<PAGE>
As filed with the Securities and Exchange Commission on December 23, 1996
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________________
CHILDREN'S BROADCASTING CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
MINNESOTA 5961 41-1663712
<S> <C> <C>
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
724 FIRST STREET NORTH
MINNEAPOLIS, MINNESOTA 55401
(612) 338-3300
(Address and telephone number, including area code, of registrant's principal
executive offices)
JAMES G. GILBERTSON, CHIEF OPERATING OFFICER AND TREASURER
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.
BRETT D. ANDERSON, ESQ. CHILDREN'S BROADCASTING CORPORATION
BRIGGS AND MORGAN, P.A. 724 FIRST STREET NORTH
2400 IDS CENTER MINNEAPOLIS, MINNESOTA 55401
MINNEAPOLIS, MINNESOTA 55402 (612) 330-9521
(612) 334-8400
_______________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME 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 any of the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock (par
value $.02 per share) 5,000,000 $4.125 $20,625,000 $6,250
- -----------------------------------------------------------------------------------------------------------------
Promissory Notes $5,000,000 $ 5,000,000 $1,516
- -----------------------------------------------------------------------------------------------------------------
Total $25,625,000 $7,766
================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and based upon the last reported sale price for
such stock on December 17, 1996, as reported by the NASDAQ National Market
System.
________________
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 THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
The shares of Common Stock and Promissory Notes registered hereby may be
offered for resale by persons who receive such shares or such notes from the
Registrant in acquisitions or upon issuance of warrants, options, and other
similar securities issued by the Registrant in acquisitions.
<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.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1996
PROSPECTUS
CHILDREN'S BROADCASTING CORPORATION
5,000,000 SHARES COMMON STOCK
$5,000,000 PROMISSORY NOTES
This Prospectus relates to 5,000,000 shares of Common Stock (the "Shares"),
par value $.02 per share (the "Common Stock"), of Children's Broadcasting
Corporation (the "Company") and $5,000,000 of Promissory Notes of the Company
(the "Debt Securities") that may be offered for sale and issued by the Company
from time to time, together or separately, in connection with future
acquisitions of the assets or securities of other businesses or properties in
amounts, at prices and on terms to be determined at the time of offering. The
Shares and the Debt Securities are collectively referred to herein as the
"Securities." The Company may also issue Shares upon exercise of warrants,
options or other similar instruments issued by the Company from time to time in
connection with such acquisitions. No period of time has been fixed within
which the Securities may be offered or sold. See "Prospectus Summary -- Purpose
of Offering." The Company's Common Stock is traded on the Nasdaq National
Market under the symbol "AAHS." On December 17, 1996, the average of the high
and low prices of the Common Stock on the Nasdaq National Market System was
$4.125 per share. Current market quotations are listed in The Wall Street
Journal and many other newspapers of general circulation.
It is contemplated that the terms of acquisitions will be determined by
direct negotiations between the Company and the owners of the businesses or
properties to be acquired, with the Company taking into account the quality of
management, the past and potential earning power and growth of the businesses or
properties to be acquired, the market value of the Company's securities and
other relevant factors. The specific terms of the particular Securities in
respect of which this Prospectus is being delivered will be set forth in the
applicable Prospectus Supplement, including, where applicable, (i) in the case
of Shares, the number of Shares and the terms of offering thereof and (ii) in
the case of Debt Securities, the title, aggregate principal amount,
denominations, maturity, any interest rate (which may be fixed or variable) and
time of payment of any interest, any terms for redemption at the option of the
Company or the holder, any terms for sinking fund payments, any terms for
conversion or exchange into other securities, any listing on a securities
exchange and any other terms in connection with the offering and sale of the
Debt Securities, as well as the initial public offering price. The Company's
management anticipates that the terms of acquisitions involving the issuance of
Securities will be determined by direct negotiations with the owners or
controlling persons of the businesses being acquired and that any Shares issued
in the acquisitions will be valued at prices reasonably related to quoted market
prices for the Common Stock reported as of one or more times during the period
beginning on the date the terms of the acquisitions are agreed upon and ending
on the date the Shares are issued and delivered. No underwriting discounts or
commissions will be paid, although finders' fees may be paid from time to time
in connection with certain acquisitions. Any person receiving finders' fees may
be deemed to be an underwriter within the meaning of the Securities Act of 1933,
as amended (the "Securities Act"). This Prospectus may not be used in
connection with public reoffers and resales by persons who will receive
Securities covered by this Prospectus and who may be deemed to be underwriters
within the meaning of Section 2(11) of the Securities Act prior to the amendment
or supplementation of this Prospectus, if required, to name such persons as
selling shareholders and to provide other information. Otherwise, any person
deemed to be an underwriter may publicly resell or reoffer such Securities only:
(i) by means of a separate Registration Statement filed with the Securities and
Exchange Commission (the "Commission"), (ii) pursuant to an exemption from
registration under the Securities Act, or (iii) pursuant to Rule 145(d)
promulgated by the Commission under the Securities Act, which Rule sets forth
the conditions under which such a person will not be deemed to be an underwriter
of such public resales or reoffers. Any profits realized by persons who may be
deemed to be underwriters may be deemed to be underwriting compensation.
The Company is subject to a variety of federal and state communications
statutes, regulations and guidelines, many of which materially affect or have
the potential to materially affect the Company's business and financial
condition, including but not limited to restricting its ability to engage in
certain acquisitions of the assets or securities of other broadcasting
businesses. See "Risk Factors -- FCC Regulation."
THE SECURITIES INVOLVE CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE
8 OF THIS PROSPECTUS. THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF
SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
________________
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>
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH
PERSON TO WHOM THIS PROSPECTUS IS DELIVERED SUCH DOCUMENTS (EXCLUDING CERTAIN
EXHIBITS) UPON REQUEST DIRECTED TO THE CHIEF FINANCIAL OFFICER, CHILDREN'S
BROADCASTING CORPORATION, 724 FIRST STREET NORTH, MINNEAPOLIS, MINNESOTA 55401,
TELEPHONE (612) 338-3300. TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY SUCH
REQUEST SHOULD BE RECEIVED BY THE COMPANY AT LEAST FIVE BUSINESS DAYS PRIOR TO
THE DATE BY WHICH THE FINAL INVESTMENT DECISION IS TO BE MADE.
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. 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 Northwestern Atrium 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-4 (herein, together with all amendments and exhibits, referred to as
the "Registration Statement") under 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 (File No. 0-21534)
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, filed on March 28, 1996.
(b) The Company's Quarterly Reports on Form 10-QSB for the fiscal quarters
ended March 31, 1996, June 30, 1996 and September 30, 1996, filed on
May 3, 1996, August 12, 1996 and November 13, 1996, respectively, and
amended by Form 10-QSB/A for the fiscal quarter ended June 30, 1996,
filed on October 17, 1996.
(c) The Company's 8-K Report filed on January 16, 1996, relating to the
bridge loans from Special Situations Fund III, L.P. and Special
Situations Cayman Fund, L.P.
(d) The Company's 8-K Report filed on June 19, 1996, relating to
acquisition of Radio Elizabeth, Inc.
(e) The Company's 8-K/A Report filed on June 21, 1996, relating to
acquisition of Radio Elizabeth, Inc.
(f) The Company's 8-K/A Report filed on November 12, 1996, relating to
acquisition of Radio Elizabeth, Inc.
2
<PAGE>
(g) The Company's 8-K Report filed on June 18, 1996, relating to
acquisition of the assets of Radio Station WCAR-AM.
(h) The Company's 8-K/A Report filed on June 21, 1996, relating to
acquisition of the assets of Radio Station WCAR-AM.
(i) The Company's 8-K Report filed on July 3, 1996, relating to changes in
the Company's certifying accountant.
(j) The Company's 8-K Report filed on July 8, 1996, relating to the safe
harbor for forward-looking statement.
(k) The Company's 8-K Report filed on July 30, 1996, 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, relating to the
Company's engagement of Southcoast Capital Corporation.
(m) The Company's 8-K Report filed on October 3, 1996, 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, 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 8-K Report filed on November 12, 1996, relating to the
Company signing a commitment letter for a $15,000,000 loan from
Foothill Capital Corporation.
(p) The Company's 8-K Report filed on December 20, 1996, relating to the
Company closing on a $16,500,000 loan from Foothill Capital
Corporation.
(q) The Company's Definitive Schedule 14A (Proxy Statement) filed on
August 26, 1996, relating to the Company's Annual Meeting of
Shareholders held on September 30, 1996.
This Prospectus is accompanied by a copy of the Registrant's latest Form
10-KSB and a copy of the Registrant's latest Form 10-QSB. Further, 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 other 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.
THE COMPANY
Children's Broadcasting Corporation is a 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-AM in Minneapolis, Minnesota, and is distributed via
satellite to a network of radio stations around the country.
The Company's growth strategy includes the acquisition of AM radio
broadcast licenses ("RBLs") 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 RBLs which serve the New York City, Los
Angeles, Dallas, Detroit and Philadelphia markets, and has entered into a
purchase agreement to acquire the RBL and certain other assets of radio
station WAUR-AM in the Chicago market. During the nine months ended
September 30, 1996, the Company has acquired RBLs covering the New York City,
Detroit and Philadelphia markets. Assuming completion of the pending
acquisition of the RBL and certain other assets of radio station WAUR-AM, 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 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.
- -------------------
*Radio AAHS-Registered Trademark-is the registered Trademark of Children's
Broadcasting Corporation.
4
<PAGE>
BROADCAST STRATEGY
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 U.S. population
coverage, and (iv) making opportunistic acquisitions of RBLs of radio
stations in key markets.
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 AAHSIETM, the
Company's animated mascot, which it has integrated into is merchandising and
Internet enterprise. 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
5
<PAGE>
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.netradioaahs.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. Subsequent to the operations agreement, ABC's
parent, Cap Cities/ABC was acquired by the Walt Disney Company ("Disney").
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. On September 26, 1996, the Company filed a lawsuit in the
United States District Court for the District of Minnesota against Disney 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. On
November 18, 1996, ABC and Disney commenced broadcast of "Radio Disney," a
competing format directed toward children age 12 and under in four markets
across the country. See "Risk Factors -- Disney/ABC Litigation."
RECENT FINANCING
The Company entered into an agreement (the "Credit Agreement") with
Foothill Capital Corporation ("Foothill") to address the Company's working
capital requirements through the creation of three credit facilities (the
"Facilities") on November 25, 1996. The Credit Agreement provides the
Company with working capital through (a) a $11,500,000 senior secured term
loan (the "Term Loan") collateralized by the assets of the Company, payable
over four years, (b) a $1,000,000 senior secured reducing/revolving line of
credit (the "Revolving Loan") secured by the Company's accounts receivable,
and (c) a $4,000,000 acquisition facility (the "Acquisition Loan") secured by
future assets acquired by the Company. The Facilities mature on November 26,
2000. The Company's indebtedness under the Facilities is secured by a first
priority lien on substantially all the assets of the Company and its
subsidiaries, by a pledge of its subsidiaries' stock and by a guarantee of
its subsidiaries. Additionally, the Company granted Foothill a warrant to
purchase 50,000 shares of the Company's Common Stock. The Company was
required to pay various service and commitment fees as are standard within
the industry. Approximately $3,600,000 of the loan proceeds were held back
by Foothill pending performance by the Company of certain post-closing
conditions.
Funds available from the Term Loan may be used for working capital needs
and acquisitions, including the purchase of the RBL and certain other assets
of WAUR-AM in the Chicago market. The Revolving Loan may be used for working
capital needs and for acquisitions. Advances are not to exceed 80% of
eligible accounts receivable less reserves determined by Foothill as
determined by material adverse changes. The Term Loan is to be repaid
monthly in 42 installments of principal in the amount of 1/54 of the term
loan amount beginning in month seven of the Credit Agreement. The
Acquisition Loan is to be repaid monthly based upon a five-year amortization
schedule, commencing on the first month following funding. Interest rates
under the Facilities are payable at the prime rate plus 2.75%. The Credit
Agreement contains a number of financial covenants which, among other things,
require the Company to maintain specified financial ratios and impose certain
limitations on the Company with respect to the amount of funding available
for each acquisition under the Acquisition Loan.
6
<PAGE>
PURPOSE OF OFFERING
The 5,000,000 shares of Common Stock, par value $.02 per share (the
"Shares"), of the Company and the $5,000,000 of Promissory Notes of the
Company (the "Debt Securities") covered by this Prospectus may be offered and
issued in connection with future acquisitions of other businesses or
properties, including the RBLs of other radio stations. The Shares and the
Debt Securities are collectively referred to herein as the "Securities." The
Company reasonably expects that it will offer and sell the Securities covered
by this Prospectus within two years from the initial effective date of the
Registration Statement of which this Prospectus is a part. The consideration
offered by the Company in such acquisitions, in addition to the Securities
offered by this Prospectus, may include cash, debt or other securities (which
may be convertible into shares of Common Stock of the Company covered by this
Prospectus), guarantees or assumptions by the Company of liabilities of the
business being acquired, or a combination thereof. In connection with
acquisitions, the Company may enter into contracts that provide for future
payments and non-competition agreements with former owners and key executive
personnel of companies to be acquired. The Company has not received and does
not expect to receive any cash proceeds (other than working capital of
acquired companies) in connection with any such issuances.
It is contemplated that the terms of acquisitions will be determined by
direct negotiations between the Company and the owners of the businesses or
properties to be acquired, with the Company taking into account the quality
of management, the past and potential earning power and growth of the
businesses or properties to be acquired, the market value of the Company's
securities and other relevant factors. It is anticipated that shares of
Common Stock issued in acquisitions will be valued at a price reasonably
related to the market value of the Common Stock either at the time the terms
of the acquisition are tentatively agreed upon or at or about the time or
times of delivery of the Shares. The number of Securities issued or
delivered in connection with such acquisitions will also be negotiated by the
parties.
It is not expected that underwriting discounts or commissions will be
paid by the Company except that finder's fees may be paid to persons from
time to time in connection with specific acquisitions. Any person receiving
such fees may be deemed to be an underwriter within the meaning of the
Securities Act.
USE OF PROCEEDS
This Prospectus relates to Securities that the Company may issue from
time to time in connection with proposed acquisitions by the Company or one
or more of its subsidiaries. The Company will receive no proceeds from this
Offering other than the value of the assets and securities acquired by the
Company in the proposed acquisitions.
7
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SECURITIES 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 SECURITIES OFFERED HEREBY.
WHEN USED BELOW AND ELSEWHERE IN THIS PROSPECTUS, INCLUDING DOCUMENTS
INCORPORATED HEREIN BY REFERENCE, THE WORDS "BELIEVES," "ANTICIPATES" 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 SECURITIES ARE CAUTIONED NOT TO PLACE
UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE
DATE HEREOF.
ACQUISITIONS. One of the Company's strategies used to expand its
national network of radio stations broadcasting Radio AAHS is to acquire RBLs
in key markets. To date, the Company has acquired 12 RBLs through the
acquisition of securities or assets of radio stations and intends to continue
to acquire RBLs in the future. Unless the acquisition is of an existing
affiliate, the Company will generally convert an acquired station to the
Radio AAHS format. Although the Company believes it has identified a number
of potential acquisitions, there can be no assurance that the Company will be
successful in acquiring additional RBLs. The Company expects to face
competition in acquiring additional RBLs as it seeks to build its national
radio network. See "-- Development of National Radio Network."
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 nine months ended September 30, 1996,
the Company incurred net losses of $3,247,000, $4,519,000, $6,108,000 and
$6,682,000, respectively, and anticipates that it will continue to operate at
a loss from operations for the remainder of 1996 and throughout 1997. The
Company has not generated positive cash flow from operations and 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, and by the Facilities. The Company continues to seek other sources of
financing for its working capital needs and for acquisitions. If the Company
should be unable to obtain working capital when required, its operations and
prospects would be materially and adversely affected. See "Prospectus Summary
- -- Recent Financing."
SUBSTANTIAL LEVERAGE; ADDITIONAL FINANCING REQUIREMENTS. As of December
1, 1996, the Company's consolidated indebtedness approximated 14% of the sum
of its shareholders' equity and consolidated indebtedness, assuming
performance by the Company of certain post-closing conditions resulting in
full funding under the Facilities. Based on current interest rates, the debt
service obligations associated with the $16,500,000 Credit Agreement with
Foothill necessitate payments of principal and interest of approximately
$3,300,000 per year. Further, substantially all assets of the Company serve
to secure this loan. This degree of leverage increases the Company's
vulnerability to adverse general economic and broadcasting industry
conditions and to increased competitive pressures, including pressure from
better capitalized competitors. Issuance of additional debt, including the
Debt Securities, would increase this degree of leverage and, therefore, could
exacerbate the Company's vulnerability to such market conditions. In the
event that the Company should default on its obligations under the Credit
Agreement, all or substantially all of its assets would be at risk. There
can be no assurance that the Company will be able to repay or refinance such
indebtedness when due, or that the Company would be able to sell all or any
portion of its assets or raise additional capital to make required payments
on maturing indebtedness. An inability to make payments when due or to
comply with covenants and restrictions associated with such indebtedness
could give Foothill the right to foreclose on properties securing payment
obligations, which would have a material adverse effect upon the Company.
Part of the Company's strategy for development and expansion of its network
includes acquiring
8
<PAGE>
RBLs and/or operating radio properties in key U.S. markets. It is the
Company's desire to purchase RBLs in each of the top 15 markets; however,
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 RBLs, the limitations on the Credit
Agreement may require the Company to seek additional financing for
acquisitions and to fund future operations. 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.
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 nine months ended September 30,
1996, the Company's network, which is in a development phase, generated
$1,059,000 and $1,034,000 in revenue, respectively. For the years ended
December 31, 1993, 1994 and 1995 and for the nine months ended September 30,
1996, approximately 45%, 51%, 42% and 39% 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 nine
months ended September 30, 1996, the Company derived approximately 13%, 16%,
13% and 12% respectively, of its revenue from KTEK-AM; approximately 10%,
11%, 9% and 9% 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 9% 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.
ACCEPTANCE OF RADIO FORMAT. The Company produces and distributes a
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 research companies
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.
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 an FCC license for WJDM-AM
9
<PAGE>
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 Federal Communications Commission (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 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. In November 1995, the Company entered into an
Operations Agreement with 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. 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 legal fees and costs associated with
the litigation have reduced and may continue to reduce the Company's working
capital. Further, the Company may issue securities to finance the litigation
which could result in dilution to the Company's existing shareholders.
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. Disney has commenced test
broadcasting of its own children's radio programming in four U.S. markets,
thereby entering into direct competition with the Company. Further, 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. 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 can be and has been imitated by others seeking to enter the
children's radio field.
10
<PAGE>
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. During fiscal year 1996, the market price
of the Company's Common Stock has ranged from a high of $14.00 on January 31
and February 22, 1996 to a low of $3.25 on November 20, 1996. There can be
no assurance that purchasers of the Shares can sell the Shares at or above
the prices at which they were purchased.
IMPACT OF SALE OF SHARES; SHARES ELIGIBLE FOR FUTURE SALE. The Company
had approximately 6.0 million shares of Common Stock outstanding as of
November 30, 1996, and had warrants and options outstanding 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. On November 15, 1996, the Commission declared effective the
Company's Registration Statement on Form S-3, as amended, which registered
for a secondary offering 1.1 million common shares. The sale of such shares,
the Common Stock offered pursuant to this Prospectus, 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.
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. Most of the members of the Company's current senior management
team are not subject to employment contracts with the Company. The Company
does not maintain insurance on the lives of its key employees.
FCC REGULATION. Although the radio broadcast licenses of the stations
owned by the Company are already granted, their continuation and the
continued validity of any RBL 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
11
<PAGE>
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.
NO ASSURANCE AS TO LIQUIDITY ON THE NASDAQ NATIONAL MARKET SYSTEM. The
Common Stock is currently listed on the Nasdaq National Market System. 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.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain selected historical consolidated
financial information for the Company. The income statement and balance
sheet data for the Company included in the selected consolidated financial
data for each of the five years in the period ended December 31, 1995 are
derived from the audited consolidated financial statements of the Company for
such five-year period. The selected financial data for the nine-month
periods ended September 30, 1996 and 1995 are derived from the unaudited
consolidated financial statements of the Company for such periods. All
financial data derived from unaudited financial statements reflect, in the
opinion of the Company's management, all adjustments (consisting of only
normal recurring adjustments) necessary for a fair presentation of such data.
Results for the nine-month period ended September 30, 1996 are not
necessarily indicative of the results that may be expected for any other
interim period or for the year as a whole. The data set forth in the table
should be read in conjunction with the consolidated financial statements of
the Company, and the related notes thereto, incorporated herein by reference.
See "Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31 September 30
----------------------------------------------------------------------- -----------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(in thousands, except share and per share data) (in thousands, except share
and per share data)
STATEMENT OF OPERATIONS
DATA:
Net Revenue:
Owned, operated and
LMA stations(1) $ 716 $ 734 $ 2,263 $ 3,799 $ 4,047 $ 3,067 $ 2,898
Network -- 7 253 589 1,059 818 1,034
-------- -------- -------- -------- -------- -------- --------
Total net revenue 716 741 2,516 4,388 5,106 3,885 3,932
Operating Expenses:
Owned, operated and
LMA stations(1) 953 1,309 3,175 5,070 4,955 3,808 3,349
Network -- 369 1,413 1,541 2,593 1,784 2,464
Corporate -- 195 1,007 1,692 1,521 1,170 1,403
Depreciation and
amortization 56 77 192 516 937 714 1,574
Write off of
deferred warrant
expense -- -- -- -- -- -- 1,662
-------- -------- -------- -------- -------- -------- --------
Total operating
expenses 1,009 1,950 5,787 8,819 10,006 7,476 10,452
-------- --------- -------- -------- -------- -------- --------
Loss from operations (293) (1,209) (3,271) (4,431) (4,900) (3,591) (6,520)
Interest expense, net
of interest income 59 47 (24) 88 1,208 960 162
-------- -------- -------- -------- -------- -------- --------
Net loss $ (352) $ (1,256) $ (3,247) $ (4,519) $ (6,108) $ (4,551) $ (6,682)
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Net loss per share $ (.70) $ (1.27) $ (1.39) $ (1.69) $ (2.22) $ (1.69) $ (1.52)
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Weighted average
number of shares 501,500 991,000 2,330,500 2,703,500 2,815,500 2,696,500 4,470,500
BALANCE SHEET DATA:
Working capital (deficit) $ (454) $ (1,128) $ 1,366 $ (3,472) $ (4,421) $ (3,398) $ 908
Total assets 615 1,110 8,603 10,485 13,327 9,430 26,178
Total debt and capital
leases (including current
portion) 620 1,001 225 3,835 5,809 3,425 2,303
Shareholders' equity (deficit) (538) (441) 7,540 3,070 3,487 2,310 20,082
</TABLE>
(1) Includes stations owned and operated by the Company as well as stations
owned by third parties but operated under a LMA.
13
<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED SHARES
The Company's Articles of Incorporation authorize it to issue up to
50,000,000 shares of a par value of $.02 per share. As of November 30, 1996,
approximately 6.0 million shares were issued and outstanding and
approximately 2.6 million shares were reserved for issuance pursuant to
options, restricted stock grants and warrants. The remaining shares are
undesignated.
COMMON STOCK
Except for the non-voting shares, no share of Common Stock is entitled to
preference over any other share and each share of Common Stock is equal to
any other share in all respects. The holders of Common Stock, other than
non-voting shares, are entitled to one vote for each share held of record at
each meeting of shareholders. The non-voting shares may become shares with
full voting rights at such time as they are transferred by the current
holder. In any distribution of assets, whether voluntary or involuntary,
holders are entitled to receive pro rata the assets remaining after creditors
have been paid in full and after any liquidation preference of any other
class of stock has been satisfied. The outstanding Common Stock is and the
stock offered by the Company hereby upon payment therefor will be, fully paid
and nonassessable.
The Board of Directors of the Company has the authority to issue the
remaining 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. Shares could also be issued to deter or delay a
takeover or other change in control of the Company.
Holders of Common Stock have no preemptive rights to purchase additional
securities which may be offered by the Company. There is no cumulative
voting for the election of directors. Accordingly, the owners of a majority
of outstanding voting shares may elect all of the directors if they choose to
do so. All shares of Common Stock are entitled to participate equally in all
dividends when, as and if declared by the Board of Directors out of funds
legally available therefor.
NON-VOTING COMMON STOCK
The Company issued 189,041 shares of non-voting Common Stock in April
1992. All non-voting stock was issued in order to avoid attribution of
interests under FCC regulations, and is convertible to voting stock on a
share for share basis if such conversion would not result in FCC attribution
of interests.
CONVERTIBLE PREFERRED STOCK
The Company's Articles of Incorporation authorize the Company's Board of
Directors, without further shareholder action, to issue shares of preferred
stock in one or more series and to fix the voting rights, liquidation
preferences, dividend rights, repurchase rights, conversion rights,
redemption rights and terms, including sinking fund provisions and certain
other rights and preferences, of the preferred stock.
Although there is no current intention to do so, the Board of Directors
of the Company may, without shareholder approval, issue shares of a class or
series of preferred stock with voting and conversion rights which could
adversely affect the voting power or dividend rights of the holders of Common
Stock and may have the effect of delaying, deferring or preventing a change
in control of the Company.
14
<PAGE>
MINNESOTA ANTI-TAKEOVER LAWS
The Company is governed by the provisions of Section 302A.671 and
302A.673 of the Minnesota Business Corporation Act Sections 302A.671 and
302A.673 of the Minnesota Business Corporation Act may deny shareholders the
receipt of a premium on their Common Stock and may also have a depressive
effect on the market price of the Company's Common Stock. In general,
Section 302A.671 provides that the shares of a corporation acquired in a
"control share acquisition" have no voting rights unless voting rights are
approved in a prescribed manner. A "control share acquisition" is an
acquisition, directly or indirectly, of beneficial ownership of shares that
would, when added to all other shares beneficially owned by the acquiring
person, entitle the acquiring person to have voting power of 20% or more in
the election of directors. In general, Section 302A.673 prohibits a public
Minnesota corporation from engaging in a "business combination" with an
"interested shareholder" for a period of four years after the date of the
transaction in which the person became an interested shareholder, unless the
business combination is approved in a prescribed manner.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock of the Company is
Norwest Bank Minnesota, National Association, St. Paul, Minnesota.
DESCRIPTION OF DEBT SECURITIES
The terms of the Debt Securities offered by any Prospectus Supplement
will be described in the Prospectus Supplement relating to such Debt
Securities. Reference is made to the Prospectus Supplement relating to the
particular series of Debt Securities offered thereby for a description of the
following terms or additional provisions of the Debt Securities: (1) the
title of the Debt Securities; (2) whether the Debt Securities are senior Debt
Securities or subordinated Debt Securities; (3) any limit on the aggregate
principal amount of the Debt Securities; (4) the price or prices (expressed
as a percentage of the aggregate principal amount thereof) at which the Debt
Securities will be issued; (5) the date or dates on which the Debt Securities
will mature; (6) the rate or rates per annum at which the Debt Securities
will bear interest, if any, and the date from which any such interest will
accrue; (7) the interest payment dates on which any such interest on the Debt
Securities will be payable; (8) the date, if any, after which and the price
or prices at which the Debt Securities may, pursuant to any optional or
mandatory redemption provisions, be redeemed, in whole or in part; (9) the
denominations in which the Debt Securities will be issuable; (10) any index
used to determine the amount of payments of the principal of (and premium, if
any) and interest on the Debt Securities and the manner in which such amounts
shall be determined; (11) the terms and conditions, if any, pursuant to which
the Debt Securities are convertible or exchangeable into a security or
securities of the Company; (12) the terms pursuant to which the Debt
Securities are subject to defeasance; and (13) any other terms of the Debt
Securities. The Debt Securities will not be issued pursuant to an indenture
between the Company and a trustee. The debt securities will be issued
pursuant to an exemption from compliance with the Trust Indenture Act of
1939. Any such Prospectus Supplement will also describe any special
provisions for the payment of additional amounts with respect to the Debt
Securities.
15
<PAGE>
LEGAL MATTERS
The validity of the Securities 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 three-year period ended December 31,
1995 of Children's Broadcasting Corporation, incorporated by reference in
this Prospectus have been audited by Ernst & Young LLP, independent certified
public accountants, 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. for the eleven months
ended March 31, 1996 and 1995 and for the years ended April 30, 1993, 1994
and 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, 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.
ADDITIONAL INFORMATION
Certain information relating to executive compensation, principal
securities holders, certain relationships and related transactions, and other
matters concerning the Company is included or incorporated by reference in
the Company's Annual Report on Form 10-KSB filed with the Commission and
incorporated herein by reference. A copy of the Company's most recent Annual
Report on Form 10-KSB and Quarterly Report on Form 10-QSB accompanies this
Prospectus.
16
<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
The Company 4
Broadcast Strategy 5
Recent Financing 6
Purpose of Offering 7
Use of Proceeds 7
Risk Factors 8
Selected Consolidated Financial Data 13
Description of Capital Stock 14
Description of Debt Securities 15
Legal Matters 16
Experts 16
Additional Information 16
CHILDREN'S BROADCASTING
CORPORATION
5,000,000 SHARES
COMMON STOCK
$5,000,000
PROMISSORY NOTES
____________________
PROSPECTUS
____________________
____________, 1996
<PAGE>
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
* 3.1 Articles of Incorporation, as amended and restated.
** 3.2 By-laws, as amended and restated.
4 The form or forms of Debt Securities which may be issued by the
Registrant will be filed as an exhibit to a Current Report of
the Registrant on Form 8-K.
5 Opinion of Lance W. Riley, Esq.
*** 13 Form 10-QSB for the fiscal quarter ended September 30, 1996.
23.1 Consent of Lance W. Riley, Esq. (included in Exhibit 5).
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Smolin, Lupin & Co., P.A., Certified Public
Accountants.
23.4 Consent of Kleiman, Carney & Greenbaum, Certified Public
Accountants.
24 Power of Attorney (included on signature page to Registration
Statement).
______________________
* Incorporated by reference from the Registrant's Registration Statement on
Form S-2 (Registration No. 33-80721).
** Incorporated by reference from the Registrant's Registration Statement on
Form S-18 (Registration No. 33-44412C).
*** Specifically incorporated by reference in the Prospectus. See
"Incorporation of Certain Documents by Reference."
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(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-1
<PAGE>
(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.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent
no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement.
(iii) To include any additional or changed material information on
the plan of distribution.
(2) That, for the purpose of determining liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering.
(3) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(b) 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.
(c) 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.
(d) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(e) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
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 December 20, 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/S/ CHRISTOPHER T. DAHL President, Chief Executive December 20, 1996
- ---------------------------- Officer and Director (Principal
CHRISTOPHER T. DAHL Executive Officer)
/S/ JAMES G. GILBERTSON Chief Operating Officer December 20, 1996
- ---------------------------- and Treasurer (Principal
JAMES G. GILBERTSON Accounting Officer and
Principal Financial Officer)
/S/ RICHARD W. PERKINS Director December 20, 1996
- ----------------------------
RICHARD W. PERKINS
/S/ RODNEY P. BURWELL Director December 20, 1996
- -----------------------------
RODNEY P. BURWELL
/S/ MARK A. COHN Director December 20, 1996
- -----------------------------
MARK A. COHN
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
NUMBER DESCRIPTION
* 3.1 Articles of Incorporation, as amended and restated.
** 3.2 By-laws, as amended and restated.
4 The form or forms of Debt Securities which may be issued by the
Registrant will be filed as an exhibit to a Current Report of
the Registrant on Form 8-K.
5 Opinion of Lance W. Riley, Esq.
*** 13 Form 10-QSB for the fiscal quarter ended September 30, 1996.
23.1 Consent of Lance W. Riley, Esq. (included in Exhibit 5).
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Smolin, Lupin & Co., P.A., Certified Public
Accountants.
23.4 Consent of Kleiman, Carney & Greenbaum, Certified Public
Accountants.
24 Power of Attorney (included on signature page to Registration
Statement).
______________________
* Incorporated by reference from the Registrant's Registration Statement on
Form S-2 (Registration No. 33-80721).
** Incorporated by reference from the Registrant's Registration Statement on
Form S-18 (Registration No. 33-44412C).
*** Specifically incorporated by reference in the Prospectus. See
"Incorporation of Certain Documents by Reference."
<PAGE>
EXHIBIT 5
December 20, 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-4 (the "Registration Statement"), under the Securities Act
of 1933, as amended, covering 5,000,000 shares of common stock, $.02 par value,
of the Company (the "Shares") and $5,000,000 of promissory notes of the Company
(the "Debt Securities").
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 (the "Commission"), and the Shares have been issued in
connection with proposed acquisitions as contemplated by the Registration
Statement, the Shares will be legally and validly issued, fully-paid and
nonassessable. Based on the foregoing, it is further my opinion that when the
Registration Statement shall have been declared effective by order of the
Commission, and the Debt Securities have been issued in connection with proposed
acquisitions as contemplated by the Registration Statement, the Debt Securities
will be binding obligations of the Company.
I hereby consent to the filing of this opinion as Exhibit 5 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 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-4) of Children's Broadcasting Corporation for
the registration of 5,000,000 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 /s/ Ernst & Young LLP
December 17, 1996
<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 eleven months ended March 31, 1996 and 1995 and the
reports for the years ended April 30, 1993, 1994, and 1995, with respect to the
financial statements of Radio Elizabeth, Inc. incorporated by reference in the
Registration Statement (Form S-4) 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
December 19, 1996
<PAGE>
EXHIBIT 23.4
[Kleiman, Carney & Greenbaum, P.C. letterhead]
December 19, 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-4) and related
Prospectus of Children's Broadcasting Corporation for the registration of shares
of its common stock.
Very truly yours,
KLEIMAN, CARNEY & GREENBAUM
/S/ MARK CARNEY
---------------------------------
MARK CARNEY
Certified Public Accountant
Farmington Hills, Michigan
December 19, 1996
