<PAGE>
As filed with the Securities and Exchange Commission on June 2, 1997
Registration No. 333-______
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CHILDREN'S BROADCASTING CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 5961 41-1663712
(State or other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Identification
Incorporation or Organization) Code Number) Number)
724 FIRST STREET NORTH
MINNEAPOLIS, MINNESOTA 55401
(612) 338-3300
(Address and telephone number, including area code, of registrant's principal
executive offices)
JAMES G. GILBERTSON, CHIEF OPERATING OFFICER AND TREASURER
CHILDREN'S BROADCASTING CORPORATION
724 FIRST STREET NORTH
MINNEAPOLIS, MINNESOTA 55401
(612) 338-3300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
AVRON L. GORDON, ESQ. LANCE W. RILEY, ESQ.
BRETT D. ANDERSON, ESQ. CHILDREN'S BROADCASTING CORPORATION
BRIGGS AND MORGAN, P.A. 724 FIRST STREET NORTH
2400 IDS CENTER MINNEAPOLIS, MINNESOTA 55401
MINNEAPOLIS, MINNESOTA 55402 (612) 330-9521
(612) 334-8400
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
---------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: /X/
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box: / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SHARE(1) PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK ($.02 PAR VALUE)................. 318,607 $3.625 $1,154,951 $350
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and based upon the last reported sale price for
such stock on May 28, 1997, as reported by the Nasdaq National Market
System.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 2, 1997
PROSPECTUS
- --------------------------------------------------------------------------------
318,607 SHARES
CHILDREN'S BROADCASTING CORPORATION
COMMON STOCK
- --------------------------------------------------------------------------------
This Prospectus relates to 318,607 shares of Common Stock (the "Shares"),
par value $.02 per share (the "Common Stock"), of Children's Broadcasting
Corporation (the "Company") that may be offered for sale for the account of
certain shareholders of the Company as stated herein under the heading "Selling
Shareholders." Certain of the Shares are issuable upon the exercise of warrants
held by the Selling Shareholders. No period of time has been fixed within which
the Shares may be offered or sold. The Company's Common Stock is traded on the
Nasdaq National Market under the symbol "AAHS." On May 28, 1997, the average of
the high and low prices of the Common Stock on the Nasdaq National Market was
$3.75 per share. Current market quotations are listed in THE WALL STREET
JOURNAL and many other newspapers of general circulation.
The Selling Shareholders have advised the Company that sales of the Shares
by them, or by their pledgees, donees, transferees or other successors in
interest, may be made from time to time in the over-the-counter market, through
negotiated transactions or otherwise at market prices prevailing at the time of
sale or at negotiated prices. The Shares may be sold by one or more of the
following methods: (a) a block trade in which the broker or dealer so engaged
will attempt to sell the Shares as agent but may position and resell a portion
of the block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; and (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers. Sales may be made
pursuant to this Prospectus to or through broker-dealers who may receive
compensation in the form of discounts, concessions or commissions from the
Selling Shareholders or the purchasers of Common Stock for whom such
broker-dealer may act as agent or to whom they may sell as principal, or both
(which compensation as to a particular broker-dealer may be in excess of
customary commissions). One or more supplemental prospectuses will be filed
pursuant to Rule 424 under the Securities Act of 1933, as amended (the
"Securities Act") to describe any material arrangements for the sales of the
Shares when such arrangements are entered into by any of the Selling
Shareholders and any other broker-dealers that participate in the sale of the
Shares.
The Selling Shareholders and any broker-dealers or other persons acting on
their behalf in connection with the sale of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commissions
received by them and any profit realized by them on the resale of the Shares as
principals may be deemed to be underwriting commissions under the Securities
Act. As of the date hereof, there are no special selling arrangements between
any broker-dealer or other person and any Selling Shareholder.
The Company will not receive any part of the proceeds of any sales of
Shares pursuant to this Prospectus. Pursuant to the terms of registration
rights granted to the Selling Shareholders, the Company will pay all the
expenses of registering the Shares, except for selling expenses incurred by the
Selling Shareholders in connection with this offering, including any fees and
commissions payable to broker-dealers or other persons, which will be borne by
the Selling Shareholders. In addition, such registration rights provide for
certain other usual and customary terms, including indemnification by the
Company of the Selling Shareholders against certain liabilities arising under
the Securities Act.
THE SHARES INVOLVE CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF
THIS PROSPECTUS.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
THE DATE OF THIS PROSPECTUS IS __________, 1997.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company pursuant to the Exchange
Act may be inspected and copied at the public reference facilities maintained by
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the Commission located at Seven World Trade
Center, Suite 1300, New York, New York 10048 and Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can also be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The Commission maintains a Web site that contains reports,
proxy statements and other information regarding registrants that file
electronically with the Commission at http://www.sec.gov. In addition, the
Company's Common Stock is quoted on the NASDAQ National Market System. Reports,
proxy statements and other information concerning the Company can be inspected
and copied at the Public Reference Room of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act. This Prospectus does not
contain all of the information, exhibits and undertakings set forth in the
Registration Statement, certain parts of which are omitted as permitted by the
rules and regulations of the Commission. For further information, reference is
hereby made to the Registration Statement which may be inspected and copied in
the manner and at the sources described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company (File No. 0-21534)
with the Commission pursuant to the Exchange Act are incorporated into this
Prospectus by reference:
(a) The Company's Annual Report on Form 10-KSB for the year ended December
31, 1996, filed on March 31, 1997.
(b) The Company's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1997, filed on May 14, 1997.
(c) The Company's Current Report on Form 8-K/A filed on January 31, 1997,
relating to acquisition of the assets of Radio Station WCAR-AM.
(d) The Company's Current Report on Form 8-K/A filed on January 31, 1997,
relating to acquisition of Radio Elizabeth, Inc.
(e) 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.
(f) The Company's Definitive Schedule 14A (Proxy Statement) filed on April
30, 1997, relating to the Company's Annual Meeting of Shareholders
scheduled for July 16, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering hereunder shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents.
Any statement contained herein or in a document all or any portion of which
is incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed
2
<PAGE>
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to each person to whom this
Prospectus is delivered, upon written or oral request of any such person, a copy
of any or all of the foregoing documents (other than exhibits to such documents
which are not specifically incorporated by reference in such documents).
Written requests for such copies should be directed to the Company at 724 First
Street North, Minneapolis, Minnesota 55401, Attention: Chief Financial Officer.
Telephone requests may be directed to the office of the Chief Financial Officer
of the Company at (612) 338-3300.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED BY THE MORE DETAILED INFORMATION AND
CONSOLIDATED FINANCIAL STATEMENTS APPEARING ELSEWHERE OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS.
THIS PROSPECTUS CONTAINS "FORWARD-LOOKING STATEMENTS," AS DEFINED IN THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (THE "LITIGATION REFORM ACT"),
THAT INVOLVE RISKS AND UNCERTAINTIES. PURCHASERS OF THE COMPANY'S COMMON STOCK
ARE CAUTIONED THAT THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM
THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE FACTORS DISCUSSED HEREIN
UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
Children's Broadcasting Corporation is a full-time national broadcaster
of children's radio programming in the United States. The Company develops,
produces and distributes programming that is entertaining and informative,
and directed to the interests and radio listening patterns of pre-teenage
children and their families. The Company's Aahs World Radio-SM-* format
provides 24-hour programming featuring music, stories, call-in segments,
quizzes and current events features. The programming varies by time of day
in order to attract that component of its prospective audience most likely to
be listening. The programming originates at the Company's flagship station,
WWTC-AM in Minneapolis, Minnesota, and is distributed via satellite to a
network of radio stations around the country.
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. A substantial portion of the Company's local advertising revenue is
derived from Company-owned stations not broadcasting the Aahs World Radio-SM-
format. These stations, which broadcast primarily family-oriented programming
in the Houston, Kansas City, Milwaukee and Minneapolis markets, were acquired by
the Company in 1994. See "Risk Factors -- Development of National Radio
Network."
The Company's growth strategy includes the acquisition of AM radio
broadcast licenses ("RBLs") in the top 15 markets, thereby securing the
network's presence and continuity in those key markets. Pursuant to that
strategy, the Company has acquired RBLs which serve the New York City, Los
Angeles, Chicago, Philadelphia, Detroit and Dallas/Fort Worth markets. During
the year ended December 31, 1996, the Company acquired RBLs covering the New
York City, Philadelphia and Detroit markets. With the January 1997 acquisition
of the RBL and certain other assets of radio station WAUR-AM in the Chicago
market, the Company distributes its programming to markets representing
approximately 40% of the U.S. population and has a presence in the top four
markets and seven of the top ten markets in the U.S.
The Company has engaged investment bankers to explore strategic
alternatives to enhance shareholder value. Such investment bankers have had and
continue to hold discussions with various potential strategic partners with a
view toward entering into a joint venture, sale or merger. There can be no
assurance that the Company will be successful in completing any transaction with
a prospective strategic partner.
The Company was incorporated under the Minnesota Business Corporation Act
on February 7, 1990. All references to the Company herein include its
subsidiaries, unless otherwise noted. The Company's executive office is located
at 724 First Street North, Minneapolis, Minnesota 55401, and its telephone
number is (612) 338-3300. Its World Wide Web site is www.netradioaahs.net.
- --------------------
* Children's Broadcasting Corporation has applied for a service mark for
Aahs World Radio-SM-.
4
<PAGE>
BROADCAST STRATEGY
The Company seeks to attract listeners and advertisers to the Aahs World
Radio-SM- programming format by continually refining its content and
expanding the distribution network. Elements of this strategy include (i)
attracting a loyal listenership by maintaining high quality, distinctive
programming directed to its target audience, (ii) reinforcing this loyalty by
creating a brand identity through the creation of characters which are
integrated into its programming, (iii) delivering this listenership base to
national advertisers by expanding its radio network to obtain U.S. population
coverage, and (iv) making opportunistic acquisitions of RBLs in key markets.
The Company derives its revenue primarily from the sale of local and
network time to advertisers. The Company believes that as its coverage of the
U.S. continues to expand, it will be able to sell national advertising time in
greater quantities and at significantly higher rates with no significant
additional operating costs. To a large extent, the Company is already incurring
the production, operating and administrative costs necessary to broadcast the
network to the entire U.S. Incremental costs as the network continues to expand
are expected to be minimal, excluding the costs of any station acquisitions or
local marketing agreements ("LMAs") which the Company may complete or into which
the Company might enter.
Aahs World Radio-SM- is a music-driven format which was developed and is
produced for pre-teens. In addition to this primary target market, the
format has also been strategically designed to appeal to parents and care
givers. This is accomplished through a blend of music, stories, call-in
segments, interactive quiz features, interviews and current events.
Approximately two-thirds of Aahs World Radio-SM- programming consists of
pop-oriented music which is selected for children on the basis of lyric
content, entertainment and/or educational value. Each selection is classified
in one of several music categories and entered into the Company's program
management system to ensure that it airs under designated conditions and only
at designated times. Research conducted by the Company, including focus
groups and analysis of listener feedback, has shown that having music as the
core element of its programming is the best way to attract and retain its
target audience. The Company develops and continually conducts focus groups
and written and telephonic surveys in order to enhance its understanding of
its target audience and ensure that its programming is meeting the demands of
both kids and their parents. Management believes that non-musical
programming is appealing as well and contributes to the "personality" of the
format and to its differentiation from competing formats.
Prior to the Company's development of the Aahs World Radio-SM- format,
there were not any full-time radio formats which targeted the pre-teen
market. It is estimated that over $1.0 billion in advertising dollars is
directed toward children annually, yet only a small percentage of these
advertising dollars are currently spent on radio. The Company believes that
advertisers trying to reach children have not utilized radio due to the lack
of children's programming on the radio. By providing quality programming
which is appealing to both pre-teens and their parents and by pursuing
vigorous sales and marketing efforts, the Company believes it will be able to
attract an increasing portion of the annual advertising dollars aimed at this
previously underserved market segment.
The Company believes that developing a well-recognized brand identity
will enhance its network's visibility and create opportunities for the
Company to expand beyond the scope of its broadcast operations. The Company
has created characters within its programming, including AAHSIE-TM-, the
Company's animated mascot, which it has integrated into is merchandising and
Internet enterprise. The Company has developed and intends to continue to
develop strategic relationships to assist it in its brand development
efforts, and to allow the Company to exploit business opportunities without
detracting from management's focus upon the Company's core business.
Pursuant to this strategy, the Company has entered into agreements with
NetRadio Network, Inc. ("NetRadio") and Precision Tapes, Inc. which expand
the Company's interactive Internet presence and give Aahs World Radio-SM-
programming Internet distribution worldwide. The Company distributes the
full 24-hour Aahs World Radio-SM- format over the Internet pursuant to an
agreement with NetRadio.
5
<PAGE>
In November 1995, the Company entered into a joint operations agreement
(the "Operations Agreement") with ABC Radio Networks, Inc. ("ABC") pursuant to
which ABC's affiliate development and national advertising sales staffs would
augment the Company's efforts to market its children's radio format to
broadcasters and advertisers. On July 25, 1996, ABC notified the Company that
ABC would terminate such agreement effective October 24, 1996. Following the
termination by ABC of the Operations Agreement, the Company filed a lawsuit in
the United States District Court for the District of Minnesota against The Walt
Disney Company ("Disney") and ABC for injunctive relief and to recover damages
for their alleged attempts to misappropriate the Company's confidential
information and trade secrets acquired through their strategic relationship with
the Company in order to unfairly compete with the Company in the children's
radio market. On November 18, 1996, ABC and Disney commenced broadcast of
"Radio Disney," a competing format directed toward children age 12 and under in
four markets across the country. See "Risk Factors -- ABC/Disney Litigation"
and " -- Competition."
FOOTHILL FINANCING
The Company entered into an agreement (the "Credit Agreement") with
Foothill Capital Corporation ("Foothill") to address the Company's working
capital requirements through the creation of three credit facilities (the
"Facilities") on November 25, 1996. The Credit Agreement provides the Company
with working capital through (a) a $11,500,000 senior secured term loan (the
"Term Loan") collateralized by the assets of the Company, payable over four
years, (b) a $1,000,000 senior secured reducing/revolving line of credit (the
"Revolving Loan") secured by the Company's accounts receivable, and (c) a
$4,000,000 acquisition facility (the "Acquisition Loan") secured by future
assets acquired by the Company. The Facilities mature on November 26, 2000.
The Company's indebtedness under the Facilities is secured by a first priority
lien on substantially all the assets of the Company and its subsidiaries, by a
pledge of its subsidiaries' stock and by a guaranty of its subsidiaries.
Additionally, the Company granted Foothill a warrant to purchase 50,000 shares
of the Company's Common Stock. The Company was required to pay various service
and commitment fees as are standard within the industry.
Funds available from the Term Loan have been and may in the future be used
for working capital needs and acquisitions, including the purchase of the RBL
and certain other assets of WAUR-AM in the Chicago market. The Revolving Loan
may be used for working capital needs and for acquisitions. Advances are not to
exceed 80% of eligible accounts receivable less certain reserves. The Term Loan
is to be repaid monthly in 42 installments of principal in the amount of 1/54 of
the Term Loan amount beginning in month seven of the Credit Agreement. The
Acquisition Loan is to be repaid monthly based upon a five-year amortization
schedule, commencing on the first month following funding. Interest rates under
the Facilities are payable at the prime rate plus 2.75%. The Credit Agreement
contains a number of restrictive covenants which, among other things, require
the Company to maintain specified financial ratios and impose certain
limitations on the Company with respect to the amount of funding available for
each acquisition under the Acquisition Loan. As of March 31, 1997 and December
31, 1996, the Company was in violation of certain of these restrictive
covenants. Foothill has waived its rights pursuant to these violations.
As of May 14, 1997, approximately $11,746,000 was borrowed pursuant to the
Credit Agreement. These proceeds have been used as follows: $1,700,000 in
connection with the acquisition of an RBL in the Chicago market, $2,900,000 to
retire preferred stock, $1,000,000 to retire debt, $720,000 for capital
expenditures, $400,000 related to loan costs, $860,000 to repay miscellaneous
interest and principal, and approximately $4,166,000 for working capital and
cash reserves.
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING
RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS,
IN CONNECTION WITH AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY.
WHEN USED BELOW AND ELSEWHERE IN THIS PROSPECTUS, INCLUDING DOCUMENTS
INCORPORATED HEREIN BY REFERENCE, THE WORDS "BELIEVES," "ANTICIPATES" AND
"INTENDS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY "FORWARD-LOOKING
STATEMENTS," AS DEFINED IN THE LITIGATION REFORM ACT. SUCH STATEMENTS ARE
SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE PROJECTED. POTENTIAL PURCHASERS OF THE COMPANY'S
COMMON STOCK ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF.
ACQUISITIONS. One of the Company's strategies used to expand its
national network of radio stations broadcasting Aahs World Radio-SM- is to
acquire RBLs in key markets. To date, the Company has acquired 13 RBLs, 12
of which are currently owned and operated. The Company has acquired RBLs
through the acquisition of securities or assets of radio stations and intends
to continue to acquire RBLs in the future. Unless the acquisition is of an
existing affiliate, the Company will generally convert an acquired RBL to the
Aahs World Radio-SM-format. Although the Company believes it has identified
a number of potential acquisitions, there can be no assurance that the
Company will be successful in acquiring additional RBLs. The Company expects
to face competition in acquiring additional RBLs as it seeks to build its
national radio network. In the event the Company is unable to continue to
acquire RBLs, the Company may not achieve market penetration levels required
by major advertisers and the Company's ability to attract national
advertising and maximize the rates charged for advertising and air time could
be materially adversely affected. See "--Development of National Radio
Network."
COMPANY DEVELOPMENT; HISTORY OF OPERATING LOSSES. Since inception, the
Company has experienced substantial net losses as a result of its efforts to
develop its national radio network. The Company is continuing to develop its
radio network and is generally subject to the risks attendant to a new or
emerging business venture. The Company has incurred net losses since its
inception in 1990 and has not generated positive cash flow sufficient to fund
its ongoing operations. For the two years ended December 31, 1995 and 1996, and
the three months ended March 31, 1997, the Company incurred net losses of
$6,108,000, $9,868,000 and $2,780,000 respectively. The Company has not
generated positive cash flow from operations and has had frequent working
capital shortages. The Company expects to continue to incur operating losses
throughout 1997 and that it will continue to experience negative cash flow from
operations. Working capital requirements have been met by short-term borrowings
from investors, including affiliates of the Company, and from the proceeds of
public offerings of the Company's Common Stock, and through the use of the
Facilities. The Company continues to seek additional sources of financing for
its working capital needs and for acquisitions. If the Company should be unable
to obtain working capital when required, its operations and prospects would be
materially and adversely affected. In connection with their audit reports on
the Company's financial statements as of and for the years ended December 31,
1995 and 1996, Ernst & Young LLP and BDO Seidman, LLP, the Company's independent
auditors as of such dates, expressed substantial doubt about the Company's
ability to continue as a going concern because of recurring losses and negative
cash flow from operations. As of March 31, 1997, the Company had an accumulated
deficit of $29,084,000 and had used approximately $19,979,000 of cash to fund
its losses. See "Prospectus Summary -- Foothill Financing."
The Company raised a total of $12,500,000 of capital through the Credit
Agreement with Foothill in November 1996. Additionally, as a part of the Credit
Agreement the Company may borrow an additional $4,000,000 to acquire future
assets. The Company believes the Credit Agreement will meet the working capital
needs of the Company and provide adequate resources for acquisitions until the
fall of 1997. Beyond the fall of 1997, the Company's ability to obtain funding
to meet its future capital requirements will depend upon a number of factors
including, but not limited to, (i) the ability of the Company to generate cash
flow from operations, (ii) the acceptance of the Company's children's radio
format, (iii) the relative profitability of the
7
<PAGE>
format on a local and national basis and (iv) the general availability of debt
and equity financing to the Company. The Company continues to seek additional
sources for its working capital and long-term capital requirements, including
debt and equity financing and strategic partnership activities.
SUBSTANTIAL LEVERAGE; ADDITIONAL FINANCING REQUIREMENTS. As of March 31,
1997, the Company's consolidated indebtedness approximated 51% of the sum of its
shareholders' equity and consolidated indebtedness, assuming full funding under
the Facilities, which occurred on April 23, 1997. Based on current interest
rates, the debt service obligations associated with the Credit Agreement
necessitate payments of principal and interest of approximately $3,000,000 in
1997. Further, substantially all assets of the Company serve to secure this
loan. This degree of leverage increases the Company's vulnerability to adverse
general economic and broadcasting industry conditions and to increased
competitive pressures, including pressure from better capitalized competitors.
Issuance of additional debt, including the Debt Securities, would increase this
degree of leverage and the Company's vulnerability to such market conditions.
In the event that the Company should default on its obligations under the Credit
Agreement, all or substantially all of its assets would be at risk. There can
be no assurance that the Company will be able to repay or refinance such
indebtedness when due, or that the Company would be able to sell all or any
portion of its assets or raise additional capital to make required payments on
maturing indebtedness. Furthermore, the Company was in violation of certain
covenants contained in the Credit Agreement as of March 31, 1997 and December
31, 1996. An inability to make payments when due or to comply with covenants
and restrictions associated with such indebtedness could give Foothill the right
to foreclose on properties securing payment obligations, which would have a
material adverse effect upon the Company. Foothill has waived its rights
pursuant to the aforementioned covenant violations. Part of the Company's
strategy for development and expansion of its network includes acquiring RBLs
and/or operating radio properties in key U.S. markets. It is the Company's
desire to purchase RBLs in each of the top 15 markets; however, there can be no
assurance that the Company will be able to complete suitable acquisitions on
terms favorable or acceptable to the Company. In the event the Company purchases
additional RBLs, the limitations on the Credit Agreement may require the Company
to seek additional financing for acquisitions and to fund future operations.
There can be no assurance that such additional financing will be available to
the Company when required, or if available, that it would be on terms acceptable
or favorable to the Company. Additional financing could require the sale of
equity securities, which could result in significant dilution to the Company's
shareholders.
DEVELOPMENT OF NATIONAL RADIO NETWORK. Since late 1992, the Company has
been developing a network of affiliated and owned or operated radio stations to
carry its satellite-transmitted programming to domestic radio markets. The
Company's affiliation agreements have terms varying from one to three years.
There can be no assurance that the Company will be able to retain existing
affiliates or attract additional affiliates. Since the inception of the
network, the Company has gained and lost affiliates. As of May 14, 1997, the
Company had 30 affiliates. In cases where the Company deems it appropriate, it
intends to seek affiliates by entering into affiliation agreements or LMAs,
through which third-party owned stations broker broadcast time to the Company,
or by acquiring stations in key markets. In addition, the Company could
encounter substantial delays, expenses or other unforeseen difficulties in
completing the establishment of its network in the major markets. The Company
also risks the potential loss of strategic alliances which it has developed in
connection with its strategy to develop the Company's brand, to assist in growth
of the Company's network, and to pursue related business opportunities.
Furthermore, the signal of the Company's affiliates and of its owned and
operated stations may not cover households in certain portions of the markets in
which such stations broadcast. In addition, the Company's management has
limited experience in the development or operation of a national radio network.
The success and viability of the Company's network will depend upon its
ability to generate substantial revenue from network advertisers. For the
year ended December 31, 1996, and the quarter ended March 31, 1997, the
Company's network generated revenue totaling $1,594,000 and $206,000,
respectively. 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. A substantial portion of the Company's local
advertising revenue is derived from Company-owned stations not broadcasting
the Aahs World Radio-SM- format. For the
8
<PAGE>
years ended December 31, 1995 and 1996, and the quarter ended March 31, 1997,
approximately 42%, 38% and 40%, respectively, of the Company's revenue was
derived from its radio stations which do not carry the Aahs World
Radio-SM-format: KTEK-AM, Houston, Texas, KCNW-AM, Kansas City, Kansas,
WZER-AM, Milwaukee, Wisconsin and KYCR-AM, Minneapolis, Minnesota. For the
years ended December 31, 1995 and 1996, and the quarter ended March 31, 1997,
the Company derived approximately 13%, 12% and 14%, respectively, of its
revenue from KTEK-AM; approximately 9%, 9% and 8%, respectively, of its
revenue from KCNW-AM; approximately 11%, 8% and 8%, respectively, of its
revenue from WZER-AM; and approximately 9%, 9% and 10%, respectively, of its
revenue from KYCR-AM. If the Company converts any of these stations to the
Aahs World Radio-SM- format, its revenue may be negatively affected until a
new advertising base is developed for the Aahs World Radio-SM- format in
those markets. No assurance can be given that the Company will be able to
acquire additional stations in major markets or to increase the number of
network affiliates to a level which would enable it to increase network
advertising, even if desired additional acquisitions are made or affiliate
relationships are created, or that the Company will be able to generate
sufficient advertising revenue to operate profitably in the future.
One of the Company's primary methods of expansion has been to acquire RBLs
through the acquisition of assets of broadcasters in such major markets as New
York City, Los Angeles, Chicago, Philadelphia, Detroit and Dallas/Fort Worth.
The Company's expansion strategy is to acquire additional RBLs which would
enable it to broadcast in each of the top 15 U.S. markets. Such strategy is
designed to achieve market penetration levels required by major advertisers who
may be reluctant or unwilling to purchase advertising time until the Company's
geographic penetration is extended. The Company believes additional market
penetration will improve its ability to maximize the rates charged for
advertising and air time.
ACCEPTANCE OF RADIO FORMAT. The Company produces and distributes a 24-hour
children's radio format. There can be no assurance that the Company's
programming will gain acceptance by listeners and advertisers. In addition, the
Company's primary target audience is not rated by a recognized radio rating
service, such as Arbitron. Such ratings are generally used by potential
advertisers in making advertising decisions. The Company is working with
research companies to attempt to develop such ratings for the pre-teen market.
However, there can be no assurance that such ratings can be developed or that
the Company will be able to attract additional national advertisers.
RISKS RELATED TO ACQUISITION OF RADIO ELIZABETH. On June 4, 1996, the
Company acquired all of the issued and outstanding stock of Radio Elizabeth,
Inc. ("REI"), which holds a Federal Communications Commission ("FCC") license
for WJDM-AM Radio Station licensed to Elizabeth, New Jersey on the 1530 kHz
frequency. REI, in addition to its license for operation on 1530 kHz,
presently has issued to it a special temporary authorization ("STA") for
operation on 1660 kHz at 10 kw power, which provides coverage of a
significant portion of the New York City market. WJDM has been broadcasting
the Company's Aahs World Radio-SM-programming in the nation's largest city
radio market since February 1, 1996, over its 1660 kHz frequency. The STA
frequency is located in a portion of the spectrum referred to as the expanded
band ("Expanded Band") recently allocated by the FCC and assigned to certain
AM broadcasters in order to implement Congressional policy. REI and other
Expanded Band licensees are expected to be allowed to operate on both their
original frequencies and the Expanded Band frequencies for a period of five
years, after which time the licensee must elect which frequency on which it
will continue broadcasting. Most radio receivers produced prior to 1990
cannot receive Expanded Band frequencies. There can be no assurance that REI
will ever receive a permanent license to an Expanded Band frequency, and
failure to obtain such a license would leave the Company broadcasting from
only the existing licensed frequency, which at 1 kw power does not cover the
New York City market, thereby resulting in a substantial diminution of the
value of the Company's investment in REI.
ABC/DISNEY LITIGATION. In November 1995, the Company entered into an
Operations Agreement with ABC pursuant to which ABC's affiliate development and
national advertising sales staffs would augment the Company's efforts to market
its children's radio format to broadcasters and advertisers. On July 25, 1996,
ABC notified the Company that ABC would terminate such agreement effective
October 24, 1996. Following
9
<PAGE>
the termination by ABC of the Operations Agreement, the Company filed a lawsuit
in the United States District Court for the District of Minnesota against Disney
and ABC for injunctive relief and to recover damages for their alleged attempts
to misappropriate the Company's confidential information and trade secrets
acquired through their strategic relationship with the Company in order to
unfairly compete with the Company in the children's radio market. As a result
of the termination by ABC of its Operations Agreement with the Company, the
Company has had to rebuild its own affiliate development and national
advertising sales staff and is in the process of rebuilding that capability.
The Company has commenced rebuilding of its national sales and affiliate
development organizations and has hired eight individuals to staff its national
sales and affiliate development departments. The Company expects to have its
national sales and affiliate development programs in place during the first half
of 1997. The Company is, however, unable to determine the full impact of
damages it has sustained as a result of the actions by ABC, which are the basis
of the Company's claims in the ABC/Disney litigation. Further, there can be no
assurance that the Company will be able to rebuild its national sales and
affiliate development organizations or that it will prevail in the ABC/Disney
litigation or recover any of the damages sought. Such litigation is costly to
the Company and legal fees and costs associated with the litigation have reduced
and may continue to reduce the Company's working capital. Further, the Company
has issued and may in the future issue securities to finance the litigation
which could result in substantial dilution to the Company's existing
shareholders. In November 1996, the Company registered 200,000 shares of Common
Stock on behalf of its litigation counsel.
COMPETITION. The Company currently derives the majority of its revenue
from the sale of local radio advertising time on its owned and operated stations
to advertisers in their respective metropolitan markets and faces substantial
competition from other radio and television stations as well as other media in
those markets. Factors contributing to the Company's ability to attract local
advertisers include the success of a station in attracting listeners and the
perceived quality of the Company's programming. There can be no assurance that
the Company can successfully compete for listeners and advertising revenues with
other radio and television networks and other entertainment organizations. The
Company may also experience competition from developing technologies in the
radio industry.
In addition to the Company's current competition for local advertising, the
Company also competes for network advertising. On information and belief,
Disney has commenced broadcasting of its own children's radio programming in
four U.S. markets, thereby entering into direct competition with the Company.
Further, other entertainment organizations, including but not limited to radio
syndicators and radio stations, many of which have greater resources than the
Company, could develop a children's radio format similar to Aahs World RadioSM.
Although radio stations must be licensed by the FCC, there are no significant
impediments to the entry of new competitors into the Company's markets. While
the Company continues to seek protection for its original programming, where
appropriate, under applicable copyright and trademark laws, the Aahs World
RadioSM format can be and has been imitated by others seeking to enter the
children's radio field.
VOLATILITY OF MARKET PRICE OF COMMON STOCK. The market price of the
Company's Common Stock has been subject to significant fluctuations in response
to numerous factors, including variations in the annual or quarterly financial
results of the Company or its competitors, changes by financial research
analysts in their estimates of the earnings of the Company or its competitors,
conditions in the economy in general or in the radio industry in particular,
unfavorable publicity or changes in applicable laws and regulations (or judicial
or administrative interpretations thereof) affecting the Company or the radio
industry. During fiscal year 1996, the market price of the Company's Common
Stock ranged from a high of $14.00 on January 31 and February 22, 1996 to a low
of $3.25 on November 20, 1996. During the first four months of 1997, the
Company's Common Stock has ranged from $6.63 on January 13, 1997 to $3.19 on
April 7, 1997. There can be no assurance that purchasers of the Company's
Common Stock can sell such stock at or above the prices at which it was
purchased.
IMPACT OF SALE OF SHARES; SHARES ELIGIBLE FOR FUTURE SALE. As of May 14,
1997, the Company had 6,031,501 shares of Common Stock outstanding and had
warrants and options outstanding to purchase an
10
<PAGE>
additional 2,634,213 shares of Common Stock exercisable at prices ranging from
$2.00 to $13.80 per share. Between July 1996 and February 1997, the Company
registered 3,234,277 shares of Common Stock for secondary offerings. The sale
of such shares, the Common Stock offered pursuant to this Prospectus, and the
sale of additional Common Stock which may become eligible for sale in the public
market from time to time upon exercise of warrants and stock options could have
the effect of depressing the market prices for the Company's Common Stock.
RELIANCE ON CURRENT MANAGEMENT. The Company is dependent on the management
services of its current management team. If the Company were to lose the
services of these individuals, its business could be adversely affected. Most
of the members of the Company's current senior management team are not subject
to employment contracts with the Company. The Company does not maintain
insurance on the lives of its key employees.
POTENTIAL CONFLICTS OF INTEREST. The Company leases certain broadcast and
office facilities from its President, Christopher T. Dahl, and another director,
Richard W. Perkins, and the WWTC and KYCR radio transmission tower site from Mr.
Dahl. The Company also shares with Community Airwaves Corporation ("CAC"), a
corporation owned by the Company's President, Christopher T. Dahl, a director,
Richard W. Perkins, and a shareholder, Russell Cowles II, certain management
services which are provided by another entity, Radio Management Corporation,
owned by Messrs. Dahl, Perkins and Cowles. The management services consist of
administrative, legal and accounting services. Such arrangements present
potential conflicts of interest in connection with the pricing of services
provided. In addition, CAC may acquire interests in additional stations. Such
ownership could, under current FCC regulations, limit the markets in which the
Company could acquire additional RBLs. In addition, the Company has entered
into an agreement with CAC whereby the Company is required to obtain the consent
of CAC for any acquisition of an FM station or of an AM station located outside
the largest 125 U.S. markets.
FCC REGULATION. Although the RBLs of the stations owned by the Company are
already granted, the continuation of any RBL acquired by the Company depends
upon its compliance with the laws, rules and regulations of the FCC. The FCC
can revoke licenses for serious misconduct, subject to the right to an
evidentiary hearing, or it may fail to renew a license or impose monetary fines
for breach of its rules. Neither the Company nor CAC has ever been denied any
FCC license or renewal, or had a fine imposed by the FCC. In recent years, a
number of competing applications and formal and informal objections have been
filed with respect to broadcast renewal applications. Even though the vast
majority of all license renewal applications are granted, and under the
Telecommunication Act of 1996 (the "1996 Act") competing applications in license
renewal proceedings are no longer allowed, there can be no assurance that
renewal of the Company's licenses will be granted. Furthermore, approvals are
required for the transfer of ownership. Three directors and attributable
shareholders of the Company have interests in AM and FM radio stations unrelated
to the Company. Under current FCC regulations, these interests are attributed
to the Company and may limit the markets in which the Company can acquire
stations. The 1996 Act eliminated the limit upon the number of stations that
can be under common ownership or control nationally. Local ownership was
substantially relaxed according to market size. See "Risk Factors -- Risks
Related to Acquisition of Radio Elizabeth."
ANTI-TAKEOVER PROVISIONS. The Board of Directors, without any action by
the Company's shareholders, has the authority to issue the remaining
undesignated and unissued authorized shares and to fix the powers, preferences,
rights and limitations of such shares or any class or series thereof, without
shareholder approval. Persons acquiring such shares could have preferential
rights with respect to voting, liquidation, dissolution or dividends over
existing shareholders. The Company is subject to certain provisions of the
Minnesota Business Corporation Act which limit the voting rights of shares
acquired in "control share acquisitions" and restrict certain "business
combinations." Such provisions, as well as the ability to issue undesignated
shares, could have the effect of deterring or delaying a takeover or other
change in control of the Company, deny shareholders the receipt of a premium on
their Common Stock and depress the market price of the Company's Common Stock.
11
<PAGE>
CONTROL BY PRINCIPAL SHAREHOLDERS. Approximately 24% of the Company's
outstanding Common Stock is beneficially owned by the Company's current
officers and directors. Accordingly, such persons may be able to significantly
influence the Company's business and affairs. This concentration of ownership
may have the effect of delaying, deferring or preventing a change in control of
the Company.
NO ASSURANCE AS TO LIQUIDITY ON THE NASDAQ NATIONAL MARKET SYSTEM. The
Common Stock is currently listed on the Nasdaq National Market System. There
can be no assurance that the Common Stock will be actively traded on such market
or that, if active trading does develop, it will be sustained.
ABSENCE OF DIVIDENDS. The Company has not paid any cash dividends since
its inception and does not anticipate paying cash dividends in the foreseeable
future. The Company presently expects to retain its earnings to finance the
development and expansion of its business. The declaration or payment by the
Company of dividends, if any, on its Common Stock in the future is subject to
the discretion of the Board of Directors and will depend on the Company's
earnings, financial condition, capital requirements and other relevant factors.
The declaration or payment by the Company of dividends is also subject to the
Company's Credit Agreement with Foothill. Without Foothill's prior written
consent, the Company cannot declare or pay any cash dividends.
12
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth, as of the date of this Prospectus, the name
of each Selling Shareholder, certain beneficial ownership information with
respect to the Selling Shareholders, and the number of Shares that may be sold
from time to time by each pursuant to this Prospectus. There can be no
assurance that the shares offered hereby will be sold.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
SHARES SHARES SHARES
BENEFICIALLY BENEFICIALLY BENEFICIALLY
OWNED SHARES OWNED UPON OWNED UPON
PRIOR TO OFFERED COMPLETION OF THE COMPLETION OF THE
SELLING SHAREHOLDER OFFERING HEREBY OFFERING OFFERING
- -------------------------------- ------------ ----------- ----------------- -----------------
<S> <C> <C> <C> <C>
Metro National Title Company 268,607 268,607 0 0
Foothill Capital Corporation 50,000 50,000 0 0
</TABLE>
This Prospectus includes 268,607 shares owned by Metro National Title
Company for ultimate benefit of Bonneville International Corporation and
Bonneville Holding Company (collectively, "Bonneville"), which may be deemed
beneficial owners of such shares. Such shares were issued in connection with
Bonneville's sale to the Company of the RBL and certain related assets of
Radio Station KIDR(AM), Phoenix, Arizona. Metro National Exchange Services,
Inc., a subsidiary of Metro National Title Company, is acting as a "qualified
intermediary" to allow Bonneville International Corporation to obtain certain
permitted tax benefits pursuant to Section 1031 of the Internal Revenue Code.
This Prospectus also includes 50,000 shares, issuable pursuant to a warrant,
owned by Foothill.
The Company has agreed to bear all expenses (other than selling commissions
and fees) in connection with the registration and sale of the Shares being
offered by the Selling Shareholders in over-the-counter market transactions or
in negotiated transactions. See "Plan of Distribution." The Company has filed
with the Commission a Registration Statement on Form S-3 under the Securities
Act with respect to the resale of the Shares from time to time in
over-the-counter market transactions or in negotiated transactions. This
Prospectus forms a part of such Registration Statement.
USE OF PROCEEDS
The Shares offered hereby will be sold by the Selling Shareholders. The
Company will not receive any of the proceeds from the sale of the Shares by the
Selling Shareholders. See "Selling Shareholders."
PLAN OF DISTRIBUTION
The Shares offered hereby may be offered by the Selling Shareholders from
time to time. The Company will receive no proceeds from the sale of the Shares.
Sales may be effected by the Selling Shareholders in transactions on The Nasdaq
Stock Market, in negotiated transactions, or in a combination of such methods of
sale, at prices relating to prevailing market prices or at negotiated prices.
The Selling Shareholders may effect such transactions by selling the Shares to
or through broker-dealers, and such broker-dealers may receive compensation in
the form of discounts or commissions from the Selling Shareholders and/or the
purchasers of the Shares for whom such broker-dealers may act as agents or to
whom they sell as principal, or both (which compensation as to a particular
broker-dealer may be in excess of customary commissions).
The Selling Shareholders and any persons who participate in the sale of the
Shares from time to time, may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act. Any commissions paid or discounts or
concessions allowed to any such persons and any profits received on resale of
the Shares, may be deemed to be underwriting compensation under the Securities
Act.
13
<PAGE>
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available.
The Company has agreed to indemnify the Selling Shareholders and their
control persons with respect to certain liabilities in connection with the sale
of the Shares pursuant to this Prospectus, including liabilities under the
Securities Act and the Exchange Act. In addition, the Selling Shareholders have
agreed to indemnify the Company, its directors, officers, agents and control
persons against certain liabilities incurred as a result of information provided
by the Selling Shareholders for use in this Prospectus. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted pursuant to the foregoing provisions, the Company has been informed
that, in the opinion of the Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
LEGAL MATTERS
The validity of the Shares offered hereby and certain legal matters
pertaining to the Company, including matters incorporated herein by reference
relating to the regulation of the Company by the FCC and related matters, were
passed upon on behalf of the Company by Lance W. Riley, Esq., Secretary and
General Counsel to the Company.
EXPERTS
The consolidated financial statements as of December 31, 1996 of Children's
Broadcasting Corporation, incorporated by reference in this Prospectus have been
audited by BDO Seidman, LLP, independent certified public accountants, as set
forth in their reports thereon (which contain an explanatory paragraph with
respect to substantial doubt about the Company's ability to continue as a going
concern and management's plans described in Note 2 to the consolidated financial
statements). Such consolidated financial statements are incorporated by
reference herein in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The consolidated financial statements as of December 31, 1995 of Children's
Broadcasting Corporation, incorporated by reference in this Prospectus have been
audited by Ernst & Young LLP, independent certified public accountants, as set
forth in their reports thereon (which contain an explanatory paragraph with
respect to substantial doubt about the Company's ability to continue as a going
concern and management's plans described in Note 2 to the consolidated financial
statements). Such consolidated financial statements are incorporated by
reference herein in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The financial statements of Radio Elizabeth, Inc. for the eleven months
ended March 31, 1996 and 1995 and for the years ended April 30, 1993, 1994 and
1995, incorporated by reference in this Prospectus have been audited by Smolin,
Lupin & Co., P.A., Certified Public Accountants, independent auditors, as set
forth in their report thereon. Such financial statements are incorporated by
reference herein in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The financial statements of Wolpin Broadcasting Company as of December 31,
1994 and 1995 and for each of the three years in the period ended December 31,
1995, incorporated by reference in this Prospectus, have been audited by
Kleiman, Carney & Greenbaum, Certified Public Accountants, independent auditors,
as set forth in their report thereon. Such financial statements are
incorporated by reference herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
14
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER DESCRIBED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE SELLING SHAREHOLDERS. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE UNDER THIS PROSPECTUS SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR SINCE THE DATE OF ANY DOCUMENTS
INCORPORATED HEREIN BY REFERENCE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES, OR AN OFFER OR SOLICITATION IN ANY STATE TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH STATE.
--------------------
TABLE OF CONTENTS
--------------------
PAGE
Available Information . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents
by Reference. . . . . . . . . . . . . . . . . . . . . . . . . 2
Prospectus Summary. . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . 7
Selling Shareholders. . . . . . . . . . . . . . . . . . . . . . 13
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . 13
Plan of Distribution. . . . . . . . . . . . . . . . . . . . . . 13
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . 14
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
318,607 SHARES
CHILDREN'S BROADCASTING
CORPORATION
COMMON STOCK
--------------------
PROSPECTUS
--------------------
_________________, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses payable by the Company
in connection with the sale and distribution of the Shares being registered.
All amounts shown are estimates, except the registration fee.
SEC registration fee . . . . . . . . . . . . . . . . . $ 350
Legal fees and expenses. . . . . . . . . . . . . . . . 5,000
Accounting fees and expenses . . . . . . . . . . . . . 5,000
Blue sky and related fees and expenses . . . . . . . . 350
Miscellaneous (including listing fees, if applicable). 5,500
-------
Total . . . . . . . . . . . . . . . . . . . . . . . $16,200
-------
-------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant is a Minnesota corporation. Reference is made to Minnesota
Statutes Section 302A.521 which provides that a Minnesota business corporation
shall indemnify any director, officer, employee or agent of the corporation made
or threatened to be made a party to a proceeding, by reason of the former or
present official capacity (as defined) of the person, against judgments,
penalties, fines, settlements and reasonable expenses incurred by the person in
connection with the proceeding if certain statutory standards are met.
"Proceeding" means a threatened, pending or completed civil, criminal,
administrative, arbitration or investigative proceeding, including one by or in
the right of the corporation. Section 302A.521 contains detailed terms
regarding such right of indemnification and reference is made thereto for a
complete statement of such indemnification rights.
Article 6.2 of the Company's Amended and Restated Bylaws, as amended,
provides that directors, officers, employees and agents, past or present, of the
Company, and persons serving as such of another corporation or entity at the
request of the Company, shall be indemnified by the Company for such expenses
and liabilities, in such manner, under such circumstances, and to such extent as
permitted under Minnesota Statutes 302A.521.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
5 Opinion of Lance W. Riley, Esq.
10.1 Asset Purchase Agreement between Bonneville International Corporation,
Bonneville Holding Company and Children's Broadcasting Corporation re
KIDR(AM), Phoenix, Arizona.
* 10.2 Loan and Security Agreement by and between Children's Broadcasting
Corporation and Foothill Capital Corporation.
23.1 Consent of Lance W. Riley, Esq. (included in Exhibit 5).
23.2 Consent of BDO Seidman, LLP.
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Smolin, Lupin & Co., P.A.
23.5 Consent of Kleiman, Carney & Greenbaum, Certified Public Accountants.
24 Power of Attorney (included on signature page to the Registration
Statement).
__________
* Incorporated by reference from the Registrant's Current Report on Form 8-K,
filed on December 20, 1996, relating to the Company closing on a
$16,500,000 loan from Foothill Capital Corporation.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
II-1
<PAGE>
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
provided, however, that the undertakings set forth in paragraphs (i) and (ii)
above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions summarized in Item 15 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel, the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that (1) for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this Registration Statement
in reliance on Rule 430A and contained in the form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the time it was
declared effective and (2) for the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis and State of Minnesota, on May 30, 1997.
CHILDREN'S BROADCASTING CORPORATION
By /s/ Christopher T. Dahl
--------------------------------
Christopher T. Dahl, President
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENT, that each person whose signature appears below
constitutes and appoints Lance W. Riley and James G. Gilbertson as his or her
true and lawful attorney-in-fact and agent, with full powers of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on the dates and
in the capacities indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Christopher T. Dahl President, Chief Executive May 30, 1997
- -------------------------
Christopher T. Dahl Officer and Director (Principal
Executive Officer)
/s/ James G. Gilbertson Chief Operating Officer and May 30, 1997
- -------------------------
James G. Gilbertson Treasurer (Principal Accounting
Officer and Principal Financial
Officer)
/s/ Richard W. Perkins Director May 30, 1997
- -------------------------
Richard W. Perkins
/s/ Rodney P. Burwell Director May 30, 1997
- -------------------------
Rodney P. Burwell
/s/ Mark A. Cohn Director May 30, 1997
- -------------------------
Mark A. Cohn
<PAGE>
EXHIBIT INDEX
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------
5 Opinion of Lance W. Riley, Esq.
10.1 Asset Purchase Agreement between Bonneville International
Corporation, Bonneville Holding Company and Children's
Broadcasting Corporation re KIDR(AM), Phoenix, Arizona.
*10.2 Loan and Security Agreement by and between Children's
Broadcasting Corporation and Foothill Capital Corporation.
23.1 Consent of Lance W. Riley, Esq. (included in Exhibit 5).
23.2 Consent of BDO Seidman, LLP.
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Smolin, Lupin & Co., P.A.
23.5 Consent of Kleiman, Carney & Greenbaum, Certified Public
Accountants.
24 Power of Attorney (included on signature page to Registration
Statement).
- ----------
* Incorporated by reference from the Registrant's Current Report on Form 8-K,
filed on December 20, 1996, relating to the Company closing on a
$16,500,000 loan from Foothill Capital Corporation.
<PAGE>
EXHIBIT 5
May 30, 1997
Children's Broadcasting Corporation
724 First Street North
Minneapolis, Minnesota 55401
Gentlemen:
I am General Counsel to Children's Broadcasting Corporation, a Minnesota
corporation (the "Company"), in connection with its filing of a registration
statement on Form S-3 (the "Registration Statement"), under the Securities Act
of 1933, as amended, in connection with the proposed sale by Selling
Shareholders of 318,607 shares of common stock, $.02 par value, of the Company
(the "Shares"). Certain of the Shares are issuable upon the exercise of
warrants held by the Selling Shareholders.
I have examined the Registration Statement and those documents, corporate
records, and other instruments I deemed relevant as a basis for the opinion
herein expressed.
Based on the foregoing, it is my opinion that when the Registration
Statement shall have been declared effective by order of the Securities and
Exchange Commission, and the Shares have been sold as contemplated by the
Registration Statement, the Shares will be legally and validly issued,
fully-paid and nonassessable.
I hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the reference to myself under the caption "Legal
Matters" in the Prospectus included in such Registration Statement.
/s/ Lance W. Riley
-----------------------------------
Lance W. Riley
General Counsel
Children's Broadcasting Corporation
<PAGE>
EXHIBIT 10.1
Asset Purchase Agreement
THIS AGREEMENT, dated as of May 20, 1997, is made among BONNEVILLE
INTERNATIONAL CORPORATION, a Utah corporation ("BIC"); BONNEVILLE HOLDING
COMPANY, a Utah corporation ("BHC"; BIC and BHC are collectively referred to
herein as "Sellers"); and CHILDREN'S BROADCASTING CORPORATION, a Minnesota
corporation, or its assigns ("CBC" or "Buyer"); and
W I T N E S S E T H :
THAT, WHEREAS, BHC is the Federal Communications Commission ("FCC")
licensee of Radio Station KIDR(AM), licensed to Phoenix, Arizona ("Station");
WHEREAS, pursuant to an operating agreement with BHC, BIC operates the
Station and BIC owns substantially all of the assets of the Station other than
the Licenses (as defined below);
WHEREAS, BHC is also the licensee of radio station KHTC(FM) in Phoenix,
Arizona and the studios and offices of KHTC(FM) are co-located with the studios
and offices of the Station; 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 Station and all of the tangible and intangible assets of the Sellers
primarily used or held for use in connection with the operation of the Station,
except as excluded herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions contained herein, the parties hereto hereby agree as follows:
ARTICLE 1
SALE AND TRANSFER OF ASSETS
1.1. 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 owned or leased by
the Sellers primarily relating to, used or held for use in connection
with the operation of the Station, specifically excluding the Excluded
Assets (as defined below), and including, without limitation, the
following (collectively, the "Assets") (except to the extent any of the
following Assets are Excluded Assets):
1.1.1. All licenses, permits and authorizations ("Licenses") issued by
the FCC, all of which are listed on SCHEDULE A attached hereto;
1.1.2. All of the Sellers' owned real property including that described
in SCHEDULE B attached hereto ("Real Property");
1.1.3. All tangible personal property owned by the Sellers including,
without limitation, that listed on SCHEDULE C attached hereto,
and any replacements therefor or improvements thereof acquired or
constructed prior to Closing ("Personal Property"), provided that
the Assets shall not include such items of tangible personal
property as are disposed of or consumed in the ordinary course of
the business of the Station or with the consent of Buyer between
the date hereof and the Closing Date;
<PAGE>
1.1.4. 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, all time sales agreements upon terms
consistent with the Station's usual and customary selling
practices, 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");
1.1.5. All right, title and interest of BHC in and to the use of the
call letters KIDR for the Station (referred to herein as the
"Call Letters"), to the extent they can be conveyed; together
with all trademarks, service marks, trade names and other similar
rights held by Sellers including all accretions thereto, as
listed on SCHEDULE E attached hereto ("General Intangibles");
1.1.6. All magnetic media, electronic data processing files, systems and
programs, logs, public files, records required by the FCC,
historical billing information, record program libraries,
promotional material, supplies, customer files, correspondence,
maintenance records or any other business records, but not
including records pertaining to corporate affairs (including tax
records) and original journals. The Sellers shall have
reasonable access to all such records which might be in the
possession of Buyer for a period of five (5) years following the
Closing, and shall, at its own expense, have the right to make
copies thereof; and
1.1.7. All other personal property whether tangible or intangible, not
hereinbefore mentioned. The Sellers agree that the Assets
conveyed to Buyer on the Closing Date pursuant to this Agreement
will be conveyed free and clear of all liens, charges, claims and
encumbrances whatsoever, excepting (i) those obligations from and
after the Closing Date with respect to obligations of the Sellers
expressly agreed to be assumed by Buyer hereunder, (ii) with
respect to the Real Property, easements, restrictions, rights,
limitations or encumbrances of record, (iii) with respect to the
Assets, materialmen's or similar liens for ongoing or recently
completed work and (iv) liens for current taxes, and assessments
not yet due and payable ("Permitted Encumbrances").
All of the Licenses shall be assigned and transferred to Buyer by
BHC. All other items comprising the Assets shall be assigned and
transferred to Buyer by BIC.
1.2. EXCLUDED ASSETS. Certain assets shall be specifically excluded from the
Assets and shall be retained by Sellers (the "Excluded Assets") (such
designation as an Excluded Asset shall control in the event there is
any overlap in the description of items as Assets or Excluded Assets),
including the following:
1.2.1. Cash on hand, cash equivalents, accounts receivable, corporate
tax and accounting records, security deposits, and insurance
policies, proceeds and claims, except as otherwise expressly
provided herein;
1.2.2. Corporate and management information and company-wide licensed
software;
1.2.3. Any employee benefit plans of Sellers;
1.2.4. Test equipment and other technical equipment not used primarily
in the operation of the Station;
1.2.5. Any and all causes of action and claims of Sellers arising out of
or relating to transactions or time periods prior to Closing,
including, without limitation, insurance claims and claims for
the refunds;
1.2.6 The Services Agreement and the Office and Studio Sublease
Agreement between BIC and Nationwide Communications, Inc.
identified on SCHEDULE D; and
<PAGE>
1.2.7. Other property as more fully described on SCHEDULE F attached
hereto.
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 One Million and no/100 Dollars
($1,000,000.00), subject to adjustment as provided in Section 2.3 as
the purchase price for the Assets (the "Purchase Price").
2.2. METHOD OF PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid
as follows:
2.2.1. EARNEST MONEY ESCROW. The amount of Twenty-five Thousand and
no/100 Dollars ($25,000.00) (the "Escrowed Funds") shall be paid
into escrow contemporaneously with the execution hereof pursuant
to the terms of that Escrow Agreement (the "Escrow Agreement") a
copy of which is attached hereto as EXHIBIT A.
2.2.2. CBC COMMON STOCK. The Purchase Price shall be payable by the
issuance by Buyer to Sellers of tradable shares of CBC $.02 per
share par value Common Stock (the "CBC Stock"). The number of
shares of CBC Stock to be issued equals One Million and no/100
Dollars ($1,000,000.00) divided by the "Price Per Share" as
hereinafter defined. Any fractional share shall be paid in cash
based upon the Price Per Share. The Price Per Share shall be
equal to the average closing price of such stock for the thirty
(30) trading days prior to five (5) days prior to Closing as
reported by the Nasdaq National Market System. The number of
shares of CBC Stock issued to Sellers shall not be less than Two
Hundred Thousand (200,000) shares. Notwithstanding the
foregoing, if between the date of this Agreement and the Closing
Date the outstanding shares of CBC Stock are changed into a
different number of shares or a different class or series, by
reason of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares, the
number of shares of CBC Stock described above shall be
correspondingly and proportionately adjusted to reflect such
stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares. Buyer reserves the
right to pay cash at Closing in lieu of all or part of the CBC
Stock payment called for hereunder, provided Buyer gives Sellers
notice of its intention to pay cash at least one week prior to
the Closing Date.
2.3. PRORATIONS. The operations of the Station and the income and expenses
attributable thereto up to 12:01 A.M. on the day of the Closing (the
"Adjustment Time"), shall, except as otherwise provided in this
Agreement, be for the account of the Sellers and thereafter (except
with respect to any Excluded Assets) 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 and shall be paid to Sellers by Buyer at
Closing. 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 ASSUMED LIABILITIES. Except as expressly provided for in this
Agreement, at the Closing Buyer shall not assume, incur or be
charged with, in connection with the transactions herein
contemplated, any liabilities or obligations of any nature
whatsoever, contingent or otherwise. Without limitation of the
foregoing, Buyer shall not assume any obligations to the Sellers or
the Station's employees under any employee benefit plans or
employment contracts. Notwithstanding the foregoing, Buyer agrees
to assume all obligations relating to the Station, including
without limitation those payment and
<PAGE>
performance obligations under the Leases and Agreements, which arise
after Closing and Buyer agrees to pay and perform such obligations
in a timely manner.
2.5. ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated
among the Assets by Buyer and Sellers as Buyer and Sellers shall
agree pursuant to an arm's length negotiation. Such allocation
shall be agreed upon within sixty (60) days following the Closing
Date and shall be consistent with Section 1060 of the Internal
Revenue Code of 1986, as amended, and the regulations thereunder.
The parties agree to jointly complete and separately file IRS Forms
8594 with their respective income tax returns for the tax year in
which the Closing Date occurs. The parties further agree that
neither Buyer nor Sellers will take any position on any income,
transfer or gains tax return before any governmental agency charged
with the collection of any such tax or in any judicial proceeding
that is in any manner inconsistent with the terms of such allocation
without the written consent of the other.
2.6. COLLECTION OF BIC'S ACCOUNTS RECEIVABLE. During the four-month
period commencing on the Closing Date (the "Collection Period"),
Buyer shall collect and receive payment in the ordinary course of
business with respect to BIC's accounts receivable and shall pursue
collection thereof in accordance with Buyer's normal practices,
provided, however, that Buyer shall not have the right to
compromise, settle or adjust the amounts of any of BIC's accounts
receivable without BIC's prior written consent. No later than
fifteen (15) days after the end of each calendar month during the
Collection Period, Buyer shall remit to BIC all BIC's accounts
receivable collected hereunder. All payments received by Buyer from
any person obligated with respect to any of BIC's accounts
receivable shall be applied first to BIC's account and only after
full satisfaction thereof to Buyer's account, unless the account
debtor contests the amount owed to BIC or gives contrary remittance
instructions or advice to Buyer. Upon the expiration of the
Collection Period, all rights and obligations related to collecting
BIC accounts receivable will revert back to BIC and Buyer will cease
to have any further responsibilities related to the uncollected BIC
accounts receivable (except that Buyer shall promptly remit to BIC
any amounts subsequently received by Buyer on account of BIC's
accounts receivable). Thereafter, BIC may collect any of BIC's
accounts receivable in any manner BIC chooses.
ARTICLE 3
FEDERAL SECURITIES LAW MATTERS
3.1. DEFINITIONS. As used in this Article 3, the following terms shall
have the following meanings:
"ACT" means the Securities Act of 1933, as amended from time to
time, or any successor statute, and the rules and regulations of the
Commission promulgated thereunder.
"ADVICE" has the meaning set forth in Section 3.3.
"AFFILIATE" means, with respect to any specified person, any other
person who, directly or indirectly, controls, is controlled by, or
is under common control with such specified person.
"COMMISSION" means the Securities and Exchange Commission.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor statute, and the rules and
regulations of the Commission promulgated thereunder.
"PROSPECTUS" means the prospectus included in any Registration
Statement (including without limitation, a prospectus that discloses
information previously omitted from a Prospectus filed as part of an
effective registration statement in reliance upon Rule 430A
promulgated under the Act), as amended or supplemented by any
Prospectus supplement, and by all other amendments and supplements
to the Prospectus, including post-effective amendments, and in each
case including all material incorporated by reference or deemed to
be incorporated by reference in such Prospectus.
<PAGE>
"REGISTRATION STATEMENT" means any registration statement of CBC
that covers any of the Shares pursuant to the provisions of this
Agreement and all amendments and supplements to any such
registration statement, including post-effective amendments, in each
case including the Prospectus, all exhibits, and all material
incorporated by reference or deemed to be incorporated by reference
in such registration statement.
"SHARES" means the shares of CBC Stock issued to the Sellers
pursuant to this Agreement.
"SUSPENSION NOTICE" has the meaning set forth in Section 3.3.
3.2. REGISTRATION EFFECTIVENESS. On February 11, 1997, the Commission
declared effective CBC's Registration Statement on Form S-4 (the
"S-4") which registered the Shares under the Act. CBC will use
reasonable efforts to keep the Registration Statement effective
until the Closing date.
3.3. REGISTRATION PROCEDURES. In connection with the obligation of CBC
to use reasonable efforts to cause the Registration Statement to
remain effective in accordance with the provisions of this
Agreement, CBC shall promptly:
(a) Prepare and file with the Commission such post-effective
amendments to the Registration Statement as may be necessary to
keep the Registration Statement effective and shall timely file
with the Commission all required filings under the Act and the
Exchange Act as are necessary to keep the Registration Statement
effective for as long as such registration is required to remain
effective pursuant to the terms hereof; shall cause the
Prospectus to be supplemented by any required Prospectus
supplement, and, as so supplemented, to be filed pursuant to Rule
424 under the Act; and shall comply with the provisions of the
Act applicable to it with respect to the disposition of all
Shares covered by the Registration Statement during the
applicable period;
(b) Furnish to the Sellers such number of copies of the Prospectus
and any amendments or supplements thereto, as the Sellers may
reasonably request in order to facilitate the public sale or
other disposition of the Shares being sold by the Sellers;
(c) Notify the Sellers (i) when a Prospectus or any Prospectus
supplement or post-effective amendment has been filed with
respect to the Registration Statement or any post-effective
amendment thereto, (ii) of any request by the Commission or any
state securities authority for amendments and supplements to a
Registration Statement or post-effective amendment thereto or for
additional information, (iii) of the issuance by the Commission
of any stop order suspending the effectiveness of the
Registration Statement, (iv) of the issuance by any state
securities commission or other regulatory authority of any order
suspending the qualification or exemption from qualification of
any of the Shares under state securities or "blue sky" laws, and
(v) of the happening or failure to occur of any event which
happening or failure makes any statement made in the Registration
Statement or related Prospectus untrue or requires the making of
any changes in the Registration Statement or Prospectus so that
they will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading. As
soon as practicable following the occurrence of an event
described in subsections (ii) through (iv) above, CBC shall
prepare and file with the Commission and furnish a supplement or
amendment to such Prospectus which remedies the event so
described.
As soon as practicable following the occurrence of an event
described in subsection (v) above, CBC shall prepare and file
with the Commission and furnish a supplement or amendment to such
Prospectus so that, as thereafter deliverable to the purchasers
of such Shares, such Prospectus will not contain any untrue
statement of a material fact or omit to state a material
<PAGE>
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Upon receipt of any notice (a "Suspension Notice") by the Sellers
from CBC of the happening of any event of the kind described in
Section 3.3(c)(ii) through (v), the Sellers shall forthwith
discontinue disposition of the Shares pursuant to the Registration
Statement covering the Shares until the Sellers' receipt of the
copies of the supplemented or amended Prospectus contemplated by
Section 3.3(c) or until the Sellers are advised in writing (the
"Advice") by CBC that the use of the Prospectus may be resumed, and
has received copies of any additional or supplemental filings which
are incorporated by reference in the Prospectus, and, if so directed
by CBC, will, or will request any broker-dealer acting as the
Sellers' agent to, deliver to CBC (at CBC's expense) all copies,
other than permanent file copies then in Sellers' or broker-dealer's
possession, of the Prospectus covering such Shares current at the
time of receipt of such notice; PROVIDED, HOWEVER, that in no event
shall the period from the date on which Sellers receive a Suspension
Notice to the date on which Sellers receive either the Advice or
copies of the supplemented or amended Prospectus contemplated by
Section 3.3(c) (the "Suspension Period") exceed forty-five (45) days.
3.4. REGISTRATION AND OTHER EXPENSES. CBC shall bear all expenses
incurred in connection with causing the registration of the Shares
to remain effective pursuant to Section 3.2 of this Agreement. Such
expenses shall include, without limitation, all printing, legal and
accounting expenses incurred by CBC and all registration and filing
fees imposed by the Commission, any state securities commission or
the Nasdaq Stock Market. CBC agrees to pay directly when due (and
in any case to indemnify Sellers immediately upon demand for) any
and all transfer taxes, stamp duties or other similar taxes or
expenses payable by or on behalf of Sellers in connection with (i)
the issuance to Sellers by CBC of the Shares (ii) the acquisition by
Sellers of the Shares or (iii) the consummation by CBC of any of its
obligations hereunder. The Sellers shall be responsible for any
brokerage fees or commissions and taxes of any kind (including,
without limitation, transfer taxes) with respect to any disposition,
sale or transfer of Shares by the Sellers and for any legal,
accounting and other expenses incurred by the Sellers in connection
therewith.
3.5. INDEMNIFICATION AND CONTRIBUTION.
3.5.1. INDEMNIFICATION BY CBC. CBC agrees to indemnify and hold
harmless, to the full extent permitted by law, the Sellers, their
stockholders, directors and officers, from and against all
losses, claims, damages, liabilities and expenses (including
without limitation reasonable legal fees and expenses incurred by
the Sellers) (collectively, the "Damages") to which the Sellers
may become subject under the Act, the Exchange Act or otherwise,
insofar as such Damages (or proceedings in respect thereof) arise
out of or are based upon any untrue statement of material fact
contained in any Registration Statement (or any amendment
thereto) pursuant to which the Shares were registered under the
Act, or caused by any omission to state therein a material fact
necessary to make the statements therein in light of the
circumstances under which they were made not misleading, or
caused by any untrue statement of a material fact contained in
any Prospectus (as amended or supplemented if CBC shall have
furnished any amendments or supplements thereto), or caused by
any omission to state therein a material fact necessary to make
the statements therein in light of the circumstances under which
they were made not misleading, except insofar as such Damages
arise out of or are based upon any such untrue statement or
omission based upon information relating to the Sellers furnished
in writing to CBC by the Sellers specifically for use therein;
PROVIDED, HOWEVER, that CBC shall not be liable to the Sellers
under this Section 3.5.1 to the extent that any such Damages were
caused by the fact that the Sellers sold Shares to a person as to
whom it shall be established that there was not sent or given, at
or prior to the written confirmation of such sale, a copy of the
Prospectus as then amended or supplemented if, but only if, (i)
CBC has previously furnished copies of such amended or
supplemented Prospectus to the Sellers and (ii) such Damages were
caused by any untrue statement or omission contained in the
Prospectus so delivered which was corrected in such amended or
supplemented Prospectus.
<PAGE>
3.5.2. INDEMNIFICATION BY THE SELLERS. The Sellers agree to indemnify
and hold harmless CBC, its stockholders, directors, officers and
each person, if any, who controls CBC within the meaning of
either Section 15 of the Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from CBC to the
Sellers, but only with reference to information relating to the
Sellers furnished in writing to CBC by the Sellers specifically
for use in any Registration Statement (or any amendment thereto)
or any Prospectus (or any amendment or supplement thereto);
PROVIDED, HOWEVER, that the Sellers shall not be obligated to
provide such indemnity to the extent that such Damages result
from the failure of CBC to promptly amend or take action to
correct or supplement any such Registration Statement or
Prospectus on the basis of corrected or supplemental information
provided by the Sellers to CBC expressly for such purpose. In no
event shall the liability of the Sellers hereunder be greater in
amount than the amount of the proceeds received by the Sellers
upon the sale of the Shares giving rise to such indemnification
obligation.
3.5.3 CONTRIBUTION. To the extent that the indemnification provided
for in paragraph 3.5.1 or 3.5.2 of this Section 3.5 is
unavailable to an indemnified party or insufficient in respect of
any Damages, then each indemnifying party under such paragraph,
in lieu of indemnifying such indemnified party thereunder, shall
contribute to the amount paid or payable by such indemnified
party as a result of such Damages in such proportion as is
appropriate to reflect the relative fault of CBC on the one hand
and the Sellers on the other hand in connection with the
statements or omissions that resulted in such Damages, as well as
any other relevant equitable considerations. The relative fault
of CBC on the one hand and of the Sellers on the other hand shall
be determined by reference to, among other things, whether the
untrue statement of a material fact or the omission to state a
material fact relates to information supplied by CBC or by the
Sellers and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement
or omission.
If indemnification is available under paragraph 3.5.1 or 3.5.2 of
this Section 3.5, the indemnifying parties shall indemnity each
indemnified party to the full extent provided in such paragraphs
without regard to the relative fault of said indemnifying party
or indemnified party or any other equitable consideration
provided for in this Section 3.5.3. CBC and the Sellers agree
that it would not be just or equitable if contribution pursuant
to this Section 3.5.3 were determined by pro rata allocation or
by any other method of allocation that does not take account of
the equitable considerations referred to herein.
3.6. REPRESENTATIONS AND WARRANTIES. Sellers make to CBC the following
representations and warranties:
(a) Sellers are not directly or indirectly controlled by, or acting
on behalf of any person which is, an "investment company" within
the meaning of the Investment Company Act of 1940, as amended
(the "1940 Act"), required to register as such under the 1940
Act.
(b) Sellers (i) have received the prospectus contained in the S-4;
and (ii) have received copies of the documents incorporated by
reference into the S-4, which the Sellers have deemed relevant
for purposes of evaluating their acquisition of the Shares.
(c) Sellers are "accredited investors" as defined in Rule 501(a) of
Regulation D of the Act.
3.7. As a material inducement to Sellers to enter into this Agreement and
to consummate the transactions contemplated hereby, CBC represents
and warrants as follows, which representations and warranties shall
be deemed to have been made again at the Closing:
(a) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of the
Registration Statement or the Prospectus or any part thereof and
no proceedings for a stop order suspending the effectiveness of
the Registration Statement or the trading of any of the CBC Stock
have been instituted or are pending or, to
<PAGE>
the knowledge of CBC, threatened. As of the effective dates
thereof, as of the date hereof and as of the Closing, the
Registration Statement and the Prospectus (as amended or as
supplemented if CBC shall have filed with the Commission any
amendment or supplement thereto), including the reports and
financial statements included or incorporated by reference in the
Prospectus, complies in all material respects with applicable
provisions of the Act. As of the effective dates thereof, as of
the date hereof and as of the Closing, no part of the
Registration Statement, the Prospectus or any amendment or
supplement thereto, at the time thereof, contained an untrue
statement of material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein not misleading. Since the date of the most
recent financial statements included in the Prospectus, there has
been no material adverse change in the condition (financial or
other), earnings, business or properties of CBC, whether or not
arising from transactions in the ordinary course of business,
except as set forth or contemplated in the Prospectus or
disclosed in materials incorporated by reference therein.
(b) Upon the issuance and delivery of the Shares to Sellers pursuant
to the terms hereof, Sellers will have acquired good and
indefeasible title to the Shares free and clear of any lien,
charge, claim, encumbrance, pledge, security interest, defect or
other restriction of any kind whatsoever. The Shares, when
issued and delivered at Closing, shall be duly authorized,
validly issued, fully paid and nonassessable.
(c) No consent, approval, authorization or order of, or filing or
declaration with, any court or governmental agency or body is
required for or in connection with the issuance and delivery of
the Shares pursuant hereto under the Act or as may be required
under state securities or Blue Sky laws or the bylaws and rules
of the National Association of Securities Dealers (the "NASD"),
except such as shall have been obtained prior to the Closing.
(d) The CBC Stock is, and the Shares shall be at the Closing, listed
for trading on the Nasdaq National Market under the symbol
"AAHS," and CBC is not aware of any threatened or pending
proceedings or actions by the NASD to revoke or suspend such
listing.
ARTICLE 4
THE SELLERS' REPRESENTATIONS,
WARRANTIES AND AGREEMENTS
Sellers represent, warrant and agree as follows, which representations,
warranties and agreements shall be deemed to have been made again at Closing:
4.1. CORPORATE EXISTENCE AND POWERS. The Sellers are corporations
organized and existing in good standing under the laws of the State
of Utah with full power and authority to enter into this Agreement
and to enter into and complete the transactions contemplated herein.
BIC is, and will be at the time of Closing, qualified to do
business in the State of Arizona. All required corporate action has
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, except as enforceability
may be limited by applicable bankruptcy, insolvency or similar law
affecting the rights of creditors generally, and equitable
principles. The execution of this Agreement and the completion of
the transactions herein involved will not result in the material
violation of any order, licenses, permit, rule, judgment or decree
to which either of the Sellers is subject or the breach of any
material contract, agreement or other commitment to which either of
the Sellers is a party or by which it is bound. Except for receipt
of the FCC Approval (as defined below) 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 SCHEDULE D, with respect to assignment and assumption
of specific contract rights and obligations. The Sellers shall use
their best
<PAGE>
efforts to obtain third party consents with respect to any leases,
contracts or 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.
Sellers have delivered to Buyer true and complete copies of the
Sellers' Articles of Incorporation and Bylaws and will deliver to
Buyer at Closing certificates of good standing of Sellers issued by
the States of Utah and Arizona.
4.2. LICENSES AND PERMITS. BHC is the holder of the Licenses listed on
SCHEDULE A, all of which are valid, in full force and effect and
which have been unconditionally issued for the full license term.
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 Station as it is currently being
operated. BHC is fully qualified to hold all such Licenses. All
ownership and employment reports, renewal applications, and other
material reports and documents required to be filed for the Station
have been properly and timely filed. The Station is operating in
all material respects in accordance with the Licenses, and in
compliance with the Communications Act of 1934, as amended, and the
rules and regulations of the FCC, including, without limitation,
those regulations governing the Station's equal employment
opportunity practices and public file, and any other applicable
laws, ordinances, rules and regulations. The Licenses are
unimpaired in any material respect 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 FCC 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 FCC or other regulatory
authority. There is not now pending, or to the best of Sellers'
knowledge threatened, any action by or before the FCC 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 Station or Sellers relating to the Station, 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 reasonably
necessary to protect the Station and the Licenses from any material
adverse impact.
4.3. ASSETS. The Assets and Excluded Assets (along with related
personnel) represent all the assets necessary for the Station's
current operations and represent all the assets owned by the Sellers
and used for the Station's current operations. Until Closing, none
of the Assets will be sold, leased or otherwise disposed of unless
replaced by a similar Asset of equal or greater value or disposed or
consumed in the ordinary course of business. At Closing, all of the
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 except Permitted Encumbrances. The Assets
have been maintained in good condition, subject to normal wear and
tear.
4.4. CONTRACTS, LEASES, AGREEMENTS, ETC. Except as set forth on SCHEDULE
D, each of the Leases and Agreements are in full force and effect in
accordance with their respective terms, and there are no outstanding
notices of cancellation, acceleration or termination in connection
therewith. Sellers are not in material 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 material 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 Station (not including this Agreement)
which will be binding on the Buyer other than those specifically
identified herein, including the Schedules attached hereto, or as
otherwise approved in writing by Buyer.
4.5. 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 Station, its
employees or any of the Assets to be conveyed hereunder which may
result in any material adverse change in the business, operations,
assets or financial condition of the
<PAGE>
Sellers or may materially adversely affect Buyer's use and enjoyment
of the Assets, or which would hinder or prevent the consummation of
the transaction contemplated by this Agreement, and the Sellers know
of no basis for any such possible action.
4.6. 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 on the Real Property of any
hazardous waste or toxic substance (other than small quantities of
maintenance, cleaning and emergency generator fuel supplies
customary for the operation of radio stations and maintained in the
ordinary course of business) in material violation of law or which
has not been substantially remedied, nor does such waste or
substance exist on the Real Property in material violation of law or
which has not been substantially remedied (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, nor are
there any underground storage tanks on the Real Property.
"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., and all substances defined as "hazardous
waste" under the Statutes of the State of Arizona or any regulations
adopted pursuant to those statutes.
4.7. INSURANCE. Until Closing, the Sellers shall keep the Assets insured
to full insurable value against loss or damage by fire or from other
causes customarily insured against by other radio stations similarly
situated, and have provided Buyer with an abstract of such casualty
insurance coverage.
4.8. ACCESS TO INFORMATION. Upon reasonable advance notice, 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 solely to the Station;
provided, however, such access shall not disrupt the Sellers' normal
operations. The Sellers shall furnish to Buyer all information
solely concerning the Station's affairs as Buyer may reasonably
request. Buyer will maintain the confidentiality of all the
information and materials delivered to it or made available for its
inspection by the Sellers hereunder, except where such information
or materials are required to be filed with the FCC in connection
with the assignment application or are disclosed to partners of
Buyer or lenders thereto as reasonably required to secure financing
to consummate the transactions contemplated herein. In the latter
event, Buyer will use reasonable efforts to cause its partners or
lenders to maintain confidentiality. If for any reason the
transactions contemplated herein are not consummated, Buyer will
return to the Sellers all such materials in its possession and keep
all of the foregoing information confidential.
4.9. COPYRIGHTS, TRADEMARKS AND SIMILAR RIGHTS. KIDR are the call
letters used by Sellers during the radio broadcast operations of the
Station to identify the Station to its audience. Sellers have full
right and authority from the FCC to use such call letters. 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 material name, trademark, service mark, copyright, or other
trade or service right or mark currently being used in the business
and operations of the Station other than those listed on SCHEDULE E.
To the knowledge of Sellers, the current operations of the Station
do not infringe on any trademark, service mark, copyright or other
intellectual property or similar right owned by others.
4.10. EMPLOYEE BENEFITS.
4.10.1. All of BIC's material employee plans and compensation
arrangements providing benefits to employees of the Station as of
the date hereof are described in SCHEDULE H. Except as disclosed
in SCHEDULE H, 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
<PAGE>
to an existing employee plan or compensation arrangement which
will affect the benefits of employees or former employees of the
Station.
4.10.2. Neither of Sellers has incurred or reasonably expects to incur
(either directly or indirectly, including as a result of the
proposed sale of the Assets to Buyer) any liability (including
withdrawal liability) that could become a liability of Buyer
under or pursuant to Title I or IV of ERISA or the penalty,
excise tax or joint and several liability provisions of the Code
relating to employee benefit plans and no event, transaction or
condition has occurred or exists which could result in any such
liability. BIC has made all required contributions to all
multiemployee plans within the meaning of Section 3(37) of ERISA.
4.10.3. Sellers acknowledge that Buyer has no obligation hereunder to
offer employment to any employee of BIC; however, Buyer shall
have the right to offer employment to such of the employees of
BIC employed at the Station as Buyer may select. With respect to
any employees 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, BIC will retain the responsibility for any liability
arising therefrom. Buyer will notify Sellers on or before May
15, 1997, of which employees, if any, of Sellers that Buyer
intends to hire following Closing.
4.11. LABOR RELATIONS. SCHEDULE I lists the names, dates of hire and
current salaries of all persons employed by BIC directly and
principally in connection with the operation of the Station.
Sellers are not a party to or subject to any collective bargaining
agreements with respect to the Station. Sellers have no written or
oral contracts of employment with any employee of the Station, other
than (i) oral employment agreements terminable at will without
penalty, or (ii) those listed in SCHEDULE I. Sellers, in the
operation of the Station, 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. There is no
representation or organizing effort pending or threatened against or
involving or affecting Sellers with respect to employees employed at
the Station.
4.12. PRE-CLOSING COVENANTS. Between the date hereof and the Closing, the
Sellers covenant that:
Sellers shall continue to operate the business of the Station in the
ordinary course of business consistent with past practices,
including without limitation, the maintenance of inventories of
spare parts and expendable supplies at levels consistent with past
practices, comply with the Licenses and all laws, rules,
regulations, licenses and permits applicable to the Station's
business and operations, file all required tax returns when due, pay
all required taxes when payable, and maintain property damage and
other insurance in the amount in effect on the date hereof. From
the date hereof through the Closing Sellers shall not with respect
to the Station:
(i) sell, lease or dispose of any Asset, except in the ordinary
course of business or with replacement with an asset of
equivalent kind, utility and value;
(ii) enter into any employment or professional services contract that
would survive the Closing or any collective bargaining agreement;
(iii) change employment terms, including, without limitation, wages,
salary or bonuses, or institute or modify any benefit plans or
programs, except for regularly scheduled compensation increases
in accordance with historical practices;
<PAGE>
(iv) enter into any time brokerage agreement, joint sales agreement or
similar agreement or arrangement;
(v) enter into any new, or amend or terminate any existing Leases and
Agreements, other than contracts for the sale of broadcast time
for cash, involving annual consideration of more than $10,000 or
entered into in the ordinary course of business;
(vi) take or omit to take any action which would cause a material
breach of any Station contract;
(vii) take or omit to take any action which could jeopardize the
validity or renewal expectancy of any of the Licenses or their
assignability to Buyer; or
(viii) enter into any transaction which is not in the ordinary course of
business.
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 Assets purchased hereunder.
(b) On the Closing date, the Sellers will be the owner of the Assets
except such of the same replaced by suitable property of no less
than equivalent value in the ordinary course of business, with
title thereto, free and clear of all liens and encumbrances,
except for Permitted Encumbrances; and that between the date of
this Agreement and the Closing, there will be no more than the
ordinary normal wear and tear and expendability of those Assets,
and that the Assets will be in good working condition.
(c) That the Sellers do not know of any facts relating to them or the
Station which would cause (i) the applications for assignment of
the Licenses to Buyer to be challenged, (ii) the FCC to deny its
consent to the assignments of the Station's Licenses to Buyer, or
(iii) the FCC to grant such application to 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 materially
interfere with the Sellers' assets, facilities, licenses or other
items conveyed hereunder.
(e) That the Sellers do not know of any facts which would cause any
application for renewal by BHC of any of the Licenses to be
challenged at the FCC or that would cause such renewal to be
granted other than in the ordinary course for a full license term
without material adverse condition.
(f) Sellers shall continue to operate the Station as an affiliate of
CBC, as set forth in that Affiliation Agreement, dated September
18, 1992, between Children's Satellite Network and BIC, until
Closing.
ARTICLE 5
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.
<PAGE>
5.1. CORPORATE EXISTENCE AND POWERS. Buyer is a corporation organized
and existing in good standing under the laws of the State of
Minnesota with full power and authority to enter into this Agreement
and enter into and complete the transactions contemplated herein.
Buyer is, or will be at the time of Closing, qualified to do
business in the State of Arizona. 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 sentence is obtained, the completion of the transactions herein
involved will not result in the violation of any order, license,
permit, rule, judgment or decree to which 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. Except for the consent of the
FCC 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.
5.2. BUYER'S QUALIFICATIONS. At Closing, Buyer will be legally and
financially qualified to become the licensee of the FCC. Buyer does
not know of any facts relating to it which would cause the FCC to
deny its consent, or which would materially hinder or delay receipt
of such consent, to the assignment of the Licenses to Buyer.
5.3. STUDIO AND SERVICES. Buyer acknowledges that it will have to obtain
a new studio location for the Station as of the Closing Date because
no rights under the Lease identified on Schedule F or the Office and
Studio Sublease Agreement identified on SCHEDULE D will be assigned
to CBC. Buyer further acknowledges that the Services Agreement
between Nationwide Communications Inc. and BIC identified on
SCHEDULE D will terminate at Closing and that Buyer will have to
make other arrangements following Closing for the services provided
thereunder.
5.4. AM EXPANDED BAND. Buyer acknowledges that the Station does not
qualify for migration to the AM expanded band.
5.5. REPRESENTATIONS AND WARRANTIES. Buyer hereby acknowledges that the
only representations and warranties made by Sellers regarding the
Station and the sale of the Assets to Buyer are the representations
and warranties made by Sellers in Article 4 herein. Buyer has not
relied on any other statement or information in entering into this
Agreement.
ARTICLE 6
BREACH OF AGREEMENTS,
REPRESENTATIONS AND WARRANTIES
6.1. BREACH OF THE SELLERS' AGREEMENTS, REPRESENTATIONS AND WARRANTIES.
The Sellers shall indemnify and hold harmless Buyer and any of its
directors, members, stockholders, officers, partners, employees,
agents, consultants and representatives from and against any loss,
damage, liability, claim, demand, judgment or expense, including
claims of third parties arising out of ownership of the Assets or
the operation of the Station by 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.
6.2. BREACH OF BUYER'S AGREEMENTS, REPRESENTATIONS AND WARRANTIES. Buyer
shall indemnify and hold harmless the Sellers and any of their
directors, members, stockholders, officers, partners, employees,
agents, consultants and representatives from and against any loss,
damage, liability, claim, demand, judgment or expense, including
claims of third parties arising out of ownership of the Assets or
operation of the Station by Buyer after Closing, and including
without being limited to, reasonable counsel fees and reasonable
accounting fees, arising out of or sustained by the Sellers by
reason of any material breach of any warranty, representation,
covenant or agreement of Buyer contained
<PAGE>
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.
6.3. THRESHOLD AND CAP. Neither Buyer nor Sellers shall be entitled to
recover under this Agreement for any indemnification claims until
the aggregate losses, damages or expenses suffered by such party in
connection therewith exceed $25,000 (the "Threshold") and then only
to the extent such aggregate losses, damages or expenses exceed the
Threshold. The combined maximum aggregate liability of Sellers and
the maximum aggregate liability of Buyer for indemnification claims
under this Agreement shall be $250,000.
6.4. SPECIFIC PERFORMANCE. The Sellers acknowledge that the Assets and
property to be transferred and assigned under this Agreement are
unique and not readily bought or sold on the open market and, for
that reason, among others, the Buyer would be irreparably harmed by
any breach or failure of the other party 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 by Buyer in a court of equity by
a decree of specific performance, and an injunction may be issued
restraining any transfer or assignment of the Assets contrary to the
provisions of this Agreement pending the determination of such
controversy. The Sellers, for themselves and their successors and
assigns, hereby waive the claim or defense that an adequate remedy
at law exists.
6.5. INDEMNITY UNIMPAIRED BY KNOWLEDGE. The right to indemnification,
payment of damages or any other remedy hereunder shall not be
affected by any investigation conducted with respect to, or any
knowledge acquired (or capable of being acquired) at any time,
regardless of whether before or after the execution and delivery of
this Agreement or the Closing. The waiver of any condition by a
party shall not affect any right to indemnification, payment of
damages or any other remedy hereunder based on the subject matter of
such condition.
6.6. PROCEDURES: THIRD PARTY CLAIMS. The indemnified party agrees to
give written notice within ten (10) business days to the
indemnifying party of any claim or other assertion of liability by
third parties which could give rise to a claim for indemnification
hereunder (hereinafter collectively "Claims," and individually a
"Claim"), it being understood that the failure to give such notice
shall not affect the indemnified party's obligation to indemnify as
set forth in this Agreement, unless, and then only to the extent,
the indemnifying party's ability to contest, defend or settle with
respect to such Claim is thereby demonstrably and materially
prejudiced. The obligations and liabilities of the parties hereto
with respect to their respective indemnities pursuant to this
Article 6 resulting from any Claim, shall be subject to the
following additional terms and conditions:
(a) Provided the indemnifying party acknowledges in writing its
obligation to indemnify the indemnified party with respect to the Claim and
further provides reasonable assurances to the indemnified party as to its
financial ability to satisfy such indemnification obligation, the
indemnifying party shall have the right to undertake, by counsel or other
representatives of its own choosing, the defense or opposition to such
Claim.
(b) Subject to subsection (d) below, in the event that the
indemnifying party shall either (i) elect not to undertake, or shall fail
to satisfy any requirements to undertake, such defense or opposition, or
(ii) fail to properly elect within thirty (30) days after notice of any
such Claim from the indemnified party or thereafter fail to defend or
oppose such Claim, then, in either such event, the indemnified party shall
have the right to undertake the defense, opposition, compromise or
settlement of such Claim, by counsel or other representatives of its own
choosing, on behalf of and for the account and risk of the indemnifying
party.
(c) Anything in this Section 6.6 to the contrary
notwithstanding, (i) the indemnifying party shall not, without the
indemnified party's written consent, which consent shall not be
unreasonably withheld, settle or compromise any Claim or consent to entry
of any judgment which includes any admission of liability or does not
include as a term thereof the giving by the claimant or the plaintiff
<PAGE>
to the indemnified party of an unconditional release from all liability in
respect of such Claim, and (ii) in the event that the indemnifying party
undertakes defense of or opposition to any Claim, the indemnified party, by
counsel or other representative of its own choosing and at its sole cost
and expense, shall have the right to consult with the indemnifying party
and its counsel or other representatives concerning such Claim and the
indemnifying party and the indemnified party and their respective counsel
or other representatives shall cooperate in good faith with respect to such
Claim.
(d) Anything in this Section 6.6 to the contrary
notwithstanding, the indemnifying party shall have the right to contest
through appropriate proceedings its obligation to provide indemnification
hereunder.
ARTICLE 7
RISK OF LOSS
7.1. BUYER'S OPTIONS. The risk of any loss, damage or destruction to any
of the Assets to be transferred to the Buyer hereunder from fire or
other casualty or loss shall be borne by the Sellers at all times
prior to the Closing. Except for loss or damage affecting the
broadcast transmission capabilities of the Station, which is covered
by the terms of Section 7.2 below, upon the occurrence of any
material loss or damage to any of the Assets to be transferred
hereunder having an aggregate fair market value in excess of
$150,000 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 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 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 thirty (30) days,
to effect repairs of the damaged Assets before Buyer may exercise
its option under this subparagraph 7.1 (i);
(ii) postpone the Closing for up to sixty (60) days to allow the
property to be completely repaired, replaced or restored, at the
Sellers' sole expense; 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
and Sellers shall otherwise not have any responsibility to Buyer.
7.2. BROADCAST TRANSMISSION OF THE STATION PRIOR TO CLOSING. If, prior
to the Closing Date, the Station incurs any unusual operating
problems (including any event described below), the Sellers shall
provide Buyer with prompt written notice of such problem and the
measures being taken, at Sellers' sole expense, to correct same.
If, after the date hereof and prior to the Closing Date, any event
occurs which prevents the authorized power broadcast transmission of
a station pursuant to its FCC license authority, except for ordinary
maintenance, for (i) a period of 72 consecutive hours or more, (ii)
three separate periods of 4 hours or more, or (iii) ten separate
occasions of 1 hour or more, Buyer shall have the right, by giving
written notice to the Sellers of its election to do so, to terminate
this Agreement and all Escrowed Funds shall be returned to Buyer.
<PAGE>
ARTICLE 8
APPLICATION FOR FCC APPROVAL
8.1. 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 five business days thereafter, join in an
application to be filed with the FCC requesting its written consent
to the assignment of the Licenses of the Station from BHC to Buyer.
The parties shall prepare their own portions of the application.
Buyer and the Sellers shall take all steps necessary to the
expeditious prosecution of such application to a favorable
conclusion, using their best efforts throughout.
8.2. 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 FCC application and in connection with the
prosecution of such application. The filing fee or fees shall be
shared equally by the Sellers and Buyer.
8.3. DESIGNATION FOR HEARING. If, for any reason, any application for an
assignment of license is designated for hearing by the FCC 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
terminate this Agreement.
8.4. TIME FOR FCC CONSENT. If the FCC has not given its written consent
to the assignments of the Licenses set forth herein, or if the
Closing has not otherwise taken place by May 30, 1997, either of the
parties, if not then in default, may terminate this Agreement by
giving written notice to the other party. Upon such termination,
neither of the parties shall have any right or liability hereunder
and all Escrowed Funds shall be promptly disbursed pursuant to the
Escrow Agreement.
8.5. CONTROL OF STATION. Until Closing, Buyer shall not directly or
indirectly, control, supervise, direct or attempt to control,
supervise or direct the operation of the Station, but such operation
shall be the sole responsibility of the Sellers, subject to and
consistent with all rules, regulations and policies of the FCC.
8.6. PUBLIC ANNOUNCEMENTS. The parties agree to consult with each other
prior to making any public announcement regarding the purchase of
the Station, except pursuant to any filings with the FCC or any
other governmental authorities contemplated by this Agreement, and
except as may be required by law, governmental rule or regulation or
the rules of the Nasdaq Stock Market or any stock exchange on which
the disclosing party or one of its Affiliates has securities listed
for trading or in connection with any Registration Statement filed
pursuant to the Act by the disclosing party or one of its
Affiliates, provided reasonable advance notice will be given
whenever possible.
ARTICLE 9
CLOSING
Subject to the terms and conditions herein stated, the parties agree as
follows:
9.1. CLOSING DATE. The Closing of this Agreement shall be held at such
time and date as shall be mutually agreed by the Sellers and Buyer;
provided, however, that the Closing must occur by May 30, 1997.
(The date scheduled, or required to be scheduled for Closing
hereunder is referred to herein as the "Closing Date.") Closing
shall take place at the offices of the Buyer in Minneapolis, or, at
either party's option, by mail.
9.2. THE SELLERS' OBLIGATIONS AT CLOSING. At Closing, the Buyer shall have
received from the Sellers the following:
<PAGE>
9.2.1. An Assignment of the Licenses described in SCHEDULE A; a Special
Warranty Deed for the Real Property described in SCHEDULE B
conveying all of the Sellers' interest in such Real Property and
an Assignment and Bill of Sale, or similar instruments
transferring to Buyer all other Assets to be transferred
hereunder, free and clear of all liens, encumbrances and
restrictions of any kind whatsoever, except for Permitted
Encumbrances.
9.2.2. The business records described in Section 1.7;
9.2.3. A duly executed opinion letter from Sellers' legal counsel dated
as of the Closing Date, in form and substance satisfactory to
Buyer and its counsel, to the effect that:
(a) Sellers are corporations duly organized and validly existing
and in good standing in the State of Utah and they have all
necessary corporate power to own the Station; and BIC is
qualified to do business in the State of Arizona;
(b) This Agreement and all collateral documents have been duly
and validly authorized, executed and delivered by Sellers,
constitute the valid and binding obligations of Sellers, and
are enforceable (assuming the Agreement is governed by the
laws of the State of Utah) in accordance with their terms,
except as limited by bankruptcy and insolvency laws and by
other laws affecting the rights of creditors generally;
provided, however, that no opinion is to be given as to the
enforceability of the remedies provided in Section 6.4 of
the Agreement;
(c) No suit, action, arbitration, legal or administrative
proceeding, or any governmental investigation, is pending
or, to the knowledge of counsel, threatened against Sellers,
or any of their businesses or properties, which might
materially adversely affect the Station or the sale of the
Assets to Buyer; and
(d) Neither the execution nor delivery of this Agreement, nor
the consummation of the transactions contemplated in this
Agreement, will constitute a violation of Sellers' Articles
of Incorporation or Bylaws, or to the best of such counsel's
knowledge after due inquiry, a default under, or violation
or breach of, any indenture, license, lease, mortgage,
instrument, or other agreement to which Sellers is a party,
or by which Sellers' properties may be bound.
9.2.4. Certificates of Sellers' Presidents or Secretaries verifying that
Sellers' representations, warranties and covenants as provided
herein remain materially true and correct up to and through the
Closing Date;
9.2.5. Instructions to the escrow agent pursuant to the Escrow Agreement
to pay the Escrowed Funds to Buyer;
9.2.6. Certificates of Sellers' Secretaries certifying as to Sellers'
Articles of Incorporation and Bylaws (copies of which shall be
attached thereto); and
9.2.7. Such other documents and instruments as might reasonably be
requested by Buyer to consummate the transaction contemplated
hereunder consistent with the intent expressed herein.
9.3. BUYER'S OBLIGATIONS AT CLOSING. At Closing, Buyer shall deliver to the
Sellers the following:
9.3.1. Shares of CBC Stock in an amount to be determined as set forth in
Section 2.2.1, PROVIDED that such Shares shall be delivered at
Closing to the Depository Trust Co. or such other depository for
the benefit of Sellers in the name of such broker or other
nominee as Sellers shall have designated in writing to Buyer;
<PAGE>
9.3.2. An opinion of Buyer's counsel, addressed to the Sellers,
confirming the correctness of Buyer's representations made in
Sections 3.7 and 5.1;
9.3.3. A certificate of Buyer's President or Secretary verifying that
Buyer's representations, warranties and covenants as provided
herein remain materially true and correct up to and through the
Closing Date;
9.3.4. An Assumption Agreement pursuant to which Buyer assumes all
obligations relating to the Station, including without
limitation, payment and performance obligations under the Leases
and Agreements, which arise after Closing; and
9.3.5. Such other documents and instruments as might reasonably be
requested by Sellers to consummate the transaction contemplated
hereunder consistent with the intent expressed herein.
9.4. CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of Buyer to
consummate the transaction herein contemplated at Closing are
subject to and conditioned on:
9.4.1. The written consent of the FCC evidencing its written approval to
the assignment to Buyer or its assigns of the Licenses, provided
that such assignment is without any condition that is materially
adverse to Buyer;
9.4.2. The satisfaction at or before Closing of all material agreements,
obligations and conditions of the Sellers hereunder required to
be performed or complied with by them on or before Closing;
9.4.3. The representations and warranties set forth in Article 4 above
shall be true and correct in all material respects at and as of
the Closing Date;
9.4.4. No action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order,
decree, ruling, or charge is reasonably likely to (i) prevent
consummation of the transaction contemplated by this Agreement,
(ii) cause the transaction contemplated by this Agreement to be
rescinded following consummation, or (iii) affect adversely the
right of the Buyer to own the Assets.
9.5. CONDITIONS TO OBLIGATIONS OF THE SELLERS. The obligations of the
Sellers to consummate the transaction herein contemplated at Closing
are subject to and conditioned on:
9.5.1. The written consent of the FCC evidencing its written approval of
the assignment to Buyer of the Licenses ("FCC Approval"),
provided that such assignment is without any condition that is
materially adverse to the Sellers;
9.5.2. 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; and
9.5.3. The representations and warranties set forth in Section 3.7 and
Article 5 above shall be true and correct in all material
respects at and as of the Closing Date.
9.5.4. No action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order,
decree, ruling, or charge is reasonably likely to (i) prevent
consummation of the transaction contemplated by this Agreement,
(ii) cause the transaction contemplated by this Agreement to be
rescinded following consummation, or (iii) affect adversely the
right of the Buyer to own the Assets.
<PAGE>
ARTICLE 10
MISCELLANEOUS PROVISIONS
10.1. SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES. All
representations, warranties and covenants of Sellers contained in this
Agreement shall survive for a period of eighteen (18) months after the
Closing Date.
10.2. ARBITRATION.
10.2.1 PROCEDURE. Except as specifically provided to the contrary in
this Agreement, all disputes arising among the parties under this
Agreement shall be resolved by arbitration under this Section
10.2. The parties do not intend that any matters relating to
fraud or material misrepresentation shall be subject to
arbitration. Any party desiring arbitration shall deliver notice
to the other party and in such notice shall (i) specify in detail
those matters (the "Disputed Matters") as to which such party has
a claim, such party's position with respect to the Disputed
Matter and the basis for such party's claim; and (ii) appoint as
an arbitrator a disinterested person of recognized competence in
the area at issue. Within fifteen (15) days thereafter, each
party shall, by notice to the originating party, (i) specify in
detail such party's position with respect to the Disputed Matters
and the basis for such party's disagreement; and (ii) appoint
another person similarly qualified as the additional arbitrator.
Within fifteen (15) days thereafter, the arbitrators thus
appointed shall appoint another person similarly qualified as an
additional arbitrator, and all such arbitrators shall be directed
to resolve such Disputed Matters within thirty (30) days, unless
the arbitrators in good faith determine that such a deadline is
impractical.
The arbitrators shall resolve any Disputed Matters by adopting
the position with respect thereto of one of the parties, and
unless otherwise agreed by the parties, the arbitrator shall have
not authority to adopt any other resolution of such Disputed
Matters. The determination of the majority of the arbitrators or
the sole arbitrator, as the case may be, shall, to the extent
permitted by law, be conclusive and binding upon the parties.
Any party shall, upon such determination, have the right to
enforce the determination in a court of competent jurisdiction.
The arbitrator or arbitrators shall give notice to the parties
stating their determination, and shall furnish to each a copy of
such determination signed by them. In the event of the failure,
refusal or inability of any arbitrator to act, a new arbitrator
shall be appointed in his or her stead, which appointment shall
be made in the same manner as hereinbefore provided for the
appointment of the arbitrator so failing, refusing or unable to
act.
10.2.2. ARBITRATOR APPOINTMENT DISPUTE. Notwithstanding the provisions
of the prior paragraph, (i) if the additional arbitrator shall
not have been appointed as aforesaid, the first arbitrator shall
determine such matter; and (ii) if the arbitrators appointed by
the parties shall be unable to agree upon the appointment of
another arbitrator within fifteen (15) days after the appointment
of the lastly appointed arbitrator, they shall give written
notice of such failure to agree to the parties, and, if the
parties shall fail to agree upon the selection to such other
arbitrator within fifteen (15) days thereafter, then within ten
(10) days thereafter, any of the parties upon written notice to
the other party may apply for such appointment to a local court
of competent jurisdiction.
10.2.3. RULES AND PROCEDURES.
(a) Any such arbitration shall be conducted in Phoenix,
Arizona, in accordance with the Commercial Arbitration
Rules (the "Rules") of the American Arbitration
Association ("AAA") to the fullest extent such Rules
are permitted by, and to the fullest extent not
inconsistent with, applicable law
<PAGE>
and the Rules set forth below, which shall be controlling to
the extent they differ from the AAA Rules.
(b) Each party shall be entitled to present evidence and
arguments to the arbitrators. Each party hereby
authorizes the arbitrators (i) to order such discovery
(including third party discovery) as the arbitrators
shall determine to be reasonable under the
circumstances; (ii) to impose reasonable schedules and
deadlines to ensure that discovery is conducted and
concluded on a timely basis; (iii) to impose sanctions
on any party for abuse or delay of the discovery; and
(iv) to apply such Rules of evidence as the arbitrators
in their sole discretion may determine.
(c) Any party may elect, by notice to the other party and
the arbitrators, to have the arbitration conducted on
an expedited basis. In such event, the parties hereby
agree that the arbitrator shall be authorized to
authorize to expedite the proceedings by all reasonable
means consistent with a fair hearing of the dispute.
Such means may include the imposition of accelerated
discovery and hearing schedules, requiring submissions
within abbreviated time periods and imposing
limitations on numbers of witnesses and the length of
hearings.
10.2.4. COSTS AND COMPLIANCE WITH DECISION. Each party agrees to comply
with any order or request of the arbitrators delivered pursuant
to this Section 10.2. Each party will compensate the arbitrator
selected by it, and the fees of the arbitrator appointed by the
other arbitrators and the expenses of the proceeding will be
shared equally by the parties. Subject to the foregoing
sentence, each party shall bear its own expenses, including
attorneys' fees, in connection with any arbitration proceedings
hereunder. No party in any such arbitration, or in any action,
trial or appeal thereon, shall be entitled to attorneys' fees or
court, arbitration or other costs incurred, unless otherwise
decreed by the court or arbitrators in the same or a separate
suit.
10.3. EXECUTION OF DOCUMENTS. The parties agree to execute all
applications, documents and instruments which may be necessary for the
consummation of the transaction contemplated hereunder, or which might
be from time to time reasonably requested by any party hereto in
connection therewith, whether before or after the date of Closing.
10.4. NOTICES. All notices, requests, elections, demands and other
communications given pursuant to this Agreement shall be in writing
and shall be duly given when delivered personally or when deposited in
the mails, certified or registered mail, postage prepaid, return
receipt requested, and shall be addressed as follows:
If to Sellers: Mr. Bruce Reese
Bonneville International Corporation
Broadcast House, 55 North 300 West
Salt Lake City, Utah 84180
with copies to: David K. Redd, Esq.
Bonneville International Corporation
Broadcast House, 55 North 300 West
Salt Lake City, Utah 84180
and Kenneth E. Satten, Esq.
Wilkinson, Barker, Knauer & Quinn
1735 New York Avenue, N.W.
Washington, D.C. 20006
<PAGE>
If to Buyer: Mr. Christopher Dahl
Children's Broadcasting Corporation
724 First Street North, Fourth Floor
Minneapolis, Minnesota 55401
with copy to: Lance W. Riley, Esq.
Children's Broadcasting Corporation
724 First Street North, Fourth Floor
Minneapolis, Minnesota 55401
10.5. EXHIBITS AND SCHEDULES. All Exhibits and Schedules referred to herein
are incorporated into this Agreement by reference for all purposes and
shall be deemed part of this Agreement.
10.6. ENTIRE AGREEMENT. This Agreement together with all Exhibits and
Schedules referred to herein contain all of the terms and conditions
agreed upon by the parties hereto with respect to the transaction
contemplated hereunder.
10.7. ASSIGNABILITY. None of the parties may assign their rights or
obligations under this Agreement without the prior written consent of
the other parties, which consent will not be unreasonably denied or
delayed, except that any party may make an assignment to an entity
under essentially common control as the assigning entity.
10.8. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the representatives, heirs, estates, successors, and
assigns of the parties hereto.
10.9. HEADINGS. The headings contained in this Agreement are for reference
only and shall not effect in any way the meaning or interpretation of
this Agreement.
10.10. COUNTERPARTS. This Agreement and any other instrument to be signed by
the parties hereto may be executed by the parties, together or
separately, in two or more identical counterparts, each of which shall
be deemed an original, but all of which together shall constitute but
one and the same instrument.
10.11. GOVERNING LAW. This Agreement has been entered into in the State of
Arizona and shall be governed in accordance with the laws of the State
of Arizona.
10.12. BROKER COMMISSION. The Sellers and Buyer each represent to the other
that they have engaged no broker in connection with the contemplated
transaction except for Star Media Brokerage, which has been engaged by
and is to be paid by Sellers, 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.
10.13. SALES TAX. Any sales tax, including bulk sales taxes (if applicable),
and real property transfer tax, due upon consummation of this
transaction will be computed at Closing and paid one-half each by the
Buyer and by the Sellers. Buyer will pay any tax or fee necessary to
cause title certificates to be issued in the name of Buyer for any of
the Assets.
[THIS SPACE LEFT INTENTIONALLY BLANK.]
<PAGE>
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.
SELLERS: BUYER:
BONNEVILLE INTERNATIONAL CHILDREN'S BROADCASTING
CORPORATION CORPORATION
BY: /s/ Bruce T. Reese BY: /s/ James G. Gilbertson
------------------ -----------------------
ITS: President ITS: Chief Operating Officer
BONNEVILLE HOLDING COMPANY
By: /s/ Robert A. Johnson
---------------------
ITS: Vice President
<PAGE>
EXHIBIT A
ESCROW AGREEMENT
SEE SECTION 2.2.1
<PAGE>
SCHEDULE A
LICENSES, PERMITS AND AUTHORIZATIONS
SEE SECTION 1.1.1
<PAGE>
SCHEDULE B
REAL PROPERTY
SEE SECTION 1.1.2
<PAGE>
SCHEDULE C
PERSONAL PROPERTY
SEE SECTION 1.1.3
<PAGE>
SCHEDULE D
LEASES AND AGREEMENTS
SEE SECTION 1.1.4
<PAGE>
SCHEDULE E
GENERAL INTANGIBLES
SEE SECTION 1.1.5
<PAGE>
SCHEDULE F
EXCLUDED ASSETS
SEE SECTION 1.2.7
<PAGE>
SCHEDULE G
LITIGATION
SEE SECTION 4.5
<PAGE>
SCHEDULE H
SELLERS' EMPLOYEE PLANS AND
COMPENSATION ARRANGEMENTS
SEE SECTION 4.10.1
<PAGE>
SCHEDULE I
PERSONS EMPLOYED IN CONNECTION WITH
THE OPERATION OF THE STATION
SEE SECTION 4.11
<PAGE>
EXHIBIT 23.2
Consent of BDO Seidman, LLP
We consent to the reference to our firm under the captions "Risk Factors
- --Company Development; History of Operating Losses" and "Experts" in the
Registration Statement on Form S-3 of Children's Broadcasting Corporation for
the registration of 318,607 shares of common stock and to the incorporation
by reference therein 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. Our report
contains an explanatory paragraph regarding the Company's ability to continue
as a going concern.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Milwaukee, Wisconsin
May 30, 1997
<PAGE>
EXHIBIT 23.3
Consent of Ernst & Young LLP
We consent to the reference to our firm under the captions "Risk Factors --
Company Development; History of Operating Losses" and "Experts" in the
Registration Statement (Form S-3) of Children's Broadcasting Corporation for the
registration of 318,607 shares of its common stock and to the incorporation by
reference therein of our report dated January 31, 1996, with respect to the
consolidated financial statements of Children's Broadcasting Corporation
included in its Annual Report (Form 10-KSB) for the year ended December 31,
1996, filed with the Securities and Exchange Commission.
Minneapolis, Minnesota
May 29, 1997
/s/ Ernst & Young LLP
<PAGE>
EXHIBIT 23.4
[Smolin, Lupin & Co., P.A. letterhead]
Children's Broadcasting Corporation
724 First Street North, 4th Floor
Minneapolis, Minnesota 55401
Gentlemen:
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports for the eleven months ended March 31, 1996 and 1995, and the
reports for the years ended April 30, 1993, 1994, and 1995, with respect to the
financial statements of Radio Elizabeth, Inc. incorporated by reference in the
Registration Statement (Form S-3) of Children's Broadcasting Corporation for the
registration of shares of its common stock.
/s/ Smolin, Lupin & Co., P.A.
- -----------------------------
Smolin, Lupin & Co., P.A.
West Orange, New Jersey
May 29, 1997
<PAGE>
EXHIBIT 23.5
[Kleiman, Carney & Greenbaum, P.C. letterhead]
May 29, 1997
Consent of Independent Auditors
We consent to the reference of our firm under the caption "Experts" and to the
use of our reports dated January 19, 1996, February 2, 1996 and May 30, 1996,
with respect to the financial statements of Wolpin Broadcasting Company
incorporated by reference in the Registration Statement (Form S-3) and related
Prospectus of Children's Broadcasting Corporation for the registration of shares
of its common stock.
Very truly yours,
KLEIMAN, CARNEY & GREENBAUM
/s/ MARK CARNEY
------------------------------
MARK CARNEY
Certified Public Accountant
Farmington Hills, Michigan
May 29, 1997
