<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, For Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
COMMISSION FILE NO. 0-21534
CHILDREN'S BROADCASTING CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/X/ Fee paid previously with preliminary materials: $14,500
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
1) Amount Previously Paid:
----------------------------------------------
2) Form, Schedule or Registration Statement No.:
-------------------------
3) Filing Party:
---------------------------------------------------------
4) Date Filed:
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CHILDREN'S BROADCASTING CORPORATION
724 FIRST STREET NORTH
Minneapolis, MN 55401
(612) 338-3300
December 5, 1997
Dear Shareholder:
I am pleased to invite you to attend the Special Meeting of Shareholders
(the "Special Meeting") of Children's Broadcasting Corporation (the "Company"),
to be held at the Minneapolis Hilton and Towers, 1001 Marquette Avenue,
Minneapolis, Minnesota, on January 6, 1998, at 3:30 p.m. Minneapolis time.
At the Special Meeting you will be asked to approve an agreement between
the Company and Global Broadcasting Company, Inc. ("Global") providing for the
sale by the Company to Global of all of the Company's owned and operated radio
stations for $72.5 million cash. The Company's financial adviser, Piper
Jaffray, Inc., has rendered its opinion that the consideration to be received by
the Company for its broadcasting assets is fair to the Company from a financial
point of view. THE BOARD OF DIRECTORS HAS DETERMINED THAT THE SALE AND THE
RELATED AGREEMENT ARE IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS
AND HAS UNANIMOUSLY APPROVED, AND ACCORDINGLY RECOMMENDS, THAT YOU VOTE FOR THE
PROPOSED SALE.
The sale of assets is part of management's strategy to reposition the
Company by selling substantially all of its broadcasting assets and, using
the net cash realized, to make one or more acquisitions in the media,
entertainment or advertising-related areas. As of this date, the Company has
not identified any acquisition targets. Pending any such acquisition, the
proceeds from the sale of assets will be invested in investment-grade,
short-term, interest-bearing securities. While the Company recently announced
its intention to cease producing and distributing its full-time Aahs World
Radio-SM- programming format, effective January 30, 1998, and has effected
certain reductions in its workforce related to the operation of the network,
the Company plans to retain members of the Aahs World Radio creative staff
and intends to continue to explore other methods of distribution of
children's audio programming, such as SDARS (Satellite Digital Audio Radio
Service), and also to develop and enhance its Internet website real-time
audio presence and other programming products, including syndicated
children's programs. In addition to utilizing its network intangibles, the
Company has begun to diversify by acquiring a 40.7% beneficial interest in
Harmony Holdings, Inc., which produces TV commercials and music videos.
The accompanying material contains the Notice of Special Meeting, the Proxy
Statement, which includes information about the matters to be acted upon at the
Special Meeting, and the related Proxy Card. A copy of the Asset Purchase
Agreement is set forth as Appendix I to the Proxy Statement.
I sincerely hope you will be able to attend the Company's Special Meeting.
Whether or not you are able to attend the Special Meeting in person, I urge you
to sign and date the enclosed proxy and return it promptly in the enclosed
envelope. If you do attend the Special Meeting in person, you may withdraw your
proxy and vote personally on any matters brought properly before the Special
Meeting.
Very truly yours,
CHILDREN'S BROADCASTING CORPORATION
/s/ Christopher T. Dahl
Christopher T. Dahl
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
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CHILDREN'S BROADCASTING CORPORATION
724 FIRST STREET NORTH
Minneapolis, MN 55401
(612) 338-3300
--------------------
NOTICE OF 1998 SPECIAL MEETING OF SHAREHOLDERS
To be Held January 6, 1998
--------------------
NOTICE IS HEREBY GIVEN that the Special Meeting of Shareholders (the
"Special Meeting") of Children's Broadcasting Corporation (the "Company") will
be held at the Minneapolis Hilton and Towers, 1001 Marquette Avenue,
Minneapolis, Minnesota, on January 6, 1998, at 3:30 p.m. Minneapolis time, for
the following purposes, as more fully described in the accompanying Proxy
Statement:
1. To consider and vote upon a proposal to approve the Asset
Purchase Agreement, between the Company and Global Broadcasting
Company, Inc., pursuant to which the radio broadcast licenses,
and certain related assets, of all of the Company's owned and
operated radio stations, representing substantially all of the
assets of the Company, would be sold to Global Broadcasting
Company, Inc. A copy of the Asset Purchase Agreement is attached
as Appendix I to, and is described in, the Proxy Statement.
2. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting or any
adjournment thereof.
Only shareholders of record at the close of business on November 11, 1997
are entitled to notice of and to vote at the Special Meeting. Whether or not
you expect to attend the Special Meeting in person, please complete, date and
sign the enclosed proxy exactly as your name appears thereon and promptly return
it in the envelope provided, which requires no postage if mailed in the United
States. Proxies may be revoked at any time before they are exercised and, if
you attend the Special Meeting in person, you may withdraw your proxy and vote
personally on any matter brought properly before the Special Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Lance W. Riley
Lance W. Riley
SECRETARY AND GENERAL COUNSEL
Minneapolis, Minnesota
December 5, 1997
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TABLE OF CONTENTS
PAGE
INTRODUCTION................................................................. 1
Time, Date, Place and Purpose............................................ 1
Proxies.................................................................. 1
Record Date and Voting Securities........................................ 2
Rights of Dissenting Shareholders........................................ 2
PROPOSAL TO SELL SUBSTANTIALLY ALL OF THE COMPANY'S ASSETS................... 2
General.................................................................. 2
Background and Reasons for the Proposed Transaction...................... 2
Board Recommendation..................................................... 5
Description of the Asset Purchase Agreement.............................. 5
Ongoing Corporate Operations............................................. 7
Interests of Certain Persons in the Proposed Transaction................. 8
Accounting Treatment..................................................... 9
Federal Income Tax Consequences.......................................... 10
Opinion of Financial Adviser............................................. 10
Rights of Dissenting Shareholders........................................ 14
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS.................................. 16
SELECTED CONSOLIDATED FINANCIAL DATA......................................... 18
PRO FORMA FINANCIAL INFORMATION.............................................. 19
General.................................................................. 19
Statements of Operations................................................. 20
Balance Sheet............................................................ 22
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................. 22
OTHER MATTERS................................................................ 23
SHAREHOLDER PROPOSALS........................................................ 24
APPENDIX I -- ASSET PURCHASE AGREEMENT.......................................I-1
APPENDIX II -- OPINION OF FINANCIAL ADVISER.................................II-1
APPENDIX III -- APPRAISALS FOR CHILDREN'S BROADCASTING STATIONS............III-1
APPENDIX IV -- DISSENTERS' RIGHTS...........................................IV-1
APPENDIX V -- CONSENTS OF INDEPENDENT PUBLIC AUDITORS........................V-1
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CHILDREN'S BROADCASTING CORPORATION
724 FIRST STREET NORTH
Minneapolis, MN 55401
(612) 338-3300
--------------------
PROXY STATEMENT FOR 1998 SPECIAL MEETING OF SHAREHOLDERS
To be Held January 6, 1998
--------------------
INTRODUCTION
TIME, DATE, PLACE AND PURPOSE
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Children's Broadcasting Corporation (the
"Company") for use at the Special Meeting of Shareholders (the "Special
Meeting") to be held at the Minneapolis Hilton and Towers, 1001 Marquette
Avenue, Minneapolis, Minnesota, on January 6, 1998, at 3:30 p.m. Minneapolis
time, and at any adjournment thereof.
The purpose of the Special Meeting is to consider and vote upon a proposal
to approve the Asset Purchase Agreement (the "Asset Purchase Agreement" or
"Agreement"), between the Company and Global Broadcasting Company, Inc., a
Delaware corporation ("Global"), pursuant to which the radio broadcast licenses,
and certain related assets, of all of the Company's owned and operated radio
stations would be sold to Global for a total consideration of $72.5 million
(subject to adjustment). See "Proposal to Sell Substantially all of the
Company's Assets."
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE SALE OF
THE COMPANY'S RADIO BROADCAST LICENSES AND CERTAIN RELATED ASSETS AND RECOMMENDS
THAT THE SHAREHOLDERS APPROVE THE ASSET PURCHASE AGREEMENT.
PROXIES
Proxies in the accompanying form are solicited on behalf of, and at the
direction of, the Board of Directors of the Company (hereinafter sometimes
referred to as the "Board"). All shares of Common Stock represented by properly
executed proxies, unless such proxies have previously been revoked, will be
voted at the meeting and, where the manner of voting is specified on the proxy,
will be voted in accordance with such specifications. Shares represented by
properly executed proxies on which no specification has been made will be voted
FOR the proposal to approve and adopt the Asset Purchase Agreement. If any
other matters are properly presented at the meeting for action, including a
question of adjourning the meeting from time to time, the persons named in the
proxies and acting thereunder will have discretion to vote on such matters in
accordance with their best judgment. If a properly executed proxy is returned
and the shareholder has abstained from voting on any matter, the shares
represented by the proxy will be considered present at the meeting for purposes
of determining a quorum and for purposes of calculating the vote, but will not
be considered to have been voted in favor of such matter.
When stock is held in the name of more than one person, each such person
should sign the proxy. If the shareholder is a corporation, the proxy should be
signed in the name of such corporation by an executive or other authorized
officer. If signed as attorney, executor, administrator, trustee, guardian or
in any other representative capacity, the signer's full title should be given
and, if not previously furnished, a certificate or other evidence of appointment
should be furnished. If an executed proxy is returned by a broker holding
shares in street name which indicates that the broker does not have
discretionary authority as to certain shares to vote on one or more matters,
such shares will be considered present at the meeting for purposes of
determining a quorum, but will not be considered to be represented at the
meeting for purposes of calculating the vote with respect to such matter.
Any shareholder who executes and returns a proxy may revoke it at any time
before it is voted. Additional proxies are available upon request from Lance W.
Riley, Esq., Secretary and General Counsel, Children's Broadcasting
<PAGE>
Corporation, 724 First Street North, Minneapolis, Minnesota 55401. Any
shareholder who wishes to revoke a proxy can do so (i) by executing a
later-dated proxy relating to the same shares and delivering it to Mr. Riley
prior to the vote at the Special Meeting, (ii) by written notice of revocation
received by Mr. Riley prior to the vote at the Special Meeting or (iii) by
appearing in person at the Special Meeting, filing a written notice of
revocation and voting in person the shares to which the proxy relates.
Later-dated proxies and written notices of revocation may be mailed to Mr.
Riley, but such revocations will only be effective if they are received prior to
the vote at the Special Meeting.
RECORD DATE AND VOTING SECURITIES
The Board has fixed the close of business on November 11, 1997 as the
Record Date for determining the holders of outstanding shares of Common Stock
entitled to notice of, and to vote at, the Special Meeting. On November 11,
1997, there were 6,402,891 shares of Common Stock issued, outstanding and
entitled to vote. Each holder of Common Stock is entitled to one vote,
exercisable in person or by proxy, for each share of Common Stock held of record
on the Record Date. As of the date preceding public announcement of the
proposed transaction, the high and low sale prices of the Company's Common Stock
were $3.625 and $3.375, respectively. The Notice of Special Meeting, this Proxy
Statement and the related Proxy Card are first being mailed to shareholders of
the Company on or about December 5, 1997.
RIGHTS OF DISSENTING SHAREHOLDERS
Shareholders who object to the Asset Purchase Agreement may exercise their
dissenters' rights and obtain payment for the "fair value" of their shares. See
"Proposal to Sell Substantially All of the Company's Assets -- Rights of
Dissenting Shareholders."
PROPOSAL TO SELL SUBSTANTIALLY ALL
OF THE COMPANY'S ASSETS
GENERAL
At the Special Meeting, the shareholders of the Company will be asked to
consider and vote upon the approval of the Asset Purchase Agreement, dated as
of July 16, 1997, between the Company and Global, which provides for the sale
to Global of the radio broadcast licenses, and certain related assets, of all
of the Company's owned and operated radio stations (the "Stations"). The
consideration to be received by the Company for the sale of the Stations
consists of a cash payment of $72.5 million (subject to adjustment) (the
"Transaction"). The terms of the Agreement and the Stations to be sold are
described below under the caption "Description of the Asset Purchase
Agreement."
BACKGROUND AND REASONS FOR THE PROPOSED TRANSACTION
HISTORICAL PERFORMANCE. Children's Broadcasting Corporation is a 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 Aahs World Radio-SM-(*)
format provides 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.
Since the inception of the Company, the primary sources of the Company's
revenue have been from the sale of local advertising and air time and network
revenue. The Company's growth strategy included the acquisition of AM radio
broadcast licenses ("RBLs") in the top 15 U.S. markets. Pursuant to that
strategy, the Company acquired RBLs
- -----------------------------
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which serve the New York City, Los Angeles, Chicago, Philadelphia, Detroit and
Dallas/Fort Worth markets. As a result of the acquisition strategy, together
with its affiliation strategy, the Company distributed its programming to
markets representing approximately 40% of the U.S. population and had a presence
in the top four markets and seven of the top ten markets in the U.S.
Notwithstanding the growth of the Company's network, the Company's network
operations and revenue from owned and operated stations has not achieved
expected levels and is significantly below levels needed to offset operating
expenses. The Company has incurred substantial operating losses since its
inception. For the year ended December 31, 1996, 39% of the Company's local
advertising revenue was derived from Company-owned stations not broadcasting the
Aahs World Radio format, and approximately 28% of total revenue was derived from
network advertising sales. See "Selected Consolidated Financial Data."
THE ABC/DISNEY RELATIONSHIP. The Company's business strategy has been to
derive revenue from the sale of network advertising time to national advertisers
and from local advertising sales from Company-owned or operated stations. The
Company's strategy, in entering into the operations agreement with ABC Radio
Networks, Inc. ("ABC Radio"), was to use the resources and reputation of ABC to
market Aahs World Radio, attract national advertising and further build the
Company's network through affiliations. The Company sought out and developed
strategic relationships in order to enhance and reinforce its brand, and to
allow the Company to explore business opportunities at minimal cost to it and
without detracting from management's focus upon the Company's core business. In
1995, the Company developed such a relationship with ABC Radio, pursuant to
which ABC Radio agreed, through representations and agreements, that ABC Radio
would commit its affiliate development and national advertising sales staffs and
other resources to assist and augment the Company's efforts to market the Aahs
World Radio format to broadcasters and advertisers. Throughout the course of
its relationship with ABC Radio, the Company disclosed significant confidential
proprietary business information to ABC Radio and The Walt Disney Company. On
June 21, 1996, ABC Radio announced to the Company that ABC Radio was terminating
its relationship with the Company and that ABC Radio would join with Disney to
immediately commence competing directly with the Company in the field of
children's radio broadcasting. The Walt Disney Company and ABC Radio
("ABC/Disney") thereupon rolled out its Radio Disney programming at several
locations throughout the country, and is aggressively competing against the
Company today.
THE PENDING ABC/DISNEY SUIT. The Company filed a lawsuit in the fall of
1996 in the United States District Court for the District of Minnesota against
ABC/Disney. The suit seeks injunctive relief and to recover substantial
monetary damages based on alleged wrongful conduct by ABC/Disney, including acts
and omissions of fraud, business interference, breach of contractual and
fiduciary obligations and misappropriation of the Company's confidential and
proprietary business information, trade secrets and business opportunities. In
September 1997, ABC Radio asserted its own counterclaim for breach of
contractual obligations, seeking to recover an unspecified amount of damages
said only "to exceed $75,000.00" for an alleged failure by the Company to pay
certain commissions and fees allegedly earned during the course of the parties'
relationship. The Company denies ABC Radio's counterclaim in all respects, and
is moving to have the counterclaim dismissed as untimely. Under the Court's
current schedule, the ABC/Disney suit is to be considered ready for trial
effective December 1997, but the case is more likely to proceed to trial in the
first quarter of 1998.
FOOTHILL CAPITAL CORPORATION FINANCING. From its inception in 1995 until
its termination by ABC/Disney in July 1996, the ABC/Disney relationship did not
result in any significant national advertising sales or increase in the
Company's network affiliate base. As a result, the Company's financial position
deteriorated. To meet its working capital requirements and to facilitate
acquisitions pursuant to its growth strategy, the Company entered into a credit
agreement (the "Credit Agreement") with Foothill Capital Corporation
("Foothill") in November 1996. The Credit Agreement, as amended, provided the
Company with working capital and provided funding for the acquisition of shares
of common stock of Harmony Holdings, Inc. ("Harmony"), through loan facilities
aggregating $23.0 million. Such facilities mature on September 30, 2000. The
Company's indebtedness to Foothill is secured by a first priority lien on
substantially all of the assets of the Company and its subsidiaries. Upon
consummation of the sale of assets, the Company intends to repay the Foothill
indebtedness in full. In the event that the sale of assets is not consummated,
the facilities will require principal payments of $500,000 on March 31, 1998,
$5.0 million on June 30, 1998, and $2.0 million each quarter thereafter.
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DECISION TO SELL STATIONS. The Board determined that the Company must
either (i) seek a strategic partner which would enable the Company to
maintain a competitive position in the children's radio market, but with the
existing shareholders potentially owning a smaller percentage of the
business; (ii) seek a purchaser for the Company and exit the children's radio
market; (iii) seek a purchaser of its Aahs World Radio intangible assets and
explore other business opportunities in radio broadcasting; or (iv) seek a
purchaser of its radio stations and explore other business ventures aimed at
the media, entertainment or advertising-related markets. Such determination
was based primarily upon the Company's inability to pursue effectively its
network business plan because of ABC/Disney's method of entering the
children's radio market, and the lack of access to equity capital, due in
part to the Company's lack of positive financial performance subsequent to
the Company's entry into the operations agreement with ABC Radio.
On June 17, 1996 and July 26, 1996, the Company engaged Richard Alan
Incorporated and Southcoast Capital Corporation, respectively, to explore
strategic alternatives for the Company to maximize shareholder value, including
possible joint venture opportunities, or a sale or merger of the Company. Such
investment banking firms had discussions with various potential strategic
partners with a view toward entering into a joint venture, sale or merger.
These discussions did not result in the development of any strategic
opportunities for the Company.
In June 1997, the Company received the unsolicited offer from Global to
purchase the Stations for an aggregate purchase price of $72.5 million. The
Board reviewed the offer, considering the lack of access to capital on terms
acceptable to the Company, and such factors as the amount of consideration to
be received by the Company, the form of payment, the timing of payment and
Global's apparent ability to pay. Based on this review, the Board
unanimously approved the Transaction subject to shareholder approval.
Pursuant to the Agreement, Global will acquire all of the Company's RBLs and
related tangible and intangible assets. Global, however, is not purchasing
the Company's accounts receivable or the intangible assets related to the
Company's Aahs World Radio format. The Company plans to continue its ongoing
network programming operations with its network affiliates. There can be no
assurance that the Company will be able to remain a viable business without
its owned and operated radio stations. See " -- Ongoing Corporate
Operations." The Transaction is subject to a number of conditions and there
can be no assurance that the Company will be successful in completing the
Transaction. See " -- Description of the Asset Purchase Agreement." If the
Transaction is not consummated, the Company intends to seek another buyer or
buyers for its assets. If such a buyer or buyers are not found, and
additional financing is not forthcoming, the Company may be forced to
liquidate.
In approving the sale to Global, the Board recognizes that it is
requesting the Company's shareholders to give up the certainty of its known
business for an unknown business that may or may not be acquired. The Board
has determined, however, that the Company's ability to remain viable and
competitive is in doubt due to (i) the business momentum lost as the result
of ABC/Disney's failure to perform its obligations under the parties'
operations agreement; (ii) the Company's lack of significant network
advertising revenue; (iii) the inability of the Company, without significant
additional equity financing, to significantly increase its network market
coverage and affiliate base; (iv) the Company's continued losses from
operations; (v) ABC/Disney's method of entry into the children's radio market
as a direct competitor of the Company; and (vi) the difficulty which the
Company expects to encounter in obtaining additional capital due to its lack
of profitable operations and cash flow and its highly-leveraged debt position.
The Board also recognizes that a more favorable offer for its broadcasting
assets might be obtained if the Company or its assets were marketed to potential
buyers over a longer period of time; however, considering the length of time
during which the Company attempted to solicit a strategic partner or purchaser,
delaying further, assuming that it was financially feasible, was not deemed
likely to result in a more favorable offer. Having found an acceptable
purchaser, and absent alternative offers, the Board has further considered
whether to (i) liquidate the Company and distribute the remaining cash to the
shareholders after payment of liabilities or (ii) seek one or more new
investment opportunities and/or businesses. The Board determined that the
latter approach is in the best interests of the Company and its shareholders.
While the Company believes significant acquisition opportunities exist in the
media, entertainment and advertising-related industries, no specific
acquisitions have been identified and there can be no assurance that any new
business can be acquired, or if acquired, that the same will be profitable or
enable shareholders to realize a greater return on their investment.
4
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On the other hand, if the sale is not consummated, the Company will be
unable to continue business operations without additional funding. The
Company's highly leveraged position and the requirements for payments under the
Foothill loan facilities may require the Company to liquidate. If the Company
were forced to liquidate, it is possible that it could do so over an extended
period of time and at a substantially greater cost than that estimated to be
incurred in connection with the sale of its assets to Global. If the sale to
Global is not consummated, no assurance can be given that the aggregate price
which could be realized for the broadcasting assets would equal the price
offered by Global.
In light of the foregoing, the Board firmly believes that the sale of the
RBLs and related assets to Global is in the best interests of the Company and
its shareholders. The Board anticipates that the potential return on
investment to the shareholders will be greater if the Transaction is
consummated. The Company continues to pursue opportunities as a programming
producer, and new media, entertainment or advertising-related businesses are
found or developed.
BOARD RECOMMENDATION
Approval of the Transaction requires the affirmative vote of
holders of a majority of the Company's Common Shares entitled to vote at the
Special Meeting. The Board of Directors of the Company has unanimously approved
the sale of the Stations to Global pursuant to the Agreement and recommends that
the shareholders vote FOR such proposal.
DESCRIPTION OF THE ASSET PURCHASE AGREEMENT
GENERAL. The following is a brief summary of certain provisions of the
Agreement. This description is qualified in its entirety by reference to the
Agreement, a copy of which is attached to this Proxy Statement as Appendix I.
References to the "Company" below are generally deemed to include the Company's
operating subsidiaries. Shareholders are urged to read the Agreement in its
entirety.
ASSETS. The assets to be purchased by Global from the Company generally
include all of the material assets used in connection with, or in the operation
of, the Stations, including without limitation: (i) the Federal Communications
Commission ("FCC") licenses; (ii) the real property; (iii) the personal
property; (iv) the leases and agreements; (v) the permits; (vi) the call letters
and general intangibles; (vii) the subsidiaries' magnetic media, electronic data
processing files, systems and computer programs, logs, public files, records
required by the FCC, vendor contracts, supplies, maintenance records or similar
business records relating to or used in connection with the operation of the
stations; and (viii) the KMUS purchase agreement.
The assets to be sold specifically exclude all other assets, including:
(i) the Company's intangible property rights held or used in connection with its
Radio AAHS-Registered Trademark-/Aahs World Radio-SM- children's radio format;
(ii) the Company's intangible property rights related to its claims made in its
pending action against ABC/Disney; (iii) the Company's accounts receivable; (iv)
the Company's cash on hand at closing; and (v) the Company's investments,
including shares of common stock of Harmony, which the Company has made or will
make prior to closing.
THE PURCHASER. Global broadcasts and syndicates uniform daily programming
simultaneously through their stations on a national basis. Global has developed
a reputation in the broadcast industry as the radio broadcast rights holder to
the NFL World League, Rugby Super League, and the NHL and as the creator of the
Avis Travelers Network.
PURCHASE PRICE. Upon the terms and subject to the conditions set forth in
the Agreement, Global will deliver to the Company on the closing date, a cash
payment in the amount of $72.5 million. The purchase price may be subject to
adjustments or allocations as follows: (i) in the event the KMUS purchase
agreement is excluded, the purchase price shall be reduced by $400,000; (ii)
certain expenses (i.e., power and utility charges, lease rents, property taxes,
frequency discounts, annual license fees, wages, commissions, payroll taxes, and
other fringe benefits of employees) shall be prorated with final settlement
within 90 days after closing; (iii) in the event any application of any of the
RBLs is designated for hearing and one of the parties excludes from the acquired
assets those assets associated
5
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with the operation of the station affected, the purchase price shall be reduced
by an amount equal to the aggregate value of the affected station; or (iv) in
the event the approvals of assignments of all the other licenses occur and
become final orders prior to final approval of the renewal of the FCC licenses
of KPLS(AM), a portion of the purchase price payable equal to the aggregate
station value allocated to the acquired assets relating to the operation of
station KPLS(AM) shall be paid into escrow pending the final approval of such
renewal.
ESCROW. The Agreement calls for the sum of $3.5 million to be placed in
escrow by Global to secure performance of its obligations. The Agreement was
subsequently amended to allow Global to deliver a promissory note in that amount
rather than cash.
CLOSING; CONDITIONS TO CLOSING. It is anticipated that if the
Transaction is approved by the shareholders at the Special Meeting, the
closing will take place in January 1998. Pursuant to the Agreement, the
obligations of the Company to consummate the Transaction are subject to and
conditioned upon, among other things, (i) approval by the Company's
shareholders of the Agreement at the Special Meeting with no more than 20% of
the Company's shareholders exercising statutory dissenter's rights, unless
waived by the Company; (ii) the final approval of the FCC to the renewals of
the RBLs and their assignment to Global; (iii) the satisfaction at or before
closing of all agreements, obligations and conditions of Global, as described
in the Agreement, required to be performed, or complied with by it, at or
before closing; (iv) the receipt by the Company from its investment banker of
an opinion confirming the fairness of the consideration payable to the
Company by Global; and (v) the material accuracy of the representations and
warranties made by Global as described in the Agreement.
REGULATORY MATTERS. The Transaction is contingent upon the FCC giving
its written approval to the proposed assignments of licenses to Global and
those grants maturing into final approvals forty days after the grants appear
on public notice. The Company and Global jointly filed 13 assignment
applications with the FCC on August 15, 1997, all of which were accepted for
filing by the FCC on August 15, 1997, and placed on public notice. The
application for the fourteenth station, KMUS(AM), Muskogee, Oklahoma, will be
filed after the Company's consummation of the acquisition of that station
from Oklahoma Sports Properties, Inc. The FCC issued grants to the
applications (except for the Los Angeles and Muskogee applications) on
November 26, 1997. If there are no petitions to deny filed with the FCC, the
grants will automatically mature into final approvals on or about January 13,
1998. The Transaction is further conditioned upon the FCC giving its written
approval to the Stations' license renewal applications and those grants
maturing into final approvals. The Company does not expect that any
petitions will be filed in opposition to the proposed assignments or
applications for renewals.
CONDITIONS PRECEDENT TO GLOBAL'S OBLIGATIONS. Pursuant to the Agreement,
the obligations of Global to consummate the Transaction at closing are
subject to and conditioned upon, among other things (i) the FCC final approvals;
(ii) the satisfaction at or before closing in all material respects of all
agreements, obligations and conditions of the Company required to be performed,
or complied with, on or before closing; (iii) the material accuracy of the
representations and warranties made by the Company; (iv) written third party
consents to all material leases and agreements where required by the terms of
the lease or agreement or substitution by the Company of equivalent rights
without materially adverse impact upon Global's enjoyment of the acquired
assets; and (v) that there shall not be any material adverse change in the
acquired assets.
INDEMNIFICATION. The Agreement provides that the Company, upon written
notice by Global, shall indemnify and hold harmless Global and every affiliate
of Global and any of its directors, members, stockholders, officers, partners,
employees, agents, consultants, representatives, transferees and assignees from
and against any loss, damage, liability, claim, demand, judgment, or expense,
including claims of third parties arising out of the ownership of the acquired
assets or the operations of the Stations by the Company prior to closing. The
Agreement provides that Global, upon written notice by the Company, shall
indemnify and hold harmless the Company and any of its directors, members,
stockholders, officers, partners, employees, agents, consultants,
representatives, transferees and assignees from and against any loss, damage,
liability, claim, demand, judgment, or expense, including claims of third
parties arising out of the ownership of the acquired assets or the operations of
the Stations by Global after closing.
6
<PAGE>
REPRESENTATIONS, WARRANTIES AND COVENANTS. In the Agreement, each of the
parties made certain representations and warranties to the other. The
Agreement, attached hereto as Appendix I, sets forth all of the representations
and covenants of the parties thereto.
ALTERNATIVE TRANSACTION. As described in the Agreement, the Company may
enter into discussions or negotiations with, any person or entity in connection
with any unsolicited acquisition proposal by such person or entity and the
Company may recommend such an unsolicited bona fide written acquisition proposal
to the shareholders of the Company, if and only to the extent that (i) the Board
determines in good faith that such acquisition proposal would, if consummated,
result in a transaction more favorable to the shareholders of the Company and
that the person or entity making such acquisition proposal has the financial
means, or the ability to obtain the necessary financing to conclude such
transaction; (ii) the Board determines in good faith that the failure to take
such action would be inconsistent with the fiduciary duties of such Board to its
shareholders; and (iii) prior to furnishing any non-public information to, or
entering into discussion or negotiations with, such person or entity, the Board
receives an executed confidentiality agreement from such person or entity. If
the Agreement is terminated after the occurrence of the above or another event
specified in the Agreement and within six months after such termination the
Company enters into an alternative transaction, then the Company must pay Global
a non-refundable fee of $3.5 million which shall be payable on the date such
alternative transaction is consummated.
TERMINATION. Pursuant to the Agreement, the Transaction may be
terminated by Global prior to closing upon any of the following: (i) the
Board withdraws or modifies its recommendation of the Agreement or resolves
or publicly announces its intention to do so; (ii) an alternative transaction
takes place or the Board recommends such an alternative transaction to
shareholders or resolves or publicly announces its intention to recommend or
engage in an alternative transaction; (iii) a material breach by the Company
of the Agreement occurs and at the time of such breach, or any termination
based thereon, an alternative transaction shall have been publicly announced
and not absolutely or unconditionally withdrawn and abandoned; (iv) the
Company negotiates with, furnishes information to, enters into any agreement
with, consummates or recommends any transaction with, any person other than
Global or its affiliates based on a determination regarding a superior
proposal; or (v) the Company materially breaches or fails to perform its
obligations regarding discussions or negotiations with third parties under
the Agreement. In addition to the above, the Agreement sets forth customary
events which may bring about termination of the Transaction prior to closing.
ESTIMATED NET PROCEEDS FROM THE PROPOSED TRANSACTION. The Company
estimates that after deducting expenses of the transaction, taxes and
repayment of all outstanding indebtedness, it will have approximately $44.6
million of net assets, of which approximately $34.1 million will be cash
proceeds from the Transaction. From the gross proceeds of the Transaction,
the Company will pay outstanding indebtedness totalling approximately $27.9
million and federal and state income taxes resulting from the Transaction
estimated to be $9.5 million. The remainder of the cash proceeds from the
Transaction will be used by the Company for the continued production and
delivery of programming, for further development of intangible assets and
ancillary distribution methods, for continued legal costs associated with the
Company's lawsuit against ABC/Disney and for general corporate purposes
including future acquisitions and joint ventures in the media, entertainment
and advertising industries.
ONGOING CORPORATE OPERATIONS
The Company believes that opportunities exist to profitably utilize the
Aahs World Radio intellectual property and brand, as well as the expertise
gained in the development of children's radio programming. While the Company
recently announced its intention to cease producing and distributing its
full-time Aahs World Radio programming format, effective January 30, 1998,
and has effected certain reductions in its workforce related to the operation
of the network, the Company plans to retain members of the Aahs World Radio
creative staff and intends to explore other methods of distribution of
children's audio programming, such as SDARS (Satellite Digital Audio Radio
Service), and also to develop and enhance its Internet website real-time
audio presence and other programming products, including syndicated
children's programs. For example, in October 1997, the Company established a
pointing relationship between its interactive World Wide Web site and America
Online's NetFind. It is the Company's belief that previously established
relationships may facilitate the successful use of such assets in other areas
of children's entertainment. The Company may reexamine this strategy
regarding the continued production of children's radio programming and may
7
<PAGE>
decide to sell, or discontinue, such operations depending
upon its assessment of the prospects for profitability of such products.
In addition to utilizing network intangibles, the Company has begun to
diversify into other media, entertainment and advertising-related businesses.
Recently, the Company acquired a minority ownership interest in Harmony.
Although the Company has no current plans to do so, it may determine to
increase its 40.7% ownership position in Harmony should an opportunity exist
at a price favorable to the Company. The Company intends to seek to further
diversify through acquisition of media, entertainment or advertising-related
businesses. Further, the Company has not foreclosed the possibility of buying
other radio stations in the future. Pending any such acquisitions, the
proceeds from the Transaction will be invested in investment-grade,
short-term, interest-bearing securities and the Company will rely on the
interest income generated thereby. Such interest income may be insufficient
to meet the Company's operating expenses.
The Company intends to pursue to its conclusion the ABC/Disney litigation.
Certain resources will be used to this end, including personnel costs and
litigation costs.
The Company and Global have entered into a syndication agreement which is
scheduled to commence after the closing of the Transaction. Under such
agreement, the Company will produce and distribute radio programming to Global
in two hour blocks each Saturday and Sunday, which will air between the hours of
9:00 a.m. and 12:00 p.m. Eastern. The parties are currently negotiating an
increase in the length of this initial block to provide 24-hour programming for
every weekend.
INTERESTS OF CERTAIN PERSONS IN THE PROPOSED TRANSACTION
The Company's 1994 Stock Option Plan (the "1994 Plan") contains a
provision which accelerates vesting of issued stock options in the event of a
change of control or sale of all or substantially all of the Company's
assets. The Company's 1991 Incentive Stock Option Plan (the "1991 Plan") was
amended to conform to the 1994 Plan at the time the 1994 Plan was adopted.
All non-qualified stock options contain acceleration terms conforming to the
1991 and 1994 Plans. Consequently, options to purchase 769,257 shares of
Common Stock of the Company held by officers and directors will vest upon
consummation of the Transaction. As of October 31, 1997, options to purchase
313,448 of the above-listed options represent in-the-money options. Assuming
the exercise of such options, the Company would receive $1,097,068 and the
optionees would experience an aggregate gain of $58,772, representing the
product of the number of option shares multiplied by the difference between
the market value of the Company's Common Stock on October 31, 1997 and the
exercise price of each such option.
Options held by the following officers and directors will vest upon
consummation of the Transaction. The table below contains detailed
information regarding such options.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised Exercise In-the-Money
Name and Principal Position Options Price Options
- ---------------------------------------------------------------- ----------- -------- -------------
<S> <C> <C> <C>
Christopher T. Dahl. . . . . . . . . . . . . . . . . . . . . . . 88,125 $ 3.50 $16,523
President and Chief Executive Officer 75,000 5.88 --
41,250 8.00 --
James G. Gilbertson. . . . . . . . . . . . . . . . . . . . . . . 58,749 3.50 11,015
Chief Operating Officer and 50,000 5.88 --
Chief Financial Officer 25,000 7.26 --
8
<PAGE>
Lance W. Riley . . . . . . . . . . . . . . . . . . . . . . . . . 29,380 3.50 5,509
General Counsel and 50,000 5.88 --
Secretary 25,000 7.26 --
5,000 9.50 --
Gary W. Landis . . . . . . . . . . . . . . . . . . . . . . . . . 29,372 3.50 5,507
Executive Vice President 50,000 5.88 --
of Programming 17,500 7.26 --
9,166 9.50 --
Melvin E. Paradis. . . . . . . . . . . . . . . . . . . . . . . . 29,372 3.50 5,507
Executive Vice President 50,000 5.88 --
of Operations 8,335 8.38 --
Barbara A. McMahon . . . . . . . . . . . . . . . . . . . . . . . 21,150 3.50 3,966
Executive Vice President 25,000 5.88 --
of Affiliate Relations 9,600 8.38 --
Rick E. Smith . . . . . . . . . . . . . . . . . . . . . . . . . 36,150 3.50 6,778
Executive Vice President 6,000 8.38 --
of National Sales 625 12.00 --
Denny J. Manrique. . . . . . . . . . . . . . . . . . . . . . . . 21,150 3.50 3,966
Executive Vice President Development 8,333 8.38 --
of Sales
</TABLE>
Further, in considering the recommendation of the Board with respect to
the Transaction, shareholders should be aware that, in connection with the
Transaction, Christopher T. Dahl, Chairman of the Board of Directors,
President and Chief Executive Officer of the Company, has entered into a
two-year Consulting and Non-Circumvention Agreement with Global, pursuant to
which Mr. Dahl will be paid the sum of $500,000 in consideration of (i) his
provision of certain consulting services to Global subsequent to the
Transaction and (ii) his agreement not to circumvent Global with respect to
any business opportunities of Global of which he becomes aware through such
relationship. The fees provided for in this agreement are payable whether or
not Global requests Mr. Dahl to perform any services thereunder.
Finally, if the Transaction is completed, the efforts of certain
employees in connection with the Transaction will be a factor considered by
the Board should it consider awarding bonuses for fiscal 1997 and fiscal
1998. If approved by the Board, such bonuses could be cash or non-cash
awards, or a combination thereof.
ACCOUNTING TREATMENT
Under generally accepted accounting principles, upon consummation of the
Transaction, the Company will remove the net assets sold from its
consolidated balance sheet, and record the gain on the sale net of
transaction, severance and other related costs, including applicable state and
federal income taxes, in its consolidated statement of income. See "Pro
Forma Financial Information."
9
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated federal income tax consequences
to the Company of the Transaction is not intended as tax advice and is not
intended to be a complete description of the federal income tax consequences
of such Transaction. This summary is based upon the Internal Revenue Code of
1986 (the "Code"), as presently in effect, the rules and regulations
promulgated thereunder, current administrative interpretations and court
decisions. No assurance can be given that future legislation, regulations,
administrative interpretations or court decisions will not significantly change
these authorities (possibly with retroactive effect).
No rulings have been requested or received from the Internal Revenue
Service ("IRS") as to the matters discussed and there is no intent to seek any
such ruling. Accordingly, no assurance can be given that the IRS will not
challenge the tax treatment of certain matters discussed or, if it does
challenge the tax treatment, that it will not be successful.
The discussion of federal income tax consequences set forth below is
directed primarily toward individual taxpayers who are citizens of the United
States. However, because of the complexities of federal, state and local
income tax laws, it is recommended that the Company's shareholders consult
their own tax advisors concerning the federal, state and local tax
consequences of the Transaction to them. Further, persons who are trusts,
tax-exempt entities, corporations subject to specialized federal income tax
rules (for example, insurance companies) or non-U.S. citizens or residents
are particularly cautioned to consult their tax advisors in considering the
tax consequences of the Transaction.
The Transaction will be a taxable sale by the Company upon which gain or
loss will be recognized by the Company. The amount of gain or loss
recognized by the Company with respect to the sale of a particular asset will
be measured by the difference between the amount realized by the Company on
the sale of that asset and the Company's tax basis in that asset. The amount
realized by the Company on the Transaction will include the amount of cash
received and the fair market value of any other property received. For
purposes of determining the amount realized by the Company with respect to
specific assets, the total amount realized by the Company will generally be
allocated among the assets according to the rules prescribed under Section
1060(a) of the Code. The Company's bases in its assets are generally equal
to their cost, as adjusted for certain items, such as depreciation. However,
the bases of assets of stations acquired in a stock purchase are equal to the
subsidiary's historical cost adjusted for certain items, such as depreciation.
The determination of whether gain or loss is recognized by the Company will
be made with respect to each of the assets to be sold. Accordingly, the Company
may recognize gain on the sale of certain assets and loss on the sale of certain
others, depending on the amount of consideration allocated to an asset as
compared with the basis of that asset. The Company will recognize a net gain as
a result of the sale of its assets, but believes its net operating loss and tax
credit carryovers will offset a substantial portion of the projected gain on the
sale of the assets. The Company believes that the use of carryovers will not be
limited by Code Sections 382 and 383.
The proposed sale of substantially all of the assets of the Company by
itself will not produce any separate and independent federal income tax
consequences to the Company's shareholders.
OPINION OF FINANCIAL ADVISER
Piper Jaffray, Inc. ("Piper Jaffray") was retained by the Company by
letter dated August 29, 1997 to render an opinion regarding the fairness to
the Company from a financial point of view of the consideration to be paid by
Global to the Company in a proposed acquisition of certain assets related to
13 Company-owned and operated radio stations and rights to purchase one
additional radio station (the "Acquired Assets") pursuant to the Asset
Purchase Agreement. On October 10, 1997, Piper Jaffray rendered its written
opinion dated October 10, 1997 (the "Piper Jaffray Opinion") to the Company's
Board of Directors, to the effect that, as of the date thereof and based on
and subject to the assumptions, factors and limitations set forth in such
opinion and described below, the $72.5 million proposed to be paid by Global
to the Company for the Acquired Assets in the Transaction is fair, from a
financial point of view, to the Company.
10
<PAGE>
Piper Jaffray, as a customary part of its investment banking business, is
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, underwritings and secondary distributions of
securities, private placements and valuations for estate, corporate and other
purposes. The Company selected Piper Jaffray because of its investment banking
expertise and reputation, its familiarity with the Company and its familiarity
with the media industry generally.
THE FULL TEXT OF THE PIPER JAFFRAY OPINION IS ATTACHED AS APPENDIX II TO
THIS PROXY STATEMENT. THE FOLLOWING SUMMARY OF THE PIPER JAFFRAY OPINION IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE PIPER JAFFRAY
OPINION. THE COMPANY'S SHAREHOLDERS ARE URGED TO READ THE PIPER JAFFRAY OPINION
IN ITS ENTIRETY FOR A COMPLETE DESCRIPTION OF THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITS OF THE REVIEW UNDERTAKEN.
In arriving at its opinion, Piper Jaffray reviewed, analyzed and relied
upon material bearing upon the financial and operating condition and prospects
of the Company and material prepared in connection with the Transaction, and
considered such financial and other factors as it deemed appropriate under the
circumstances, including, among other things, the following: (i) the Asset
Purchase Agreement dated July 16, 1997; (ii) the annual reports, Reports on Form
10-KSB, audited financial statements and Proxy Statements for the Company for
the three years ended December 31, 1996; (iii) the Reports on Form 10-QSB for
the Company for the quarters ended March 31, 1997 and June 30, 1997; (iv) annual
unaudited financial results for each of the Company's radio stations prepared by
management for the three years ended December 31, 1996 and for the six-month
period ended June 30, 1997; and (v) an independently conducted appraisal by
Force Communications & Consultants ("Force"), a radio station broker, of the
Acquired Assets dated October 8, 1996 (the "1996 Appraisal").
It is customary in the radio broadcasting industry to use brokers to
provide appraisals for radio station assets. The Company selected Force
based upon its experience and expertise in appraising major and middle-market
AM radio stations. In appraising the Company's radio station assets, Force
based their valuations on comparable sales of AM radio stations in the same
markets, rather than on the financial projections of the stations appraised.
Because the 1996 Appraisal was conducted in October 1996, updates were
necessary to reflect recent radio station transaction activity in these
markets. Force estimated that the aggregate value of the 12 stations they
appraised increased by 10% between October 1996 and October 1997. The 1996
Appraisal excludes two stations, WAUR-AM (Chicago) and KMUS-AM (Muskogee),
for which the actual and pending purchase prices, respectively, were used.
Piper Jaffray visited the headquarters of the Company and conducted
discussions with members of senior management of the Company, including the
Chief Executive Officer, Chief Operating and Financial Officer, Executive Vice
President of Programming and General Counsel. Topics discussed included, but
were not limited to, the background and rationale of the proposed Transaction,
the financial condition, operating performance and the balance sheet
characteristics of the Company and the Acquired Assets and the future prospects
for the Company. Piper Jaffray conducted a conference call with Force to
discuss the appraisal methodology used in the 1996 Appraisal. Piper Jaffray
also reviewed the historical prices and trading activity for the Company's
Common Stock, reviewed the publicly available financial terms of certain
comparable merger and acquisition transactions Piper Jaffray deemed relevant,
compared certain financial and securities data of the Company to financial and
securities data of companies Piper Jaffray deemed similar to the business
represented by the Acquired Assets, and reviewed such other financial data,
performed such other analyses and considered such other information as Piper
Jaffray deemed necessary and appropriate.
The Piper Jaffray Opinion, which was delivered for use and considered by
the Company's Board, is directed only to the fairness to the Company, from a
financial point of view, of the consideration to be received by the Company for
the Acquired Assets in the Transaction, does not in any manner address the
Company's underlying business decision to proceed with or effect the Transaction
or the structure thereof and does not constitute a recommendation to any Company
stockholder as to how such stockholder should vote with respect to the
Transaction. The total consideration was determined pursuant to negotiations
between the Company and Global and not pursuant to a recommendation of Piper
Jaffray. Piper Jaffray does not admit that it is an expert within the meaning
of the term "expert" as used in the Securities Act and the rules and regulations
promulgated thereunder, or that its opinions constitute a report or valuation
within the meaning of Section 11 of the Securities Act and the rules and
regulations promulgated thereunder.
11
<PAGE>
For purposes of the Piper Jaffray Opinion, Piper Jaffray relied upon and
assumed the accuracy, completeness and fairness of the financial and other
information made available to it and did not assume responsibility independently
to verify such information. Piper Jaffray relied upon the assurances of the
Company's management that the information provided by the Company had a
reasonable basis and, with respect to financial planning and other business
outlook information (including the inability to prepare meaningful forward
looking projections, as discussed below), reflected the best available
information and judgment of the Company's management as to the expected future
financial performance of the Company, and that they were not aware of any
information or fact that would make the information provided to Piper Jaffray
incomplete or misleading. Furthermore, Piper Jaffray, for purposes of the Piper
Jaffray Opinion, assumed that the Company was not a party to any pending
transaction, including external financing, recapitalizations, acquisitions or
merger discussions, other than the Transaction or in the ordinary course of
business.
In arriving at the Piper Jaffray Opinion, Piper Jaffray did not perform a
discounted cash flow analysis of the Company or the business represented by the
Acquired Assets since the Company did not have available and did not prepare any
forward-looking projections. The Company's senior management advised Piper
Jaffray that they had determined that they could not make reliable projections
because the industry's competitive environment and its economics, as well as the
Company's current financial situation, had so radically changed that senior
management questioned the ability to accurately project the Company's business
going forward. Consequently, senior management advised Piper Jaffray that they
believed that any projections reflective of historical operations would not be
meaningful.
Piper Jaffray did not perform any appraisals or valuations of specific
assets or liabilities of the Company and expressed no opinion regarding the
liquidation value of the Company. The Piper Jaffray Opinion relates only to the
acquisition of the Acquired Assets by Global in the Transaction and is not an
assessment of the fairness of the Transaction relative to other potential
transactions. Piper Jaffray was not authorized by the Company to solicit, and
did not solicit, other purchasers for the Acquired Assets or alternative
transactions to the Transaction. No limitations were imposed by the Company on
the scope of Piper Jaffray's investigation or the procedures to be followed in
rendering its opinion, except with respect to Piper Jaffray's inability to
perform a discounted cash flow analysis as discussed above. The Piper Jaffray
Opinion was based upon the information available to Piper Jaffray and the facts
and circumstances as they existed and were subject to evaluation on the date of
the Piper Jaffray Opinion. Events occurring after such date could materially
affect the assumptions used in preparing the Piper Jaffray Opinion.
Based on this information, Piper Jaffray performed a variety of financial
and comparative analyses, including those summarized below.
ASSET APPRAISAL ANALYSIS. Piper Jaffray conducted an asset appraisal
analysis by comparing the purchase price of the Acquired Assets in the
Transaction with the results of the 1996 Appraisal of 12 of the total 14
radio stations included in the Acquired Assets. Piper Jaffray determined
that for the 12 radio stations included in the 1996 Appraisal, the
Company's aggregate purchase price was $25,035,000; the low appraisal value
was $57,550,000; and the high appraisal value was $61,400,000. Two of the
Company's radio stations included in the Acquired Assets were not included
in the 1996 Appraisal. One was purchased by the Company in January 1997
for $3,900,000; the other is being purchased for $400,000. Piper Jaffray
used the actual and pending purchase prices of these two radio stations for
the benefit of the asset appraisal analysis, which resulted in an aggregate
low appraisal value of $61,850,000 and a high appraisal value of
$65,700,000 for all 14 radio stations included in the Acquired Assets.
Piper Jaffray also orally discussed the appraisal methodology with the
appraiser and was informed that the aggregate value of the 12 radio
stations may have increased approximately 10% during the last year. A 10%
appreciation in value for the 12 radio stations resulted in an aggregate
low appraisal value of $67,605,000 and a high appraisal value of
$71,840,000 for all 14 radio stations included in the Acquired Assets.
COMPARABLE TRANSACTION ANALYSIS. Piper Jaffray conducted a comparable
transaction analysis through a review of selected radio industry
transactions deemed comparable to the Transaction. The analysis was based
upon information obtained from SEC filings, public company disclosures,
press releases, industry and popular press reports, databases and other
sources. Piper Jaffray identified all acquisitions of radio corporations
or assets that were pending or completed from January 1, 1996 through
September 29, 1997, where the primary business
12
<PAGE>
was the ownership and operation of radio stations. This search yielded
six transactions that Piper Jaffray deemed comparable, including (in
acquired/acquiror format) American Radio Systems Corporation/Westinghouse
Electric Corporation; SFX Broadcasting Inc./Hicks, Muse, Tate & Furst;
Heftel Broadcasting Corporation/Clear Channel Communications, Inc.; Infinity
Broadcasting Corporation/Westinghouse Electric Corporation; Osborn
Communications Corporation/Capstar Broadcasting Partners, Inc.; and EZ
Communications, Inc./American Radio Systems Corporation.
Piper Jaffray then determined certain mean and median operating ratios
based upon information for the comparable transactions. Among other things,
Piper Jaffray determined that for the comparable transactions the mean
company value (market capitalization plus debt less cash) to latest twelve
month ("LTM") revenues ratio was 8.1x, the median such ratio was 8.8x and
the Acquired Assets' ratio (based on the consideration for the Acquired
Assets rather than on the Company's value as a whole) was 17.7x; and the
mean company value to LTM broadcast cash flow (earnings before interest,
taxes, depreciation and amortization plus corporate overhead) ratio was
22.3x, the median such ratio was 24.8x and the Acquired Assets' ratio (based
on the consideration for the Acquired Assets rather than on the Company's
value as a whole) was not meaningful.
COMPARABLE COMPANY ANALYSIS. Piper Jaffray conducted a comparable company
analysis by comparing certain financial information relating to the
Acquired Assets to corresponding data and rates for a group of six
comparable publicly traded companies. The group of comparable companies
consisted of: Cox Radio, Inc., Emmis Broadcasting Corporation, Jacor
Communications, Inc., Saga Communications, Inc., SFX Broadcasting, Inc. and
Triathlon Broadcasting Company. These comparable companies were selected
based on a search using the following criteria: companies with an SIC code
of 4832 (Radio Broadcasting Stations) and companies whose primary business
is the ownership and operation of radio stations in the United States.
Among other things, Piper Jaffray determined that for the comparable
companies the mean ratio of company value to LTM revenue for the comparable
companies was 5.4x, the median such ratio was 4.8x and the Acquired Assets'
ratio (based on the consideration for the Acquired Assets rather than on
the Company's value as a whole) was 17.7x; and the mean company value to
LTM broadcast cash flow ratio for the comparable companies was 16.3x, the
median such ratio was 14.8x, and the Acquired Assets' ratio (based on the
consideration for the Acquired Assets rather than on the Company's value as
a whole) was not meaningful.
The foregoing is a summary of the financial analyses used by Piper Jaffray
in connection with rendering its opinion. The preparation of a fairness opinion
is a complex process and not necessarily susceptible to partial analyses or
summary description. Piper Jaffray believes that its analyses must be
considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all factors and analyses, would
create a misleading view of the processes underlying the Piper Jaffray Opinion.
These analyses of Piper Jaffray are not necessarily indicative of actual values,
which may be significantly more or less favorable than the values used herein.
Analyses relating to the value of companies do not purport to be appraisals or
valuations or necessarily reflect the price at which companies may actually be
purchased or sold. No company or transaction used in any comparable analysis as
a comparison is identical to the Company or to the Transaction. Accordingly, an
analysis of the results is not mathematical and involves complex considerations
and judgments concerning differences in financial and operating characteristics
of the comparable companies and comparable transactions. In reaching its
conclusion as to the fairness of the consideration proposed to be paid for the
Acquired Assets and in its presentation to the Company's Board of Directors,
Piper Jaffray did not rely on any single analysis or factor described above,
assign relative weights to the analyses or factors considered by it, or make any
conclusions as to how the results of any given analysis, taken alone, supported
its fairness opinion.
The Company has agreed to pay Piper Jaffray $90,000 in fees in connection
with its engagement and for rendering its fairness opinion. These fees are not
contingent upon consummation of the Transaction. The Company has agreed to
indemnify Piper Jaffray against certain liabilities incurred (including
liabilities under the federal securities laws) and reimburse reasonable
out-of-pocket expenses, including the fees and disbursements of its counsel, in
connection with the engagement of Piper Jaffray by the Company.
13
<PAGE>
RIGHTS OF DISSENTING SHAREHOLDERS
Section 302A.471 of the Minnesota Business Corporation Act ("MBCA")
entitles any holder of the Common Stock of the Company who objects to the Asset
Purchase Agreement to dissent from the approval of the Asset Purchase Agreement
and obtain payment for the "fair value" (as defined in Section 302A.473, Subd. 1
of the MBCA) of his or her shares of the Common Stock of the Company
("Dissenters' Rights"). Any shareholder contemplating the exercise of these
Dissenters' Rights should review carefully the provisions of Sections 302A.471
and 302A.473 of the MBCA (copies of which are attached as Appendix III to this
Proxy Statement), particularly the procedural steps required to perfect such
rights. SUCH RIGHTS WILL BE LOST IF THE PROCEDURAL REQUIREMENTS OF SECTION
302A.473 ARE NOT FULLY AND PRECISELY SATISFIED.
The Company intends to proceed with the Transaction even if shareholders
exercise Dissenters' Rights. The exercise of such rights will potentially
reduce the amount of capital available to the Company for future acquisitions.
Set forth below (to be read in conjunction with the full text of Section
302A.473 appearing in Appendix II to this Proxy Statement) is a brief
description of the procedures relating to the exercise of Dissenters' Rights.
The following description does not purport to be a complete statement of the
provisions of Section 302A.473 and is qualified in its entirety by reference
thereto.
Under Section 302A.473, Subd. 3, a shareholder who wishes to exercise
Dissenters' Rights (a "dissenter") must file with the Company (at the Company's
address set forth in this Proxy Statement, Attention: Lance W. Riley, Secretary
and General Counsel) before the vote on the Agreement at the Special Meeting, a
written notice of intent to demand the fair value of the Common Stock of the
Company owned by the shareholder. IN ADDITION, THE SHAREHOLDER MUST NOT VOTE
HIS OR HER SHARES FOR THE APPROVAL AND ADOPTION OF THE AGREEMENT. A VOTE
AGAINST THE AGREEMENT WILL NOT IN ITSELF CONSTITUTE SUCH A WRITTEN NOTICE AND A
FAILURE TO VOTE WILL NOT AFFECT THE VALIDITY OF A TIMELY WRITTEN NOTICE.
HOWEVER, THE SUBMISSION OF A PROPERLY-EXECUTED BLANK PROXY, UNLESS WITHDRAWN,
WILL CONSTITUTE A VOTE FOR THE APPROVAL AND ADOPTION OF THE AGREEMENT AND A
WAIVER OF DISSENTERS' RIGHTS.
If the Agreement is approved by the holders of the Common Stock of the
Company, the Company will send to all dissenters who filed in a timely manner
the necessary notice of intent to demand the fair value of their shares and who
did not vote their shares in favor of the Agreement a notice containing the
information required by Section 302A.473, Subd. 4, including, without
limitation, the address to which a dissenter must send a demand for payment and
deposit certificates representing shares in order to obtain payment for such
shares and the date by which they must be received. In order to receive the
fair value of the shares under Section 302A.473, a dissenter must demand payment
and deposit certificates representing shares within 30 days after such notice
from the Company is given. Under Minnesota law, notice by mail is given by the
Company when deposited in the United States mail. A SHAREHOLDER WHO FAILS TO
MAKE DEMAND FOR PAYMENT AND TO DEPOSIT CERTIFICATES AS REQUIRED BY SECTION
302A.473, SUBD. 4, WILL LOSE THE RIGHT TO RECEIVE THE FAIR VALUE OF HIS OR HER
SHARES UNDER SUCH SECTION NOTWITHSTANDING THE TIMELY FILING OF NOTICE OF INTENT
TO DEMAND PAYMENT UNDER SECTION 302A.473, SUBD. 3.
After the date of final effectiveness, or after the Company receives a
valid demand for payment, whichever is later, the Company will remit, or, in
the case of certain dissenters who acquired their shares after the date the
Transaction was first announced to the public or who are dissenting on behalf
of persons who were not beneficial owners on that date, offer to remit if the
dissenter accepts the remittance in full satisfaction of his or her rights
under Section 302A.473, to each dissenter who has complied with the
provisions of Section 302A.473, Subds. 3 and 4, the amount the Company
estimates to be the fair value of the shares, with interest from five days
after the date of final effectiveness until the date of payment, calculated
at the rate of interest for verdicts and judgments in Minnesota. Such
remittance will be accompanied by certain financial statements, an estimate
of fair value, a description of the method used by the Company to reach such
estimate, a copy of Sections 302A.471 and 302A.473, a brief description of
the procedure to be followed in demanding supplemental payment and, in the
case of dissenters receiving an offer to remit, a statement of the reason for
withholding remittance.
14
<PAGE>
If a dissenter believes that the amount remitted or offered by the Company
is less than the fair value of the shares, with interest, the dissenter may give
written notice to the Company of the dissenter's estimate of fair value, with
interest, within 30 days after the Company mails such remittance or offer, and
demand payment of the difference. UNLESS A DISSENTER MAKES SUCH A DEMAND WITHIN
SUCH 30-DAY PERIOD, THE DISSENTER WILL BE ENTITLED ONLY TO THE AMOUNT REMITTED
OR OFFERED BY THE COMPANY.
Within 60 days after the Company receives such a demand from a dissenter,
it will be required to either pay the dissenter the amount demanded or agreed to
after discussion between the dissenter and the Company or file in court a
petition requesting that the court determine the fair value of the shares, with
interest. All dissenters who have demanded payment for their shares, but have
not reached agreement with the Company, will be made parties to the proceeding.
The court will then determine whether the dissenters in question have fully
complied with the provisions of Section 302A.473, and will determine the fair
value of the shares, taking into account any and all factors the court finds
relevant (including, without limitation, the recommendation of any appraisers
which may have been appointed by the court), computed by any method or
combination of methods that the court, in its discretion, sees fit to use,
whether or not used by the Company or a dissenter. The fair value of the shares
as determined by the court is binding on all shareholders, but the dissenters
will not be liable to the Company for the amount, if any, by which the payment
remitted to the dissenters exceeds the fair value of the shares determined by
the court, with interest. The costs and expenses of the court proceeding will
be assessed against the Company, except that the court may assess part or all of
those costs and expenses against a dissenter whose action in demanding payment
is found to be arbitrary, vexatious or not in good faith.
Under Section 302A.471, Subd. 2, a shareholder of the Company may not
assert Dissenters' Rights with respect to less than all of the shares of the
Common Stock of the Company registered in the shareholder's name, unless the
shareholder dissents with respect to all shares beneficially owned by another
person and discloses the name and address of such other person. The beneficial
owner of shares of the Common Stock of the Company may assert Dissenters' Rights
with respect to such shares, by following the procedures described above, IF THE
BENEFICIAL OWNER SUBMITS TO THE COMPANY AT THE TIME OF OR BEFORE THE ASSERTION
OF DISSENTERS' RIGHTS A WRITTEN CONSENT OF THE SHAREHOLDER IN WHOSE NAME THE
SHARES ARE REGISTERED.
15
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS
The following table contains certain information as of October 31, 1997
regarding the beneficial ownership of the Company's Common Stock by (i) each
person known by the Company to own beneficially more than 5% of the Company's
Common Stock, (ii) each director, nominee for director and executive officer of
the Company and (iii) the directors and executive officers as a group, and as to
the percentage of the outstanding shares held by them on such date. Any shares
which are subject to an option or a warrant exercisable within 60 days are
reflected in the following table and are deemed to be outstanding for the
purpose of computing the percentage of Common Stock owned by the option or
warrant holder but are not deemed to be outstanding for the purpose of computing
the percentage of Common Stock owned by any other person. Unless otherwise
noted, each person identified below possesses sole voting and investment power
with respect to such shares. The business address of Messrs. Dahl, Gilbertson,
Riley, Landis, Paradis, Smith, Manrique and Ms. McMahon is 724 First Street
North, Minneapolis, Minnesota 55401.
NUMBER OF PERCENT
SHARES OF OF
NAME AND ADDRESS COMMON STOCK CLASS
- ------------------------------------------------ -------------- -------
Heartland Advisors, Inc. . . . . . . . . . . . 1,501,600(1) 23.5%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
Perkins Capital Management, Inc. . . . . . . . 689,290(2) 10.6%
730 East Lake Street
Wayzata, Minnesota 55391
Christopher T. Dahl. . . . . . . . . . . . . . 572,627(3) 8.8%
Richard W. Perkins . . . . . . . . . . . . 487,709(4) 7.3%
730 East Lake Street
Wayzata, Minnesota 55391
Russell Cowles II. . . . . . . . . . . . . . . 283,139(5) 4.4%
c/o Sherburne and Coughlin, Ltd.
708 South 3rd Street, Suite 510
Minneapolis, Minnesota 55415
John Cowles Family Trust . . . . . . . . . . . 214,042(6) 3.3%
Sherburne and Coughlin, Ltd.
708 South 3rd Street, Suite 510
Minneapolis, Minnesota 55415
Rodney P. Burwell. . . . . . . . . . . . . . . 147,500(7) 2.3%
7901 Xerxes Avenue South, Suite 201
Minneapolis, Minnesota 55431
James G. Gilbertson. . . . . . . . . . . . . . 69,001(8) 1.1%
Gary W. Landis . . . . . . . . . . . . . . . . 46,462(9) *
Lance W. Riley . . . . . . . . . . . . . . . . 43,120(9) *
Mark A. Cohn . . . . . . . . . . . . . . . . . 31,250(10) *
7101 Winnetka Avenue North
Minneapolis, Minnesota 55428
Barbara A. McMahon . . . . . . . . . . . . . . 35,750(9) *
Melvin E. Paradis. . . . . . . . . . . . . . . 52,293(11) *
Rick E. Smith. . . . . . . . . . . . . . . . . 29,975(9) *
Denny J. Manrique. . . . . . . . . . . . . . . 22,517(9) *
All Directors and Executive Officers as a
Group (12 persons) . . . . . . . . . . . . 1,821,343(12) 25.2%
- ---------------
* Less than 1%
16
<PAGE>
(1) As set forth in Schedule 13G filed with the Securities and Exchange
Commission (the "Commission") on October 10, 1997, includes 1,301,600
shares over which Heartland Advisors, Inc. claims sole voting power,
and 1,501,600 shares over which sole dispositive power is claimed.
(2) Based upon statements filed with the Commission, Perkins Capital
Management, Inc. ("PCM") is a registered investment adviser of which
Mr. Richard W. Perkins, a director of the Company, is President, Chief
Executive Officer, a director and the controlling shareholder. As set
forth in Schedule 13G filed with the Commission on February 14, 1997,
PCM has the sole right to sell such shares and has sole voting power
over 83,536 of such shares. Mr. Perkins and PCM disclaim any
beneficial interest in such shares. Excludes shares beneficially
owned by Mr. Perkins.
(3) Includes (i) 435,486 shares owned directly and (ii) 137,141 shares
purchasable upon exercise of options and warrants.
(4) Includes (i) 189,690 shares owned directly by Mr. Perkins, (ii) 6,769
shares beneficially owned by Mr. Perkins through Perkins Capital
Management, Inc. Profit Sharing Plan and Trust and Perkins Foundation,
(iii) 285,625 shares purchasable upon exercise of options and warrants
by Mr. Perkins and (iv) 5,625 shares purchasable upon exercise of
warrants by Perkins Capital Management, Inc. Profit Sharing Plan and
Trust and Perkins Foundation. Mr. Perkins' beneficial ownership
excludes shares held for the accounts of clients of PCM.
(5) Includes (i) 56,597 shares owned directly and (ii) 12,500 shares
purchasable upon exercise of warrants. Mr. Cowles beneficially owns
(i) 189,042 shares owned by the John Cowles Family Trust and (ii)
25,000 shares purchasable by the John Cowles Family Trust upon
exercise of warrants. The shares owned by the John Cowles Family
Trust are non-voting shares.
(6) The shares owned by the John Cowles Family Trust are non-voting
shares.
(7) Includes (i) 111,250 shares owned directly by Mr. Burwell and (ii)
36,250 shares purchasable upon exercise of options and warrants.
(8) Includes (i) 4,500 shares owned directly by Mr. Gilbertson and (ii)
64,501 shares purchasable upon exercise of options.
(9) Includes options for the purchase of 43,120 shares, 46,462 shares,
29,975 shares, 22,517 shares, and 35,750 shares for Messrs. Riley,
Landis, Smith, Manrique and Ms. McMahon, respectively.
(10) Includes (i) 12,500 shares owned directly by Mr. Cohn and (ii) 18,750
shares purchasable upon exercise of options and warrants.
(11) Includes (i) 2,500 shares owned directly and (ii) 49,793 shares
purchasable upon exercise of warrants.
(12) Includes (i) 1,008,334 shares and owned directly by all officers,
directors and director nominees and (ii) 813,009 shares purchasable
upon exercise of options and warrants.
17
<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, 1996 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 1997 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, 1997 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
--------------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (IN THOUSANDS, EXCEPT
SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net Revenue:
Owned, operated and
LMA stations(1) $ 734 $ 2,263 $ 3,799 $ 4,047 $ 4,061 $ 2,898 $ 3,122
Network 7 253 589 1,059 1,594 1,034 1,127
--------- --------- --------- --------- --------- --------- ---------
Total net revenue 741 2,516 4,388 5,106 5,655 3,932 4,249
Operating Expenses:
Owned, operated and
LMA stations(1) 1,309 3,175 5,070 4,955 5,036 3,349 4,329
Network 369 1,413 1,541 2,490 3,525 2,464 2,553
Corporate 195 1,007 1,692 1,521 2,774 1,403 3,141
Depreciation and
amortization 77 192 516 937 1,501 1,574 1,553
Write off of
deferred warrant
expense -- -- -- 103 2,288 1,662 --
--------- --------- --------- --------- --------- --------- ---------
Total operating
expenses 1,950 5,787 8,819 10,006 15,124 10,452 11,575
--------- --------- --------- --------- --------- --------- ---------
Loss from operations (1,209) (3,271) (4,431) (4,900) (9,469) (6,520) (7,326)
Interest expense, net
of interest income 47 (24) 88 1,208 399 162 1,264
Equity income/(loss)
in Harmony -- -- -- -- -- -- (169)
--------- --------- --------- --------- --------- --------- ---------
Net loss $ (1,256) $ (3,247) $ (4,519) $ (6,108) $ (9,868) $ (6,682) $ (8,759)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net loss per share $ (1.27) $ (1.39) $ (1.69) $ (2.22) $ (1.99) $ (1.38) $ (1.43)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average
number of shares 991,000 2,330,500 2,703,500 2,815,500 5,149,000 4,940,000 6,142,500
BALANCE SHEET DATA:
Working capital (deficit) $ (1,128) $ 1,366 $ (3,472) $ (4,421) $ (5,489) $ 908 $ (21,623)
Total assets $ 1,110 $ 8,603 $ 10,485 $ 13,327 $ 28,607 $ 26,178 $ 37,796
Total debt and capital
leases (including
current portion) $ 1,001 $ 225 $ 3,835 $ 5,809 $ 9,669 $ 2,303 $ 24,533
Shareholders' equity
(deficit) $ (441) $ 7,540 $ 3,070 $ 3,487 $ 16,587 $ 20,082 $ 9,859
</TABLE>
- -------------------
(1) Includes stations owned and operated by the Company as well as stations
owned by third parties but operated under a LMA.
18
<PAGE>
PRO FORMA FINANCIAL INFORMATION
GENERAL
This unaudited pro forma financial information sets forth the impact
of the Transaction, the Company's intention to terminate its network
affiliation agreements and cease distribution of its 24 hour Aahs World Radio
format on January 31, 1998, and the Company's purchase of an equity interest
in Harmony Holdings, Inc. ("Harmony"). The Transaction is not expected to
close until the first quarter of 1998 and is subject to shareholder approval
and customary closing conditions including, but not limited to, approval by
the Federal Communications Commission. The unaudited pro forma statements of
operations and balance sheet do not purport to present the Company's
consolidated results of operations and financial position as they might have
been, or as they may be in the future, had the Transaction, affiliation
agreement termination and Harmony investment occurred on the assumed dates.
In July 1997, the Company acquired an equity interest in Harmony by
purchasing 1,369,231 shares of Harmony's common stock and options to acquire an
additional 550,000 shares of Harmony's common stock exercisable at $1.50 per
share. Consideration for the acquisition aggregated $4,007,500, consisting of
cash payments totaling $3,760,000 and 60,000 shares of the Company's common
stock valued at $247,500. Of such cash consideration, $1,250,000 was obtained
from three individual lenders, two of which are directors of the Company and the
third is a less than five percent shareholder of the Company, evidenced by notes
bearing interest rates of 10% per annum, payable in July 1998, secured by an
aggregate of 480,770 shares of common stock of Harmony. In addition, these
individuals were also granted five-year warrants to purchase an aggregate of
125,000 shares of the Company's common stock at $4.00 per share. Other cash
consideration included $2,400,000 obtained pursuant to the Credit Agreement, as
amended, and $110,000 of the Company's working capital. In September 1997, the
Company purchased an additional 786,686 shares of Harmony's common stock and
options to acquire an additional 200,000 shares of Harmony's common stock
exercisable at $1.50 per share. Consideration for the acquisition was
$2,614,052 cash obtained through the Agreement with Foothill. Payment of
$1,818,000 was made in September 1997 and the remaining $796,000 was paid on
October 6, 1997.
The Company's investment represents 33.9% of the outstanding common stock
of Harmony at September 30, 1997 (40.7% assuming the Company's options were
exercised). The aggregate purchase price paid of $6,680,200 (including
transaction costs totaling $58,648) includes $4,370,000 in excess of the
Company's pro rata share of the fair market value of Harmony's net tangible
assets. This excess purchase price relates to Harmony's intangible asset
value, principally technical know-how, industry reputation and customer lists,
and is being amortized on a straight line basis over a seven year estimated
useful life.
The Company's remaining assets, including AAHS trademarks and network
production equipment, will be utilized to develop and create other business
opportunities related to short form network syndicated programming. At
present, the Company has not developed a revenue stream associated with these
business opportunities. As described above, the Company has also acquired an
equity interest in Harmony. While the Company has no current intention to do
so, it may determine to increase its ownership position in Harmony. The
Company initially expects to utilize its core management expertise to improve
and enhance the performance of Harmony. Upon completion of the Transaction,
the Company will invest the cash proceeds into investment grade, short-term
interest bearing securities which are expected to provide an interest income
stream of approximately $1.9 million per year. In addition to the potential
investment in the business opportunities described above, the Company may
further seek to diversify through acquisitions of media, entertainment or
advertising-related businesses.
The pro forma adjustments are based upon information currently available
and on certain assumptions, described within the footnotes to the pro forma
financial statements, that management of the Company believes are necessary
and reasonable for a fair presentation of the pro forma financial
information. The pro forma financial information and accompanying notes
should be read in conjunction with the historical consolidated financial
statements of the Company for the fiscal year ended December 31, 1996 and for
the quarterly periods ended March 31, June 30 and September 30, 1997.
19
<PAGE>
The objective of the unaudited pro forma financial information is to
show what the significant effects on the historical financial statements
might have been had the sale of the Stations, the termination of the
distribution of the Aahs World Radio format and the purchase of an equity
interest in Harmony occurred, for balance sheet purposes, on September 30,
1997 and, for statements of operations purposes, on January 1, 1997 and 1996,
based on the nine months ended September 30, 1997 and the year ended December
31, 1996, respectively. However, the pro forma statements of operations and
balance sheet are not necessarily indicative of the effects of the Company's
financial position that would have been attained had the Transaction,
affiliation agreement termination and Harmony investment occurred earlier.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Pro Forma
Pro Forma Pro Forma After Sale
Adjustments After Sale of Assets,
Sale of Assets & of Assets & Termination
Termination Termination Pro Forma of Affiliation
Children's of of Adjustments Agreements &
Broadcasting Affiliation Affiliation Harmony Investment in
Corporation Agreements Agreements Investment Harmony
------------ ----------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Nine months ended
September 30, 1997:
Revenues $ 4,249,079 $ (4,249,079)(1) $ -- -- $ --
Operating expenses 11,575,311 (8,417,607)(1) 3,157,704 -- 3,157,704
----------- ------------ ----------- ---------- -----------
Income (loss) from operations (7,326,232) 4,168,528 (3,157,704) -- (3,157,704)
Interest (expense), net of
interest income (1,263,599) 1,338,717 (2) 75,118 -- 75,118
Equity in income (loss) of Harmony (169,132) -- (169,132) (238,300)(3) (407,432)
----------- ------------ ----------- ---------- -----------
Net income (loss) $(8,758,963) $ 5,507,245 $(3,251,718) $ (238,300) $(3,490,018)
----------- ------------ ----------- ---------- -----------
----------- ------------ ----------- ---------- -----------
Net loss per share $ (1.43) $ (0.57)
----------- -----------
----------- -----------
Weighted average number of
shares outstanding 6,142,500 6,142,500
----------- -----------
----------- -----------
</TABLE>
- -------------------
(1) To eliminate the revenue and operating expenses related to the network and
owned and operated station operations as well as depreciation, amortization
and corporate expenses directly attributable to the discontinued network
and the owned and operated stations.
(2) To eliminate the interest expense related to the debt expected to be paid
utilizing proceeds from the sale of the stations.
(3) To reflect the Company's pro rata share of Harmony's income for the nine
months ended September 30, 1997, based on the Company's 33.9% ownership
interest at September 30, 1997, less the amortization of the purchase price
in excess of the Company's pro rata share of the fair market value of
Harmony's net tangible assets totaling $468,000.
20
<PAGE>
<TABLE>
<CAPTION> Pro Forma
Pro Forma Pro Forma After Sale
Adjustments After Sale of Assets,
Sale of Assets & of Assets & Termination
Termination Termination Pro Forma of Affiliation
Children's of of Adjustments Agreements &
Broadcasting Affiliation Affiliation Harmony Investment in
Corporation Agreements Agreements Investment Harmony
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year ended
December 31, 1996:
Revenues $ 5,654,938 $(5,654,938)(1) $ -- $ -- $ --
Operating expenses 15,123,949 (10,008,749)(1) 5,115,200 -- 5,115,200
----------- ----------- ----------- ----------- -----------
Income (loss) from operations (9,469,011) 4,353,811 (5,115,200) -- (5,115,200)
Interest (expense), net of
interest income (398,868) 633,104 (2) 234,236 -- 234,236
Equity in income (loss) of
Harmony -- -- -- (544,396)(3) (544,396)
----------- ----------- ----------- ----------- -----------
Net income (loss) $(9,867,879) $ 4,986,915 $(4,880,964) $ (544,396) $(5,425,360)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net loss per share $ (1.99) $ (1.04)
----------- -----------
----------- -----------
Weighted average number of
shares outstanding 5,149,000 5,209,000
----------- -----------
----------- -----------
</TABLE>
___________________
(1) To eliminate the revenue and operating expenses related to the network and
owned and operated station operations as well as depreciation, amortization
and corporate expenses directly attributable to the discontinued network
and the owned and operated stations.
(2) To eliminate the interest expense related to the debt expected to be paid
utilizing proceeds from the sale of the stations.
(3) To reflect the Company's pro rata share of Harmony's income for the twelve
months ended December 31, 1996, based on the Company's 33.9% ownership
interest at September 30, 1997, less the amortization of the purchase price
in excess of the Company's pro rata share of the fair market value of
Harmony's net tangible assets totaling $624,286.
21
<PAGE>
BALANCE SHEET
<TABLE>
<CAPTION>
Pro Forma
Adjustments Pro Forma After
Children's Sale of Assets & Sale of Assets &
Broadcasting Termination of Termination of
Corporation Affiliation Agreements Affiliation Agreements
------------- ---------------------- ----------------------
<S> <C> <C> <C>
September 30, 1997:
Current assets $ 3,669,656 $ 34,062,742 (1) $ 37,732,398
Property and equipment 4,822,167 (4,501,582)(2) 320,585
Broadcast licenses 19,781,224 (19,781,224)(2) --
Investment in Harmony 6,511,068 -- 6,511,068
Other assets 3,012,326 (2,939,172)(2) 73,154
------------- ---------------- -------------
Total assets $ 37,796,441 $ 6,840,764 $ 44,637,205
------------- ---------------- -------------
------------- ---------------- -------------
Current liabilities $ 25,292,518 $ (25,292,518)(3) $ --
Long-term debt 2,589,008 (2,589,008)(3) --
Other liabilities 55,732 (55,732)(3) --
Shareholders' equity (deficit) 9,859,183 34,778,022 44,637,205
------------- ---------------- -------------
Total liabilities and
shareholders' equity $ 37,796,441 $ 6,840,764 $ 44,637,205
------------- ---------------- -------------
------------- ---------------- -------------
</TABLE>
- -------------------
(1) To reflect the gross proceeds from the Transaction of $72,500,000, net
of estimated taxes of approximately $9,500,000, estimated transaction
costs of approximately $1,000,000 and estimated debt payments aggregating
$27,900,000.
(2) To eliminate the assets of the owned and operated stations and capitalized
debt issue costs related to the debt to be repaid utilizing the proceeds
from the Transaction.
(3) To reflect the payment of debt utilizing the proceeds from the Transaction.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company (File No. 0-21534)
with the Commission pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), are incorporated into this Proxy Statement by reference:
(a) The Company's Annual Report on Form 10-KSB for the year ended December
31, 1996, filed on March 31, 1997.
(b) The Company's Quarterly Reports on Form 10-QSB for the quarters ended
March 31, June 30 and September 30, 1997, filed on May 14, August 13
and November 14, 1997, respectively.
(c) The Company's Current Report on Form 8-K filed on November 3, 1997,
relating to the Company's announcement that it has notified its
affiliate radio stations that it will terminate its network
affiliation agreements and cease distributing its full-time Aahs World
Radio-SM- programming format effective January 30, 1998.
(d) The Company's Current Report on Form 8-K/A filed on October 1, 1997,
relating to the Company acquiring a 40.7% beneficial interest in
Harmony Holdings, Inc.
(e) The Company's Current Report on Form 8-K filed on September 30, 1997,
relating to the Company acquiring a 40.7% beneficial interest in
Harmony Holdings, Inc.
(f) The Company's Current Report on Form 8-K filed on August 1, 1997,
relating to the Company acquiring a 27.4% beneficial interest in
Harmony Holdings, Inc.
22
<PAGE>
(g) The Company's Current Report on Form 8-K filed on July 18, 1997,
relating to the Company signing a definitive asset purchase agreement
with Global Broadcasting Company, Inc. for the sale of all of the
Company's AM radio broadcast licenses and certain other broadcasting
equipment for $72.5 million.
(h) The Company's Current Report on Form 8-K filed on June 9, 1997,
relating to the Company acquiring an AM radio broadcast license and
certain other broadcasting equipment in the Phoenix metropolitan area.
(i) The Company's Current Report on Form 8-K filed on June 6, 1997,
relating to the Company signing a letter of intent to sell to Global
Broadcasting Company, Inc. all of its owned and operated AM radio
stations for an aggregate purchase price of $72.5 million.
(j) The Company's Current Report on Form 8-K filed on February 3, 1997,
relating to the Company acquiring an AM radio broadcast license and
certain other broadcasting equipment in the Chicago metropolitan area.
(k) The Company's Current Report on Form 8-K/A filed on January 31, 1997,
relating to the acquisition of Radio Elizabeth, Inc.
(l) The Company's Current Report on Form 8-K/A filed on January 31, 1997,
relating to the acquisition of the assets of Radio Station WCAR(AM).
(m) The Company's Definitive Schedule 14A (Proxy Statement) filed on April
30, 1997, relating to the Company's Annual Meeting of Shareholders
held on July 16, 1997.
The following documents previously filed by Harmony Holdings, Inc. (File
No. 0-19577) with the Commission pursuant to the Exchange Act are incorporated
into this Proxy Statement by reference:
(a) The Annual Report on Form 10-K for the year ended June 30, 1997, filed
on September 26, 1997, as amended by Form 10-K/A and Form 10-K/A, both
filed on October 28, 1997.
(b) The Quarterly Report on Form 10-Q for the quarter ended September
30, 1997, filed on November 14, 1997.
OTHER MATTERS
The management of the Company is unaware of any other matters that are to
be presented for action at the Special Meeting. Should any other matter
properly come before the Special Meeting, however, the persons named in the
enclosed proxy will have discretionary authority to vote all proxies with
respect to such matter in accordance with their judgment.
All expenses incurred in connection with this solicitation, including the
cost of preparing, assembling, and mailing this proxy soliciting material and
Notice of Special Meeting, will be paid by the Company. In addition to the use
of the mails, proxies may be solicited by personal interview, telephone and
telegram by the directors, officers and regular employees of the Company. Such
persons will receive no additional compensation for such services. Further, the
Company has retained Georgeson & Company, Inc. to assist it in connection with
the solicitation of proxies, which may be by mail, telephone or personal
solicitation. In connection therewith, the Company will pay fees and expenses
estimated at $12,000. Arrangements will also be made with certain brokerage
firms and certain other custodians, nominees and fiduciaries for the forwarding
of solicitation materials to the beneficial owners of Common Stock held of
record by such persons, and such brokers, custodians, nominees and fiduciaries
will be reimbursed for their reasonable out-of-pocket expenses incurred by them
in connection therewith.
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SHAREHOLDER PROPOSALS
Proposals intended to be presented at the 1998 Annual Meeting of
Shareholders must be received by the Company by January 27, 1998 to be
considered for inclusion in the Company's proxy materials relating to that
meeting. Due to the complexity of the respective rights of the shareholders and
the Company in this area, any shareholder desiring to propose such an action is
advised to consult with his or her legal counsel with respect to such rights.
It is suggested that any such proposals be submitted by certified mail, return
receipt requested.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Christopher T. Dahl
Christopher T. Dahl
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Minneapolis, Minnesota
December 5, 1997
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APPENDIX I
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated as of July 16, 1997, is made between and among
CHILDREN'S BROADCASTING CORPORATION, a Minnesota corporation (referred to herein
as "CBC"); CHILDREN'S RADIO OF CHICAGO, INC., a Minnesota corporation ("CRC"),
CHILDREN'S RADIO OF DALLAS, INC., a Minnesota corporation ("CR Dallas"),
CHILDREN'S RADIO OF DETROIT, INC., a Minnesota corporation ("CR Detroit"),
CHILDREN'S RADIO OF GOLDEN VALLEY, INC., a Minnesota corporation ("CRGV"),
CHILDREN'S RADIO OF HOUSTON, INC., a Minnesota corporation ("CRH"), CHILDREN'S
RADIO OF KANSAS CITY, INC., a Minnesota corporation ("CRKC"), CHILDREN'S RADIO
OF LOS ANGELES, INC., a Minnesota corporation ("CRLA"), CHILDREN'S RADIO OF
MILWAUKEE, INC., a Minnesota corporation ("CR Milwaukee"), CHILDREN'S RADIO OF
MINNEAPOLIS, INC., a Minnesota corporation ("CR Minneapolis"), CHILDREN'S RADIO
OF NEW YORK, INC., a New Jersey corporation ("CRNY"), CHILDREN'S RADIO OF
PHILADELPHIA, INC., a Minnesota corporation ("CR Philadelphia"), and CHILDREN'S
RADIO OF PHOENIX, INC., a Minnesota corporation ("CR Phoenix"), CHILDREN'S RADIO
OF TULSA, INC., a Minnesota corporation ("CRT") (CRC, CR Dallas, CR Denver, CR
Detroit, CRGV, CRH, CRKC, CRLA, CR Milwaukee, CR Minneapolis, CRNY, CR
Philadelphia, CR Phoenix and CRT are sometimes collectively referred to herein
as the "Asset Subsidiaries"); KAHZ-AM, INC. ("KAHZ-AM"), KCNW-AM, INC. ("KCNW-
AM"), KIDR-AM, INC. ("KIDR-AM"), KKYD-AM, INC. ("KKYD-AM"), KMUS-AM, INC.
("KMUS-AM"), KPLS-AM, INC. ("KPLS-AM"), KTEK-AM, INC. ("KTEK-AM"), KYCR-AM, INC.
("KYCR-AM"), WAUR-AM, INC. ("WAUR-AM"), WCAR-AM, INC. ("WCAR-AM"), WJDM-AM, INC.
("WJDM-AM"), WPWA-AM, INC. ("WPWA-AM"), WWTC-AM, INC. ("WWTC-AM"), and WZER-AM,
INC. ("WZER-AM"), all Minnesota corporations (KAHZ-AM, KCNW-AM, KIDR-AM, KKYD-
AM, KMUS-AM, KPLS-AM, KTEK-AM, KYCR-AM, WAUR-AM, WCAR-AM, WJDM-AM, WPWA-AM,
WWTC-AM and WZER-AM are sometimes collectively referred to herein as the
"License Subsidiaries"; the Asset Subsidiaries and the License Subsidiaries are
sometimes collectively referred to herein as the "Subsidiaries"; and CBC and the
Subsidiaries are sometimes collectively referred to herein as the "Sellers");
and GLOBAL BROADCASTING COMPANY, INC., a Delaware corporation (the "Buyer"); and
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W I T N E S S E T H :
THAT, WHEREAS, CBC is the owner and holder of 100% of the issued and
outstanding stock of the Asset Subsidiaries; and
WHEREAS, each of the Asset Subsidiaries is the owner of all the assets of
the radio station indicated below licensed to the community listed below
(collectively referred to herein as the "Stations"), except for the Federal
Communications Commission (the "FCC" or the "Commission") licenses, permits or
authorizations issued with respect to the Stations, and are the owners and
holders of 100% of the issued and outstanding stock of the License Subsidiary
designated by the respective Station's call letters:
KAHZ(AM) Fort Worth, Texas
KCNW(AM) Fairway, Kansas
KIDR(AM) Phoenix, Arizona
KKYD(AM) Denver, Colorado
KMUS(AM) Muskogee, Oklahoma
KPLS(AM) Orange, California
KTEK(AM) Alvin, Texas
KYCR(AM) Golden Valley, Minnesota
WAUR(AM) Sandwich, Illinois
WCAR(AM) Livonia, Michigan
WJDM(AM) Elizabeth, New Jersey
WPWA(AM) Chester, Pennsylvania
WWTC(AM) Minneapolis, Minnesota
WZER(AM) Jackson, Wisconsin; and
WHEREAS, the License Subsidiaries are the FCC licensees of the Stations;
and
WHEREAS, subject to and conditioned upon the consent of the FCC, the
Sellers desire to sell and transfer and Buyer desires to purchase and acquire
the Stations and certain of the tangible and intangible assets of the Sellers
used or held for use in connection with the operation of the Stations, all as is
more fully described below.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions contained herein, the parties hereto hereby agree as follows:
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ARTICLE 1
SALE AND TRANSFER OF ASSETS
At closing of the transaction described herein ("Closing"), the Sellers
shall sell, convey, assign, transfer and deliver to Buyer, free and clear of any
lien, encumbrance, interest, reservation, restriction, mortgage or security
interest of any nature whatsoever, except as expressly provided herein, all the
material assets of the Sellers described below used or held for use in
connection with the operation of the Stations (collectively, the "Acquired
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 Stations, all of which are listed on SCHEDULE A attached hereto;
1.2. All of the Sellers' real property interests relating to the operation of
the Stations including that described in SCHEDULE B attached hereto
("Real Property");
1.3. All tangible personal property owned by the Sellers used or held for use
in the operation of the Stations 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 the Sellers' rights and benefits under the business agreements,
leases and contracts listed on SCHEDULE D attached hereto, including any
renewals, extensions, amendments or modifications thereof, and any
additional agreements, leases and contracts made or entered into by the
Sellers 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 Stations, all of which are listed on Schedule
A ("Permits");
1.6. All right, title and interest of the Sellers in and to the use of the
call letters for the Stations (referred to herein as the "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 Stations, including all accretions thereto, listed on
SCHEDULE E attached hereto ("General Intangibles");
1.7. All of the Subsidiaries' magnetic media, electronic data processing
files, systems and computer programs, logs, public files, records
required by the FCC, vendor contracts, supplies, maintenance records or
similar business records relating to or used in connection with the
operation of the Stations, but not including records pertaining to
corporate affairs (including tax records) and original journals,
provided copies are supplied to Buyer. The Sellers 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; and
1.8. Subject to closing of the contemplated acquisition of the assets and
licenses of radio station KMUS(AM), Muskogee, Oklahoma pursuant to that
purchase agreement between CBC and Oklahoma Sports Properties, Inc.,
dated December 31, 1996 (the "KMUS Purchase Agreement"), which Purchase
Agreement was subsequently assigned to CRT, which is listed on Schedule
D attached hereto among the Agreements to be assigned to and assumed by
Buyer, the assets acquired by CRT shall be among the Acquired Assets,
and the Schedules hereto shall be revised accordingly.
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ARTICLE 2
PURCHASE PRICE AND PAYMENTS
2.1. PURCHASE PRICE. As the purchase price for the Assets, Buyer agrees to
pay to the Sellers the sum of Seventy-two Million Five Hundred Thousand
and no/100 Dollars ($72,500,000.00), subject for adjustment as provided
herein.
2.2. METHOD OF PAYMENT OF PURCHASE PRICE. The purchase price shall be paid
as follows:
2.2.1. EARNEST MONEY ESCROW. An aggregate amount of Three Million
Five Hundred Thousand and no/100 Dollars ($3,500,000.00) (the
"Escrowed Funds") shall be paid into escrow, Five Hundred
Thousand and no/100 Dollars ($500,000.00) on July 30, 1997, and
Three Million and no/100 Dollars ($3,000,000.00) on August 13,
1997, all pursuant to the terms of that Escrow Agreement (the
"Escrow Agreement") a copy of which is attached hereto as
EXHIBIT A.
2.2.2. CASH PAYMENT AT CLOSING. The entire purchase price payable
hereunder, including the Escrowed Funds, shall be payable in
cash at Closing, subject to adjustment or allocation as
provided herein.
2.3. ADJUSTMENTS AND PRORATIONS. The operations of the Stations 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 the Sellers and thereafter
shall be for the account of Buyer. Expenses such as power and utility
charges, lease rents, property taxes according to year of payment,
frequency discounts, annual license fees (if any), wages, commissions,
payroll taxes, and other fringe benefits of employees of the Sellers who
enter the employment of the Buyer, and similar deferred items shall be
prorated between the Sellers and the Buyer. Prepaid deposits shall not
be prorated but shall remain the property of the Sellers. Employees'
employment with the Sellers 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. Any 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. KMUS ADJUSTMENT. If for any reason the transactions contemplated under
the KMUS Purchase Agreement do not close prior to the Closing of the
transaction contemplated hereunder, Buyer shall have the option of
either:
A. accepting Sellers' rights under the KMUS Purchase Agreement
without any adjustment to the purchase price payable hereunder,
or
B. amending this Agreement to exclude the KMUS Purchase Agreement
and any rights of Sellers associated therewith from the
Acquired Assets and adjusting the purchase price payable
hereunder by the amount of Four Hundred Thousand and no/100
Dollars ($400,000.00).
Buyer must notify CBC as to which option it intends to elect no later
than ten (10) days after receipt of the FCC's first grant of an approval
to an assignment of any of the Licenses or it will be deemed to have
exercised the option described at subparagraph (a) above.
2.5. PARTIAL CLOSING ADJUSTMENTS. Further adjustments to the purchase price
payable hereunder may be made pursuant to the provisions of Sections 7.3
and 8.6 below.
2.6. ASSUMED LIABILITIES. Except as expressly provided for in this Agreement
or the Leases and Agreements listed on the Schedules hereto, at the
Closing Buyer shall not assume, incur or be
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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 the Stations' employees under any employee benefit
plans or employment contracts.
2.7. ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated
among the Acquired Assets by Buyer and the Sellers as set forth in the
attached SCHEDULE F. The values of the Acquired Assets with respect to
each of the Stations are set forth with an aggregate allocation value as
to all Acquired Assets associated with the operation of each of the
Stations set out thereon as the station aggregate value (the "Station
Aggregate Value") for each of the Stations. 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.
2.8. DAHL NON-COMPETITION AGREEMENT. In addition to the purchase price
payable hereunder, Buyer agrees to enter into a Non-Competition
Agreement with Seller's Chief Executive Officer, Christopher T. Dahl
("Dahl"), at Closing in the form attached hereto as EXHIBIT B (the
"Non-Competition Agreement"), and CBC agrees to cause Dahl to enter
into the Non-Competition Agreement at Closing.
ARTICLE 3
THE SELLERS' REPRESENTATIONS,
WARRANTIES AND AGREEMENTS
The Sellers represent, warrant and agree as follows, which
representations, warranties and agreements shall be deemed to have been made
again at Closing:
3.1. CORPORATE EXISTENCE AND POWERS. The Sellers, except for CRNY, 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 to enter into and complete the transactions contemplated
herein; CRNY is a corporation organized and existing in good standing
under the laws of the State of New Jersey, with full power and authority
to enter into this Agreement and to enter into and complete the
transactions contemplated herein; CRC is, and will be at the time of
Closing, qualified to do business in the State of Illinois; CR Dallas
is, and will be at the time of Closing, qualified to do business in the
State of Texas; CR Denver is, and will be at the time of Closing,
qualified to do business in the State of Colorado; CR Detroit is, and
will be at the time of Closing, qualified to do business in the State of
Michigan; CRH is, and will be at the time of Closing, qualified to do
business in the State of Texas; CRKC is, and will be at the time of
Closing, qualified to do business in the State of Kansas; CRLA is, and
will be at the time of Closing, qualified to do business in the State of
California; CR Milwaukee is, and will be at the time of Closing,
qualified to do business in the State of Wisconsin; CRNY is, and will be
at the time of Closing, qualified to do business in the State of New
York; CR Philadelphia is, and will be at the time of Closing, qualified
to do business in the State of Pennsylvania; and CR Phoenix is, and
will be at the time of Closing, qualified to do business in the State of
Arizona; CRT is, and will be at the time of Closing, qualified to do
business in the State of Oklahoma; all required corporate actions have
been taken by the Sellers to make and carry out this Agreement, which is
a valid and binding obligation of Sellers and which is enforceable in
accordance with its terms; the execution of this Agreement and the
completion of the transactions herein involved will not result in the
violation of any order, license, permit, rule, judgment or decree to
which any of the Sellers is subject or the breach of any contract,
agreement or other commitment to which any of the Sellers is a party or
by which they are bound; and, except for receipt of the Commission's
Final Approval (as defined herein) with respect to the assignment of the
Licenses to Buyer, no other consents of any kind are required that have
not been obtained for the Sellers 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
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specific contract rights and obligations and the consent of CBC's
shareholders. The Sellers shall use their best efforts to obtain third
party consents with respect to any of the Leases and Agreements
designated by Buyer and the Sellers as "material", to the extent
required by such documents. Buyer shall cooperate with the Sellers
in obtaining all such required consents.
3.2. LICENSES AND PERMITS. Each of the License Subsidiaries is the holder of
the Licenses indicated on Schedule A, all of which are valid, in full
force and effect and which have been unconditionally issued for the full
license term, subject to such pending renewal applications as are
indicated on such Schedule A. The Licenses constitute all of the
licenses, grants, permits, waivers and authorizations issued by the FCC
and required for and/or used in the operation of the Stations as they
are currently being operated. Each License Subsidiary is fully
qualified to hold its Licenses. All ownership and employment reports,
renewal applications, and other reports and documents required to be
filed for the Stations have been properly and timely filed. The
Stations are operating in accordance with the Licenses, and in
compliance with the Communications Act of 1934, as amended, and the
rules and regulations of the Commission, including, without limitation,
those regulations governing the Stations' equal employment opportunity
practices and public files, and any other applicable laws, ordinances,
rules and regulations. The Licenses are unimpaired by any act or
omission of Sellers or their officers, directors, employees and agents
and Sellers will not, without Buyer's prior written consent, by an act
or omission, surrender, modify, forfeit or fail to seek renewals on
regular terms, of any License, or cause the Commission or other
regulatory authority to institute any proceeding for the cancellation or
modification of any such License, or fail to prosecute with due
diligence any pending application to the Commission or other regulatory
authority. There is not now pending, or to the best of Sellers'
knowledge threatened, any action by or before the Commission or other
regulatory authority to revoke, cancel, rescind, modify or refuse to
renew in the ordinary course any of the Licenses, or any investigation,
order to show cause, notice of violation, notice of inquiry, notice of
apparent liability or of forfeiture or complaint against the Stations or
Sellers, and Sellers have no knowledge of any basis for the commencement
of any such proceeding in the future. Should any such action or
investigation be commenced, order or notice be released, or complaint be
filed, Sellers will promptly notify Buyer and take all actions necessary
to protect the Stations and the Licenses from any material adverse
impact.
3.3. ACQUIRED ASSETS. The Acquired Assets to be transferred to Buyer at
Closing represent all the assets necessary for the Stations' current and
continuing operations; until Closing, none of the Acquired 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 Acquired
Assets shall be owned by and transferred by the Sellers to Buyer free
and clear of all liens, encumbrances, interests or restrictions of any
kind whatsoever excepting only those obligations, liens or encumbrances
expressly provided to be assumed by Buyer herein or the Leases and
Agreements listed on Schedule B or D. The Acquired Assets have been
maintained in good condition, subject to normal wear and tear.
3.4. CONTRACTS, LEASES, AGREEMENTS, ETC. Each of the Leases and Agreements
are in full force and effect, and there are no outstanding notices of
cancellation, acceleration or termination in connection therewith except
as noted upon Schedule B or D. Sellers are not in breach or default in
connection with any of the Leases and Agreements and, to the best of
Sellers' knowledge, there is no basis for any claim, breach or default
with respect to Sellers or any other party under any of said Leases and
Agreements. Sellers have made available to Buyer true and correct
copies of all agreements and instruments listed on Schedule D. On the
Closing Date there will be no Leases or Agreements relating to the
Stations (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.
3.5. LITIGATION. Except as set forth on SCHEDULE G, no strike, labor
dispute, investigation, litigation, court or administrative proceeding
is pending or, to the best of Sellers' knowledge, threatened against the
Sellers relating to the Stations, their employees or any of the Acquired
Assets which may result in
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any change in the business, operations, assets or financial condition of
the Stations or may materially affect Buyer's use and enjoyment of the
Acquired Assets, or which would hinder or prevent the consummation of
the transaction contemplated by this Agreement, and the Sellers know of
no basis for any such possible action.
3.6. HAZARDOUS WASTE. As of now and as of the Closing Date, Sellers have not
participated in nor approved, nor has there occurred any production,
disposal or storage by Sellers on the Real Property of any hazardous
waste or toxic substance, nor, to the best of their knowledge, does such
waste or substance exist on the Real Property (above or beneath the
surface), nor is there any proceeding or inquiry, by any governmental
authority (federal or state) with respect to the presence of such waste
or substance on the Real Property to the best of the Sellers' knowledge,
nor are there any underground storage tanks on the Real Property, to the
best of Sellers' knowledge, all except as shown on SCHEDULE H attached
hereto. "Hazardous waste" shall consist of the substances defined as
"hazardous substances," "hazardous materials," or "toxic substances" in
the Comprehensive Environmental Response Compensation and Liability Act
of 1980, as amended, 42 USC Section 9601, et seq., or in the Hazardous
Materials Transportation Act, 49 USC Section 1801, et seq., or in the
Resources Conservation and Recovery Act, 42 USC Section 6901, et seq.
3.7. INSURANCE. Until Closing, the Sellers shall keep the Acquired Assets
insured against loss or damage by fire or from other causes customarily
insured against by other radio stations similarly situated consistent
with past practices, and has provided Buyer with an abstract of such
casualty insurance coverage.
3.8. ACCESS TO INFORMATION. The Sellers 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 Stations; provided, however, such access shall not
disrupt the Sellers' normal operation. The Sellers shall furnish to
Buyer all information concerning the Stations' 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 the Sellers hereunder in accordance with that
Confidentiality Agreement between CBC and Buyer, dated June 9, 1997 (the
"Confidentiality Agreement").
3.9. CONDUCT OF THE STATIONS' BUSINESS. Until Closing, without the written
consent of Buyer, the Sellers shall not enter into any transaction other
than those in the ordinary course of the business of the Stations; no
employment contract shall be entered into by the Sellers relating to the
Stations unless the same is terminable at will and without penalty; no
material increase in compensation payable or to become payable, to any
of the employees employed at the Stations shall be made; no material
change in personnel policies, insurance benefits or other compensation
arrangements shall be made; and the Sellers will cause the Stations to
be operated in compliance with the Licenses and Permits and all
applicable laws and regulations;
the Sellers further represent, warrant and covenant:
(a) Between the date hereof and Closing, the Sellers 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 Stations and all of the Acquired Assets.
(b) On the Closing date, the Sellers will be the owner of the
Acquired Assets 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 or to
secure obligations to be assumed by Buyer hereunder pursuant to
the Leases and Agreements; and that between the date of this
Agreement and the Closing, there will be no
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more than the ordinary normal wear and tear and expendability
of the Acquired Assets, and that the Acquired Assets will be
in good working condition.
(c) The Sellers do not know of any facts relating to them or the
Stations which would cause (i) the applications for assignment
of the Licenses to Buyer to be challenged, (ii) the Commission
to deny its consent to the assignments of the Stations'
Licenses to Buyer, or (iii) the Commission to grant such
applications for assignment subject to material adverse
conditions to Buyer.
(d) The Sellers will have paid and discharged all taxes,
assessments, excises, and levies known to the Sellers which
are due and payable and have not been paid and that would
interfere with the Sellers' enjoyment of the Acquired Assets.
(e) The Sellers do not know of any facts which would cause any
application for renewal of any of the Licenses to be
challenged at the Commission or that would cause such renewals
to be granted other than in the ordinary course for a full
license term without material adverse condition.
3.10. COPYRIGHTS, TRADEMARKS AND SIMILAR RIGHTS. The call letters listed on
Schedule E are the call letters used by Sellers during the radio
broadcast operations of the Stations to identify each of the respective
Stations to its local audience. Sellers have full right and authority
from the FCC to use such call letters except as may be provided in the
Agreements. Sellers have not licensed or consented to, and have no
knowledge of, any other entity's or individual's use of such call
letters. There is no other name, trademark, service mark, copyright, or
other trade, or service right or mark currently being used in the
business and operations of the Stations other than those listed in
Schedule E, except those of CBC in connection with its Radio
AAHS-Registered Trademark-/Aahs World Radio-SM- children's radio format.
To the best of Sellers' knowledge, the operations of the Stations do not
infringe on any trademark, service mark, copyright or other intellectual
property or similar right owned by others.
3.12. EMPLOYEE BENEFITS.
3.12.1. All of the Sellers' employee plans and compensation
arrangements providing benefits to employees of the Stations
as of the date hereof are listed and described in SCHEDULE I
and copies of any such written employee plans and compensation
arrangements (or related insurance policies) and any
amendments thereto have been made available to Buyer, along
with copies of any currently available employee handbooks or
similar documents describing such employee plans and
compensation arrangements. Except as disclosed in Schedule I,
there is not now in effect or scheduled to become effective
after the date hereof, any new employee plan or compensation
arrangement or any amendment to an existing employee plan or
compensation arrangement which will affect the benefits of
employees or former employees of the Stations.
3.12.2. Each of the Sellers' employee plans and compensation
arrangements has been administered, without material
exception, in compliance with its own terms and, where
applicable, with ERISA, the Internal Revenue Code of 1986, as
amended, the Age Discrimination in Employment Act and any
other applicable federal or state laws.
3.12.3. Sellers do not contribute to and are not required to
contribute to any multiemployer plan with respect to its
employees at the Stations except as disclosed on Schedule I.
3.12.4. Sellers are not aware of the existence of any governmental
audit or examination of any of Sellers' employee plans or
compensation arrangements or of any facts that would lead them
to believe that any such audit or examination is pending or
threatened.
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3.12.5. Sellers acknowledge that Buyer has no obligation hereunder to
offer employment to any employee of Sellers; however, Buyer
shall have the right to hire such of the employees of the
Stations as Buyer may select. With respect to any employee
that Buyer hires, Sellers further acknowledge that Buyer shall
have no obligation for, and shall not assume as part of the
transaction contemplated by this Agreement, any "accrued
vacation" or other accrued leave time of said employees as a
consequence of their being hired by Buyer. Sellers also
acknowledge that with respect to such employees as are hired
by Buyer, and where any such accrued leave time exists for
said employees, Sellers will retain the responsibility for any
liability arising therefrom.
3.13. LABOR RELATIONS. SCHEDULE J lists the names, dates of hire and current
annual salaries of all persons employed by the Sellers directly and
principally in connection with the operation of the Stations. None of
the Sellers is a party to or subject to any collective bargaining
agreements with respect to any of the Stations. Sellers have no written
or oral contracts of employment with any employee of the Stations, other
than (i) oral employment agreements terminable at will without penalty,
or (ii) those listed in Schedule D. The Sellers, in the operations of
the Stations, have substantially complied with all applicable laws,
rules and regulations relating to the employment of labor, including
those related to wages, hours, collective bargaining, occupational
safety, discrimination and the payment of social security and other
payroll related taxes. To the best of Sellers' knowledge, there is no
representation or organizing effort pending or threatened against or
involving or affecting the Sellers with respect to employees employed at
the Stations.
3.14 PRE-CLOSING COVENANTS. Between the date hereof and the Closing, the
Sellers covenant that:
3.14.1. FCC COMPLIANCE. The Sellers shall continue to operate the
Stations in conformity with the terms of the Stations'
Licenses 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. The
Sellers shall file all reports, applications and other filings
required by the FCC in a timely and accurate manner. Sellers
will maintain the Licenses in full force and effect and take
any action necessary before the FCC to preserve such Licenses
in full force and effect without material adverse change.
Sellers will not take any action that would jeopardize the
License Subsidiaries' rightful possession of the Licenses, the
potential for assignment of the Licenses to Buyer, or the
unconditional renewal of the Licenses for full license terms.
3.14.2. CONDUCT OF BUSINESS. The Sellers shall conduct the technical
operations of the Stations in the usual and ordinary course
and consistent with past practices, and shall continue all
practices, policies, procedures and technical operations
relating to the Stations in substantially the same manner as
heretofore.
3.14.3. MAINTENANCE OF ASSETS. The Sellers shall maintain all of the
Acquired Assets in a good condition and, with respect to the
Personal Property, shall maintain inventories of spare parts
at levels consistent with the past practices of the Sellers
and the Stations. The Sellers shall not sell, convey, assign,
transfer or encumber any of the Acquired Assets, except for
the retirement of tangible Acquired Assets consistent with the
normal and customary practices of the Sellers and the
Stations.
3.14.4. NO SOLICITATION.
(a) CBC will immediately cease any existing discussions or
negotiations with any third parties conducted prior to
the date hereof with respect to any Acquisition
Proposal (as defined below). CBC shall not, directly
or indirectly, through any officer, director, employee,
representative or agent, or any of the Subsidiaries, or
otherwise (i) solicit, initiate, continue or encourage
any inquiries, proposals or offers that
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constitute, or could reasonably be expected to lead to,
a proposal or offer for a merger, consolidation,
business combination, sale of substantial assets, sale
of shares of capital stock (including, without
limitation, by way of a tender offer), liquidation,
reorganization or transactions involving CBC or any of
the Subsidiaries, other than the transactions
contemplated by this Agreement (any of the foregoing
inquiries or proposals are being referred to in this
Agreement as an "Acquisition Proposal"), (ii) solicit,
initiate, continue or engage in negotiations or
discussions concerning, or provide any information or
data to any person or entity relating to, or otherwise
cooperate in any way with, or assist or participate in,
or facilitate or encourage any Acquisition Proposal, or
(iii) agree to, approve or recommend any Acquisition
Proposal; PROVIDED, that nothing contained in this
Section shall prevent CBC from, prior to the Closing,
furnishing non-public information to, or entering into
discussions or negotiations with, any person or entity
in connection with any unsolicited Acquisition Proposal
by such person or entity (including a new and
unsolicited Acquisition Proposal received by CBC after
the execution of this Agreement from a person or entity
whose initial contact with CBC may have been solicited
by CBC prior to the execution of this Agreement), and
CBC may recommend such an unsolicited bona fide written
Acquisition Proposal to the shareholders of CBC, if and
only to the extent that (i) the Board of Directors of
CBC determines in good faith (after consultation with
and based upon the advice of its financial advisor and
considering the effect of such Acquisition Proposal
upon the employees, customers and the community) that
such Acquisition Proposal would, if consummated, result
in a transaction more favorable to the shareholders of
CBC than this Agreement and that the person or entity
making such Acquisition Proposal has the financial
means, or the ability to obtain the necessary
financing, to conclude such transaction (any such more
favorable Acquisition Proposal is being referred to in
this Agreement as a "Superior Proposal"), (ii) the
Board of Directors of CBC determines in good faith
(after consultation with and based upon the advice of
its outside legal counsel) that the failure to take
such action would be inconsistent with the fiduciary
duties of such Board of Directors to its shareholders
under applicable law, and (iii) prior to furnishing
such non-public information to, or entering into
discussions or negotiations with, such person or
entity, the Board of Directors receives from such
person or entity an executed confidentiality agreement
with confidentiality provisions not materially less
favorable to the Company than those contained in the
Confidentiality Agreement. If (i) this Agreement is
terminated after the occurrence of a Triggering Event
(as defined below), and (ii) Sellers within six (6)
months after such termination either (A) consummates
any Alternative Transaction (as defined below) or (B)
become parties to any agreement relating to an
Alternative Transaction that is thereafter consummated,
then CBC shall pay Buyer a non-refundable fee of Three
Million Five Hundred Thousand and no/100 Dollars
($3,500,000.00) (the "Fee") which amount shall be
payable by wire transfer of same day funds on the date
such Alternative Transaction is consummated.
(b) CBC shall reimburse the Buyer in connection with any
legal or other fees incurred by the Buyer in connection
with the collection of the Fee from CBC.
(c) As used herein, a "Triggering Event" shall mean any of
the following:
(i) the Board of Directors of CBC shall have
withdrawn or modified its recommendation of
this Agreement or shall have resolved or
publicly announced its intention to do so; or
(ii) an Alternative Transaction shall have taken
place or the Board of Directors of CBC shall
have recommended such an Alternative
Transaction to
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shareholders, or shall have resolved or publicly
announced its intention to recommend or engage
in an Alternative Transaction; or
(iii) a material breach by CBC of this Agreement
shall have occurred, and at the time of such
breach or any termination based thereon an
Alternative Transaction shall have been
publicly announced and not absolutely and
unconditionally withdrawn and abandoned; or
(iv) CBC shall have negotiated with, furnished
information to, entered into any agreement
with, or consummated or recommended any
transaction with, any person other than Buyer
or its affiliates, based on a determination
regarding a "Superior Proposal" made as
described herein; or
(v) CBC shall materially breach or fail to perform
its obligations under this Section 3.14.4.
(d) As used herein, an "Alternative Transaction" shall
mean (a) any transaction or series of transactions by
which any person or group (other than Buyer) acquires
or would acquire shares (or securities exercisable or
convertible into shares) representing 20% or more of
the outstanding shares of CBC, pursuant to a tender
offer, exchange offer or otherwise, (b) a merger,
consolidation, share exchange, sale or substantial
assets or other business combination involving CBC,
(c) any other transaction or series of transactions
whereby any person acquires or would acquire control
of the board of directors, business or assets of CBC,
or (d) any agreement with respect to any of the
foregoing, which in the case of any transaction or
agreement described in clauses (a) through (d) above,
involves a greater value (considering the amounts
payable to shareholders and all payments under
employment, consulting and other arrangements in
connection therewith) than the value of this
Agreement.
3.14.5. KMUS CLOSING. Sellers shall apply reasonable and diligent
efforts in good faith to conclude the transaction contemplated
under the KMUS Purchase Agreement prior to Closing.
3.15. NO MISLEADING STATEMENTS. To Sellers' knowledge, no statement,
representation or warranty made by Sellers herein and no information
provided or to be provided by Sellers to Buyer pursuant to this
Agreement or in connection with the negotiations covering the purchase
and sale contemplated herein contains or will contain any untrue
statement of a material fact, or omits or will omit a material fact.
There are no facts or circumstances known to Sellers and not disclosed
herein or in the Schedules hereto that, either individually or in the
aggregate, will materially adversely affect after Closing the Acquired
Assets or the condition of the Stations.
ARTICLE 4
BUYER'S REPRESENTATIONS AND WARRANTIES
The Buyer represents and warrants as follows, which representations and
warranties shall be deemed to have been made again at Closing.
4.1. CORPORATE EXISTENCE AND POWERS. Buyer is a corporation organized and
existing in good standing under the laws of the State of Delaware 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 States of Arizona,
California, Colorado, Illinois, Kansas, Michigan, Minnesota, New Jersey,
Oklahoma, Pennsylvania, Texas and Wisconsin; 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
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completion of the transactions herein involved will not result in the
violation of any order, license, permit, rule, judgment or decree to
which Buyer is subject or the breach of any contract, agreement or other
commitment to which Buyer is a party or by which it is bound; and except
for the consent of the Commission to the assignment of the Licenses to
Buyer, no other consent of any kind is required that has not been
obtained for Buyer to make or carry out the terms of this Agreement.
4.2. BUYER'S QUALIFICATIONS. At Closing, Buyer 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 consents, or which would materially hinder or
delay receipt of such consents, to the assignments of the Licenses to
Buyer.
ARTICLE 5
BREACH OF AGREEMENTS,
REPRESENTATIONS AND WARRANTIES
5.1. BREACH OF THE SELLERS' AGREEMENTS, REPRESENTATIONS AND WARRANTIES. The
Sellers shall indemnify and hold harmless Buyer and every affiliate of
Buyer and any of its or their directors, members, stockholders,
officers, partners, employees, agents, consultants, representatives,
transferees and assignees from and against any loss, damage, liability,
claim, demand, judgment or expense, including claims of third parties
arising out of ownership of the Acquired Assets or the operations of the
Stations by the Sellers prior to Closing, and including without being
limited to, reasonable counsel fees and reasonable accounting fees,
arising out of or sustained by Buyer by reason of any material breach of
any warranty, representation, covenant or agreement of the Sellers
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, the Sellers shall have the right,
if it involves a liability to a third party, to defend or compromise
such matter at the Sellers' sole cost and expense, and Buyer shall
cooperate fully in such defense.
5.2. BREACH OF BUYER'S AGREEMENTS, REPRESENTATIONS AND WARRANTIES. Buyer
shall indemnify and hold harmless the Sellers and every affiliate of
Sellers and any of their directors, members, stockholders, officers,
partners, employees, agents, consultants, representatives, transferees
and assignees from and against any loss, damage, liability, claim,
demand, judgment or expense, including claims of third parties arising
out of ownership of the Acquired Assets or operations of the Stations by
Buyer after Closing, and including without being limited to, reasonable
counsel fees and reasonable accounting fees, arising out of or sustained
by the Sellers by reason of any material breach of any warranty,
representation, covenant or agreement of 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, Buyer shall
have the right, if it involves a liability to a third party, to defend
or compromise such matter at Buyer's sole cost and expense, and the
Sellers shall cooperate fully in such defense.
5.3. SPECIFIC PERFORMANCE. The Sellers acknowledge that the Acquired Assets
are unique and not readily bought or sold on the open market and, for
that reason, among others, Buyer would be irreparably harmed by any
breach or failure of the Sellers 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 subject to the provisions of Section 3.14.4 above and
Section 8.5 below, and an injunction may be issued restraining any
transfer or assignment of the Acquired Assets contrary to the provisions
of this Agreement pending the determination of such controversy. The
Sellers, for themselves and their successors and assigns, hereby waive
the claim or defense that an adequate remedy at law exists.
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ARTICLE 6
RISK OF LOSS
6.1. BUYER'S OPTIONS. The risk of any loss, damage or destruction to any of
the Acquired Assets to be transferred to the Buyer hereunder from fire
or other casualty or loss shall be borne by the Sellers at all times
prior to the Closing. Upon the occurrence of any material loss or
damage to any of the Acquired Assets to be transferred hereunder as a
result of fire, casualty, or other causes prior to the Closing, the
Sellers 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 Acquired Assets lost or
destroyed is believed reimbursable under any insurance policy with
respect thereto. Provided the Sellers, at their sole expense, have not
repaired, restored or replaced the damaged Acquired Assets to Buyer's
reasonable satisfaction by the Closing, Buyer shall have the option (but
not the obligation) exercisable at the Closing to:
(i) terminate this Agreement in which case none of the parties shall
have any further liability to the other parties and all Escrowed
Funds shall be returned to Buyer, except that the Sellers shall
have a reasonable period of time, not to exceed one hundred
twenty (120) days, to effect repairs of the damaged Acquired
Assets before Buyer may exercise its option under this
subparagraph 6.1 (i);
(ii) postpone the Closing for up to one hundred twenty (120) days to
allow the Acquired Assets to be completely repaired, replaced or
restored, at the Sellers' sole expense, in which event the
Sellers shall use their best efforts to complete such repairs; or
(iii) elect to consummate the Closing and accept the property in its
"then" condition, in which event the Sellers shall assign to
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 the Sellers with respect thereto.
ARTICLE 7
APPLICATION FOR COMMISSION APPROVAL
7.1. FILING AND PROSECUTION OF APPLICATION. Buyer and the Sellers shall, as
soon as practicable after the date of this Agreement and in any event
not later than August 15, 1997, join in applications to be filed with
the Commission requesting its written consents to the assignments of the
Licenses of the Stations from the License Subsidiaries to Buyer. The
parties shall prepare their own portions of the applications. Buyer and
the Sellers shall take all steps necessary to the expeditious
prosecution of such applications to a favorable conclusion, using their
best efforts throughout.
7.2. EXPENSES. The parties shall bear their own legal, accounting and other
expenses in connection with the consummation of the contemplated
transaction. The parties shall cooperate with the preparation of the
Commission applications and in connection with the prosecution of such
applications. The filing fees shall be shared equally between the
Sellers on the one hand and the Buyer on the other.
7.3. DESIGNATION FOR HEARING. If, for any reason, any application for an
assignment of any of the Licenses is designated for hearing by the
Commission prior to grant thereof, either of the parties shall have the
right by written notice within thirty (30) days of such designation for
hearing, to exclude from the Acquired Assets those assets associated
with the operation of the Station affected if the allegations raised
relate to the other party, and the purchase price payable hereunder
shall be reduced by an amount equal to the Station Aggregate Value of
the affected Station.
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7.4. TIME FOR COMMISSION CONSENT. Subject to the provisions of Section 7.3
above and Section 8.6 below, if the Commission has not given its written
consents to the assignments of the Licenses set forth herein within nine
(9) months from the date of acceptance for filing of the applications
for such assignments, any of the parties, if not then in default, may
terminate this Agreement by giving written notice to the other parties.
Upon such termination, none of the parties shall have any right or
liability hereunder and all Escrowed Funds shall be returned to Buyer
promptly.
7.5. CONTROL OF STATIONS. Until Closing, Buyer shall not directly or
indirectly, control, supervise, direct or attempt to control, supervise
or direct the operations of the Stations, but such operations shall be
the sole responsibility of the Sellers, subject to and consistent with
all rules, regulations and policies of the FCC.
ARTICLE 8
CLOSING
Subject to the terms and conditions herein stated, the parties agree as
follows:
8.1. CLOSING DATE. Except as provided in Section 7.3 above and Section 8.6
below, the Closing of this Agreement shall be held at such time and date
as shall be mutually agreed by the Sellers and Buyer; provided, however,
that in any event Buyer must close no later than five (5) days after
final Commission approval of the assignments of the Licenses and the
final FCC grant of renewal of the Stations' Licenses for full terms
without material adverse condition have become final, the finality of
each of the assignments and renewal applications subject to waiver by
Buyer ("Final Approval") and all other conditions to Closing shall have
been satisfied on or before the Closing Date. (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 renewal and assignment of the Licenses which are 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, and which
action is not reversed, stayed, enjoined or set aside, and with respect
to which no timely request or petition for stay, reconsideration, review
or rehearing or a notice of appeal is pending and the time for such
filing has expired. Closing shall take place at the offices of CBC in
Minnesota.
8.2. THE SELLERS' OBLIGATIONS AT CLOSING. At Closing, the Sellers shall
deliver to Buyer the following:
(a) An Assignment of the Licenses described in Schedule A, Warranty
Deeds as to the Real Property described on Schedule B and an
Assignment and Bill of Sale, or similar instruments, including
third party consents to all "material" Leases and Agreements,
transferring to Buyer all other Acquired Assets to be transferred
hereunder, free and clear of all liens, encumbrances and
restrictions of any kind whatsoever, except as expressly provided
for in this Agreement or in the Leases and Agreements;
(b) The business records described in Section 1.7;
(c) The Non-Competition Agreement executed by Dahl;
(d) An opinion of the Sellers' counsel, addressed to Buyer,
confirming the correctness of the Sellers' representations made
in Sections 3.1 and 3.2;
(e) A certificate of CBC's CEO verifying that the Sellers'
representations, warranties and covenants as provided herein
remain materially true and correct up to and through the Closing
Date;
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(f) Certificates of Sellers' Secretary certifying as to Sellers'
Articles of Incorporation, By-Laws, and Board of Directors
approvals (all of which shall be attached thereto);
(g) Such other documents and instruments as might reasonably be
requested by Buyer to consummate the transaction contemplated
hereunder consistent with the intent expressed herein; and
(h) Escrow instructions releasing Escrowed Funds to Buyer.
8.3. BUYER'S OBLIGATIONS AT CLOSING. At Closing, Buyer shall deliver to CBC
the following:
(a) A cashier's or certified check in the amount of Seventy-two
Million Five Hundred Thousand and no/100 Dollars ($72,500,00.00)
(subject to adjustment as provided herein);
(b) An Agreement to assume the obligations of Sellers under the
Leases and Agreements with respect to periods of time from and
after Closing;
(c) The Non-Competition Agreement;
(d) An opinion of Buyer's counsel, addressed to the Sellers,
confirming the correctness of Buyer's representations made in
Section 4.1; and
(e) Such other documents and instruments as might reasonably be
requested by Sellers to consummate the transaction contemplated
hereunder consistent with the intent expressed herein.
8.4. CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of Buyer to
consummate the transaction herein contemplated at Closing are subject to
and conditioned upon:
(a) The written consents of the Commission evidencing its Final
Approvals to the assignments of the Licenses to Buyer subject to
the provisions of Section 7.3 above and Section 8.6 below,
provided that any such approval is without any condition that is
materially adverse to Buyer;
(b) The satisfaction at or before Closing in all material respects of
all agreements, obligations and conditions of the Sellers
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 the Sellers;
(d) Written third party consents to all material Leases and
Agreements where required by the terms of the Lease or Agreement
or substitution by Sellers of equivalent rights without
materially adverse impact upon Buyer's enjoyment of the Acquired
Assets; and
(e) Between the date hereof and the Closing Date, there shall not
have been any material adverse change in the Acquired Assets.
Events relating to the Sellers' current effort to obtain permits
and approvals in Riverside County, California for construction of
towers on optioned property shall not be deemed to be material,
and Buyer's obligations hereunder are not subject to the success
or failure of such efforts.
8.5. CONDITIONS TO OBLIGATIONS OF THE SELLERS. The obligations of the
Sellers to consummate the transaction herein contemplated at Closing are
subject to and conditioned upon:
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(a) The approval by CBC's shareholders of this Agreement and the
transaction contemplated hereunder at a meeting to be called by
CBC and held for that purpose with no more than 20% of CBC's
shareholders exercising statutory dissenter's rights;
(b) Subject to the provisions of Section 7.3 above and Section 8.6
below, the written consents of the Commission evidencing its
Final Approvals to the assignments of the Licenses to Buyer,
provided that any such approval is without any conditions that
are materially adverse to the Sellers;
(c) The satisfaction at or before Closing of all agreements,
obligations and conditions of Buyer hereunder required to be
performed or complied with by it at or before the Closing;
(d) The receipt by Sellers from their investment banker of an opinion
confirming the fairness of the consideration payable hereunder to
Sellers by Buyer; and
(e) The material accuracy of the representations and warranties made
by Buyer.
8.6. PARTIALLY DEFERRED CLOSING. The parties recognize that due to the FCC
license renewal schedule the application for renewal of Licenses held by
KPLS-AM will not be filed until August 1, 1997, and that FCC approvals
of the assignments of the other Licenses may occur and become Final
Orders prior to approval of the assignment of Station KPLS(AM)'s License
or its renewal. The parties agree that in such event, Closing shall
occur with respect to all of the Acquired Assets except those held by
CRLA and KPLS-AM within five (5) days of Final Approvals of assignments
of the other Licenses. A portion of the purchase price payable
hereunder equal to the Aggregate Station Value allocated to the Acquired
Assets associated with the operation of Station KPLS(AM) shall be paid
into escrow to be disbursed in accordance with an escrow agreement in
the form attached hereto as EXHIBIT C (the "Closing Escrow Agreement").
ARTICLE 9
MISCELLANEOUS PROVISIONS
9.1. SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES. All
representations, warranties and covenants of Sellers contained in this
Agreement shall survive for a period of twenty-four (24) months after
the Closing Date.
9.2. 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.
9.3. 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
mail, certified or registered mail, postage prepaid, return receipt
requested, and shall be addressed as follows:
If to the Sellers
(or any of them): Children's Broadcasting Corporation
724 First Street North, Fourth Floor
Minneapolis, Minnesota 55401
Attention: Mr. Christopher T. Dahl
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with copy to: Children's Broadcasting Corporation
724 First Street North, Fourth Floor
Minneapolis, Minnesota 55401
Attention: Lance W. Riley, Esq.
If to Buyer: Global Broadcasting Company, Inc.
515 Madison Avenue
Suite 1111
New York, New York 10022
Attention: Mr. Gregory D. Deieso
with copy to: Harold K. McCombs, Jr., Esq.
Duncan, Weinberg, Miller & Pembroke, P.C.
1615 M Street, N.W.
Suite 800
Washington, D.C. 20036
9.4. 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.
9.5. ENTIRE AGREEMENT. This Agreement and the Confidentiality 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.
9.6. ASSIGNABILITY. None of the parties may assign their rights or
obligations under this Agreement without the prior written consent of
the other parties, except that any party may make an assignment to an
entity under essentially common control as the assigning entity.
9.7. 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.
9.8. 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.
9.9. 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.
9.10. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota. The parties hereto
hereby irrevocably and unconditionally consent to submit to the
exclusive jurisdiction of the courts of the State of Minnesota and of
the United States of America located in the State of Minnesota for any
actions, suits or proceedings arising out of or relating to this
Agreement and the transactions contemplated hereby (and they agree not
to commence any action, suit or proceeding relating thereto except in
such courts) and further agree that service of any process, summons,
notice or document by U.S. registered mail to the addresses set forth
above shall be effective service of process for any action, suit or
proceeding arising out of this Agreement, in the courts of the State of
Minnesota or the United States of America located in the State of
Minnesota, and hereby further irrevocably and unconditionally waive and
agree not to plead or claim in any such court that any such action, suit
or proceeding brought in any such court has been brought in an
inconvenient forum.
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9.11. BROKER COMMISSION. The Sellers and Buyer each represent to the other
that they have not engaged a broker in connection with the contemplated
transaction, except that CBC has engaged Star Media Group, Inc. with
respect to that portion of the transaction associated with the
operations of Stations WJDM(AM) and WAUR(AM), and Buyer has engaged Star
Media Group, Inc. with respect to the entire contemplated transaction,
and each party agrees to pay the respective commissions owed under such
agreements and agree to indemnify and hold the other party or parties
harmless against any claims made by a broker through it or them in
connection with the transactions contemplated hereunder.
9.12. SALES TAX. Any sales tax, including bulk sales taxes (if applicable),
due upon consummation of this transaction will be computed at Closing
and paid by the Sellers and any claims or proceedings arising therefrom
shall be the sole responsibility of Sellers. Sellers agree to indemnify
and hold Buyer harmless against any such claims in connection with the
transactions contemplated hereunder.
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.
CHILDREN'S BROADCASTING CORPORATION GLOBAL BROADCASTING COMPANY, INC.
BY: /s/Christopher T. Dahl BY: /s/Gregory Deieso
---------------------- ----------------------
ITS: President and CEO ITS: CEO and Chairman
---------------------- ----------------------
CHILDREN'S RADIO OF CHICAGO, INC. WAUR-AM, INC.
BY: /s/Christopher T. Dahl BY: /s/Christopher T. Dahl
---------------------- ----------------------
ITS: President and CEO ITS: President and CEO
---------------------- ----------------------
CHILDREN'S RADIO OF DALLAS, INC. KAHZ-AM, INC.
BY: /s/Christopher T. Dahl BY: /s/Christopher T. Dahl
---------------------- ----------------------
ITS: President and CEO ITS: President and CEO
---------------------- ----------------------
CHILDREN'S RADIO OF DENVER, INC. KKYD-AM, INC.
BY: /s/Christopher T. Dahl BY: /s/Christopher T. Dahl
---------------------- ----------------------
ITS: President and CEO ITS: President and CEO
---------------------- ----------------------
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<PAGE>
CHILDREN'S RADIO OF DETROIT, INC. WCAR-AM, INC.
BY: /s/Christopher T. Dahl BY: /s/Christopher T. Dahl
---------------------- ----------------------
ITS: President and CEO ITS: President and CEO
---------------------- ----------------------
CHILDREN'S RADIO OF GOLDEN VALLEY, INC. KYCR-AM, INC.
BY: /s/Christopher T. Dahl BY: /s/Christopher T. Dahl
---------------------- ----------------------
ITS: President and CEO ITS: President and CEO
---------------------- ----------------------
CHILDREN'S RADIO OF HOUSTON, INC. KTEK-AM, INC.
BY: /s/Christopher T. Dahl BY: /s/Christopher T. Dahl
---------------------- ----------------------
ITS: President and CEO ITS: President and CEO
---------------------- ----------------------
CHILDREN'S RADIO OF KANSAS CITY, INC. KCNW-AM, INC.
BY: /s/Christopher T. Dahl BY: /s/Christopher T. Dahl
---------------------- ----------------------
ITS: President and CEO ITS: President and CEO
---------------------- ----------------------
CHILDREN'S RADIO OF LOS ANGELES, INC. KPLS-AM, INC.
BY: /s/Christopher T. Dahl BY: /s/Christopher T. Dahl
---------------------- ----------------------
ITS: President and CEO ITS: President and CEO
---------------------- ----------------------
CHILDREN'S RADIO OF MILWAUKEE, INC. WZER-AM, INC.
BY: /s/Christopher T. Dahl BY: /s/Christopher T. Dahl
---------------------- ----------------------
ITS: President and CEO ITS: President and CEO
---------------------- ----------------------
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<PAGE>
CHILDREN'S RADIO OF MINNEAPOLIS, INC. WWTC-AM, INC.
BY: /s/Christopher T. Dahl BY: /s/Christopher T. Dahl
---------------------- ----------------------
ITS: President and CEO ITS: President and CEO
---------------------- ----------------------
CHILDREN'S RADIO OF NEW YORK, INC. WJDM-AM, INC.
BY: /s/Christopher T. Dahl BY: /s/Christopher T. Dahl
---------------------- ----------------------
ITS: President and CEO ITS: President and CEO
---------------------- ----------------------
CHILDREN'S RADIO OF PHILADELPHIA, INC. WPWA-AM, INC.
BY: /s/Christopher T. Dahl BY: /s/Christopher T. Dahl
---------------------- ----------------------
ITS: President and CEO ITS: President and CEO
---------------------- ----------------------
CHILDREN'S RADIO OF PHOENIX, INC. KIDR-AM, INC.
BY: /s/Christopher T. Dahl BY: /s/Christopher T. Dahl
---------------------- ----------------------
ITS: President and CEO ITS: President and CEO
---------------------- ----------------------
CHILDREN'S RADIO OF TULSA, INC. KMUS-AM, INC.
BY: /s/Christopher T. Dahl BY: /s/Christopher T. Dahl
---------------------- ----------------------
ITS: President and CEO ITS: President and CEO
---------------------- ----------------------
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<PAGE>
EXHIBIT A TO APPENDIX I
ESCROW AGREEMENT
THIS AGREEMENT is made and entered into as of this ___ day of
____________, 1997, by and among GLOBAL BROADCASTING COMPANY, INC., a
Delaware corporation (the "Buyer"); CHILDREN'S BROADCASTING CORPORATION, a
Minnesota corporation, CHILDREN'S RADIO OF CHICAGO, INC., a Minnesota
corporation, CHILDREN'S RADIO OF DALLAS, INC., a Minnesota corporation,
CHILDREN'S RADIO OF DENVER, INC., a Minnesota corporation, CHILDREN'S RADIO
OF DETROIT, INC., a Minnesota corporation, CHILDREN'S RADIO OF GOLDEN
VALLEY, INC., a Minnesota corporation, CHILDREN'S RADIO OF HOUSTON, INC., a
Minnesota corporation, CHILDREN'S RADIO OF KANSAS CITY, INC., a Minnesota
corporation, CHILDREN'S RADIO OF LOS ANGELES, INC., a Minnesota corporation,
CHILDREN'S RADIO OF MILWAUKEE, INC., a Minnesota corporation, CHILDREN'S
RADIO OF MINNEAPOLIS, INC., a Minnesota corporation, CHILDREN'S RADIO OF NEW
YORK, INC., a New Jersey corporation, CHILDREN'S RADIO OF PHILADELPHIA, INC.,
a Minnesota corporation, and CHILDREN'S RADIO OF PHOENIX, INC., a Minnesota
corporation, CHILDREN'S RADIO OF TULSA, INC., a Minnesota corporation,
KAHZ-AM, INC., a Minnesota corporation, KCNW-AM, INC., a Minnesota
corporation, KIDR-AM, INC., a Minnesota corporation, KKYD-AM, INC., a
Minnesota corporation, KMUS-AM, INC., a Minnesota corporation, KPLS-AM, INC.,
a Minnesota corporation, KTEK-AM, INC., a Minnesota corporation, KYCR-AM,
INC., a Minnesota corporation, WAUR-AM, INC., a Minnesota corporation,
WCAR-AM, INC., a Minnesota corporation, WJDM-AM, INC., a Minnesota
corporation, WPWA-AM, INC., a Minnesota corporation, WWTC-AM, INC., a
Minnesota corporation, and WZER-AM, INC., a Minnesota corporation
(collectively referred to herein as the "Sellers"); and STAR MEDIA GROUP,
INC. ("Escrow Agent"); and
I-21
<PAGE>
W I T N E S S E T H :
THAT, WHEREAS, Buyer and the Sellers have entered into an Asset Purchase
Agreement of even date herewith (the "Purchase Agreement"), which Purchase
Agreement provides for the transfer of the assets of the following radio
stations (the "Stations"):
KAHZ(AM) Fort Worth, Texas
KCNW(AM) Fairway, Kansas
KIDR(AM) Phoenix, Arizona
KKYD(AM) Denver, Colorado
KMUS(AM) Muskogee, Oklahoma
KPLS(AM) Orange, California
KTEK(AM) Alvin, Texas
KYCR(AM) Golden Valley, Minnesota
WAUR(AM) Sandwich, Illinois
WCAR(AM) Livonia, Michigan
WJDM(AM) Elizabeth, New Jersey
WPWA(AM) Chester, Pennsylvania
WWTC(AM) Minneapolis, Minnesota
WZER(AM) Jackson, Wisconsin
including the Federal Communications Commission ("FCC") broadcast license for
the Stations, all on the terms and conditions set forth in the Purchase
Agreement and the supporting schedules thereto; and
WHEREAS, the parties desire to establish an escrow to hold the deposit
of Buyer on the account of its obligations in connection with the Purchase
Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. ESCROW DEPOSIT. Concurrently with the execution of this Escrow Agreement,
Buyer will deposit with the Escrow Agent a demand Promissory Note in favor
of Seller in the principal amount of Three Million Five Hundred Thousand
and no/100 Dollars ($3,500,000) carrying interest at the rate of ten (10%)
percent per annum (the "Escrow Deposit"). The Escrow Deposit is to be held
by the Escrow Agent as follows:
1.1 Escrow Agent shall hold the Escrow Deposit for delivery in accordance
with the terms hereof.
1.2 At the closing of the transaction contemplated by the Purchase
Agreement (the "Closing"), the Escrow Agent shall deliver the Escrow
Deposit to the Sellers.
1.3 In the event the Purchase Agreement does not close in accordance with
Article 8, Section 8.1, the Escrow Agent shall deliver the Escrow
Deposit to the Sellers, providing, however, that if the failure is a
result of a breach by the Sellers, then the Escrow Deposit shall be
delivered
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<PAGE>
to Buyer. In each instance this Escrow Agreement shall be
terminated and the Escrow Agent shall be relieved of its duties under
this Agreement.
2. OBLIGATIONS OF ESCROW AGENT. The Escrow Agent assumes no liability except
that expressed in this Escrow Agreement and shall have no responsibility or
liability to any of the parties hereto, or their successors, for any action
taken by it in good faith upon receipt of any instrument or other writing
believed by it to be genuine and to be properly signed or presented,
whether or not such instrument or other writing is in such form as may be
specifically provided for hereunder. The Escrow Agent may confer with
counsel with respect to any questions concerning its duties and
responsibilities and shall not be responsible for any act done or omitted
by it in good faith. The Escrow Agent shall not be bound by any notice of
claim or demand with respect thereto or any waiver, modification,
amendment, termination or recision of this Escrow Agreement unless received
in a writing signed by duly authorized representatives of Buyer and the
Sellers. The Sellers and Buyer jointly and severally agree to indemnify
and hold the Escrow Agent harmless against all liability which may be
imposed upon it or jointly or severally incurred by it, in connection with
its acceptance of appointment as Escrow Agent hereunder and the performance
of its duties hereunder, other than that occurring by reason of his gross
negligence or willful misconduct.
3. DIRECTION TO ESCROW AGENT. The Escrow Agent shall be entitled to rely on
the written instructions consented to by Buyer and the Sellers. In the
event the Escrow Agent receives written instructions from either Buyer or
the Sellers, the Escrow Agent shall forthwith forward a copy of said
instructions to the other party.
4. NOTICES. All notices required to be sent hereunder shall be sent by
registered mail, return receipt requested, to the parties as follows:
If to the Sellers
(or any of them): Children's Broadcasting Corporation
724 First Street North, Fourth Floor
Minneapolis, Minnesota 55401
Attention: Mr. Christopher T. Dahl
with copy to: Children's Broadcasting Corporation
724 First Street North, Fourth Floor
Minneapolis, Minnesota 55401
Attention: Lance W. Riley, Esq.
If to Buyer: Global Broadcasting Company, Inc.
515 Madison Avenue
Suite 1111
New York, New York 10022
Attention: Mr. Gregory D. Deieso
with copy to: Harold K. McCombs, Jr., Esq.
Duncan, Weinberg, Miller & Pembroke, P.C.
1615 M Street, N.W.
Suite 800
Washington, D.C. 20036
If to Escrow Agent: Star Media Group, Inc.
5080 Spectrum Drive
Suite 609 East
Dallas, Texas 75248
Attention: Mr. Paul T. Leonard, Jr.
I-23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
GLOBAL BROADCASTING COMPANY, INC. CHILDREN'S BROADCASTING CORPORATION
BY: BY:
----------------------------- -----------------------------
ITS: ITS:
----------------------------- -----------------------------
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<PAGE>
CHILDREN'S RADIO OF CHICAGO, INC. WAUR-AM, INC.
BY: BY:
----------------------------- -----------------------------
ITS: ITS:
----------------------------- -----------------------------
CHILDREN'S RADIO OF DALLAS, INC. KAHZ-AM, INC.
BY: BY:
----------------------------- -----------------------------
ITS: ITS:
----------------------------- -----------------------------
CHILDREN'S RADIO OF DENVER, INC. KKYD-AM, INC.
BY: BY:
----------------------------- -----------------------------
ITS: ITS:
----------------------------- -----------------------------
CHILDREN'S RADIO OF DETROIT, INC. WCAR-AM, INC.
BY: BY:
----------------------------- -----------------------------
ITS: ITS:
----------------------------- -----------------------------
CHILDREN'S RADIO OF GOLDEN VALLEY,
INC. KYCR-AM, INC.
BY: BY:
----------------------------- -----------------------------
ITS: ITS:
----------------------------- -----------------------------
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<PAGE>
CHILDREN'S RADIO OF HOUSTON, INC. KTEK-AM, INC.
BY: BY:
----------------------------- -----------------------------
ITS: ITS:
----------------------------- -----------------------------
CHILDREN'S RADIO OF KANSAS CITY,
INC. KCNW-AM, INC.
BY: BY:
----------------------------- -----------------------------
ITS: ITS:
----------------------------- -----------------------------
CHILDREN'S RADIO OF LOS ANGELES,
INC. KPLS-AM, INC.
BY: BY:
----------------------------- -----------------------------
ITS: ITS:
----------------------------- -----------------------------
CHILDREN'S RADIO OF MILWAUKEE,
INC. WZER-AM, INC.
BY: BY:
----------------------------- -----------------------------
ITS: ITS:
----------------------------- -----------------------------
CHILDREN'S RADIO OF MINNEAPOLIS,
INC. WWTC-AM, INC.
BY: BY:
----------------------------- -----------------------------
ITS: ITS:
----------------------------- -----------------------------
CHILDREN'S RADIO OF NEW YORK, INC. WJDM-AM, INC.
BY: BY:
----------------------------- -----------------------------
ITS: ITS:
----------------------------- -----------------------------
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<PAGE>
CHILDREN'S RADIO OF PHILADELPHIA,
INC. WPWA-AM, INC.
BY: BY:
----------------------------- -----------------------------
ITS: ITS:
----------------------------- -----------------------------
CHILDREN'S RADIO OF PHOENIX, INC. KIDR-AM, INC.
BY: BY:
----------------------------- -----------------------------
ITS: ITS:
----------------------------- -----------------------------
CHILDREN'S RADIO OF TULSA, INC. KMUS-AM, INC.
BY: BY:
----------------------------- -----------------------------
ITS: ITS:
----------------------------- -----------------------------
STAR MEDIA GROUP, INC.
BY:
-----------------------------
ITS:
-----------------------------
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<PAGE>
EXHIBIT B TO APPENDIX I
CONSULTING AND NON-CIRCUMVENTION AGREEMENT
Agreement, dated as of , 1997, between Global Broadcasting
Company, Inc.(the "Company") and Christopher T. Dahl (the "Consultant").
RECITALS:
A. Company and Children's Broadcasting Corporation (and its
subsidiaries) (hereafter collectively "CBC") entered into an Asset Purchase
Agreement dated July 16, 1997, (the "Purchase Agreement") providing for the
purchase by Company of certain radio stations owned by and licensed to CBC (the
"Stations"); and
B. Consultant is an experienced radio broadcaster.
1. ENGAGEMENT. The Company hereby engages Consultant and Consultant
hereby accepts the engagement upon the terms and conditions hereinafter set
forth, and Consultant hereby agrees to (i) advise the Company with respect to
the Stations' operations in the radio markets, (ii) provide consulting services
with respect to special projects for the Stations as reasonably requested by the
Company, and (iii) provide such other services as are reasonably requested by
the Company for the Stations. Such services may be provided by telephone or
other means of remote communications. Notwithstanding the foregoing, both
parties' rights and obligations hereunder are conditioned upon a closing of the
transactions contemplated under the Purchase Agreement.
2. TERM. The term of the Consultant's engagement hereunder shall be
for a period beginning on the date of a closing of the transactions contemplated
under the Purchase Agreement and ending two (2) years from such date.
3. FEES. In consideration of the services to be performed by
Consultant according to the provisions contained herein, the Company agrees to
pay Consultant $500,000.00. Said consulting fees shall be payable regardless of
whether or not Company requests Consultant to perform any services hereunder. A
first payment of $250,000.00 shall be paid upon a closing of the transactions
contemplated under the Purchase Agreement. The second payment of $250,000.00
shall be paid to Consultant on the first anniversary date thereof. Both
payments shall be made regardless of the death or disability of Consultant.
Company shall pay or reimburse any expenses incurred by Consultant in providing
requested services hereunder.
4. EXTENT. Consultant shall devote such time, attention and energy
to the services Consultant is available to perform for the business and affairs
of the Stations as the Company shall reasonably require and as are reasonably
required in order to perform such services which Consultant undertakes
hereunder, but with the understanding that the Consultant is engaged in other
business activities. Consultant shall have the right to refuse to perform
services if Consultant reasonably determines that the performance of such
services would conflict with its other duties and business activities or the
best interests thereof. In performing such services, Consultant's actions shall
be consistent with the best interests and goodwill of the Company. Consultant
shall not be required to perform any services hereunder that would be illegal or
unethical.
5. DISCLOSURE OF INFORMATION AND NON-CIRCUMVENTION. Consultant
recognizes and acknowledges that it may have access to certain confidential
information of the Company, and that such information constitutes valuable,
special and unique property of the Company. consultant will not disclose any of
the information marked confidential to any person, firm, corporation,
association or other entity, except to authorized representatives of the
Company, for any reason or purpose whatsoever. In the event of a breach or
threatened breach by Consultant, the Company shall be entitled to an injunction
restraining Consultant from disclosing, in whole or in part, such confidential
information. The provisions of this Section 5 shall survive the dissolution or
termination of this Agreement. The foregoing shall not apply to any information
which (a) Consultant can demonstrate was already lawfully in its possession
prior to the disclosure thereof by the Company, (b) is known to the public and
did not become so known through any violation of Consultant's obligations
hereunder, (c) became known to the public through no fault of Consultant, (d) is
lawfully required
I-28
<PAGE>
to disclose pursuant to a judicial orders or in the opinion of Consultant's
counsel pursuant to applicable law. In the event that the performance of a
service hereunder by Consultant would require the disclosure to Consultant of
confidential information which would compromise Consultant's other business
activities, Consultant shall have the right to refuse to perform such service
and not be provided with such information. Consultant further agrees that he
shall not utilize any confidential information of Company for his own benefit
or use any opportunity of the Company described or presented by such
confidential information.
6. LIMIT OF ENGAGEMENT. Consultant is retained and engaged by the
Company only for the purposes and to the extent set forth in this Agreement, and
its relationship to the Company shall, during the period or period of its
engagement hereunder, be that of independent contractor. Consultant shall not
be deemed to be a partner, agent or legal representative of the Company for any
purpose, nor shall Consultant have any authority or power to act for, or to
undertake any obligation or responsibility on behalf of the Company.
7. NOTICES. All notices, demands or other communications given
hereunder shall be in writing and shall be sufficiently given if delivered by
courier or sent by registered or certified mail, first class,, postage prepaid,
or by telex, cable, telegram, telecopy or similar written means of
communication, addressed as follows:
(a) If to Company, to:
Gregory D. Deieso
Global Broadcasting Company, Inc.
Suite 1111
515 Madison Avenue
New York, New York 10022
Copy to:
Harold K. McCombs, Jr.
Duncan, Weinberg, Miller & Pembroke, PC
Suite 800
1615 M Street, N.W.
Washington, D.C. 20036
(b) If to Consultant, to:
Christopher T. Dahl
c/o Children's Broadcasting Corporation
Fourth Floor
724 First Street North
Minneapolis, Minnesota 55401
Copy to:
Lance Riley, Esquire
Children's Broadcasting Corporation
Fourth Floor
724 First Street North
Minneapolis, Minnesota 55401
or such other address with respect to any party hereto as such party may from
time to time notify (as provided above) to the other party hereto. Any such
notice, demand or communication shall be deemed to have been given (i) if
mailed, as of the close of the third business day following the date so mailed,
and (ii) if personally delivered or otherwise sent as provided above, on the
date received.
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<PAGE>
8. ASSIGNMENT. The Consultant may not assign any of its rights or
obligations under this Agreement, except that Consultant's legal representative,
in the event of his death or disability, may receive the fee payments set forth
in Section 3 hereto. This Agreement or any right or obligation thereof may be
assigned by the Company with Consultant's prior written consent to any person,
firm, corporation or other business entity which owns, operates or manages the
Stations.
9. MISCELLANEOUS.
(a) This Agreement shall be subject to and governed by the laws
of the State of New York.
(b) Failure to insist upon strict compliance with any provision
hereof shall not be deemed to waiver of such provision or any other
provision hereof.
(c) This Agreement may not be modified except by an agreement in
writing executed by the parties hereto.
(d) As to the subject matter of this Agreement there are no oral
agreements or understandings which limit, expand or otherwise pertain to
these matters, and this Agreement, includes the entire contract between
the parties hereto relative to the subject matter hereof and supersedes
all prior understandings and agreements with respect thereto.
IN WITNESS WHEREOF, the parties have execute this Agreement
effective as of the date first stated above.
GLOBAL BROADCASTING COMPANY, INC.
By:
--------------------------------
Gregory D. Deieso
CHRISTOPHER T. DAHL
By:
--------------------------------
Christopher T. Dahl
I-30
<PAGE>
APPENDIX II
OPINION OF FINANCIAL ADVISER
October 10, 1997
Board of Directors
Children's Broadcasting Corporation
724 First Street
Minneapolis, MN 55401
Members of the Board:
This letter relates to the proposed acquisition from Children's Broadcasting
Corporation ("Children's" or the "Company") of certain assets related to 13
Company-owned and operated radio stations and rights to purchase one additional
radio station (the "Acquired Assets") by Global Broadcasting Company, Inc.
("Global") pursuant to the Asset Purchase Agreement referred to below (the
"Transaction"). Pursuant to the Asset Purchase Agreement, and subject to
certain exceptions, at the effective time of the Transaction, Children's will
receive $72.5 million in cash consideration from Global in exchange for the
Acquired Assets. You have requested our opinion as to the fairness to
Children's, from a financial point of view, of the consideration to be received
by Children's for the Acquired Assets in the Transaction.
Piper Jaffray Inc. ("Piper Jaffray"), as a customary part of its investment
banking business, is engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, underwritings and secondary
distributions of securities, private placements, and valuations for estate,
corporate and other purposes. In the ordinary course of our business, we and
our affiliates may actively trade securities of Children's for our own account
or the accounts of our customers and, accordingly, may at any time hold a long
or short position in such securities. For our services in rendering this
opinion, Children's will pay us a fee and indemnify us against certain
liabilities. The fee is not contingent upon consummation of the Transaction.
In arriving at our opinion, we have undertaken such reviews, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have:
1. Reviewed the Asset Purchase Agreement dated July 16, 1997.
2. Reviewed the annual reports, Reports on Form 10-K, audited financial
statements and Proxy Statements for the Children's for the three fiscal
years ended December 31, 1996.
3. Reviewed the Reports on Form 10-Q for Children's for the quarters ended
March 31, 1997 and June 30, 1997.
4. Reviewed annual unaudited financial results for each of Children's radio
stations included in the Acquired Assets prepared by Children's management
for the three years ended December 31, 1996 and for the six-month period
ended June 30, 1997.
5. Reviewed an independently conducted appraisal by Force Communications &
Consultants ("Force") dated October 8, 1996 of 12 of the 14 stations
included in the Acquired Assets and discussed the appraisal methodology
with Force.
6. Visited the headquarters of Children's and conducted discussions with
members of senior management of Children's, including the Chief Executive
Officer, Chief Operating and Financial Officer, Executive Vice President of
Programming and General Counsel. Topics discussed included, but were not
limited to, the background and rationale of the proposed Transaction, the
financial condition, operating performance and the balance sheet
characteristics of Children's and the Acquired Assets and future prospects
for Children's.
II-1
<PAGE>
Board of Directors
Children's Broadcasting Corporation
October 10, 1997
7. Reviewed the historical prices and trading activity for Children's Common
Stock.
8. Reviewed the financial terms, to the extent publicly available, of certain
comparable merger and acquisition transactions which we deemed relevant.
9. Compared certain financial and securities data of Children's and certain
financial data of the Acquired Assets with certain financial and securities
data of companies deemed similar to the business represented by the
Acquired Assets.
10. Reviewed such other financial data, performed such other analyses and
considered such other information as we deemed necessary and appropriate
under the circumstances.
We have relied upon and assumed the accuracy and completeness of the financial
statements and other information provided by Children's or otherwise made
available to us and have not assumed responsibility independently to verify such
information. We have further relied upon the assurances of Children's
management that the information provided has been prepared on a reasonable basis
in accordance with industry practice and, with respect to financial planning and
other business outlook information (including the inability to prepare
meaningful forward looking projections, as discussed below), reflects the best
currently available information and judgment of Children's management as to the
expected future financial performance of Children's and that it is not aware of
any information or facts that would make the information provided to us
incomplete or misleading. Without limiting the generality of the foregoing, for
the purpose of this opinion, we have assumed that Children's is not a party to
any pending transaction, including external financing, recapitalizations,
acquisitions or merger discussions, other than the Transaction or in the
ordinary course of business.
In arriving at our opinion, we were not able to perform a discounted cash flow
analysis of Children's or the business represented by the Acquired Assets since
Children's did not have available and did not prepare any forward-looking
projections. We were advised that senior management of Children's has
determined that they cannot make reliable projections because the industry's
competitive environment and its economics, as well as Children's current
financial situation, have so radically changed that senior management questioned
the ability to accurately project Children's business going forward in the same
manner it is currently operated. Consequently, senior management has advised us
they believe that any projections reflective of historical operations would not
be meaningful.
In arriving at our opinion, we have not performed any appraisals or valuations
of specific assets or liabilities of Children's, have made no physical
inspection of the properties or assets of Children's and express no opinion
regarding the liquidation value of Children's or the Acquired Assets, although,
as mentioned above, we did review an independently conducted appraisal of the
Acquired Assets. Without limiting the generality of the foregoing, we have
undertaken no independent analysis of any pending or threatened litigation,
possible unasserted claims or other contingent liabilities, to which Children's
or its affiliates is a party or may be subject, and at Children's direction and
with its consent, our opinion makes no assumption concerning, and therefore does
not consider, the possible assertion of claims, outcomes or damages arising out
of any such matters. We have also undertaken no analysis of the merits, value
or potential impact on Children's of its current litigation against The Walt
Disney Company and ABC Radio Networks, Inc.
Our opinion is necessarily based upon information available to us, facts and
circumstances and economic, market and other conditions as they exist and are
subject to evaluation on the date hereof; events occurring after the date hereof
could materially affect the assumptions used in preparing this opinion. We have
not undertaken to reaffirm or revise this opinion or otherwise comment upon any
events occurring after the date
II-2
<PAGE>
Board of Directors
Children's Broadcasting Corporation
October 10, 1997
hereof. We express no opinion herein as to the prices at which shares of
Children's Common Stock may trade at any future time.
This opinion is for the benefit of the Board of Directors of Children's in
evaluating the Transaction and shall not be published or otherwise used by any
other persons for any other purpose nor shall any public reference to Piper
Jaffray be made without our prior written consent, except for inclusion of this
opinion in the full proxy statement to be sent to all shareholders of Children's
in connection with the Transaction and in any filings or disclosures required by
law. This opinion is not intended to be and does not constitute a
recommendation to any shareholder as to how such shareholder should vote with
respect to the Transaction. We have not been authorized by the Board of
Directors to solicit other purchasers for the Acquired Assets or alternative
transactions to the Transaction. We were not requested to opine as to, and this
opinion does not in any manner address, the merits of the basic business
decision to proceed with or effect the Transaction or the structure thereof.
Based upon and subject to the foregoing and based upon such other factors as we
consider relevant, it is our opinion that, as of the date hereof, the
consideration to be received by Children's for the Acquired Assets in the
Transaction is fair, from a financial point of view, to Children's.
Sincerely,
/s/ PIPER JAFFRAY INC.
- -----------------------------
PIPER JAFFRAY INC.
II-3
<PAGE>
APPENDIX III
APPRAISALS FOR CHILDREN'S BROADCASTING STATIONS
DBA RADIO AAHS
1.) NEW YORK - WIDM-AM, ELIZABETH, NJ:
station currently operating on two frequencies: 1530 and 1660 EB.
1530 is a 1000 watt ND daytimer and 1660 is a 10,000 watt day/1000
watt night ND on the extended AM band. The most recent sale in New
York has been WPAT-AM 930 5k/5k, sold November 1995 for 19.5 million
dollars. At the time WPAT was showing a 2.4 rating. If WIDM is
diplexed at WKDM, indications state that the coverage increases to a
potential reach of near 14 million people and would make WIDM value
raise to approximately 15 million.
2.) LOS ANGELES - KPLS-AM:
830 MHZ; 2.5k/1k; Orange, CA; Nations second largest market. KGFJ-AM
sold in 1995 for 5.5 million dollars; 1230 AM; lk/lk. Now that KPLS
has CP for 50k/23k, it becomes one of the strongest signals and should
bring a minimum of 25 million dollars or more in today's market.
3.) PHILADELPHIA (CHESTER) - WPWA-AM:
1590; 2.5 kw/lkw; not much to compare with, WNWR 1540, 50k/.5k Bala
Cynwyd sold for 1.4 million dollars in July, 1995, but WWRL has bought
WERA AM, Plainfield, NJ, 1590 KHZ, WQQW 1590, Waterbury, CT and WLWG
1600khz, Sag Harbor, NY thus eliminating interference to WPWA and
allowing a power increase both day and night which should increase
coverage over Philadelphia. Should all occur, WPWA's value will
increase to approximately 3 million dollars.
4.) DETROIT (LIVONIA) - WCAR-AM:
1090khz, .3k/.5k, lots of sales in Detroit ranging from 23 million
dollars for WXYT 1270, 5k/6k to multi million dollars by ours and
mergers by CBS, Disney, Chancellor and Evergreen markets are driven by
desire and availability. WCAR was a recent purchase, and we believe
WCAR's value to be 2 million dollars.
5.) DALLAS/FT. WORTH - KAHZ-AM:
1360, 5k/lk, market very good. KTCK Dallas 1310, 5k/5k sold
September, 1995 to SFX for 10.5 million dollars. KDFX 1190, 50k/5k,
sold November, 1995 to Salem for 4.8 million. KAHZ should bring
between 3-3.5 million on a quick sale, or as high as 5 million dollars
from an in market group who have reached their limit and wish to
upgrade.
6.) HOUSTON - KTEK-AM:
1110, 2.5kw daytime. Houston has not been a hot bed for AM stations
lately as most AM's are either Spanish or Religion, however, Tichoner
Media bought KMPQ, Rosenberg, TX in May, 1995 for 2.5 million dollars
and Salem bought KENR 1070, 10k/5k in March, 1995 for 5 million
dollars. KTEK is in a tough position being a daytime only facility,
but because it has a very good signal, it could be valuable as a
second signal for a Religious or Spanish broadcaster and could bring
between 2 to 2.5 million dollars.
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7.) MINNEAPOLIS - WWTC-AM:
1280, 5k/5k, most transfer of ownership in AM's in Minneapolis have
been through combo sales with FM sister stations or group sales, and
because the market is filled with major players such as: Chancellor,
Disney, CBS. Once the scramble for FM's is completed, the power to
control AM will become a factor possibly increasing the value of WWTC
to perhaps 2.5 million dollars.
8.) MINNEAPOLIS - KTCR-AM:
1570, 3.8k/.23k, St. Louis Park is not as good a signal as sister
station WWTC and will not bring nearly the price, but having said that
a full time signal in the 16th market should be able to get between
750,000 to 1 million dollars depending upon various factors.
9.) DENVER - KKYD-AM:
1340, lk/lk, Heavily traded market. December, 1995 Montana Media paid
1.5 million dollars for KJME 1390, 5k/.14k, a low rated station less
than 1 rating. KKYD should be worth 1 to 1.5 million dollars.
10.) KANSAS CITY - KCAZ-AM:
1480, lk/.5k, Mission, KS AM's bring low dollar, I do not know why.
Knowing WDAF-AM is one of the top three stations in the market,
nothing has brought over 800 thousand dollars since 1990, but we must
add in perhaps the fact that, like markets such as Cincinnati, have
gotten much more than 1 million dollars for WSAI and 2 million dollars
for WKYN Florence, and figure that the new laws of ownership will
bring up prices in KC as well. Knowing this, a facility such as KCAZ
should be able to bring 900,000 to 1.2 million dollars.
11.) FAIRWAY, KS - KCNW-AM:
1380, 2.5k/.029k, this station has a better day coverage than KCAZ,
but has no night signal. It should be worth about the same figure as
KCAZ in the 900,000 to 1.2 million dollar range.
12.) MILWAUKEE - WZER-AM:
540khz, 500w/500w, Jackson, WI. The only other sale of an AM stand
alone was WBIX Racine, 1460 with 500w/60w in 1995 and it sold for
275,000 dollars. More information such as billing and cash flow will
alter any analysis of a stations worth, but just from what is in the
facts to work with. I would estimate that WZER could possibly bring 1
million to 1.5 million in today's market.
All estimates on values were done without the aid of any current financial
information, and only on "like kind" for each market or similar market.
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APPENDIX IV
DISSENTERS' RIGHTS
SECTIONS 302A.471 AND 302A.473
OF THE MINNESOTA BUSINESS CORPORATION ACT
302A.471. RIGHTS OF DISSENTING SHAREHOLDERS
SUBDIVISION 1. ACTIONS CREATING RIGHTS. A shareholder of a corporation
may dissent from, and obtain payment for the fair value of the shareholder's
shares in the event of, any of the following corporate actions:
(a) An amendment of the articles that materially and adversely affects
the rights or preferences of the shares of the dissenting shareholder in
that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the
redemption of the shares, including a provision respecting a sinking fund
for the redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the
shares to acquire shares, securities other than shares, or rights to
purchase shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a
matter, or to cumulate votes, except as the right may be excluded or
limited through the authorization or issuance of securities of an existing
or new class or series with similar or different voting rights; except that
an amendment to the articles of an issuing public corporation that provides
that section 302A.671 does not apply to a control share acquisition does
not give rise to the right to obtain payment under this section.
(b) A sale, lease, transfer, or other disposition of all or
substantially all of the property and assets of the corporation a
transaction permitted without shareholder approval in section 302A.661,
subdivision 1, or, but not including a disposition in dissolution described
in section 302A.725, subdivision 2, or a disposition pursuant to an order
of a court, or a disposition for cash on terms requiring that all or
substantially all of the net proceeds of disposition be distributed to the
shareholders in accordance with their respective interests within one year
after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter
322B, to which the corporation is a party, except as provided in
subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter
322B, to which the corporation is a party as the corporation whose shares
will be acquired by the acquiring corporation, if the shares of the
shareholder are entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote
with respect to which the articles, the bylaws, or a resolution approved by
the board directs that dissenting shareholders may obtain payment for their
shares.
SUBD. 2. BENEFICIAL OWNERS.
(a) A shareholder shall not assert dissenters' rights as to less than
all of the shares registered in the name of the shareholder, unless the
shareholder dissents with respect to all the shares that are beneficially
owned by another person but registered in the name of the shareholder and
discloses the name and address of each beneficial owner on whose behalf the
shareholder dissents. In that event, the rights of the dissenter shall be
determined as if the shares as to which the shareholder has dissented and
the other shares were registered in the names of different shareholders.
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(b) A beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting shareholder under the terms of
this section and section 302A.473, if the beneficial owner submits to the
corporation at the time of or before the assertion of the rights a written
consent of the shareholder.
SUBD. 3. RIGHTS NOT TO APPLY. Unless the articles, the bylaws, or a
resolution approved by the board otherwise provide, the right to obtain payment
under this section does not apply to a shareholder of the surviving corporation
in a merger, if the shares of the shareholder are not entitled to be voted on
the merger.
SUBD. 4. OTHER RIGHTS. The shareholders of a corporation who have a right
under this section to obtain payment for their shares do not have a right at law
or in equity to have a corporate action described in subdivision 1 set aside or
rescinded, except when the corporate action is fraudulent with regard to the
complaining shareholder or the corporation.
302A.473. PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS
SUBDIVISION 1. DEFINITIONS.
(a) For purposes of this section, the terms defined in this
subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action referred to in section 302A.471, subdivision 1
or the successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective
date of the corporate action referred to in section 302A.471, subdivision
1, up to and including the date of payment, calculated at the rate provided
in section 549.09 for interest on verdicts and judgments.
SUBD. 2. NOTICE OF ACTION. If a corporation calls a shareholder meeting
at which any action described in section 302A.471, subdivision 1 is to be voted
upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this section and a
brief description of the procedure to be followed under these sections.
SUBD. 3. NOTICE OF DISSENT. If the proposed action must be approved by
the shareholders, a shareholder who wishes to exercise dissenters' rights must
file with the corporation before the vote on the proposed action a written
notice of intent to demand the fair value of the shares owned by the shareholder
and must not vote the shares in favor of the proposed action.
SUBD. 4. NOTICE OF PROCEDURE; DEPOSIT OF SHARES.
(a) After the proposed action has been approved by the board and, if
necessary, the shareholders, the corporation shall send to all shareholders
who have complied with subdivision 3 and to all shareholders entitled to
dissent if no shareholder vote was required, a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertificated shares that
will apply after the demand for payment is received;
(3) A form to be used to certify the date on which the
shareholder, or the beneficial owner on whose behalf the shareholder
dissents, acquired the shares or an interest in them and to demand payment;
and
IV-2
<PAGE>
(4) A copy of section 302A.471 and this section and a brief
description of the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply
with any restrictions on transfer of uncertificated shares within 30 days
after the notice was given, but the dissenter retains all other rights of a
shareholder until the proposed action takes effect.
SUBD. 5. PAYMENT; RETURN OF SHARES.
(a) After the corporate action takes effect, or after the corporation
receives a valid demand for payment, whichever is later, the corporation
shall remit to each dissenting shareholder who has complied with
subdivisions 3 and 4 the amount the corporation estimates to be the fair
value of the shares, plus interest, accompanied by:
(1) the corporation's closing balance sheet and statement of
income for a fiscal year ending not more than 16 months before the
effective date of the corporate action, together with the latest available
interim financial statements;
(2) an estimate by the corporation of the fair value of the
shares and a brief description of the method used to reach the estimate;
and
(3) a copy of section 302A.471 and this section, and a brief
description of the procedure to be followed in demanding supplemental
payment.
(b) The corporation may withhold the remittance described in paragraph
(a) from a person who was not a shareholder on the date the action
dissented from was first announced to the public or who is dissenting on
behalf of a person who was not a beneficial owner on that date. If the
dissenter has complied with subdivisions 3 and 4, the corporation shall
forward to the dissenter the materials described in paragraph (a), a
statement of the reason for withholding the remittance, and an offer to pay
to the dissenter the amount listed in the materials if the dissenter agrees
to accept that amount in full satisfaction.
The dissenter may decline the offer and demand payment under
subdivision 6. Failure to do so entitles the dissenter only to the amount
offered. If the dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the
deposit of certificates or the imposition of transfer restrictions on
uncertificated shares, it shall return all deposited certificates and
cancel all transfer restrictions. However, the corporation may again give
notice under subdivision 4 and require deposit or restrict transfer at a
later time.
SUBD. 6. SUPPLEMENTAL PAYMENT; DEMAND. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest, the dissenter may give written notice to the corporation of the
dissenter's own estimate of the fair value of the shares, plus interest, within
30 days after the corporation mails the remittance under subdivision 5, and
demand payment of the difference. Otherwise, a dissenter is entitled only to
the amount remitted by the corporation.
SUBD. 7. PETITION; DETERMINATION. If the corporation receives a demand
under subdivision 6, it shall, within 60 days after receiving the demand, either
pay to the dissenter the amount demanded or agreed to by the dissenter after
discussion with the corporation or file in court a petition requesting that the
court determine the fair value of the shares, plus interest. The petition shall
be filed in the county in which the registered office of the corporation is
located, except that a surviving foreign corporation that receives a demand
relating to the shares of a constituent domestic corporation shall file the
petition in the county in this state in which the last registered office of the
constituent corporation was located. The petition shall name as parties all
dissenters who have demanded payment under subdivision 6 and who have not
reached agreement
IV-3
<PAGE>
with the corporation. The corporation shall, after filing the
petition, serve all parties with a summons and copy of the petition under the
rules of civil procedure. Nonresidents of this state may be served by
registered or certified mail or by publication as provided by law. Except as
otherwise provided, the rules of civil procedure apply to this proceeding. The
jurisdiction of the court is plenary and exclusive. The court may appoint
appraisers, with powers and authorities the court deems proper, to receive
evidence on and recommend the amount of the fair value of the shares. The court
shall determine whether the shareholder or shareholders in question have fully
complied with the requirements of this section, and shall determine the fair
value of the shares, taking into account any and all factors the court finds
relevant, computed by any method or combination of methods that the court, in
its discretion, sees fit to use, whether or not used by the corporation or by a
dissenter. The fair value of the shares as determined by the court is binding
on all shareholders, wherever located. A dissenter is entitled to judgment in
cash for the amount by which the fair value of the shares as determined by the
court, plus interest, exceeds the amount, if any, remitted under subdivision 5,
but shall not be liable to the corporation for the amount, if any, by which the
amount, if any, remitted to the dissenter under subdivision 5 exceeds the fair
value of the shares as determined by the court, plus interest.
SUBD. 8. COSTS; FEES; EXPENSES.
(a) The court shall determine the costs and expenses of a proceeding
under subdivision 7, including the reasonable expenses and compensation of
any appraisers appointed by the court, and shall assess those costs and
expenses against the corporation, except that the court may assess part or
all of those costs and expenses against a dissenter whose action in
demanding payment under subdivision 6 is found to be arbitrary, vexatious,
or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses
of any experts or attorneys as the court deems equitable. These fees and
expenses may also be assessed against a person who has acted arbitrarily,
vexatiously, or not in good faith in bringing the proceeding, and may be
awarded to a party injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an
attorney for the dissenters out of the amount awarded to the dissenters, if
any.
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<PAGE>
APPENDIX V
CONSENTS OF INDEPENDENT PUBLIC AUDITORS
V-1
<PAGE>
CONSENT OF BDO SEIDMAN, LLP
We consent to the incorporation by reference in Schedule 14A of our report
dated February 28, 1997, except for Note 8 which is dated March 27, 1997, 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, 1996.
/s/ BDO Seidman, LLP
- ---------------------------
BDO Seidman, LLP
Milwaukee, Wisconsin
December 3, 1997
V-2
<PAGE>
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in this Schedule 14A of our
report dated January 31, 1996 with respect to the consolidated financial
statements of Children's Broadcasting Corporation for the year ended
December 31, 1995 included in its Annual Report (Form 10-KSB) for the year
ended December 31, 1996.
/s/ Ernst & Young LLP
- ---------------------------
Ernst & Young LLP
Minneapolis, Minnesota
December 3, 1997
V-3
<PAGE>
CONSENT OF SMOLIN, LUPIN & CO., P.A.
We consent to the incorporation by reference in Children's Broadcasting
Corporation's Schedule 14A 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.
/s/ Smolin, Lupin & Co., P.A
- ------------------------------
Smolin, Lupin & Co., P.A.
West Orange, New Jersey
December 3, 1997
V-4
<PAGE>
CONSENT OF KLEIMAN, CARNEY & GREENBAUM
We consent to the incorporation by reference in Children's Broadcasting
Corporation's Schedule 14A of our reports dated January 19, 1996, February 2,
1996 and May 30, 1996, with respect to the financial statements of Wolpin
Broadcasting Company.
Very truly yours,
/s/ Kleiman, Carney & Greenbaum
- ---------------------------------
Kleiman, Carney & Greenbaum
Certified Public Accountants
December 3, 1997
Farmington Hills, Michigan
V-5
<PAGE>
CONSENT OF BDO SEIDMAN, LLP
We consent to the incorporation by reference in Children's Broadcasting
Corporation's Schedule 14A of our report dated August 29, 1997, with respect to
the consolidated financial statements of Harmony Holdings, Inc. included in its
Annual Report (Form 10-K) for the year ended June 30, 1997.
/s/ BDO Seidman, LLP
- ---------------------------
BDO Seidman, LLP
Milwaukee, Wisconsin
December 3, 1997
V-6
<PAGE>
CHILDREN'S BROADCASTING CORPORATION
724 FIRST STREET NORTH
MINNEAPOLIS, MN 55401
(612) 338-3300
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, having duly received the Notice of Special Meeting and the
Proxy Statement, dated December 5, 1997, hereby appoints James G. Gilbertson and
Lance W. Riley as proxies (each with the power to act alone and with the power
of substitution and revocation), to represent the undersigned and to vote, as
designated below, all common shares of Children's Broadcasting Corporation held
of record by the undersigned on November 11, 1997, at the 1998 Special Meeting
of Shareholders to be held at the Minneapolis Hilton and Towers, 1001 Marquette
Avenue, Minneapolis, Minnesota, on January 6, 1998, at 3:30 p.m. Minneapolis
time, and at any adjournments thereof.
1. To consider and vote upon a proposal to approve the Asset Purchase
Agreement, between the Company and Global Broadcasting Company, Inc.,
pursuant to which the radio broadcast licenses, and certain related assets,
of all of the Company's owned and operated radio stations, representing
substantially all of the assets of the Company, would be sold to Global
Broadcasting Company, Inc.
/ / FOR / / AGAINST / / ABSTAIN
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment thereof.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED ON
THE PROXY BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSAL 1. ABSTENTIONS WILL BE COUNTED TOWARDS THE EXISTENCE
OF A QUORUM, BUT WILL NOT BE CONSIDERED TO HAVE BEEN VOTED IN FAVOR OF PROPOSAL
1.
Please sign exactly as name appears on this proxy. When shares are held by
joint tenants, both should sign. If signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by an authorized
person.
DATED: -----------------------------------------
-------------------------------------------------------
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PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
