DISPOSITION DOES NOT REQUIRE
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REGISTRATION UNDER SAID LAWS AND, FOR ANY SALES UNDER RULE
144 OF THE ACT, SUCH EVIDENCE AS IT SHALL REQUEST FOR
COMPLIANCE WITH THAT RULE.
(e) Seller (i) is able to bear the economic risks of the
acquisition of shares of CBC Common Stock hereunder and has
adequate means of providing for current needs and possible
contingencies; (ii) either alone or with his advisors has had
the opportunity to ask questions and receive answers concerning
CBC and the terms and conditions of the acquisition of CBC
Common Stock, as well as the opportunity to obtain any
additional information necessary to verify the accuracy of
information furnished in connection therewith which CBC
possesses or can acquire without unreasonable effort or
expense; and (iii) together with his advisors, if any, has such
knowledge and experience in financial and business matters that
Seller is capable of evaluating the merits and risks of this
acquisition of CBC Common Stock in exchange for the Shares, and
of making an informed investment decision, and has relied
solely upon the advice of his own counsel, accountant and other
advisors, with regard to the legal, investment, tax and other
considerations regarding such acquisition.
ARTICLE 4
SELLER'S AND SHAREHOLDER'S REPRESENTATIONS,
WARRANTIES AND AGREEMENTS
Seller and Shareholder represent, warrant and agree as follows, which
representations, warranties and agreements shall be deemed to have been made
again at Closing:
4.1. CORPORATE EXISTENCE AND POWERS. Seller is a corporation organized and
existing in good standing under the laws of the State of Pennsylvania
with full power and authority to enter into this Agreement and to enter
into and complete the transactions contemplated herein; all required
corporate action has been taken by Seller and Shareholder to make and
carry out this Agreement; the execution of this Agreement and the
completion of the transactions herein involved will not result in the
violation of any order, licenses, permit, rule, judgment or decree to
which Seller is subject or the breach of any contract, agreement or
other commitment to which Seller is a party or by which it is bound; and
no other consent of any kind is required that has not been obtained for
Seller to make or carry out the terms of this Agreement, except with
respect to those consents required of parties to Leases and Agreements
listed on Schedule B or D, with respect to assignment and assumption of
specific contract rights and obligations. Seller shall use its best
efforts to obtain third party consents with respect to any leases,
contracts or agreements designated by Buyer and Seller as "material", to
the extent required by such documents, and, to the extent Seller is
unable to obtain any such consents, Seller shall provide Buyer with
alternate benefits essentially similar to those which would have been
provided under such contract at the cost that Buyer would have paid by
assumption of such contract. Buyer shall cooperate with Seller in
obtaining all such required consents.
4.2. LICENSES. Seller is the holder of the licenses, permits and
authorizations listed on Schedule A, all of which are valid, and in full
force and effect. All ownership and employment reports, renewal
applications, financial reports, and other reports and documents
required to be filed for the Station have been properly and timely
filed, and Seller will not, without Buyer's prior written consent, by an
act or omission, surrender, modify, forfeit or fail to seek renewal on
regular terms, of any license or authorization of the Commission, or
cause the Commission to institute any proceeding for the cancellation or
modification of any such license or authorization, or fail to prosecute
with due diligence any pending application to the Commission.
4.3. ASSETS. The Assets to be transferred to Buyer at Closing represent all
the assets necessary for, utilized in connection with or held for use in
connection with the Station's current operations and
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represents all the assets owned by Seller or used for the Station's
current operations; until Closing, none of the Assets will be sold,
leased or otherwise disposed of unless replaced by a similar Asset of
equal or greater value, and, at Closing, all of the Assets shall be
owned by and transferred by Seller to Buyer free and clear of all liens,
encumbrances, interests or restrictions of any kind whatsoever excepting
only those obligations, liens or encumbrances expressly assumed by Buyer
hereunder and listed on Schedule B or D. The Assets will be in good
working condition on the Date of Closing.
4.4. CONTRACTS, LEASES, AGREEMENTS, ETC. On the Closing Date there will be
no Leases or Agreements relating to the Station (not including this
Agreement) which will be binding on the Buyer other than those
specifically identified herein, including the Schedules attached hereto,
as assumed by Buyer, or as otherwise approved in writing by Buyer.
4.5. LITIGATION. To Seller's and Shareholder's knowledge, no strike, labor
dispute, investigation, litigation, court or administrative proceeding
is pending or threatened against Seller or Shareholder relating to the
Station, its employees or any of the Assets to be conveyed hereunder
which may result in any change in the business, operations, assets or
financial condition of Seller or may materially affect Buyer's use and
enjoyment of the Assets, or which would hinder or prevent the
consummation of the transaction contemplated by this Agreement, and
Seller knows of no basis for any such possible action.
4.6. INSURANCE. Until Closing, Seller shall keep the Assets insured to full
insurable value against loss or damage by fire or from other causes
customarily insured against by other radio stations similarly situated,
and has provided Buyer with an abstract of such casualty insurance
coverage.
4.7. ACCESS TO INFORMATION. Seller shall give Buyer and its representatives
full access during normal business hours throughout the period prior to
Closing to the operations, properties, books, accounting records,
contracts, agreements, leases, commitments, programming, technical and
sales records and other records of and pertaining to the Station;
provided, however, such access shall not disrupt Seller's normal
operation. Seller shall furnish to Buyer all information concerning the
Station's affairs as Buyer may reasonably request. Buyer will maintain
the confidentiality of all the information and materials delivered to it
or made available for its inspection by Seller hereunder, except where
such information or materials are required to be filed with the FCC in
connection with the assignment application or are disclosed to partners
of Buyer or lenders thereto as reasonably required to secure financing
to consummate the transaction contemplated herein. In the latter event,
Buyer will use reasonable efforts to cause its partners or lenders to
maintain confidentiality. If for any reason the transaction
contemplated herein is not consummated, Buyer will return to Seller all
such materials in its possession and keep all of the foregoing
information confidential.
4.8. CONDUCT OF THE STATION'S BUSINESS. Until Closing, without the written
consent of Buyer, Seller shall not enter into any transaction other than
those in the ordinary course of the business of the Station; no
employment contract shall be entered into by Seller relating to the
Station unless the same is terminable at will and without penalty; and
Seller will cause the Station to be operated in compliance with its
licenses, permits and all applicable laws and regulations;
Seller further represents, warrants and covenants:
(a) Between the date hereof and Closing, Seller shall not take any
action which will prevent or impede Buyer from obtaining at the
Closing the actual and immediate occupancy and possession of
the Station and all of the Assets purchased hereunder,
including its books and records.
(b) On the Closing date, Seller will be the owner of the radio
broadcast equipment and other assets purchased hereunder except
such of the same replaced by suitable property of no
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less than equivalent value in the ordinary course of business,
with good and marketable title thereto, free and clear of all
liens and encumbrances, except liens for current taxes and
assessments not yet due and payable; and that between the date
of this Agreement and the Closing, there will be no more than
the ordinary normal wear and tear and expendability of those
Assets, and that the Assets will be in good working condition;
(c) Neither Seller nor Shareholder knows of any facts relating to
it or the Station which would cause the Commission to deny its
consent to the assignment of the Station authorization to
Buyer.
(d) Seller will have paid and discharged all taxes, assessments,
excises, and levies known to Seller or Shareholder which have
not been paid and that would interfere with Seller's assets,
facilities, license or other items conveyed hereunder.
4.9. FINANCIAL INFORMATION. Any financial information relating to the
Station that Seller has provided or will provide to Buyer are true and
correct in all material respects.
4.10 PRE-CLOSING COVENANTS. Between the date hereof and the Closing, Seller
and Shareholder covenant that :
4.10.1 FCC COMPLIANCE. Seller shall continue to operate the Station
in conformity with the terms of the Station's license and in
conformity in all material respects with all applicable laws,
regulations, rules and ordinances, including but not limited
but not limited to the rules and regulations of the FCC.
Seller shall file all reports, applications and other filings
required by the FCC in a timely and accurate manner.
4.10.2 CONDUCT OF BUSINESS. Seller shall operate the Station and
conduct its business diligently and in the usual and ordinary
course and consistent with past practices, and shall continue
all practices, policies, procedures and operations relating to
the Station in substantially the same manner as heretofore,
including sales, promotions and maintenance of the Assets.
4.10.3 MAINTENANCE OF ASSETS. Seller shall maintain all of the Assets
in a good condition and shall maintain inventories of spare
parts at levels consistent with the past practices of Seller
and the Station. Seller shall not sell, convey, assign,
transfer or encumber any of the Assets, except for the
retirement of tangible Assets consistent with the normal and
customary practices of Seller and the Station.
ARTICLE 5
CBC'S AND BUYER'S REPRESENTATIONS AND WARRANTIES
CBC and the Buyer represent and warrant as follows, which
representations and warranties shall be deemed to have been made again at
Closing.
5.1. CORPORATE EXISTENCE AND POWERS. CBC and Buyer are corporations
organized and existing in good standing under the laws of the State of
Minnesota with full power and authority to enter into this Agreement and
enter into and complete the transactions contemplated herein; Buyer is,
or will be at the time of Closing, qualified to do business in the State
of Pennsylvania; all required corporate action has been taken by Buyer
to make and carry out this Agreement; the execution of the Agreement
and, once the consent referred to in the next clause of this sentence is
obtained, the completion of the transactions herein involved will not
result in the violation of any order, license, permit, rule, judgment or
decree to which CBC or the Buyer is subject or the breach of any
contract,
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agreement or other commitment to which CBC or the Buyer is a party or by
which it is bound; and except for the consent of the Commission, no
other consent of any kind is required that has not been obtained for
Seller to make or carry out the terms of this Agreement.
5.2. BUYER'S QUALIFICATIONS. At Closing, Buyer or its assignee will be
legally and financially qualified to become the licensee of the
Commission. Buyer does not know of any facts relating to it which would
cause the Commission to deny its consent, or which would materially
hinder or delay receipt of such consent, to the Licenses for the Station
to Buyer.
5.3. SECURITIES AND EXCHANGE ACT OF 1934. CBC shall be in compliance with
applicable reporting requirements of the Securities and Exchange Act of
1934.
5.4. CBC STOCK. At Closing, all CBC Stock to be issued hereunder will be
validly issued, duly authorized, fully paid and non-assessable.
ARTICLE 6
BREACH OF AGREEMENTS,
REPRESENTATIONS AND WARRANTIES
6.1. BREACH OF SELLER'S OR SHAREHOLDER'S AGREEMENTS, REPRESENTATIONS AND
WARRANTIES. Seller and Shareholder shall indemnify and hold harmless
CBC and Buyer from and against any loss, damage, liability, claim,
demand, judgment or expense, including claims of third parties arising
out of ownership of the Assets or the operation of the Station by Seller
prior to Closing, and including without being limited to, reasonable
counsel fees and reasonable accounting fees, arising out of or sustained
by CBC or Buyer by reason of any material breach of any warranty,
representation, covenant or agreement of Seller or Shareholder contained
herein or in the Schedules attached hereto; provided, however, that such
indemnification shall be required only if written notice, with respect
to any matter for which indemnification is claimed, is given. Upon
receipt of such written notice, Seller shall have the right, if it
involves a liability to a third party, to defend or compromise such
matter at Seller's sole cost and expense, and Buyer shall cooperate
fully in such defense.
6.2. BREACH OF CBC'S OR BUYER'S AGREEMENTS, REPRESENTATIONS AND WARRANTIES.
CBC and Buyer shall indemnify and hold harmless Seller from and against
any loss, damage, liability, claim, demand, judgment or expense,
including claims of third parties arising out of ownership of the Assets
or operation of the Station by Buyer after Closing, and including
without being limited to, reasonable counsel fees and reasonable
accounting fees, arising out of or sustained by Seller by reason of any
material breach of any warranty, representation, covenant or agreement
of CBC or Buyer contained herein; provided, however, that such
indemnification shall be required only if written notice, with respect
to any matter for which indemnification is claimed, is given. Upon
receipt of such written notice, CBC and Buyer shall have the right, if
it involves a liability to a third party, to defend or compromise such
matter at CBC or Buyer's sole cost and expense, and Seller shall
cooperate fully in such defense.
6.3. SPECIFIC PERFORMANCE AND LIQUIDATED DAMAGES. The Seller acknowledges
that the Assets and property to be transferred and assigned under this
Agreement are unique and not readily bought on the open market and, for
that reason, among others, CBC and Buyer would be irreparably harmed by
any breach or failure of the Seller to consummate this Agreement, and
monetary damages therefor will be highly difficult, if not wholly
impossible, to ascertain. It is therefore agreed that this Agreement
shall be enforceable in a court of equity by a decree of specific
performance by Buyer or CBC, and an injunction may be issued restraining
any transfer or assignment of the Assets contrary to the provisions of
this Agreement pending the determination of such controversy. The
Seller, for itself and its successors and assigns, hereby waives the
claim or defense that an adequate remedy at law exists. In the event of
the failure of the contemplated transaction to close as a result of
Buyer's
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or CBC's material breach of their obligations hereunder, and assuming
that neither Seller nor Shareholder are in material breach of any of
their obligations hereunder, then the parties agree that the Escrowed
Funds shall act as liquidated damages to Seller and Shareholder, and in
no event shall Seller or Shareholder have the right to claim damages in
excess of the Escrowed Funds as a result of the transaction's failure to
close.
ARTICLE 7
RISK OF LOSS
7.1. BUYER'S OPTIONS. The risk of any loss, damage or destruction to any of
the Assets to be transferred to the Buyer hereunder from fire or other
casualty or loss shall be borne by the Seller at all times prior to the
Closing. Except for loss or damage affecting the broadcast transmission
capabilities of the station, which is covered by the terms of Section
7.2 below, upon the occurrence of any material loss or damage to any of
the Assets to be transferred hereunder as a result of fire, casualty, or
other causes prior to the closing, Seller shall notify the Buyer of same
in writing immediately, stating with particularity the reasonable
estimates of the loss or damage incurred, the cause of damage, if known,
and the extent to which restoration, replacement and repair of the
Assets lost or destroyed is believed reimbursable under any insurance
policy with respect thereto. Provided Seller has not repaired, restored
or replaced the damaged Assets by the Closing, CBC and Buyer shall have
the option (but not the obligation) exercisable at the Closing to:
(i) terminate this Agreement in which case neither party shall have
any further liability to the other and all escrowed funds shall
be returned to Buyer, except that Seller shall have a
reasonable period of time, not to exceed thirty (30) days, to
effect repairs of the damaged Assets before CBC or Buyer may
exercise its option under this subparagraph 7.1 (i);
(ii) postpone the Closing for up to sixty (60) days to allow the
property to be completely repaired, replaced or restored, at
Seller's sole expense, in which event Seller shall use its best
efforts to complete such repairs; or
(iii) elect to consummate the Closing and accept the property in its
"then" condition, in which event Seller shall assign to Buyer
all rights under any insurance claim covering the loss and pay
over to the Buyer all rights under any insurance claim covering
the loss and pay over to the Buyer the proceeds under any such
insurance policy heretofore received by Seller with respect
thereto.
7.2. BROADCAST TRANSMISSION OF THE STATION PRIOR TO CLOSING. If, prior to
the Closing Date, the Station incurs any unusual operating problems
(including any event described below), Seller shall provide Buyer with
prompt written notice of such problem and the measures being taken to
correct same. If, after the date hereof and prior to the Closing Date,
any event occurs which prevents the full authorized power broadcast
transmission of the Station pursuant to its FCC license authority for
(i) a period of 12 consecutive hours or more, (ii) three separate
periods of one hour or more, or (iii) five separate occasions regardless
of the duration thereof, Buyer shall have the right, by giving written
notice to the Seller of its election to do so, to terminate this
Agreement.
ARTICLE 8
APPLICATION FOR COMMISSION APPROVAL
8.1. FILING AND PROSECUTION OF APPLICATION. Buyer and Seller shall, as soon
as practicable after the date of this Agreement and in any event not
later than ten days thereafter, join in an application to be filed with
the Commission requesting its written consent to the assignment of the
License of the
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Station from Seller to Buyer. Each party shall prepare its own portion
of the application. Buyer and Seller shall take all steps necessary to
the expeditious prosecution of such application to a favorable
conclusion, using their best efforts throughout.
8.2. EXPENSES. Each party shall bear its own legal, accounting and other
expenses in connection with the consummation of the contemplated
transaction. Any fees incurred in connection with the preparation of
audited financial statements of Seller will be incurred at Buyer's
direction and deemed to be Buyer's expense for the purpose of this
Section 8.2. The parties shall cooperate with the preparation of the
Commission application and in connection with the prosecution of such
application. The filing fee shall be shared equally by the parties.
8.3. DESIGNATION FOR HEARING. If, for any reason, any application for
assignment of the License is designated for hearing by the Commission
prior to grant thereof, either party shall have the right by written
notice within thirty (30) days of such designation for hearing, to
terminate this Agreement if the allegations raised by such petition
relate to the other party. Should Closing occur and upon
reconsideration should the FCC designate the assignment for hearing,
Buyer may elect to rescind this Agreement, and if Buyer so elects, Buyer
and Seller agree to cooperate in filing an application to reassign the
License to Seller, if necessary, in order to comply with any FCC order
and to take all necessary actions to reverse this transaction as if
Closing had not occurred.
8.4. TIME FOR COMMISSION CONSENT. If the Commission has not given its
written consent to the assignment of the License set forth herein within
nine (9) months from the date of acceptance for filing of the
application for such assignment, either party, if not then in default,
may terminate this Agreement by giving written notice to the other.
Upon such termination, neither party shall have any right or liability
hereunder and all escrowed funds shall be returned to Buyer promptly.
8.5. CONTROL OF STATION. Until Closing, Buyer shall not directly or
indirectly, control, supervise, direct or attempt to control, supervise
or direct the operation of the Station, but such operation shall be the
sole responsibility of Seller, subject to and consistent with all rules,
regulations and policies of the FCC.
ARTICLE 9
CLOSING
Subject to the terms and conditions herein stated, the parties agree as
follows:
9.1. CLOSING DATE. The Closing of this Agreement shall be held at such time
and date as shall be mutually agreed by Seller and Buyer; provided,
however, that in any event Buyer must close no later than ten (10) days
after final Commission approval of the assignment of the License ("Final
Approval"). (The date scheduled, or required to be scheduled for
Closing hereunder is referred to herein as the "Closing Date.") Final
Approval shall be the approval of the FCC to the assignment of the
Station Licenses which is no longer subject to rehearing,
reconsideration or review by the Commission or to review by any court
under the Communications Act of 1934, as amended. Closing shall take
place at the offices of Buyer or, at the parties' option, by mail.
9.2. SELLER'S AND SHAREHOLDER'S OBLIGATIONS AT CLOSING. At Closing, Seller
and Shareholder shall deliver to Buyer the following:
(a) An Assignment of the Licenses described in Schedule A; an
Assignment of Leases and/or Warranty Deed for the real property
interests described in Schedule B conveying all of Seller's or
Shareholder's interest in such real property and an Assignment
and Bill of Sale, or similar instruments, including third party
consents to all "material" leases, contracts and agreements,
transferring to Buyer all other Assets to be transferred
hereunder, free and
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clear of all liens, encumbrances and restrictions of any kind
whatsoever. The Real Estate is to be conveyed free and clear
of all liens, encumbrances, and easements excepting however the
following: existing building restrictions, ordinances,
easements of roads, easements visible upon the ground,
privileges or rights of public service companies, and those
ground leases listed on the schedules attached hereto;
otherwise the title to the Real Estate shall be good and
marketable and such as will be insured by a reputable title
insurance company at the regular rates.
(b) The business records described in Section 1.8;
(c) An opinion of Seller's counsel, addressed to Buyer, confirming
the correctness of Seller's representations made in Section
4.1; and
(d) Such other documents and instruments as might reasonably be
requested by Buyer to consummate the transaction contemplated
hereunder consistent with the intent expressed herein.
9.3. CBC'S AND BUYER'S OBLIGATIONS AT CLOSING. At Closing, CBC or Buyer
shall deliver to Seller the following:
(a) Shares of CBC Stock in an amount to be determined as set forth
in Section 2.2.1;
(b) A cashier's or certified check in the amount of Eight Hundred
Thousand and no/100 Dollars ($800,000.00);
(c) An opinion of Buyer's and CBC's counsel, addressed to Seller,
confirming the correctness of Buyer's and CBC's representations
made in Section 5.1.
9.4. CONDITIONS TO OBLIGATIONS OF BUYER AND CBC. The obligations of Buyer
and CBC to consummate the transaction herein contemplated at Closing are
subject to and conditioned on:
(a) The written consent of the Commission to the assignment to
Buyer or its assigns of the License of the Station that does
not impose any condition that is materially adverse to Buyer or
CBC, and the written consent of any other federal or state
regulatory authority required in connection with the issuance
of the CBC Stock;
(b) The satisfaction at or before Closing of all agreements,
obligations and covenants of Seller hereunder required to be
performed or complied with by them on or before Closing;
(c) The material accuracy of the representations and warranties
made by Seller and Shareholder;
(d) Written third party consents to all material leases, contracts
and agreements where required by the terms of the lease,
contract or agreement; and
(e) Receipt of engineering certificate by Seller to Buyer
certifying and confirming the Station's compliance with all FCC
regulations and accuracy of Seller's and Shareholder's
representations as to FCC and engineering compliance.
(f) Either a determination that the contemplated transaction does
not constitute a "significant" transaction under applicable SEC
regulations or delivery of audited financial statements of
Seller for the three (3) tax years prior to Closing. It is
understood that Seller's financial statements are not audited,
that Seller's accountants will be paid by
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Buyer for services in connection with preparing such audits,
and that the contingency referred to in this subparagraph
relates to the auditability of such records of Seller.
9.5. CONDITIONS TO OBLIGATIONS OF SELLER. The obligations of Seller to
consummate the transaction herein contemplated at Closing are subject to
and conditioned on:
(a) The written consent of the Commission to the assignment to
Buyer of the License of the Station without any conditions that
are materially adverse to Seller, and the written consent of
any other federal or state regulatory authority required in
connection with the issuance of the CBC Stock;
(b) The satisfaction at or before Closing of all agreements,
obligations and covenants of Buyer and CBC hereunder required
to be performed or complied with by it at or before the
Closing; and
(c) The material accuracy of the representations and warranties
made by Buyer and CBC.
ARTICLE 10
MISCELLANEOUS PROVISIONS
10.1. ARBITRATION.
10.1.1. PROCEDURE. Except as specifically provided to the contrary in
this Agreement, all disputes arising among the parties under
this Agreement shall be resolved by arbitration under this
Section 10. The parties do not intend that any matters
relating to fraud or material misrepresentation shall be
subject to arbitration. Any party desiring arbitration shall
deliver notice to the other party and in such notice shall (i)
specify in detail those matters (the "Disputed Matters") as to
which such party has a claim, such party's position with
respect to the Disputed Matter and the basis for such party's
claim; and (ii) appoint as an arbitrator a disinterested person
of recognized competence in the area at issue. Within fifteen
(15) days thereafter, each party shall, by notice to the
originating party, (i) specify in detail such party's position
with respect to the Disputed Matters and the basis for such
party's disagreement; and (ii) appoint another person similarly
qualified as the additional arbitrator. Within fifteen (15)
days thereafter, the arbitrators thus appointed shall appoint
another person similarly qualified as an additional arbitrator,
and all such arbitrators shall be directed to resolve such
Disputed Matters within thirty (30) days, unless the
arbitrators in good faith determine that such a deadline is
impractical.
The arbitrators shall resolve any Disputed Matters by adopting
the position with respect thereto of one of the parties, and
unless otherwise agreed by the parties, the arbitrator shall
have not authority to adopt any other resolution of such
Disputed matters. The determination of the majority of the
arbitrators or the sole arbitrator, as the case may be, shall,
to the extent permitted by law, be conclusive and binding upon
the parties. Any party shall, upon such determination, have
the right to enforce the determination in a court of competent
jurisdiction. The arbitrator or arbitrators shall give notice
to the parties stating their determination, and shall furnish
to each a copy of such determination signed by them. In the
event of the failure, refusal or inability of any arbitrator to
act, a new arbitrator shall be appointed in his or her stead,
which appointment shall be made in the same manner as
hereinbefore provided for the appointment of the arbitrator so
failing, refusing or unable to act.
10.1.2. ARBITRATOR APPOINTMENT DISPUTE. Notwithstanding the provisions
of the prior paragraph, (i) if the additional arbitrator shall
not have been appointed as aforesaid, the first arbitrator
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shall determine such matter; and (ii) if the arbitrators
appointed by the parties shall be unable to agree upon the
appointment of another arbitrator within fifteen (15) days
after the appointment of the lastly appointed arbitrator, they
shall give written notice of such failure to agree to the
parties, and, if the parties shall fail to agree upon the
selection to such other arbitrator within fifteen (15) days
thereafter, then within ten (10) days thereafter, any of the
parties upon written notice to the other party may apply for
such appointment to a local court of competent jurisdiction.
10.1.3. RULES AND PROCEDURES.
(a) Any such arbitration shall be conducted in Washington,
D.C., in accordance with the Commercial Arbitration Rules
(the "Rules") of the American Arbitration Association
("AAA") to the fullest extent such Rules are permitted by,
and to the fullest extent not inconsistent with,
applicable law and the Rules set forth below, which shall
be controlling to the extent they differ from the AAA
Rules.
(b) Each party shall be entitled to present evidence and
arguments to the arbitrators. Each party hereby
authorizes the arbitrators (i) to order such discovery
(including third party discovery) as the arbitrators shall
determine to be reasonable under the circumstances; (ii)
to impose reasonable schedules and deadlines to ensure
that discovery is conducted and concluded on a timely
basis; (iii) to impose sanctions on any party for abuse or
delay of the discovery; and (iv) to apply such Rules of
evidence as the arbitrators in their sole discretion may
determine.
(c) Any party may elect, by notice to the other party and the
arbitrators, to have the arbitration conducted on an
expedited basis. In such event, the parties hereby agree
that the arbitrator shall be authorized to authorize to
expedite the proceedings by all reasonable means
consistent with a fair hearing of the dispute. Such means
may include the imposition of accelerated discovery and
hearing schedules, requiring submissions within
abbreviated time periods and imposing limitations on
numbers of witnesses and the length of hearings.
10.1.4. COSTS AND COMPLIANCE WITH DECISION. Each party agrees to
comply with any order or request of the arbitrators delivered
pursuant to this Section 10. Each party will compensate the
arbitrator selected by it, and the fees of the arbitrator
appointed by the other arbitrators and the expenses of the
proceeding will be shared equally by the parties. Subject to
the foregoing sentence, each party shall bear its own expenses,
including attorneys' fees, in connection with any arbitration
proceedings hereunder. No party in any such arbitration, or in
any action, trial or appeal thereon, shall be entitled to
attorneys' fees or court, arbitration or other costs incurred,
unless otherwise decreed by the court or arbitrators in the
same or a separate suit.
10.2. EXECUTION OF DOCUMENTS. The parties agree to execute all applications,
documents and instruments which may be necessary for the consummation of
the transaction contemplated hereunder, or which might be from time to
time reasonably requested by any party hereto in connection therewith,
whether before or after the date of Closing.
10.3. NOTICES. All notices, requests, elections, demands and other
communications given pursuant to this Agreement shall be in writing and
shall be duly given when delivered personally or when deposited in the
mails, certified or registered mail, postage prepaid, return receipt
requested, and shall be addressed as follows:
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If to Seller or Shareholder:
Mr. Lloyd B. Roach
Lloyd B. Roach, Inc.
12 Kent Road
Aston, Pennsylvania 19014
with copy to: Robert B. Famiglio, Esq.
Famiglio & Massinger
201 North Jackson Street
Media, Pennsylvania 19063
If to Buyer or CBC:
Mr. Christopher T. Dahl
Children's Broadcasting Corporation
Fourth Floor
724 First Street North
Minneapolis, Minnesota 55401
with copy to: Lance W. Riley, Esq.
Children's Broadcasting Corporation
Fourth Floor
724 First Street North
Minneapolis, Minnesota 55401
10.4. EXHIBITS AND SCHEDULES. All Exhibits and Schedules referred to herein
are incorporated into this Agreement by reference for all purposes and
shall be deemed part of this Agreement.
10.5. ENTIRE AGREEMENT. This Agreement together with all Exhibits and
Schedules referred to herein contain all of the terms and conditions
agreed upon by the parties hereto with respect to the transaction
contemplated hereunder.
10.6. ASSIGNABILITY. Neither party may assign their rights or obligations
under this Agreement without the prior written consent of the other
party, which consent will not be unreasonably denied or delayed, except
that either party may make an assignment to an entity under essentially
common control as the assigning entity.
10.7. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the representatives, heirs, estates, successors, and assigns
of the parties hereto.
10.8. HEADING. The headings contained in this Agreement are for reference
only and shall not effect in any way the meaning or interpretation of
this Agreement.
10.9. COUNTERPARTS. This Agreement and any other instrument to be signed by
the parties hereto may be executed by the parties, together or
separately, in two or more identical counterparts, each of which shall
be deemed an original, but all of which together shall constitute but
one and the same instrument.
10.10. GOVERNING LAW. This Agreement has been entered into in the State of
Pennsylvania and shall be governed in accordance with the laws of the
State of Pennsylvania.
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10.11. BROKER COMMISSION. Seller and Buyer each represent to the other that it
has engaged no broker in connection with the contemplated transaction,
other than Mr. Ed McKenna, who has been engaged by and shall be paid by
Seller, and agrees to indemnify and hold the other party harmless
against any claims made by a broker through it in connection with the
transactions contemplated hereunder.
10.12. SALES TAX. Any sales or transfer tax due upon consummation of this
transaction will be computed at Closing and paid by Buyer.
IN WITNESS WHEREOF, the parties hereto, by their properly authorized
representatives, have caused this Agreement to be executed as of the day and
date first above written.
SELLER: CBC:
LLOYD B. ROACH, INC. CHILDREN'S BROADCASTING
CORPORATION
BY: /s/LLOYD B. ROACH BY: /s/JAMES G. GILBERTSON
------------------------- ------------------------------
LLOYD B. ROACH JAMES G. GILBERTSON
ITS: PRESIDENT ITS: CHIEF OPERATING OFFICER
BUYER:
CHILDREN'S RADIO GROUP, INC.
BY: /s/JAMES G. GILBERTSON
------------------------------
JAMES G. GILBERTSON
ITS: CHIEF OPERATING OFFICER
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EXHIBIT 10.2
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated as of September 11, 1996, is made between NELSON
BROADCASTING, INC., an Illinois corporation ("Seller"); LARRY NELSON
("Shareholder"); CHILDREN'S BROADCASTING CORPORATION, a Minnesota corporation
("CBC"); and CHILDREN'S RADIO GROUP, INC., a Minnesota corporation ("Buyer");
and
W I T N E S S E T H :
THAT, WHEREAS, Seller is the Federal Communications Commission ("FCC" or
"Commission") licensee of Radio Station WAUR-AM, licensed to Sandwich, Illinois
(the "Station"); and
WHEREAS, Shareholder is the owner of a majority of the issued and
outstanding stock of Seller; and
WHEREAS, CBC is the owner of 100% of the issued and outstanding stock of
Buyer; and
WHEREAS, subject to and conditioned upon the consent of the FCC, Seller
desires to sell and transfer and Buyer desires to purchase and acquire the
Station and all of the tangible and intangible assets used or held for use in
connection with the operation of the Station;
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions contained herein, the parties hereto hereby agree as follows:
ARTICLE 1
SALE AND TRANSFER OF ASSETS
At closing of the transaction described herein ("Closing"), Seller shall
sell, convey, assign, transfer and deliver to Buyer, free and clear of any lien,
encumbrance, mortgage or security interest of any nature whatsoever, all the
material assets of the Seller or Shareholder listed herein for use in connection
with the operation of the Station, specifically excluding cash on hand, accounts
receivable , like cash accounts and cash value of life insurance policies, items
not listed, if any, and including, the following (collectively, the "Assets"):
1.1. All licenses, permits and authorizations ("Licenses") issued by the
Commission for the operation of or used in connection with the operation
of the Station, all of which are listed on SCHEDULE A attached hereto;
1.2. All of Seller's real property interests described in SCHEDULE B attached
hereto ("Real Property");
1.3. All tangible personal property owned by Seller and used or held for use
in connection with the operation of the Station listed on SCHEDULE C
attached hereto, and any replacements therefor or improvements thereof
acquired or constructed prior to Closing ("Personal Property");
1.4. All of Seller's rights and benefits under the business agreements,
leases and contracts listed on SCHEDULE D attached hereto, including any
renewals, extensions, amendments or modifications
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thereof, all time sales agreements, and any additional agreements,
leases and contracts listed; Contracts made or entered into by Seller in
the ordinary course of business between the date of such Schedule and
the Closing approved in writing by Buyer and Seller or otherwise
permitted hereunder ("Leases and Agreements");
1.5. All other licenses, permits or authorizations issued by any government
or regulatory agency other than the FCC, which are used in connection
with the operation of the Station ("Permits");
1.6. All right, title and interest of Seller in and to the use of the call
letters WAUR for the Station ("Call Letters"), to the extent they can be
conveyed; together with all common law property rights, goodwill,
copyrights, trademarks, service marks, trade names and other similar
rights used in connection with the operation of the Station, including
all accretions thereto, including but not limited to those listed on
SCHEDULE E attached hereto ("General Intangibles"); and
1.7. Copies or originals of (relating to WAUR) programs, logs, customer
contracts, public files, vendor contracts, historical billing
information, promotional material, customer files, correspondence,
maintenance records or other business records relating to or used in
connection with the operation and financial condition of the Station (if
requested), but not including records pertaining to corporate affairs
(including tax records) and journals, provided copies are supplied to
Buyer if needed at Buyer's expense. Buyer shall have reasonable access
to all such records which might be in the possession of Seller for a
period of two (2) years following the Closing, and shall, at its own
expense, have the right to make copies thereof;
1.8. Seller and Shareholder agree that the Station Assets conveyed to Buyer
on the Closing Date pursuant to this Agreement will be conveyed free and
clear of all liens, charges, claims and encumbrances whatsoever,
excepting only those obligations from and after the Closing Date with
respect to obligations of Seller expressly agreed to be assumed by Buyer
hereunder.
ARTICLE 2
PURCHASE PRICE AND PAYMENTS
2.1. PURCHASE PRICE. As the purchase price for the Assets, Buyer agrees to
pay to Seller the sum of Three Million Nine Hundred Thousand and no/100
Dollars ($3,900,000.00).
2.2. METHOD OF PAYMENT OF PURCHASE PRICE. The purchase price shall be paid
as follows:
2.2.1. CASH PAYMENT AT CLOSING. Two Million and no/100 Dollars
($2,000,000.00) of the aggregate purchase price shall be
payable in cash at Closing.
2.2.2. PROMISSORY NOTE. One Million Four Hundred Thousand and no/100
Dollars ($1,400,000.00) of the aggregate purchase price shall
be payable pursuant to the terms of a Promissory Note in the
form attached hereto as EXHIBIT A (the "Note") to be executed
by Buyer and CBC and delivered to Seller at Closing. The Note
shall provide that the principal balance and interest thereon
at the rate of prime (as determined and adjusted quarterly by
reference to the prime rate published in the WALL STREET
JOURNAL) plus 1%, be amortized over six (6) years and payable
in equal quarterly payments over six (6) years or at such
earlier time that Buyer or CBC is sold or upon the resale of
WAUR. In the event of sale of Buyer or CBC or the resale of
WAUR, the balance due of this Promissory Note will become
payable in full in cash. The Note shall be secured by a lien
upon the Station Assets as set forth in that Security Agreement
attached hereto as EXHIBIT B. The Buyer shall have the option
of delivering shares of CBC Common Stock ("CBC Stock")
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in lieu of cash payments under the Note with the value of CBC
Stock determined by the average closing sale price of CBC Stock
on the NASDAQ National Market over the ten (10) trading days
prior to the two (2) days prior to the date of any due date of
a payment under the Note. Any CBC Stock delivered to Seller
shall carry demand registration rights as more particularly
described in Section 3 below, with any cost associated with
such registration to be paid by CBC. Notwithstanding the
foregoing, if the trading volume of CBC's stock over the thirty
(30) trading days preceding any such payment date averaged less
than 7,500 shares per day, then one-half of such Note payment
must be made in cash, and if the average trading volume is less
than 3,750 per day, then all of such Note payment shall be made
in cash. If a Suspension Notice or other impediment exists
which prevents registration of CBC Stock upon demand made at
the time of issuance of any installment of CBC Stock, Seller
shall have the right to require Buyer and CBC to make such
payment in cash within 5 business days after receipt of notice
from Seller. CBC shall have the option of making a maximum of
two payments of cash or CBC Stock in advance during any
calendar year, which prepayments shall be credited against the
next installment payment or payments due under the Note. Any
sale volume limitations imposed upon Seller in such event shall
be adjusted proportionately so that, for instance, if two
installments are being made, Seller's volume limit would be
doubled.
2.2.3. NON-COMPETITION AGREEMENT. Five Hundred Thousand and no/100
Dollars ($500,000.00) of the aggregate purchase price shall be
payable pursuant to the terms of a Non-Competition Agreement
(the "Non-Competition Agreement") in the form attached hereto
as EXHIBIT C to be executed by Shareholder and Buyer and
delivered at Closing. The Non-Competition Agreement shall have
a term of ten (10) years, shall cover the Eight County Chicago
Metropolitan Area, and shall provide that Shareholder shall not
directly or indirectly engage in the production or broadcast of
a children's radio format or programming within the proscribed
area during such 10-year term except in the event of default by
CBC and Buyer. Equal quarterly payments shall be made by Buyer
during the term of the Non-Competition Agreement.
2.3. ESCROW PROVISIONS. To secure Buyer's obligation to close hereunder, the
parties agree to enter into an Escrow Agreement in the form attached
hereto as EXHIBIT D (the "Escrow Agreement") contemporaneously with the
execution of this Agreement. Pursuant to the terms of the Escrow
Agreement, Buyer shall deliver to the Escrow Agent a certificate
representing shares of CBC Stock having a Market Value (as that term is
defined in the Escrow Agreement) of Three Hundred Fifty Thousand and
no/100 Dollars ($350,000.00) to secure performance of CBC's and Buyer's
obligations hereunder.
2.4. ADJUSTMENTS AND PRORATIONS. The operations of the Station and the
expenses and income attributable thereto up to 12:01 A.M. on the day of
the Closing (the "Adjustment Time"), shall, except as otherwise provided
in this Agreement, be for the account of Seller and thereafter shall be
for the account of Buyer. Expenses such as power and utility charges,
lease rents, property taxes according to year of accrual, frequency
discounts, annual license fees (if any), wages, commissions, payroll
taxes, and other fringe benefits of employees of the Seller who enter
the employment of the Buyer, and similar deferred items shall be
prorated between the Seller and the Buyer. With specific reference to
vacation pay or vacation time, it is understood that Seller will be
responsible for paying employees any accrued vacation pay and that Buyer
will not assume the obligation to provide any accrued vacation time to
employees. Prepaid deposits shall not be prorated but shall remain the
property of Seller. Employees' employment with Seller shall be
terminated as of the Closing Date, and Buyer shall employ employees of
its choice from and after said date upon terms acceptable to Buyer and
such employees. All prorations shall be made and paid insofar as
feasible at the Closing, with a final settlement within ninety (90) days
after the Closing.
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2.5. ASSUMED LIABILITIES. Except as expressly provided for in this
Agreement, at the Closing Buyer shall not assume, incur or be charged
with, in connection with the transactions herein contemplated, any
liabilities or obligations of any nature whatsoever, contingent or
otherwise. Without limitation of the foregoing, Buyer shall not assume
any obligations to Seller's or the Station's employees under any
employee benefit plans or employment contracts.
2.6. ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated
among the Assets by Buyer and Seller as set forth in the attached
SCHEDULE F. Such allocation will be used for all purposes, including
preparation and filing of IRS Form 8594 with respect to the transactions
contemplated by this Agreement.
ARTICLE 3
FEDERAL SECURITIES LAWS MATTERS
3.1. DEFINITIONS. As used in this Article 3, the following terms shall have
the following meanings:
"ACT" means the Securities Act of 1933, as amended.
"ADVICE" has the meaning set forth in Section 3.3.
"AFFILIATE" means, with respect to any specified person, any other
person who, directly or indirectly, controls, is controlled by, or is
under common control with such specified person.
"COMMISSION" means the Securities and Exchange Commission.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor statute, and the rules and
regulations of the Commission promulgated thereunder.
"HOLDER" means (i) Seller and (ii) each person (other than CBC and its
Affiliates) to whom Seller transfers the Shares as provided in Section
3.6 hereof, if the person to whom the Shares are transferred acquires
the Shares as Registrable Securities.
"PROSPECTUS" means the Prospectus included in any Registration Statement
(including without limitation, a Prospectus that discloses information
previously omitted from a Prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any Prospectus
supplement, and by all other amendments and supplements to the
Prospectus, including post-effective amendments, and in each case
including all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
"REGISTRABLE SECURITIES" means the Shares; PROVIDED, HOWEVER, that any
Shares shall cease to be Registrable Securities when (i) a Registration
Statement covering such Registrable Securities has been declared
effective and such Registrable Securities have been disposed of pursuant
to such effective Registration Statement, or (ii) such Registrable
Securities become eligible for sale pursuant to Rule 144(k) (or any
similar provision then in force) under the Act, or (iii) such Securities
cease to be outstanding.
"REGISTRATION STATEMENT" means any registration statement of CBC that
covers any of the Registrable Securities pursuant to the provisions of
this Agreement and all amendments and supplements to any such
registration statement, including post-effective amendments, in each
case including the Prospectus, all exhibits, and all material
incorporated by reference or deemed to be incorporated by reference in
such registration statement.
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"SHARES" means the shares of CBC Common Stock issued to the Seller
pursuant to this Agreement so long as they are owned beneficially and of
record by a Holder.
"SUSPENSION NOTICE" has the meaning set forth in Section 3.3.
3.2. RESALE REGISTRATION.
3.2.1. FILING, EFFECTIVENESS. If any Holder shall make a demand of
CBC in writing at any time after the Closing Date of the
transactions contemplated by this Agreement that it desires CBC
to register all or any portion of his Registrable Securities,
CBC shall use reasonable efforts to prepare and file a
registration statement on Form S-3 (the "Registration
Statement") under the Act covering the resale by such Holder of
its Registrable Securities pursuant to Rule 415 under the
Securities Act from time to time in transactions not involving
any underwritten public offering and use reasonable efforts (i)
to cause such Registration Statement to be declared effective
by the Commission for such Registrable Securities as soon as
practicable thereafter and (ii) to keep the Resale Registration
Statement continuously effective until the earliest of (x) the
date on which such Holder no longer holds any Registrable
Securities registered under the Resale Registration Statement
or (y) the third anniversary of the issuance of the Registrable
Securities, or such lesser time as may be permitted under Rule
144(k) under the Act (or any successor rule thereto) to enable
Holder to sell the Registrable Securities without restriction
under the Act. CBC shall not be required to cause a
Registration Statement requested pursuant to this Section 3.2
to become effective prior to 90 days following the effective
date of a registration statement for a publicly underwritten
offering of CBC Common Stock initiated by CBC if any managing
underwriter named in such registration statement for the
publicly underwritten offering has advised CBC in writing that
the registration or sale of additional securities by
stockholders of CBC within such 90-day period would have a
material adverse effect on the likelihood of success of such
underwritten offering; PROVIDED, HOWEVER, that CBC shall use
its best efforts to achieve such effectiveness promptly
following such 90-day period if the request pursuant to this
Section 3.2 has been made prior to the expiration of such
90-day period. CBC may postpone the filing of any Registration
Statement required hereunder for a reasonable period of time,
not to exceed 60 days, if CBC has been advised by outside legal
counsel that such filing would require the disclosure of a
material transaction or other matter and CBC determines
reasonably and in good faith that such disclosure would have a
material adverse effect on CBC; PROVIDED, HOWEVER, that CBC
shall (A) use reasonable efforts to disclose such material
transaction or other matter as soon as in its good faith
judgment it is prudent to do so and (B) may so postpone such
filing only if all other persons who are named as selling
securityholders under then effective registration statements
filed by CBC with the Commission and all directors of CBC are
advised of the fact that a material transaction or other matter
is not being disclosed during the length of such postponement
and of the consequences of such nondisclosure under the Act and
the Exchange Act. The disclosure to any Holder of any material
transaction, or of the existence thereof, pursuant to the
preceding sentence shall be held in confidence by Seller or
Holder until CBC or a third party not under the control of
Seller or Holder has made a public disclosure thereof.
3.2.2. EFFECTIVE REGISTRATION. A registration will not be deemed to
have been effected unless the Registration Statement has been
declared effective by the Commission; PROVIDED, HOWEVER, that
if after it has been declared effective, the offering of
Registrable Securities pursuant to a Registration Statement is
interfered with by any stop order, injunction or other order or
requirement of the Commission or any other governmental agency
or court, such Registration Statement will be deemed not to
have become effective during the period of
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such interference until the offering of Registrable Securities
pursuant to such Registration Statement may legally resume.
3.3. REGISTRATION PROCEDURES. In connection with the obligations of CBC to
effect or cause the registration of any Registrable Securities pursuant
to the terms and conditions of this Agreement, CBC shall use reasonable
efforts to effect the registration and sale of such Registrable
Securities in accordance with the intended method of distribution
thereof, and in connection therewith:
(a) CBC shall prepare and file with the Commission a Registration
Statement on Form S-3 or other similar form under the
Securities Act which permits secondary sales of securities in a
"shelf registration," and use reasonable efforts to cause such
Registration Statement to become effective and remain effective
in accordance with the provisions of this Agreement;
(b) CBC shall promptly prepare and file with the Commission such
amendments and post-effective amendments to each Registration
Statement as may be necessary to keep such Registration
Statement effective and shall timely file with the Commission
all required filings under the Exchange Act as are necessary to
keep the Registration Statement effective for as long as such
registration is required to remain effective pursuant to the
terms hereof; shall cause the Prospectus to be supplemented by
any required Prospectus supplement, and, as so supplemented, to
be filed pursuant to Rule 424 under the Securities Act; and
shall comply with the provisions of the Securities Act
applicable to it with respect to the disposition of all
Registrable Securities covered by such Registration Statement
during the applicable period in accordance with the intended
methods of disposition by Holder set forth in such Registration
Statement or supplement to the Prospectus;
(c) CBC shall promptly furnish to Holder such number of copies of
the Prospectus (including each preliminary Prospectus) and any
amendments or supplements thereto, as Holder may reasonably
request in order to facilitate the public sale or other
disposition of the Registrable Securities being sold by Holder;
(d) CBC shall promptly notify Holder, (i) when a Prospectus or any
Prospectus supplement or post-effective amendment has been
filed and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective,
(ii) of any request by the Commission or any state securities
authority for amendments and supplements to a Registration
Statement and Prospectus or for additional information after
the Registration Statement has become effective, (iii) of the
issuance by the Commission of any stop order suspending the
effectiveness of a Registration Statement, (iv) of the issuance
by any state securities commission or other regulatory
authority of any order suspending the qualification or
exemption from qualification of any of the Registrable
Securities under state securities or "blue sky" laws, and (v)
of the happening of any event which makes any statement made in
a Registration Statement or related Prospectus untrue or which
requires the making of any changes in such Registration
Statement or Prospectus so that they will not contain any
untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading. As soon as
practicable following expiration of the Suspension Period (as
defined below), CBC shall prepare and file with the Commission
and furnish a supplement or amendment to such Prospectus so
that, as thereafter deliverable to the purchasers of such
Registrable Securities, such Prospectus will not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the
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statements therein, in light of the circumstances under which
they were made, not misleading.
Upon receipt of any notice (a "Suspension Notice") by Holder from CBC of
the happening of any event of the kind described in Section 3.3(d),
Holder shall forthwith discontinue disposition of the Registrable
Securities pursuant to the Resale Registration Statement covering such
Registrable Securities until such Seller's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3.3(d) or
until Holder is advised in writing (the "Advice") by CBC that the use of
the Prospectus may be resumed, and has received copies of any additional
or supplemental filings which are incorporated by reference in the
Prospectus, and, if so directed by CBC, will, or will request any
broker-dealer acting as Holder's agent to, deliver to CBC (at CBC
expense) all copies, other than permanent file copies then in Seller's
or broker-dealer's possession, of the Prospectus covering such
Registrable Securities current at the time of receipt of such notice;
PROVIDED, HOWEVER, that in no event shall the period from the date on
which Seller receives a Suspension Notice to the date on which Seller
receives either the Advice or copies of the supplemented or amended
Prospectus contemplated by Section 3.3(d) (the "Suspension Period")
exceed 60 days.
3.4. REGISTRATION EXPENSES. CBC shall bear all expenses incurred in
connection with the registration of the Registrable Shares pursuant to
Section 3.2 of this Agreement. Such expenses shall include, without
limitation, all printing, legal and accounting expenses incurred by CBC
and all registration and filing fees imposed by the Commission, any
state securities commission or the NASDAQ Stock Market. Each Holder
shall be responsible for any brokerage fees or commissions and taxes of
any kind (including, without limitation, transfer taxes) with respect to
any disposition, sale or transfer of Registrable Securities and for any
legal, accounting and other expenses incurred by such Holder.
3.5. INDEMNIFICATION AND CONTRIBUTION.
3.5.1. INDEMNIFICATION BY CBC. CBC agrees to indemnify and hold
harmless, to the full extent permitted by law, each Holder from
and against all losses, claims, damages, liabilities and
expenses (including without limitation reasonable legal fees
and expenses incurred by Holder (collectively, the "Damages")
to which Holder may become subject under the Securities Act or
otherwise, insofar as such Damages (or proceedings in respect
thereat) arise out of or are based upon any untrue statement of
material fact contained in any Registration Statement (or any
amendment thereto) pursuant to which Registrable Securities
were registered under the Securities Act, or caused by any
omission to state therein a material fact necessary to make the
statements therein in light of the circumstances under which
they were made not misleading, or caused by any untrue
statement of a material fact contained in any Prospectus (as
amended or supplemented if CBC shall have furnished any
amendments or supplements thereto), or caused by any omission
to state therein a material fact necessary to make the
statements therein in light of the circumstances under which
they were made not misleading, except insofar as such Damages
arise out of or are based upon any such untrue statement or
omission based upon information relating to Seller furnished in
writing to CBC by Seller specifically for use therein;
PROVIDED, HOWEVER, that CBC shall not be liable to Holder under
this Section 3.5.1 to the extent that any such Damages were
caused by the fact that Holder sold Securities to a person as
to whom it shall be established that there was not sent or
given, at or prior to the written confirmation of such sale, a
copy of the Prospectus as then amended or supplemented if, but
only if, (i) CBC has previously furnished copies of such
amended or supplemented Prospectus to Holder and (ii) such
Damages were caused by any untrue statement or omission
contained in the Prospectus so delivered which was corrected in
such amended or supplemented Prospectus.
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3.5.2. INDEMNIFICATION BY THE SELLER. Holder agrees to indemnify and
hold harmless CBC, its stockholders, directors, officers and
each person, if any, who controls CBC within the meaning of
either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from
CBC to Holder, but only with reference to information relating
to Holder furnished in writing to CBC by Holder specifically
for use in any Registration Statement (or any amendment
thereto) or any Prospectus (or any amendment or supplement
thereto); PROVIDED, HOWEVER, that Holder shall not be obligated
to provide such indemnity to the extent that such Damages
result from the failure of CBC to promptly amend or take action
to correct or supplement any such Registration Statement or
Prospectus on the basis of corrected or supplemental
information provided by Seller to CBC expressly for such
purpose. In no event shall the liability of Holder hereunder
be greater in amount than the amount of the proceeds received
by Holder upon the sale of the Registrable Securities giving
rise to such indemnification obligation.
3.5.3. CONTRIBUTION. To the extent that the indemnification provided
for in paragraph 3.5.1 or 3.5.2 of this Section 3.5 is
unavailable to an indemnified party or insufficient in respect
of any Damages, then each indemnifying party under such
paragraph, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such Damages in such
proportion as is appropriate to reflect the relative fault of
CBC on the one hand and Holder on the other hand in connection
with the statements or omissions that resulted in such Damages,
as well as any other relevant equitable considerations. The
relative fault of CBC on the one hand and of Holder on the
other hand shall be determined by reference to, among other
things, whether the untrue statement of a material fact or the
omission to state a material fact relates to information
supplied by CBC or by Holder and the parties' relative intent,
knowledge, access to information and opportunity to correct or
prevent such statement or omission.
If indemnification is available under paragraph 3.5.1 or 3.5.2
of this Section 3.5, the indemnifying parties shall indemnity
each indemnified party to the full extent provided in such
paragraphs without regard to the relative fault of said
indemnifying party or indemnified party or any other equitable
consideration provided for in this Section 3.5.3. CBC and
Holder agree that it would not be just or equitable if
contribution pursuant to this Section 3.5.3 were determined by
pro rata allocation or by any other method of allocation that
does not take account of the equitable considerations referred
to herein.
3.6 TRANSFER OF REGISTRATION RIGHTS. The registration rights of Seller and
any Holder under this Article 3 may be transferred to any transferee of
Registrable Securities that acquires at least 10,000 shares of
Registrable Securities (appropriately adjusted for stock splits, stock
dividends and the like).
3.7 REPRESENTATIONS AND WARRANTIES. As a material inducement to CBC to
enter into this Agreement and to consummate the transactions
contemplated hereby, Seller makes to CBC the following representations
and warranties:
(a) Seller is acquiring the shares of CBC Common Stock to be issued
to such Seller hereunder for Seller's own account for
investment only and not with a view to, or with any intention
of, a distribution or resale thereof, in whole or in part, in
violation of the Securities Act or any rule or regulation
thereunder, as amended from time to time.
(b) Seller is not directly or indirectly controlled by, or acting
on behalf of any person which is, an "investment company"
within the meaning of the Investment Company Act of 1940 (the
"1940 Act"), as amended, required to register as such under the
1940 Act.
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(c) Seller (i) acknowledges receipt of the disclosure information
described on SCHEDULE G attached hereto and made a part hereof
by reference; (ii) has carefully reviewed such disclosure
information provided by CBC; (iii) has requested and received
such other information, as he has deemed relevant, regarding
CBC for purposes of evaluating his acquisition of CBC Common
Stock to be issued hereunder; (iv) is aware of the risks
associated with an investment in CBC Common Stock; and (v) has
not received any form of general solicitation or advertising in
connection with his decision to acquire CBC Common Stock
hereunder. Seller has not relied in any way on any information
with respect to the CBC Common Stock or CBC generally other
than the representations of CBC contained herein or the
disclosure materials described on Schedule G furnished by CBC
in connection herewith.
(d) Seller acknowledges and understands that (i) the CBC Common
Stock to be issued to Seller hereunder has not been registered
under the Securities Act or any state securities laws; (ii) the
CBC Common Stock to be issued to Seller hereunder will be
subject to transfer restrictions under the Securities Act and
applicable state securities laws and may not be transferred
unless (x) subsequently registered under the Securities Act and
applicable state securities laws or (y) there is delivered to
CBC an opinion of counsel satisfactory to CBC that such
registration is not required; and (iii) CBC will place a
restrictive legend on the certificate(s) representing the CBC
Common Stock to be issued to Seller hereunder, containing the
following language:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE
ISSUED WITHOUT REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT") AND WITHOUT
REGISTRATION UNDER APPLICABLE STATE SECURITIES
LAWS, IN RELIANCE UPON EXEMPTIONS CONTAINED IN THE
ACT AND SUCH LAWS. NO TRANSFER OF THESE SHARES OR
ANY INTEREST THEREIN MAY BE MADE EXCEPT PURSUANT
TO EFFECTIVE REGISTRATION STATEMENTS UNDER SAID
LAWS UNLESS THIS CORPORATION HAS RECEIVED AN
OPINION OF COUNSEL SATISFACTORY TO IT THAT SUCH
TRANSFER OR DISPOSITION DOES NOT REQUIRE
REGISTRATION UNDER SAID LAWS AND, FOR ANY SALES
UNDER RULE 144 OF THE ACT, SUCH EVIDENCE AS IT
SHALL REQUEST FOR COMPLIANCE WITH THAT RULE.
(e) Seller (i) is able to bear the economic risks of the
acquisition of shares of CBC Common Stock hereunder and has
adequate means of providing for current needs and possible
contingencies; (ii) either alone or with his advisors has had
the opportunity to ask questions and receive answers concerning
CBC and the terms and conditions of the acquisition of CBC
Common Stock, as well as the opportunity to obtain any
additional information necessary to verify the accuracy of
information furnished in connection therewith which CBC
possesses or can acquire without unreasonable effort or
expense; and (iii) together with his advisors, if any, has such
knowledge and experience in financial and business matters that
Seller is capable of evaluating the merits and risks of this
acquisition of CBC Common Stock in exchange for the Shares, and
of making an informed investment decision, and has relied
solely upon the advice of his own counsel, accountant and other
advisors, with regard to the legal, investment, tax and other
considerations regarding such acquisition.
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ARTICLE 4
SELLER'S AND SHAREHOLDER'S REPRESENTATIONS,
WARRANTIES AND AGREEMENTS
Seller and Shareholder represent, warrant and agree as follows, which
representations, warranties and agreements shall be deemed to have been made
again at Closing:
4.1. CORPORATE EXISTENCE AND POWERS. Seller is a corporation organized and
existing in good standing under the laws of the State of Illinois with
full power and authority to enter into this Agreement and to enter into
and complete the transactions contemplated herein; all required
corporate action has been or will be taken by Closing by Seller and
Shareholder to make and carry out this Agreement; the execution of this
Agreement and the completion of the transactions herein involved will
not result in the violation of any order, licenses, permit, rule,
judgment or decree to which Seller is subject or the breach of any
contract, agreement or other commitment to which Seller is a party or by
which it is bound; and no other consent of any kind is required that has
not been obtained for Seller to make or carry out the terms of this
Agreement, except with respect to those consents required of parties to
Leases and Agreements listed on Schedule B or D, with respect to
assignment and assumption of specific contract rights and obligations.
Seller shall use its best efforts to obtain third party consents with
respect to any leases, contracts or agreements designated herein by
Buyer and Seller as "material", to the extent required by such
documents, and, to the extent Seller is unable to obtain any such
consents, Seller shall provide Buyer with alternate benefits essentially
similar to those which would have been provided under such contract at
the cost that Buyer would have paid by assumption of such contract.
Buyer shall cooperate with Seller in obtaining all such required
consents.
4.2. LICENSES. Seller is the holder of the licenses, permits and
authorizations listed on Schedule A, all of which are valid, and in full
force and effect, and to the best of their knowledge and belief, all
ownership and employment reports, renewal applications, financial
reports, and other reports and documents required to be filed for the
Station have been properly and timely filed, and Seller will not
knowingly, without Buyer's prior written consent, by an act or omission,
surrender, modify (except to seek extensions of existing
authorizations), forfeit or fail to seek renewal on regular terms, of
the broadcast license or authorization of the Commission, or cause the
Commission to institute any proceeding for the cancellation or
modification of any such license or authorization.
The parties expressly acknowledge that FCC has issued a construction
permit to Seller authorizing an increase in the Station's effective
radiated operating power. The construction permit (FCC File No. BP-
940302DD, as extended by File No. BMP-951204DA), as shown on Schedule A
hereto, expires August 29, 1996. Seller is in the process of diligently
implementing the authorized construction and improvements, but makes no
representations that construction will be completed by the Closing Date
or that the FCC will authorize additional time within which to complete
construction.Failure to complete such construction or any act which
jeopardizes the construction permit with the FCC will be considered a
breach of this Agreement.
4.3. ASSETS. The Assets to be transferred to Buyer at Closing represent all
the assets necessary for the Station's current operations; until
Closing, none of the Assets will be sold, leased or otherwise disposed
of unless replaced by a similar Asset of equal or greater value, and, at
Closing, all of the Assets shall be owned by and transferred by Seller
to Buyer free and clear of all liens, encumbrances, interests or
restrictions of any kind whatsoever excepting only those obligations,
liens or encumbrances expressly assumed by Buyer hereunder and listed on
Schedule B or D.
4.4. CONTRACTS, LEASES, AGREEMENTS, ETC. On the Closing Date there will be
no Leases or Agreements relating to the Station (not including this
Agreement) which will be binding on the Buyer other than
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those specifically identified herein, including Schedule D attached
hereto, or as otherwise approved in writing by Buyer.
4.5. LITIGATION. To Seller's and Shareholder's knowledge, no strike, labor
dispute, investigation, litigation, court or administrative proceeding
is pending or threatened against Seller or Shareholder relating to the
Station, its employees or any of the Assets to be conveyed hereunder
which may result in any change in the business, operations, assets or
financial condition of Seller or may materially affect Buyer's use and
enjoyment of the Assets, or which would hinder or prevent the
consummation of the transaction contemplated by this Agreement, and
Seller knows of no basis for any such possible action.
4.6. INSURANCE. Until Closing, Seller shall keep the Assets insured to full
insurable value against loss or damage by fire or from other causes
customarily insured against by other radio stations similarly situated,
and has provided Buyer with an abstract of such casualty insurance
coverage which Buyer has read and agrees is adequate.
4.7. ACCESS TO INFORMATION. Seller shall give Buyer and its representatives
reasonable access during normal business hours throughout the period
prior to Closing to the operations, properties, books, accounting
records, contracts, agreements, leases, commitments, programming,
technical and sales records and other records of and pertaining to the
Station; provided, however, such access shall not disrupt Seller's
normal operation. Seller shall furnish to Buyer all information
concerning the Station's operations as Buyer may reasonably request.
Buyer will maintain the confidentiality of all the information and
materials delivered to it or made available for its inspection by Seller
hereunder, except where such information or materials are required to be
filed with the FCC in connection with the assignment application or are
disclosed to partners of Buyer or lenders thereto as reasonably required
to secure financing to consummate the transaction contemplated herein.If
for any reason the transaction contemplated herein is not consummated,
Buyer will return to Seller all such materials in its possession and
keep all of the foregoing information confidential. Buyer and CBC shall
reimburse Seller for cost incurred to Seller to comply with 4.7.
4.8. CONDUCT OF THE STATION'S BUSINESS. Until Closing, without the written
consent of Buyer, Seller shall not enter into any transaction other than
those in the ordinary course of the business of the Station; and Seller
will cause the Station to be operated in compliance with its licenses,
permits and all applicable laws and regulations;
Seller further represents, warrants and covenants:
(a) Between the date hereof and Closing, Seller shall not take any
action which will prevent or impede Buyer from obtaining at the
Closing the actual and immediate occupancy and possession of
the Station and all of the Assets purchased hereunder,
including its books and records of Station.
(b) On the Closing date, Seller will be the owner of the radio
broadcast equipment and other assets purchased hereunder except
such of the same replaced by suitable property of no less than
equivalent value in the ordinary course of business, with good
and marketable title thereto, free and clear of all liens and
encumbrances, except liens for current taxes and assessments
not yet due and payable, and at Closing the Assets will be in
condition sufficient to continue the operation of the Station
in compliance with its FCC licenses.
(c) Neither Seller nor Shareholder knows of any facts relating to
it or the Station which would cause the Commission to deny its
consent to the assignment of the Station authorization to
Buyer.
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(d) Seller will have paid and discharged all taxes, assessments,
excises, and levies known to Seller or Shareholder which have
not been paid and that would interfere with Seller's assets,
facilities, license or other items conveyed hereunder.
4.9. FINANCIAL INFORMATION. Any financial information relating to the
Station that Seller has provided or will provide to Buyer are true and
correct to the best of Seller's knowledge in all material respects.
4.10 PRE-CLOSING COVENANTS. Between the date hereof and the Closing, Seller
and Shareholder covenant that :
4.10.1 FCC COMPLIANCE. Seller shall make all reasonable efforts to
the best of Seller's knowledge and belief to continue to
operate the Station in substantial conformity with the terms of
the Station's license and in conformity in all material
respects with all applicable laws, regulations, rules and
ordinances, including but not limited to the rules and
regulations of the FCC. Seller shall file all reports,
applications and other filings required by the FCC in a timely
and accurate manner.
4.10.2 CONDUCT OF BUSINESS. Seller shall operate the Station and
conduct its business diligently and in the usual and ordinary
course and consistent with past practices, and shall continue
all practices, policies, procedures and operations relating to
the Station in substantially the same manner as heretofore,
including maintenance of the Assets; however, Seller may adjust
staff to conduct day to day operations.
4.10.3 MAINTENANCE OF ASSETS. Seller shall maintain all of the Assets
as is in a good condition and shall maintain inventories of
spare parts at current levels consistent with the past
practices of Seller and the Station. Seller shall not sell,
convey, assign, transfer or encumber any of the Assets herein
listed, except for the retirement of tangible Assets consistent
with the normal and customary practices of Seller and the
Station.
ARTICLE 5
CBC'S AND BUYER'S REPRESENTATIONS AND WARRANTIES
CBC and the Buyer represent and warrant as follows, which
representations and warranties shall be deemed to have been made again at
Closing.
5.1. CORPORATE EXISTENCE AND POWERS. CBC and Buyer are corporations
organized and existing in good standing under the laws of the State of
Minnesota with full power and authority to enter into this Agreement and
enter into and complete the transactions contemplated herein; Buyer is,
or will be at the time of Closing, qualified to do business in the State
of Illinois; all required corporate action has been taken by Buyer and
CBC to make and carry out this Agreement; the execution of the Agreement
and, once the consent referred to in the next clause of this sentence is
obtained, the completion of the transactions herein involved will not
result in the violation of any order, license, permit, rule, judgment or
decree to which CBC or the Buyer is subject or the breach of any
contract, agreement or other commitment to which CBC or the Buyer is a
party or by which it is bound; and except for the consent of the
Commission, no other consent of any kind is required that has not been
obtained for Seller to make or carry out the terms of this Agreement.
5.2. BUYER'S QUALIFICATIONS. Buyer or its assignee are legally and
financially qualified to become the licensee of the Commission and to
consummate this Agreement. Buyer does not know of any facts
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relating to it which would cause the Commission to deny its consent, or
which would materially hinder or delay receipt of such consent, to the
Licenses for the Station to Buyer.
5.3. SECURITIES AND EXCHANGE ACT OF 1934. CBC shall be in compliance with
applicable requirements of the Securities and Exchange Act of 1934.
5.4. CBC STOCK. At Closing, all CBC Stock to be issued hereunder will be
validly issued, duly authorized, fully paid and non-assessable.
5.5. LITIGATION. To Buyer's and CBC's knowledge, no strike, labor dispute,
investigation, litigation, court or administrative proceeding is pending
or threatened against Buyer or CBC relating to its operations, its
employees or any of the responsibilities which may result in any change
in the business, operations, assets or financial condition of Buyer or
may materially hinder or prevent the consummation of the transaction
contemplated by this Agreement, and Buyer knows of no basis for any such
possible action.
5.6. ENCUMBRANCES. Neither Buyer nor CBC shall encumber any equipment,
licenses, transmitter lease, or other assets listed herein. Buyer's
right to encumber assets is not restricted if the encumbrance is
subordinate to the security agreement(s) herein provided to Seller.
5.7. FCC CONSTRUCTION PERMIT. The parties expressly acknowledge that FCC has
issued a construction permit to Seller authorizing an increase in the
Station's effective radiated operating power. The construction permit
(FCC File No. BP-940302DD, as extended by File No. BMP-951204DA), as
shown on Schedule A hereto, expires August 29, 1996. Seller is in the
process of diligently implementing the authorized construction and
improvements, but makes no representations that construction will be
completed by the Closing Date or that the FCC will authorize additional
time within which to complete construction. Therefore, Buyer agrees to
accept assignment of the Licenses subject to the extant status of the
construction permit and associated construction at Closing. If
construction is not complete at the time of Closing, Buyer agrees
further that it will immediately continue construction of the authorized
facilities after the assignment is consummated and complete construction
of the upgrade of the facility. Failure to complete such construction
or any act which jeopardizes the construction permit with the FCC will
be considered a breach of this Agreement.
ARTICLE 6
BREACH OF AGREEMENTS,
REPRESENTATIONS AND WARRANTIES
6.1. BREACH OF SELLER'S OR SHAREHOLDER'S AGREEMENTS, REPRESENTATIONS AND
WARRANTIES. Seller and Shareholder shall indemnify and hold harmless
CBC and Buyer from and against any loss, damage, liability, claim,
demand, judgment or expense, including claims of third parties arising
out of ownership of the Assets or the operation of the Station by Seller
prior to Closing, and including without being limited to, reasonable
counsel fees and reasonable accounting fees, arising out of or sustained
by CBC or Buyer by reason of any material breach of any warranty,
representation, covenant or agreement of Seller or Shareholder contained
herein or in the Schedules attached hereto; provided, however, that such
indemnification shall be required only if written notice, with respect
to any matter for which indemnification is claimed, is given. Upon
receipt of such written notice, Seller shall have the right, if it
involves a liability to a third party, to defend or compromise such
matter at Seller's sole cost and expense, and Buyer shall cooperate
fully in such defense.
6.2. BREACH OF CBC'S OR BUYER'S AGREEMENTS, REPRESENTATIONS AND WARRANTIES.
CBC and Buyer shall indemnify and hold harmless Seller from and against
any loss, damage, liability, claim, demand,
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judgment or expense, including claims of third parties arising out of
ownership of the Assets or operation of the Station by Buyer after
Closing, and including without being limited to, reasonable counsel fees
and reasonable accounting fees, arising out of or sustained by Seller by
reason of any material breach of any warranty, representation, covenant
or agreement of CBC or Buyer contained herein; provided, however, that
such indemnification shall be required only if written notice, with
respect to any matter for which indemnification is claimed, is given.
Upon receipt of such written notice, CBC and Buyer shall have the right,
if it involves a liability to a third party, to defend or compromise
such matter at CBC or Buyer's sole cost and expense, and Seller shall
cooperate fully in such defense.
6.3. SPECIFIC PERFORMANCE AND LIQUIDATED DAMAGES. The Seller acknowledges
that the Assets and property to be transferred and assigned under this
Agreement are unique and not readily bought on the open market and, for
that reason, among others, CBC and Buyer would be irreparably harmed by
any breach or failure of the Seller to consummate this Agreement, and
monetary damages therefor will be highly difficult, if not wholly
impossible, to ascertain. It is therefore agreed that this Agreement
shall be enforceable in a court of equity by a decree of specific
performance by Buyer or CBC, and an injunction may be issued restraining
any transfer or assignment of the Assets contrary to the provisions of
this Agreement pending the determination of such controversy. The
Seller, for itself and its successors and assigns, hereby waives the
claim or defense that an adequate remedy at law exists. In the event of
the failure of the contemplated transaction to close as a result of
Buyer's or CBC's material breach of their obligations hereunder, and
assuming that neither Seller nor Shareholder are in material breach of
any of their obligations hereunder, then the parties agree that the
Escrow Note and payment of the amount called for to be paid thereunder
shall act as liquidated damages to Seller and Shareholder, and in no
event shall Seller or Shareholder have the right to claim damages in
excess of the Escrow Note as a result of the transaction's failure to
close.
ARTICLE 7
RISK OF LOSS
7.1. BUYER'S OPTIONS. The risk of loss or damage to any of the Assets to be
sold hereunder by fire or other casualty loss shall be upon Seller at
all times prior to Closing. In the event that any loss or damage
occurs, the proceeds of any insurance policy covering such loss may be
used by Seller to repair, replace or restore any such loss prior to the
Closing, Seller shall notify the Buyer of same in writing immediately,
stating with particularity the reasonable estimates of the loss or
damage incurred, the cause of damage, if known, and the extent to which
restoration, replacement and repair of the Assets lost or destroyed is
believed reimbursable under any insurance policy with respect thereto.
In the event that Seller decides not to provide the additional funds or
if Seller does not restore the facilities so that transmission can be
resumed in the usual manner within sixty (60) days, however, if Seller
has commenced to restore the facility and is making due diligent effort
to restore said facility and due to circumstances beyond his control
restoration can not be completed in sixty (60) days, then additional
time shall be allowed Seller to complete restoration of the facility; if
Seller fails to act as stated above, Buyer may either (i) terminate this
Agreement, or (ii) consummate the Closing and accept the property in its
"then" condition, in which event Seller shall assign to Buyer all
proceeds of insurance relative to the property to be conveyed.
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ARTICLE 8
APPLICATION FOR COMMISSION APPROVAL
8.1. FILING AND PROSECUTION OF APPLICATION. Buyer and Seller shall join in
an application to be filed with the Commission requesting its written
consent to the assignment of the License of the Station from Seller to
Buyer. Each party shall prepare its own portion of the application.
Buyer and Seller shall take all steps necessary to the expeditious
prosecution of such application to a favorable conclusion, using their
best efforts throughout. The parties agree that the application will be
filed by September 15, 1996 at such time as their respective FCC counsel
agree would result in a Closing Date as soon as practicable, not prior
to January 1, 1997, subsequent to renewal of the Station's FCC licenses
and authorizations.
8.2. EXPENSES. Each party shall bear its own legal, accounting and other
expenses in connection with the consummation of the contemplated
transaction. Any fees incurred in connection with the preparation of
audited financial statements of Seller will be incurred at Buyer's
direction and deemed to be Buyer's expense for the purpose of this
Section 8.2 and will be prepared by Seller and Seller's CPA firm. The
parties shall cooperate with the preparation of the Commission
application and in connection with the prosecution of such application.
The filing fee shall be shared equally by the parties.
8.3. DESIGNATION FOR HEARING. If, for any reason, any application for
assignment of the License is designated for hearing by the Commission
prior to grant thereof, either party shall have the right by written
notice within thirty (30) days of such designation for hearing, to
terminate this Agreement if the allegations raised relate to the other
party. Should Closing occur and upon reconsideration should the FCC
designate the assignment for hearing, Buyer may elect to rescind this
Agreement, and if Buyer so elects, Buyer and Seller agree to cooperate
in filing an application to reassign the License to Seller, if
necessary, in order to comply with any FCC order and to take all
necessary actions to reverse this transaction as if Closing had not
occurred.
8.4. TIME FOR COMMISSION CONSENT. If the Commission has not given its
written consent to the assignment of the License set forth herein within
nine (9) months from the date of acceptance for filing of the
application for such assignment, either party, if not then in default,
may terminate this Agreement by giving written notice to the other.
Upon such termination, neither party shall have any right or liability
hereunder and all escrowed funds shall be returned to Buyer promptly.
8.5. CONTROL OF STATION. Until Closing, Buyer shall not directly or
indirectly, control, supervise, direct or attempt to control, supervise
or direct the operation of the Station, but such operation shall be the
sole responsibility of Seller, subject to and consistent with all rules,
regulations and policies of the FCC.
ARTICLE 9
CLOSING
Subject to the terms and conditions herein stated, the parties agree as
follows:
9.1. CLOSING DATE. The Closing of this Agreement shall be held at such time
and date as shall be mutually agreed by Seller and Buyer; provided,
however, that in any event Buyer must close no later than ten (10) days
after final Commission approval of the assignment of the License ("Final
Approval"). (The date scheduled, or required to be scheduled for
Closing hereunder is referred to herein as the "Closing Date.") Final
Approval shall be the approval of the FCC to the assignment of the
Station Licenses which is no longer subject to rehearing,
reconsideration or review by the
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Commission or to review by any court under the Communications Act of
1934, as amended. Closing shall take place at the offices of Seller's
attorney in Yorkville, Illinois or, at the parties' option, another
mutually agreeable location.
9.2. SELLER'S AND SHAREHOLDER'S OBLIGATIONS AT CLOSING. At Closing, Seller
and Shareholder shall deliver to Buyer the following:
(a) An Assignment of the Licenses described in Schedule A; an
Assignment of Leases for the real property interests described
in Schedule B conveying all of Seller's or Shareholder's
interest in such real property and an Assignment and Bill of
Sale, Estoppel Certificate or similar instruments, including
third party consents to all "material" leases, contracts and
agreements, transferring to Buyer all other Assets to be
transferred hereunder, free and clear of all liens,
encumbrances and restrictions of any kind whatsoever.
(b) The business records described in Section 1.8 as requested;
(c) An opinion of Seller's counsel, addressed to Buyer, confirming
the correctness of Seller's representations made in Section 4.1
with respect to corporate organization and authority;
(d) The Non-Competition Agreement;
(e) A letter of instruction to the Escrow Agent authorizing release
of the Escrow Note to Buyer; and
(f) Such other documents and instruments as might reasonably be
requested by Buyer to consummate the transaction contemplated
hereunder consistent with the intent expressed herein.
9.3. CBC'S AND BUYER'S OBLIGATIONS AT CLOSING. At Closing, CBC or Buyer
shall deliver to Seller the following:
(a) A cashier's or certified check in the amount of Two Million and
no/100 Dollars ($2,000,000.00);
(b) The Note for One Million Four Hundred Thousand and no/100
Dollars ($1,400,000.00), together with a UCC-1 Financing
Statement granting Seller a lien upon the Station Assets
described in Schedules B, C, D and E, and a security agreement,
together with a security agreement granting an interest in the
proceeds from the sale of the license listed in Schedule A, to
secure such Note;
(c) Estoppel Certificate;
(d) The Non-Competition Agreement;
(e) An opinion of Buyer's and CBC's counsel, addressed to Seller,
confirming the correctness of Buyer's and CBC's representations
made in Section 5.1 with respect to corporate organization and
authority; and
(f) Such other documents and instruments as might reasonably be
requested by Seller to consummate the transaction contemplated
hereunder consistent with the intent expressed herein.
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9.4. CONDITIONS TO OBLIGATIONS OF BUYER AND CBC. The obligations of Buyer
and CBC to consummate the transactions herein contemplated at Closing
are subject to and conditioned on:
(a) The written consent of the Commission to the assignment to
Buyer of the License of the Station that does not impose any
condition that is materially adverse to Buyer or CBC;
(b) The satisfaction at or before Closing of all agreements,
obligations and covenants of Seller hereunder required to be
performed or complied with by them on or before Closing;
(c) Certificate of Seller and Shareholder confirming the material
accuracy of the representations and warranties made by Seller
and Shareholder;
(d) Written third party consents to all material leases, contracts
and agreements where required by the terms of the lease,
contract or agreement;
(e) Either a determination that the contemplated transaction does
not constitute the sale of a business under applicable SEC
regulations or delivery of audited financial statements of
Seller for the three (3) tax years prior to Closing. It is
understood that Seller's financial statements are not audited,
that Seller's and/or Buyer's accountants will be paid by Buyer
for services in connection with preparing such audits, and that
the contingency referred to in this subparagraph relates to the
auditability of such records of Seller.
9.5. CONDITIONS TO OBLIGATIONS OF SELLER. The obligations of Seller to
consummate the transaction herein contemplated at Closing are subject to
and conditioned on:
(a) The written consent of the Commission to the assignment to
Buyer of the License of the Station without any conditions that
are materially adverse to Seller;
(b) The satisfaction at or before Closing of all agreements,
obligations and covenants of Buyer and CBC hereunder required
to be performed or complied with by it at or before the
Closing; and
(c) The material accuracy of the representations and warranties
made by Buyer and CBC.
ARTICLE 10
MISCELLANEOUS PROVISIONS
10.1. EXECUTION OF DOCUMENTS. The parties agree to execute all applications,
documents and instruments which may be necessary for the consummation of
the transaction contemplated hereunder, or which might be from time to
time reasonably requested by any party hereto in connection therewith,
whether before or after the date of Closing.
10.2. NOTICES. All notices, requests, elections, demands and other
communications given pursuant to this Agreement shall be in writing and
shall be duly given when delivered personally or when deposited in the
mails, certified or registered mail, postage prepaid, return receipt
requested, and shall be addressed as follows:
If to Seller or Shareholder:
Mr. Larry Nelson
Nelson Broadcasting, Inc.
One Broadcast Center
Plano, Illinois 60545
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with copy to: John Neeley, Esq.
Miller & Miller Law Offices
1990 M Street, N.W.
Washington, D.C. 20036
and Dallas C. Ingemunson, Esq.
Ingemunson Law Offices
226 S. Bridge Street
Yorkville, Illinois 60560
If to Buyer or CBC:
Mr. Christopher T. Dahl
Children's Broadcasting Corporation
Fourth Floor
724 First Street North
Minneapolis, Minnesota 55401
with copy to: Lance W. Riley, Esq.
Children's Broadcasting Corporation
Fourth Floor
724 First Street North
Minneapolis, Minnesota 55401
10.4. EXHIBITS AND SCHEDULES. All Exhibits and Schedules referred to herein
are incorporated into this Agreement by reference for all purposes and
shall be deemed part of this Agreement.
10.5. ENTIRE AGREEMENT. This Agreement together with all Exhibits and
Schedules referred to herein contain all of the terms and conditions
agreed upon by the parties hereto with respect to the transaction
contemplated hereunder and shall only be modified in writing by all
parties hereto.
10.6. ASSIGNABILITY. Neither party may assign their rights or obligations
under this Agreement without the prior written consent of the other
party, which consent will not be unreasonably denied or delayed, except
that either party may make an assignment to an entity under essentially
common control as the assigning entity.
10.7. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the representatives, heirs, estates, successors, and assigns
of the parties hereto.
10.8. HEADINGS. The headings contained in this Agreement are for reference
only and shall not effect in any way the meaning or interpretation of
this Agreement.
10.9. COUNTERPARTS. This Agreement and any other instrument to be signed by
the parties hereto may be executed by the parties, together or
separately, in two or more identical counterparts, each of which shall
be deemed an original, but all of which together shall constitute but
one and the same instrument.
10.10. GOVERNING LAW. This Agreement has been entered into in the State of
Illinois and shall be governed in accordance with the laws of the State
of Illinois.
10.11. BROKER COMMISSION. Seller and Buyer each represent to the other that it
has engaged no broker in connection with the contemplated transaction
and agrees to indemnify and hold the other party
18
<PAGE>
harmless against any claims made by a broker through it in connection
with the transactions contemplated hereunder.
10.12. Parties expressly agree that all representations and warranties
hereunder survive the Closing of this Agreement for a period of two (2)
years.
IN WITNESS WHEREOF, the parties hereto, by their properly authorized
representatives, have caused this Agreement to be executed as of the day and
date first above written.
SELLER: CBC:
NELSON BROADCASTING, INC. CHILDREN'S BROADCASTING
CORPORATION
BY: /s/ LARRY NELSON BY: /s/ JAMES G. GILBERTSON
------------------------- -----------------------------
LARRY NELSON JAMES G. GILBERTSON
ITS: PRESIDENT ITS: CHIEF OPERATING OFFICER
BUYER:
CHILDREN'S RADIO GROUP, INC.
BY: /s/JAMES G. GILBERTSON
-----------------------------
JAMES G. GILBERTSON
ITS: CHIEF OPERATING OFFICER
19
<PAGE>
Exhibit 23.2
Consent of Ernst & Young LLP
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) of Children's Broadcasting Corporation for
the registration of 1,125,580 shares of its common stock and to the
incorporation by reference therein of our report dated January 31, 1996, with
respect to the consolidated financial statements of Children's Broadcasting
Corporation included in its Annual Report (Form 10-KSB) for the year ended
December 31, 1995, filed with the Securities and Exchange Commission.
Minneapolis, Minnesota
October 16, 1996
/s/ ERNST & YOUNG LLP
<PAGE>
EXHIBIT 23.3
[Smolin, Lupin & Co., P.A. letterhead]
Children's Broadcasting Corporation
724 First Street North, 4th Floor
Minneapolis, Minnesota 55401
Gentlemen:
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports for the two years ended December 31, 1994 and 1995, and the
three months ended March 31, 1996, with respect to the financial statements of
Radio Elizabeth, Inc. incorporated by reference in the Registration Statement
(Form S-3) and related Prospectus of Children's Broadcasting Corporation for the
registration of shares of its common stock.
/s/SMOLIN, LUPIN & CO., P.A.
- -----------------------------------
SMOLIN, LUPIN & CO., P.A.
West Orange, New Jersey
October 11, 1996
<PAGE>
EXHIBIT 23.4
[Kleiman, Carney & Greenbaum, P.C. letterhead]
October 11, 1996
Consent of Independent Auditors
We consent to the reference of our firm under the caption "Experts" and to the
use of our reports dated January 19, 1996, February 2, 1996 and May 30, 1996,
with respect to the financial statements of Wolpin Broadcasting Company
incorporated by reference in the Registration Statement (Form S-3) and related
Prospectus of Children's Broadcasting Corporation for the registration of shares
of its common stock.
Very truly yours,
KLEIMAN, CARNEY & GREENBAUM
/s/ HARRY SIEGEL
---------------------------------------
HARRY SIEGEL
Certified Public Accountant
Farmington Hills, Michigan
October 11, 1996
