U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For Quarterly period ended September 30, 1998 or
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the Transition period from _________ to _________
Commission File No. 0-21534
Children's Broadcasting Corporation
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(Exact name of small business issuer as specified in its charter)
Minnesota 41-1663712
--------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
724 First Street North-4th Floor, Minneapolis, MN 55401 (Address of
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principal executive office, including zip code)
(612) 338-3300
--------------
(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes __X__ No _____
As of November 13, 1998, there were outstanding 6,600,642 shares of
common stock, $.02 par value, of the registrant.
<PAGE>
INDEX
CHILDREN'S BROADCASTING CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -- September 30, 1998 and
December 31, 1997.
Consolidated Statements of Operations -- Three and nine months ended
September 30, 1998 and 1997.
Consolidated Statements of Cash Flows -- Nine months ended September
30, 1998 and 1997.
Notes to Consolidated Financial Statements -- September 30, 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHILDREN'S BROADCASTING CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 166,641 $ 545,258
Accounts receivable 318,320 1,696,756
Allowance for doubtful accounts (186,005) (472,000)
Accounts receivable - affiliates 211,619 142,868
Prepaid expenses 137,829 108,174
------------ ------------
TOTAL CURRENT ASSETS 648,404 2,021,056
Investment in Harmony 6,035,357 6,281,728
Property & equipment, net 3,990,985 4,708,327
Broadcast license, net 17,704,703 19,679,154
Intangible assets, net 1,558,456 1,550,100
Deferred debt issue costs 1,519,194 1,173,209
------------ ------------
TOTAL ASSETS $ 31,457,099 $ 35,413,574
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,304,104 $ 1,688,832
Accrued interest 457,037 324,994
Other accrued expenses 4,445,955 1,203,331
Line of credit 672,539 453,838
Short-term debt 1,250,000 1,172,500
Long-term debt - current portion 23,908,714 22,857,386
Obligation under capital lease - current portion 30,008 26,367
------------ ------------
TOTAL CURRENT LIABILITIES 33,068,357 27,727,248
Long-term debt - net of current portions 2,224,137 2,508,819
Obligation under capital lease 29,270 48,836
------------ ------------
TOTAL LIABILITIES 35,321,764 30,284,903
------------ ------------
Redeemable Convertible Preferred Stock
Authorized shares - 606,061
Issued and outstanding shares - 606,061 redeemable
in certain circumstances at $4.04 per share 2,312,439 --
Shareholders' equity:
Common stock, $.02 par value:
Authorized shares - 50,000,000
Issued & outstanding shares - voting: 6,532,601
1998 and 6,460,824-- 1997;
Issued and outstaning shares - 189,041 nonvoting -
1998 and 1997 134,380 132,997
Additional paid-in capital 46,792,121 46,387,536
Stock subscription receivable (529,563) (529,563)
Accumulated deficit (52,574,042) (40,862,299)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY (6,177,104) 5,128,671
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 31,457,099 $ 35,413,574
============ ============
</TABLE>
<PAGE>
CHILDREN'S BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------ ------------ ------------ ------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Owned, Operated and LMA Stations $ 483,974 $ 1,069,321 $ 1,768,150 $ 3,122,036
Network 47,868 612,125 203,098 1,127,043
------------ ------------ ------------ ------------
REVENUES $ 531,842 $ 1,681,446 $ 1,971,248 $ 4,249,079
OPERATING EXPENSES:
Owned, Operated and LMA Stations:
General and Administrative 580,102 747,702 1,556,689 2,276,826
Technical and Programming 225,206 293,805 692,656 837,687
Selling 56,591 317,780 272,766 1,214,378
------------ ------------ ------------ ------------
861,899 1,359,287 2,522,111 4,328,891
Network
General and Administrative 102,188 134,390 311,586 429,415
Programming 65,181 236,230 282,220 663,141
Selling 70,174 366,158 306,819 1,315,484
Marketing 2,669 (6,060) 21,078 144,996
------------ ------------ ------------ ------------
240,212 730,718 921,703 2,553,036
Corporate 1,413,877 1,149,382 3,941,445 3,140,578
Depreciation & Amortization 528,005 549,770 1,621,626 1,552,805
TOTAL OPERATING EXPENSES 3,043,993 3,789,157 9,006,885 11,575,310
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (2,512,151) (2,107,711) (7,035,637) (7,326,231)
Loss/(Gain) on Exchange of Assets (542,297) -- (542,297) --
Equity Loss in Harmony 877,074 169,132 1,803,871 169,132
Interest Expense (Net of Interest Income) 1,267,549 546,395 3,414,533 1,263,599
------------ ------------ ------------ ------------
NET LOSS ($ 4,114,477) ($ 2,823,238) ($11,711,744) ($ 8,758,962)
Accretion of Redeemable Convertible Preferred 544,189 -- 544,189 --
NET LOSS TO COMMON SHAREHOLDERS ($ 4,658,666) ($ 2,823,238) ($12,255,933) ($ 8,758,962)
============ ============ ============ ============
NET LOSS PER SHARE ($ 0.69) ($ 0.44) ($ 1.83) ($ 1.43)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 6,728,000 6,384,500 6,692,000 6,142,500
============ ============ ============ ============
</TABLE>
<PAGE>
CHILDREN'S BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------ ------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($11,711,744) ($ 8,758,963)
Adjustments to reconcile net loss to net cash from operating activities:
Provision for doubtful accounts (285,995) --
Depreciation & amortization 1,621,626 1,552,805
Amortization of deferred debt issue costs 615,640 --
Gain on Sale of Assets (542,297)
Net barter activity (8,840) 30,376
Issuance of common stock for payment of attorney fees -- --
Issuance of common stock for payment of interest 79,788 81,113
Equity loss in Harmony 1,803,871 169,132
Decrease (Increase) in:
Accounts Receivable 1,387,276 (197,732)
Other Receivables (68,751) --
Prepaid Expenses (29,655) (48,663)
Increase (Decrease) in:
Accounts Payable 615,272 769,474
Accrued Interest 132,043 96,984
Other Accrued Expenses 3,242,624 (397,862)
------------ ------------
NET CASH USED IN OPERATIONS (3,149,142) (6,703,336)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale/Purchase of Property & Equipment 151,783 (693,634)
Investment in Harmony (1,557,500) (5,636,700)
Sale/Purchase of Intangible Assets 1,452,327 (2,086,582)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES 46,610 (8,416,916)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Capital Lease Obligation (15,925) (23,411)
Payment of Debt (2,853,859) (352,663)
Proceeds from Debt Financings 3,724,449 13,720,922
Proceeds from Issuance of Convertible Preferred Stock 1,864,250 --
Proceeds from Issuance of Common Stock 5,000 115,619
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,723,915 13,460,467
------------ ------------
Increase (Decrease) in Cash (378,617) (1,659,785)
Cash - Beginning of Period 545,258 3,370,038
------------ ------------
CASH - END OF PERIOD $ 166,641 $ 1,710,253
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid During the Period for Interest $ 2,628,902 $ 1,240,315
============ ============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the nine months ended September 30, 1998:
The Company recognized revenues of $112,698 and expenses of
$103,858 through barter activity.
The Company issued 66,639 shares of common stock valued at
$226,532 for the payment of a principal and interest
installment due in February, May and August 1998 totaling
$146,744 and $79,788 respectively, for the note payable
outstanding to the seller of WAUR (AM).
The Company incurred debt issuance costs aggregating $560,000
as a result of the issuance and repricing of warrants related
to the Foothill financing, debt issuance cost aggregating
$62,625 resulting from the issuance of warrants related to the
bridge financing to purchase Harmony stock.
<PAGE>
CHILDREN'S BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310 of
Regulation SB. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals with the exception of the adjustments discussed in
Note 2) considered necessary for a fair presentation have been included.
Operating results for the nine month period ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998. For further information, refer to the consolidated financial
statements and footnotes thereto including in the Company's Form 10-KSB for the
year ended December 31, 1997.
NOTE 2--SIGNIFICANT TRANSACTIONS DURING 1998
The following significant transactions occurred during the first nine months of
1998 and are considered non-recurring:
A. In January 1998, the Company received proceeds totaling $611,000 and
paid debt issue costs of $39,000 through the issuance of a note
payable to Harmony Holdings, Inc. ("Harmony") with a face amount of
$650,000. The note payable bore interest at 15%, was unsecured and
was due upon demand. The Company paid Harmony $323,000 of the
principal plus related interest on the note in May 1998, and paid
the remaining $327,000 of principal plus related interest in June
1998.
B. In February 1998, the Company adopted a Shareholder Rights Plan
designed to enable the Company and its board to develop and preserve
long-term values for shareholders and to protect shareholders in the
event an attempt is made to acquire control of the Company through
certain coercive or unfair tactics or without an offer of fair value
to all shareholders. The plan provides for distribution of a common
share purchase right to each shareholder of record of the Company's
common stock on February 27, 1998. Under the plan, these rights to
purchase common shares will generally be exercisable a certain
number of days after a person or group acquires or announces an
intention to acquire 20% or more of the Company's common stock. Each
right entitles the holder, after the rights become exercisable, to
receive shares of the Company's common stock having a market value
of two times the exercise price of the right or securities of the
acquiring entity at one-half their market value at that time.
<PAGE>
C. On March 13, 1998, the Credit Agreement with Foothill Capital
Corporation ("Foothill") was amended. Pursuant to the amendment,
Foothill issued an additional term note payable advance of
$1,000,000 of which the Company received proceeds totaling $900,000
and paid a loan fee of $100,000. The provisions of the Credit
Agreement remained substantially unchanged as a result of the
amendment, except that the variable interest rate was increased by
1%, a principal installment of $500,000 due March 31, 1998 was
deferred until April 16, 1998, and the Company received a waiver of
certain debt covenants which the Company had not met as of March 31,
1998. As additional consideration for the amendment, the Company
issued Foothill an additional warrant to purchase 100,000 shares of
the Company's common stock at a purchase price of $3.68 per share
and amended the exercise price of a previously granted warrant to
purchase 100,000 shares of common stock from $5.29 per share to
$3.68 per share.
D. In April 1998, the Company signed a definitive purchase agreement
with Catholic Radio Network, LLC ("CRN") to sell the assets of ten
of its owned and operated stations including the stock of Children's
Radio New York, Inc., a subsidiary of the Company, for $57.0
million. The total purchase price was to include $52.0 million in
cash and a $5.0 million subordinated secured promissory note. CRN
deposited $3.0 million into an escrow account, all of which was
released to the Company. In October 1998, the agreement was amended
to reduce the number of stations to be purchased by CRN to seven and
to change the purchase price to $36.9 million, $15.0 million of
which is payable to the Company in the form of a promissory note.
This note has a term of 18 months and bears simple interest at a
rate of 10% per annum. Per the amendment, interest only will be
payable to the Company on a monthly basis with the outstanding
principal due at the maturity of the note. CRN established a $1.0
million interest reserve in favor of the Company. The transaction
was consummated October 30, 1998 (see exhibits 2.1, 2.2, 2.3, 10.10
and 10.11). In connection with the transaction consummation, the
Company paid Foothill a fee of $200,000 and canceled warrants
previously granted to Foothill for 50,000 shares of the Company's
common stock exercisable at $4.40 per share.
E. In April 1998, the Company signed a definitive purchase agreement
with Salem Communications Corporation to sell the assets of two of
its owned and operated stations for a total purchase price of $2.7
million cash. On April 27, 1998, $135,000 was deposited into an
escrow account. The Company simultaneously entered into a
pre-closing time brokerage agreement regarding the stations which
terminated upon consummation of the sale on October 30, 1998.
F. In May 1998, the Company signed a definitive purchase agreement with
1090 Investments, LLC to sell the assets of one of its owned
<PAGE>
and operated stations for a purchase price of $2.0 million cash.
Pursuant to the terms of the agreement, the buyer deposited $100,000
into an escrow account to be held until closing. The Company
simultaneously entered into a pre-closing time brokerage agreement
to operate WCAR(AM) which terminated upon consummation of the sale
on September 1, 1998.
G. In May 1998, the Credit Agreement with Foothill was again amended
effective April 17, 1998. Pursuant to the amendment, the Company
obtained an additional term note payable advance of $2.0 million of
which the Company received proceeds totaling $1.0 million, paid a
loan origination fee of $200,000, and established an interest
reserve of $800,000 to be used for payment of future interest. Also,
pursuant to the amendment, the variable interest rate was increased
by 1% on the entire outstanding loan balance, and the Company
received a forbearance of all principal payments and certain
covenant requirements through September 30, 1998. As additional
consideration for the amendment, the Company issued Foothill an
additional warrant to purchase 200,000 shares of the Company's
common stock at $3.31 per share.
H. In May 1998, the Company issued 150,000 shares of its common stock
to its litigation counsel in connection with the ABC/Disney
litigation. The Company also registered such shares for resale. The
litigation counsel must obtain approval from the Company prior to
selling any shares and using the proceeds to satisfy litigation
expense. As of this filing, none of these shares have been sold by
the litigation counsel.
I. In February and June 1998, the Company issued an aggregate of 66,639
shares of its common stock to satisfy three principal and interest
installments due, aggregating $226,531, to the seller of WAUR(AM).
J. In June 1998, pursuant to a Securities Purchase Agreement, the
Company issued 606,061 shares of its series B convertible preferred
stock ("this Series") to three accredited investors for which it
received gross proceeds of $2.0 million. From the gross proceeds,
the Company paid a 6.25% commission to Pacific Continental
Securities Corp. After legal and escrow fees, the transaction
resulted in net proceeds to the Company of approximately $1,860,000.
The shares of this series have a stated value of $3.30 per share.
The holders may require the Company to redeem these shares for cash
in certain circumstances between three business days and 60 days
following the CRN closing. These shares may be converted into a
variable number of shares of common stock of the Company
incrementally over a period of time, in certain circumstances,
originally commencing October 23, 1998. However, the Company may, at
any time, redeem all or part of the outstanding unconverted shares
of this Series through cash payments of approximately $4.04 per
share. In connection with this financing, the Company issued a
five-year warrant to the investors for the purchase of an aggregate
of 100,000 shares
<PAGE>
of the Company's common stock at a per share exercise price of
approximately $3.77 (subject to adjustment). In addition, the
Company issued a five-year warrant to the investors for the purchase
of an aggregate of 25,000 shares of the Company's common stock, at a
per share exercise price of approximately $2.68. In October 1998,
the Company and the holders of this series agreed to extend the
Company's absolute right to redeem such shares through January 31,
1999. In connection with this amendment, the Company issued an
aggregate of 125,000 warrants at the exercise price of approximately
$2.68 per share pursuant to this June 1998 agreement and its October
22, 1998 extension agreement. The holders can exercise up to 65,000
of such warrants immediately, another 35,000 if the shares of this
series have not been redeemed by December 31, 1998 and the final
25,000 if the shares of the series have not been redeemed by January
31, 1999 (see exhibit 10.6).
K. In June 1998, using the proceeds of the above-referenced transaction
(see Note J), the Company exercised previously held options to
purchase a aggregate of 750,000 shares of common stock of Harmony at
$1.50 per share and repaid the remainder of the note due Harmony
(see Note A). Additionally, in July 1998, the Company made an open
market purchase of 250,000 shares of common stock of Harmony at
$1.73 per share. The purchase of these additional shares of
Harmony's common stock resulted in an increase in the Company's
actual ownership in Harmony to approximately 44.1%. The aggregate
purchase price of $1,557,500 exceeded the Company's pro rata share
of Harmony's net tangible assets by approximately $1 million. This
excess purchase price relates to Harmony's intangible asset value,
principally technical know-how, industry reputation and customer
lists, and is being amortized on a straight line basis over a seven
year estimated useful life. In November 1998, the Company purchased
an additional 269,231 shares of common stock at a price of $1.30 per
share directly from Harmony. This $350,000 purchase of Harmony's
common stock increased the Company's actual ownership in Harmony to
approximately 46.1%.
L. In July 1997, the Company received proceeds aggregating $1.25
million in exchange for the issuance of promissory notes payable and
warrants to purchase 125,000 shares of the Company's common stock to
a partnership controlled by a Company director, a Company director
individually and a less that five-percent shareholder. These notes
payable were to mature in July 25, 1998. In June 1998, the notes
were amended to be payable on October 25, 1998. In connection with
the amendment, the interest rate to be received by one lender was
increased to 20% per year effective July 25, 1998, and warrants to
purchase an aggregate of 37,500 shares of the Company's common stock
at approximately $3.06 per share were issued to the other two
lenders. The Company paid these notes and the related interest in
full November 3, 1998.
M. In July 1998, Harmony entered into a three-year, $5.0 million
revolving line of credit agreement with Heller Financial, Inc.
<PAGE>
The Company entered into an agreement to guarantee this line of
credit.
N. In October 1998, the Company signed a definitive purchase agreement
with Radio Unica Corporation ("Radio Unica") to sell the three radio
stations not being purchased by CRN for a total purchase price of
$29.3 million. Radio Unica has deposited $10.0 million into escrow
and paid $2.5 million to the Company as pre-payment of local
marketing agreement ("LMA") fees charged at $135,000 per month for
the New York station and $65,000 per month for the other stations.
The consummation of the transaction is subject to receipt of Federal
Communication Commission approval, Hart-Scott-Rodino clearance, and
other customary conditions of closing. Radio Unica will continue to
operate the Company's New York radio station and with an additional
$500,000 LMA pre-payment, subject to receipt of Hart-Scott-Rodino
approval, will operate the remaining two stations for two years or
until closing, whichever occurs first. Any unused portion of the LMA
fee paid to the Company will be credited to the purchase price of
the transaction at closing, which is expected to occur in January
1999 (see exhibits 10.4 and 10.5).
O. In October 1998, the Credit Agreement with Foothill was again
amended. Pursuant to the amendment, the Company obtained an
additional term note payable advance of up to $1.0 million. From the
$1.0 million, the Company paid a loan origination fee of $100,000,
and established an interest reserve of $300,000 to be used for
payment of future interest. The remaining $600,000 is available to
the Company as needed for working capital (see exhibit 10.12).
NOTE 3--INVESTMENT IN HARMONY
In 1997, the Company acquired an equity interest in Harmony by
purchasing 2,188,731 shares of Harmony's common stock and options to
acquire an additional 750,000 shares of Harmony's common stock. The
Company exercised its options on June 30, 1998, purchased
additional stock on the open market in July 1998, and purchased
269,231 shares directly from Harmony in November 1998 (see Note K).
Currently, the Company's investment represents 46.1% of the
outstanding common stock of Harmony. Harmony's most recent fiscal
year end was June 30, 1998. Harmony's operations are summarized as
follows for the quarter and year ended June 30, 1998:
Quarter Ended Year Ended
6/30/98 6/30/98
----------------------------
Contract revenues $15,878,713 $53,355,100
Cost of production 13,501,173 43,616,737
----------- -----------
Gross profit 2,377,540 9,738,363
Operating expenses 4,599,249 14,230,595
----------- -----------
<PAGE>
Income (loss) from
Operations (2.221,709) (4,492,232)
Interest income 3,598 25,315
------------ -----------
Income (loss) before
Income taxes (2,218,111) (4,466,917)
Income taxes (1,479) 21,663
------------ -----------
Net income (loss) $(2,216,632) $(4,488,580)
------------ ------------
Harmony's financial information as of September 30, 1998 is not
yet available. The Company has utilized an estimate of Harmony's
results from operations in its computation of the equity loss in
Harmony for the quarter ended September 30, 1998.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis contains certain
forward-looking terminology such as "believes," "expects,"
"anticipates," and "intends," or comparable terminology. Such
statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from those projected.
Potential purchasers of the Company's securities are cautioned not
to place undue reliance on such forward-looking statements which are
qualified in their entirety by the cautions and risks described
herein.
GENERAL
The Board of Directors of Children's Broadcasting
Corporation unanimously approved the sale of the Company's assets to
Global Broadcasting Company, Inc. ("Global"), subject to shareholder
approval, for $72.5 million in cash. Shareholder approval for the
sale was obtained in January 1998. However, on January 27, 1998, the
Company announced that Global had failed to close on the purchase of
the Company's radio stations within the time provided under the
purchase agreement between the parties. On January 30, 1998, the
Company discontinued operation of Aahs World Radio, its 24-hour
children's radio programming, which it began broadcasting by
satellite in late 1992. The primary sources of the Company's
broadcast revenue, prior to the discontinuation of Aahs World Radio,
were from the sale of local advertising and air time and network
revenue. The cessation of such broadcasting has negatively impacted
the Company's revenue. On April 20, 1998, the Company signed a
definitive purchase agreement with CRN to sell the assets of ten of
its owned and operated stations including the stock of Children's
Radio New York, Inc., a subsidiary of the Company for $57.0 million.
Subsequently, this agreement was amended allowing for CRN to
purchase the assets of seven of the Company's stations for $37.0
million and to effectively assign its right to purchase the three
other stations. This transaction closed on October 30, 1998. On
September 1, 1998, the Company sold the assets of one of its
stations to 1090 Investments, LLC for total purchase price of $2.0
million. On October 30, 1998, the Company sold the assets of two
additional owned and operated stations for a total purchase price of
$2.7 million cash to Salem Communications Corporation. On October
26, 1998, the Company signed a definitive purchase agreement with
Radio Unica to sell the assets of the three remaining stations for a
total purchase price of $29.3 million cash.
Radio stations frequently barter unsold advertising time
for products or services, such as hotels, restaurants and other
goods used principally for promotional, sales and other business
activities. Barter revenues and expenses are included in the
financial presentation below. The revenue and expenses related
<PAGE>
to barter do not have a material effect on the Company's operating
profit in a given period.
RESULTS OF OPERATIONS:
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED
TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997.
Revenue:
Owned, Operated and LMA Station Revenues:
Total revenues from the Company's owned,
operated and LMA stations decreased $585,000 or 55% from $1,069,000
in the third quarter of 1997 to $484,000 in the third quarter of
1998. Revenues during the first nine months of 1998 decreased 43%
from $3,122,000 in 1997 to $1,768,000 in 1998. This decrease in
revenue can be attributed to the cessation of broadcasting the Aahs
World Radio format and the reduction of sales force at various
stations in anticipation of the sale of the Company's owned and
operated stations as well as the Local Marketing Agreements ("LMA")
entered into at four of the Company's owned stations.
Network:
Total revenues of $48,000 were produced by
the network during the third quarter of 1998 compared to revenues of
$612,000, a decrease of $564,000 or 92%, compared to the third
quarter of 1997 revenues. Revenues for the first nine months of 1998
decreased $924,000 or 82% compared to the same period in 1997. This
decrease in network revenues was due to the cessation of
broadcasting the Aahs World Radio programming on January 30, 1998
and the termination of all affiliate agreements.
Operating Expenses:
Owned, Operated and LMA Station Expenses:
General and administrative expenses
decreased 22% to $580,000 for the third quarter of 1998 from
$748,000 in the same period of 1997. These expenses decreased
$720,000 or 32% for the first nine months of 1998 compared to the
same period in 1997. This decrease was due to the Company's
reduction in staff at the stations, which eliminated not only
personnel but also general office overhead expenses. Additionally,
the Company has entered into Local Marketing Agreements pertaining
to KTEK(AM) in Houston, KYCR(AM) in Minneapolis, WCAR(AM) in
Detroit, WJDM(AM) in New York. These LMAs have substantially reduced
the Company's expenses at these stations. Expenses continued to
diminish as all the stations were sold or covered by LMAs.
<PAGE>
Technical and programming expenses decreased
to $225,000 in the third quarter of 1998 from $294,000 during the
same period in 1997, a decrease of 23%. During the first nine months
of 1998, these expenses decreased 17% compared to the same period in
1997. Expenses continued to diminish as all the stations were sold
or covered by LMAs.
Sales expenses totaled $57,000 in the third
quarter of 1998 compared to $318,000 in the third quarter of 1997.
During the first nine months of 1998, these expenses decreased 78%
compared to the same period in 1997. This decrease is due to the
reduction revenues and the elimination of sales personnel in
anticipation of the sale of the Company's stations. Expenses
continued to diminish as all the stations were sold or covered by
LMAs.
Network Expenses:
General and administrative expenses
decreased $32,000 in the third quarter of 1998 to $102,000 as
compared to $134,000 for the third quarter of 1997. These expensed
decreased 27% during the first nine months of 1998 as compared to
the same period in 1997 due to the reduction in general overhead
expenses and personnel tied to the cessation of broadcasting of Aahs
World Radio programming.
Programming expenses decreased $171,000 to
$65,000 in the third quarter of 1998 compared to $236,000 in the
same period of 1997, and decreased $381,000 to $282,000 in the first
nine months of 1998 from $663,000 during the first nine months of
1997. This decrease was due to the reduction of staff and
elimination of production expenses due to the discontinuation of
broadcasting of Aahs World Radio programming and in anticipation of
the sale of the Company's owned and operated stations.
Sales expenses decreased 81% from $366,000
in the third quarter of 1997 to $70,000 in the same period of 1998.
These expenses decreased 77% from $1,316,000 during the first nine
months of 1997 to $307,000 in the same period of 1998. This decrease
was due to the reduction of sales personnel and revenues in
conjunction with the discontinuation of broadcasting the Aahs World
Radio format.
Marketing expenses were $3,000 during the
third quarter of 1998 compared to $(6,000) in the third quarter of
1997, representing an increase of $9,000. During the first nine
months of 1998, marketing expenses decreased $124,000 or 85%
compared to the same period of 1997, due to the elimination of the
Company's marketing effort in conjunction with the cessation of
broadcasting of Aahs World Radio programming on January 30, 1998.
<PAGE>
Corporate charges were $1,414,000 in the
third quarter of 1998 compared to $1,149,000 in the third quarter of
1997, representing an increase of 23%. Corporate charges increased
26% in the first nine months of 1998 compared to the same period in
1997. This increase is attributable to a $921,000 increase in legal
fees incurred relating to the ABC/Disney litigation during the first
nine months of 1998 compared to the first nine months of 1997.
Decreases in corporate charges of $120,000 were realized due to a
decrease in personnel expense, outside services and travel expenses.
Depreciation and amortization decreased
$22,000 during the third quarter of 1998 compared to the same period
in 1997. During the first nine months of 1998, these expenses
increased $69,000 or 4% over the same period in 1997. The overall
increase in depreciation and amortization has been minimal given the
Company's discontinuation of its former business strategy to acquire
radio broadcast licenses and related assets, and during the third
quarter of 1998 some assets were disposed of due to the sale of
WCAR(AM) in Detroit.
A gain of $542,000 was realized in the third
quarter of 1998 due to the sale of WCAR(AM) in Detroit to 1090
Investments, LLC for a total purchase price of $2.0 million.
Net interest expense for the third quarter
of 1998 was $1,268,000, an increase of $721,000 over the third
quarter of 1997. Net interest expense for the first nine months of
1998 increased 170% from $1,264,000 to $3,415,000, as a result of
the interest increase associated with the additional financing
provided by Foothill and the interest payable to the lenders who
provided $1.25 million for the purchase of stock in Harmony.
The net loss increased 46% in the third
quarter of 1998 to $4,114,000 from $2,823,000 in the third quarter
of 1997. During the first nine months of 1998 the net loss increased
$2,953,000 to $11,712,000 from $8,759,000 in the first nine months
of 1997, an increase of 34%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity, as measured by its working
capital, was a deficit of $32,420,000 at September 30, 1998 compared
to a deficit of $25,706,000 at December 31, 1997.
During the first nine months of 1998, the Company used
$3,149,000 cash for in operating activities. The Company ceased
producing and distributing its full-time Aahs World Radio
programming format as of January 30, 1998. Concurrent with the
announcement of this termination of network programming, the Company
initiated certain reductions in its workforce related to the
operation of the network and the stations.
<PAGE>
In January 1998, the Company received proceeds totaling
$611,000 and paid debt issue costs of $39,000 through the issuance
of a note payable to Harmony with a face amount of $650,000. The
note payable, which has subsequently been repaid, bore an interest
rate of 15%, was unsecured and was due upon demand (see Note A).
The Company entered into second, third, and fourth
amendments to its Credit Agreement with Foothill in March, May, and
October 1998, pursuant to which the Company obtained additional term
note payable advances totaling $4,000,000 of which the Company
received net proceeds totaling $2,500,000, paid loan origination
fees of $400,000, and established an interest reserve of $1,100,000
to be used for payment of future interest (see Notes C, G, & O).
In June 1998, the Company issued 606,061 shares of its
Series B Convertible Preferred Stock ("this Series") to three
accredited investors for which it received gross proceeds of
$2,000,000. This securities purchase agreement was subsequently
amended in October 1998. Net proceeds to the Company after
commissions and legal fees were approximately $1,860,000. With the
proceeds, the Company exercised its stock options to acquire 750,000
shares of Harmony, purchased 250,000 additional shares of Harmony
common stock on the open market, and repaid the above-referenced
debt obligation to Harmony. The Company current ownership in Harmony
is 44.1% (see Notes J & K).
In September, the Company sold its Detroit station to
1090 Investments, LLC for $2.0 million cash. Net proceeds after
closing costs were used to pay interest and a portion of the
principal on the Foothill term loan.
Subsequent to September 30, 1998, the Company sold nine
of its radio stations for $39.6 million. The transactions included
(i) a sale of seven stations to CRN for $21.9 million cash and a
$15.0 million, 18 month promissory note with 10% annual interest to
be paid quarterly, and (ii) a sale of two radio stations to Salem
Communications Corporation for $2.7 million cash. Additionally, the
Company entered into an agreement to sell its remaining three
stations to Radio Unica for $29.3 million. The sale is expected to
occur in early January 1999. Radio Unica paid the company $2.5
million as a prepaid LMA fee with an additional payment of $500,000
due pending approval of a Hart-Scott-Rodino filing. Radio Unica also
deposited $10 million into a joint escrow account. As of November 9,
1998, the Company has used the proceeds in the following manner: a)
$14.0 million principal payment to Foothill, b) approximately
$600,000 to purchase Harmony common stock per a put agreement, c)
approximately $1.3 million to repay bridge notes and interest, d)
$200,000 to repurchase a warrant previously granted to Foothill, e)
approximately $2.0 million principal payment to seller notes related
to the sale of the stations, f) approximately $500,000 to
<PAGE>
repurchase the Company's common stock, g) approximately $2.0 million
related to closing costs of the transactions, and h) $350,000 to
purchase additional shares of Harmony. Additionally, the Company
used some of its proceeds to pay certain outstanding accounts
payable including various legal costs associated with the ABC/Disney
litigation. The Company believes its current working capital
position will enable the Company to proceed through the sale of the
remaining stations to Radio Unica. Upon sale of those stations, the
Company will pay all remaining debt due to Foothill and other
accounts payable.
The Company is committed to growing its investment in
Harmony as evidenced by the $350,000 purchase of Harmony's common
stock it made upon receipt of proceeds from the sale of its
stations. Harmony's management has determined it is in the best
interest of Harmony to discontinue the operation of its Harmony
Pictures division. For the year ended June 30, 1998, that division
recorded revenues of $10,867,000 and an operating loss of
$1,625,000. Additionally, for the quarter ended September 30, 1998,
that division recorded revenues of $1,139,000 and an operating loss
of $595,000. Harmony expects to incur expenses for discontinuation
of the division in the second quarter ended December 31, 1998. The
amount of the one time expense has not yet been determined.
Consolidated cash was $167,000 at September 30, 1998 and
$545,000 at December 31, 1997, a decrease of $378,000.
Accounts receivable at September 30, 1998 decreased
$1,092,000 from December 31, 1997, other receivables increased
$69,000, and prepaid expenses at September 30, 1998 increased
$30,000 from December 31, 1997. Accounts payable at September 30,
1998 increased $615,000 from December 31, 1997, accrued interest
increased $132,000 from December 31, 1997 to September 30, 1998 and
other accrued expenses increased $3,243,000 during that same period.
The $3,149,000 cash used for operations was provided by the proceeds
obtained through the Foothill financing and CRN escrow releases.
During the first nine months of 1998, net cash used for
investing activities was $47,000. Cash used for the additional
investment in Harmony was $1,558,000 and was provided by the sale of
convertible preferred stock pursuant to the Securities Purchase
Agreement and the bridge loans described in notes J and L. The
primary source of the $1,604,000 cash provided from investing
activities was the sale of one of the Company's stations.
Cash obtained through financing activities amounted to
$2,724,000 during the first nine months of 1998. This cash
represents the $2,500,000 cash proceeds from term loan advance from
Foothill, the $1,860,000 net proceeds obtained through the issuance
of convertible preferred stock pursuant to a Securities Purchase
Agreement, and the $5,000 obtained through the issuance of common
stock through the exercise of stock options, less the repayment of
debt.
YEAR 2000 COMPLIANCE
The Company has made an assessment of its systems and
has been advised by its computer consultant that its systems are
year 2000 compliant. Additionally, management believes it will not
be materially impacted by the Year 2000 compliance of third parties
with which it conducts business.
SEASONALITY AND INFLATION
In the past, the Company's revenues generally followed
retail sales trends, with the fall season (September through
December) reflecting the highest revenues for the year, due
primarily to back-to-school and holiday season retail advertising,
and the first quarter reflecting the lowest revenues for the year.
Presently, the Company has not determined the impact of seasonality
on its future revenues. The Company does not believe inflation has
affected the results of its operations,
<PAGE>
and does not anticipate that inflation will have an impact on its
future operations.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
On September 30, 1998, a jury in the United States District Court for
the District of Minnesota ruled in favor of the Company in connection
with litigation for breach of contract and misappropriation of trade
secrets that the Company had commenced against The Walt Disney Company
("Disney") and ABC Radio Networks, Inc. ("ABC"). The Company is seeking
to have judgment entered by the Court upon that verdict in the amount
of $20 million against ABC and $10 million against Disney, as well as
additional amounts for taxes, pre-judgment interest and for exemplary
damages for willful and malicious misappropriation of trade secrets.
The entry of judgment is currently pending before the Court.
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its Annual Meeting of Shareholders on
August 18, 1998.
(b) Proxies for the Annual Meeting of Shareholders were solicited
pursuant to Regulation 14A under the Exchange Act, there was
no solicitation in opposition to the management's nominees as
listed in the proxy statement, and all of such nominees were
elected.
(c) The following matters were voted upon at the Annual Meeting of
Shareholders:
(1) To elect four directors for the ensuing year and
until their successors shall be elected and duly
qualified.
FOR AGAINST
Christopher T. Dahl 6,210,451 166,417
Richard W. Perkins 6,200,101 176,767
Michael R. Wigley 6,217,751 159,117
William E. Cameron 6,217,901 158,967
(2) To consider and vote upon a proposal to approve the
plan for the sale of all of the Company's owned and
operated radio stations (the "Plan") pursuant to
which (a) ten stations will be sold to Catholic Radio
Network, LLC ("CRN") for $57.0 million (subject to
adjustment), (b) two stations will be sold to Salem
Communications Corporation ("Salem") for $2.7 million
(subject to adjustment) and (c) one station
<PAGE>
will be sold to 1090 Investments, L.L.C. ("1090") for
$2.0 million (subject to adjustment).
FOR.........................................3,811,576
AGAINST........................................54,739
ABSTAIN........................................24,963
BROKER NON-VOTE.............................2,485,290
(3) To consider and vote upon a proposal to approve an
amendment to the Company's 1994 Stock Option Plan
(the "1994 Plan") which would permit the committee
administering the 1994 Plan to suspend or discontinue
it at any time and to revise or amend it in any
respect; provided, however, that no revision or
amendment may be made without shareholder approval
that: (a) absent such shareholder approval, would
cause Rule 16b-3 under the Securities Exchange Act of
1934, as amended, to become unavailable with respect
to the 1994 Plan or (b) requires shareholder approval
under any rules or regulations of the National
Association of Securities Dealers, Inc. or any
exchange that are applicable to the Company.
FOR.........................................5,973,641
AGAINST.......................................314,383
ABSTAIN........................................52,223
BROKER NON-VOTE................................36,621
(4) To ratify the appointment of BDO Seidman, LLP as the
Company's independent public accountants for the
fiscal year ending December 31, 1998.
FOR.........................................6,301,090
AGAINST........................................25,054
ABSTAIN........................................50,724
BROKER NON-VOTE.....................................0
(d) Not applicable.
ITEM 5 OTHER INFORMATION
THE FOLLOWING INFORMATION IS PROVIDED IN RESPONSE TO ITEM 2 OF FORM 8-K
(ACQUISITION OR DISPOSITION OF ASSETS)
Sale of Seven Radio Stations to Catholic Radio Network, LLC
On April 17, 1998, Catholic Radio Network, LLC, a California
limited liability company ("CRN"), entered into a Purchase
Agreement with the Company, pursuant to which CRN agreed to
purchase ten of the Company's owned and operated radio
stations. CRN was formed in March 1998 for the purpose of
developing and promoting by broadcast media the teachings of
the Roman Catholic Church.
<PAGE>
The proposed sale of substantially all of the Company's
assets, including the sale of assets to CRN, was approved by
the Company's shareholders at the Annual Meeting of
Shareholders held on August 18, 1998.
On September 29, 1998, the parties entered into the First
Amendment to the Purchase Agreement. This amendment extended
the scheduled closing of the sale of assets through October
16, 1998, and provided for up to two one-week extensions upon
CRN's payment to the Company of $125,000 in cash for each such
extension. This delay was required in order to enable CRN to
obtain an alternate source of secondary financing after Bank
of America announced, upon its merger with NationsBanc, that
it would no longer provide financing to broadcast entities.
On October 26, 1998, the parties entered into the Second
Amendment to the Purchase Agreement, attached hereto as an
exhibit. Under the amended agreement, instead of purchasing
ten radio stations from the Company, CRN agreed to purchase
seven radio stations from the Company and CRN effectively
assigned its right to purchase the other three radio stations
to Radio Unica Corp.
On October 30, 1998, after CRN's use of two one-week
extensions, the Company completed the sale of seven of its
radio stations to CRN for which CRN paid $37.0 million. Of the
total paid by CRN, $18.89 million was paid in cash at closing,
$3.0 million was paid in cash prior to the closing, $110,000
was withheld by CRN in connection with certain post-closing
obligations of the Company, and $15.0 million will be paid
pursuant to the terms of a promissory note. The note requires
monthly interest payments, at the rate of 10% simple interest
per annum, pending repayment of the principal, which is due in
full on April 30, 2000. The Company holds a first security
interest in the assets conveyed to CRN as security for the
debt obligation. CRN also created a $1.0 million interest
payment reserve in favor of the Company.
CRN acquired radio stations KCNW(AM) licensed to Fairway,
Kansas; KKYD(AM) licensed to Denver, Colorado; KPLS(AM)
licensed to Orange, California; WAUR(AM) licensed to Sandwich,
Illinois; WPWA(AM) licensed to Chester, Pennsylvania; WWTC(AM)
licensed to Minneapolis, Minnesota; and WZER(AM) licensed to
Jackson, Wisconsin.
THE FOLLOWING INFORMATION IS PROVIDED IN RESPONSE TO ITEM 5 OF FORM 8-K
(OTHER EVENTS)
Sale of Assets to Salem Communications Corporation
On April 24, 1998, Salem Communications Corporation ("Salem")
entered into an Asset Purchase Agreement with the Company
pursuant to which Salem agreed to purchase two of the
Company's owned and operated radio stations. Salem is the
leading radio broadcasting company in the United States,
measured by number of stations owned and audience coverage,
that focuses on serving the religious/conservative listening
audience. The sale of assets to Salem was approved by the
Company's shareholders at the Annual Meeting of Shareholders
held on August 18, 1998. On October 30, 1998, the Company
completed the sale of assets
<PAGE>
to Salem for which Salem paid $2.7 million in cash. Salem
acquired radio stations KTEK(AM) licensed to Alvin, Texas, and
KYCR(AM) licensed to Golden Valley, Minnesota.
<PAGE>
Sale of Assets to Radio Unica Corp.
On October 26, 1998, the Company entered into an Asset
Purchase Agreement with Radio Unica Corp. ("Radio Unica"),
attached hereto as an exhibit, for the purchase of three radio
stations not being purchased by CRN. Radio Unica agreed to
purchase radio stations in the Phoenix, Dallas and New York
markets for $29.25 million to be paid in cash at closing. The
closing is subject to the receipt of FCC approval,
Hart-Scott-Rodino clearance, and other customary closing
conditions. Closing is expected to occur before the end of
1998. In connection with the purchase, Radio Unica has
deposited $10.0 million into escrow accounts.
Local Marketing Agreements
Radio Unica currently operates the Company's WBAH(AM) radio
station in the New York market pursuant to a local marketing
agreement. Radio Unica has pre-paid the Company $2.5 million
in fees to operate such station for two years or until closing
of the sale of assets, whichever occurs first. If regulatory
approval is obtained, Radio Unica will also operate the
Company's radio stations in the Phoenix and Dallas markets on
the same terms upon pre-payment of an additional $500,000 in
fees. The Company will offset any unused portion of such fees
against the purchase price which Radio Unica must pay at
closing for the three stations.
Repurchase of Shares
The Board of Directors of the Company previously determined
that the Company's common stock, in light of the Company's
financial condition, the pending sale of its major assets and
its prospects, was significantly undervalued and in connection
therewith authorized the repurchase of up to 400,000 shares
pursuant to Exchange Act Rule 10b-18. Pursuant to a resolution
dated August 28, 1998, authorized the repurchase of up to
385,000 shares of common stock through a broker, which was to
have made purchases of common stock in the open market in the
Company's name and on its behalf. The Company subsequently
determined that the broker did not follow the Company's
instructions with respect to the purchase of such shares and
canceled its authorization for the repurchase of shares.
The broker advised the Company that it had accumulated 385,000
shares of common stock for its own account and presented the
Company with the opportunity to purchase such shares, but the
Company was unable to effect such purchase because of delays
in connection with the closing of the sale of assets to
Catholic Radio Network and restrictions placed upon the
Company by its lenders.
Two of the Company's directors, Christopher T. Dahl and
Richard W. Perkins, with the consent of the Board, initiated
negotiations with the broker to acquire the broker's shares,
similarly believing that the Company's shares were
undervalued, but also aware of the potential depressive effect
upon the market of the Company's common stock that could
result from a sale on the market of the broker's shares in a
quantity or quantities far in excess of the normal trading
volumes of the common stock. Messrs. Dahl and Perkins financed
the acquisition of 171,000 shares of the Company's common
stock from the broker for their own account and assumed all
market and other risks associated therewith.
<PAGE>
Having closed on the sale of assets to Catholic Radio Network,
having significantly reduced its obligations to its lender and
now having available to it capital sufficient to conclude an
acquisition of its common stock, the Company purchased 171,000
shares of the Company's common stock from Messrs. Dahl and
Perkins at their actual cost, including financing expenses
associated therewith. In connection therewith, the Company
assumed the financing obligations of Messrs. Dahl and Perkins
at Key Community Bank and the Company availed itself of the
collateral provided by Messrs. Dahl and Perkins (to be
returned to them when such financing is concluded).
Series B Convertible Preferred Stock
On October 22, 1998, the Company and the holders of its Series
B Convertible Preferred Stock (the "Preferred Shares") entered
into Amendment No. 1 to the Securities Purchase Agreement,
attached hereto as an exhibit, pursuant to which the parties
agreed to extend the Company's absolute right to redeem the
Preferred Shares through January 31, 1999.
In consideration of such extension, the Company agreed to
certain future adjustments to the terms of conversion of the
Preferred Shares. The Securities Purchase Agreement originally
provided that the number of shares of Common Stock to be
delivered upon conversion of a Preferred Share would be $3.30
divided by the lesser of (x) 110% of the average best bid
price of the Common Stock for the five consecutive trading
days ending on the day preceding the conversion date, or (y)
94% of the average of the three lowest closing prices of the
Common Stock during the 60 calendar day period ending on the
day preceding the conversion date, provided however, that such
initial conversion price would be subject to adjustment from
time to time in certain instances as provided therein. The
original agreement further provided that if the Common Stock
is not traded on the New York Stock Exchange, the American
Stock Exchange, the Nasdaq National Market or the Nasdaq
SmallCap Market on the conversion date, then the percentage
specified in clause (y) would be 84%. The original agreement
also provided that a holder could convert Preferred Shares
into Common Stock, at the option of the holder, in accordance
with the following schedule:
Number of Days Percentage of Original
Elapsed Following Issuance Preferred Stock Convertible
120 20%
150 40%
180 60%
210 80%
240 100%
In connection with the amendment, the Company agreed that the
percentage specified in clause (y) of the conversion formula
would be 80% effective February 1, 1999 and such percentage
would be 75% effective May 1, 1999. The Company also agreed to
restate the conversion schedule as follows:
<PAGE>
Number of Days Percentage of Original
Elapsed Following Issuance Preferred Stock Convertible
221 80%
251 100%
The Company also issued the holders a five-year warrant to
purchase an aggregate of up to 65,000 shares of Common Stock
at an exercise price of $2.6755062 per share. Such warrant is
immediately exercisable. If the Company has not redeemed all
of the Preferred Shares on or before December 31, 1998, the
holders will have the right to exercise additional five-year
warrants to purchase an aggregate of up to 35,000 shares at an
exercise price of $2.6755062 per share. If the Company has not
redeemed all of the Preferred Shares on or before January 31,
1999, the holders will have the right to exercise additional
five-year warrants to purchase an aggregate of up to 25,000
shares at an exercise price of $2.6755062 per share. All of
these warrants are entitled to registration rights
substantially in the form of the Registration Rights Agreement
pursuant to which the Common Stock underlying the Preferred
Shares was registered.
General
Reference is made to the cautionary statements of the Company,
presented in its Annual Report on Form 10-KSB for the year
ended December 31, 1998, filed on March 31, 1998, as amended
by Form 10-KSB/A filed on June 29, 1998.
THE FOLLOWING INFORMATION IS PROVIDED IN RESPONSE TO ITEM 7 OF FORM 8-K
(FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS)
(a) Financial Statements of Businesses Acquired
Not applicable.
(b) Pro Forma Financial Information
The following unaudited pro forma condensed financial
statements are filed with this report:
Pro Forma Condensed Consolidated Balance Sheet as of September
30, 1998 Pro Forma Condensed Consolidated Statements of
Income:
Year Ended December 31, 1997
Nine Months Ended September 30, 1998
This unaudited pro forma financial information sets forth the impact of
the CRN transaction (Note 20) and the Company's termination of its
network affiliation agreements and cessation of distribution of its
24-hour Aahs World Radio format on January 31, 1998. The transaction
was consummated on October 30, 1998. The unaudited pro forma statements
of operations and balance sheets do not purport to present the
Company's consolidated results of operations and financial position as
they might have been, or as they may be in the future, had the
transaction and affiliation agreement termination occurred on the
assumed dates.
<PAGE>
The Company's remaining assets, including AAHS trademarks and network
production equipment, will be utilized to develop and create other
business opportunities related to short form network syndication
programming. The Company has not developed a revenue stream associated
with these business opportunities. The company has increased its
ownership position in Harmony and may choose to increase it further.
The Company initially expects to utilize its core management expertise
to improve and enhance the performance of Harmony. In addition to the
potential investment in the business opportunities described above, the
Company seeks to reposition itself through acquisitions in the
television commercial production industry.
The Company sold seven of its radio stations to CRN for $21.9 million
cash and a $15.0 million, 18 month promissory note with 10% annual
interest to be paid quarterly. The Company has used the proceeds in the
following manner: a) $13.0 million principal payment to Foothill, b)
approximately $1.3 million to repay bridge notes and interest, c)
approximately $2.0 million principal payment to seller notes related to
the sale of the stations d) approximately $2.0 million related to
closing costs of the transactions. Additionally, the Company used some
of its proceeds to pay certain outstanding accounts payable including
various legal costs associated with the ABC/Disney litigation.
The pro forma adjustments are based upon information currently
available and on certain assumptions, described within the footnotes to
the pro forma financial statements, that management of the Company
believes are necessary and reasonable for a fair presentation of the
pro forma financial information. The pro forma financial information
and accompanying notes should be read in conjunction with the
historical consolidated financial statements of the Company for the
fiscal year ended December 31, 1997 and for the interim periods ended
through September 30, 1998.
The objective of the unaudited pro forma financial information is to
show what the significant effects on the historical financial
statements might have been had the sale of the stations occurred, for
balance sheet purposes, on September 30, 1998, and, for statement of
operations purposes, on January 1, 1997. However, the pro forma balance
sheets are not necessarily indicative of the effects of the Company's
financial position that would have been attained had the transaction
occurred earlier.
<PAGE>
STATEMENTS OF OPERATIONS:
<TABLE>
<CAPTION>
Pro Forma Adjustments Pro Forma After
Children's for the CRN transaction CRN transaction
Broadcasting and Termination of the and Termination of
Corporation Affiliation Agreements Affiliation Agreements
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nine months ended
September 30, 1998:
Revenues $ 1,971,248 (1,037,652)(1) 933,596
Operating Expenses 9,006,885 (3,497,386)(1) 5,509,499
------------------------------------------------------------------
Income (loss) from operations (7,035,637) 2,459,734 (4,575,903)
Gain on sale of assets 542,297 -- 542,297
Equity loss in Harmony (1,803,871) -- (1,803,871)
Interest income (expense), net (3,414,533) 2,715,000(2) (699,533)
------------------------------------------------------------------
Net loss (11,711,744) 5,174,734 (6,537,010)
Accretion of preferred stock 544,189 -- 544,189
------------------------------------------------------------------
Net loss to common shareholders $ (12,255,933) $ 5,174,734 $ (7,081,199)
==================================================================
Net loss per share $ (1.83) $ (1.06)
============= ==============
Weighted average number of shares outstanding 6,692,000 6,692,000
============= ==============
</TABLE>
- --------------------------------------------------
(1) To eliminate the revenue and operating expenses related to the network, and
stations sold in the CRN transaction.
(2) To eliminate the interest expese totaling $1,590,000 related to the debt
expected to the repaid utilizing proceeds from the CRN transaction and add
interest income of $1,125,000 related to the CRN note receivable.
<TABLE>
<CAPTION>
Pro Forma Adjustments Pro Forma After
Children's for the CRN transaction CRN transaction
Broadcasting and Termination of the and Termination of
Corporation Affiliation Agreements Affiliation Agreements
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Year ended
December 31, 1997
Revenues $ 5,854,441 $ (4,447,234)(1) $ 1,407,207
Operating Expenses 17,260,112 (8,302,204)(1) 8,957,908
------------------------------------------------------------------
Income (loss) from operations (11,405,671) 3,854,970 (7,550,701)
Gain on sale of assets -- -- --
Equity loss in Harmony (540,994) -- (540,994)
Interest income (expense), net (2,611,688) 3,620,000(2) 1,008,312
------------------------------------------------------------------
Net loss (14,558,353) 7,474,970 (7,083,383)
Accretion of preferred stock -- -- --
------------------------------------------------------------------
Net loss to common shareholders $ (14,558,353) $ 7,474,970 $ (7,083,383)
==================================================================
Net loss per share $ (2.33) $ (1.13)
============= ==============
Weighted average number of shares outstanding 6,246,000 6,246,000
============= ==============
</TABLE>
- --------------------------------------------------
(1) To eliminate the revenue and operating expenses related to the network, and
stations sold in the CRN transaction.
(2) To eliminate the interest expese totaling $2,120,000 related to the debt
repaid utilizing proceeds from the CRN transaction and add interest income
of $1,500,000 related to the CRN note receivable.
<PAGE>
BALANCE SHEET:
<TABLE>
<CAPTION>
Pro Forma Adjustments Pro Forma After
Children's for the CRN transaction CRN transaction
Broadcasting and Termination of the and Termination of
Corporation Affiliation Agreements Affiliation Agreements
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
September 30, 1998
Current assets $ 648,404 $ -- $ 648,404
Property and equipment 3,990,985 (2,033,787)(1) 1,957,198
Broadcast licenses 17,704,703 (7,809,377)(1) 9,895,326
Investment in harmony 6,035,357 -- 6,035,357
Note receivable -- 15,000,000(2) 15,000,000
Other assets 3,077,650 (1,451,100)(1) 1,626,550
-----------------------------------------------------------------
Total assets $ 31,457,099 $ 3,705,736 $ 35,162,835
=================================================================
Current liabilities $ 33,068,357 $ (16,500,000)(3) $ 16,568,357
Long-term debt 2,253,407 -- 2,253,407
Redeemable convertible preferred stock 2,312,439 -- 2,312,439
Shareholders' equity (deficit) (6,177,104) 20,205,736 14,028,632
-----------------------------------------------------------------
Total liabiliteis and shareholders' equity (deficit) $ 31,457,099 $ 3,705,736 $ 35,162,835
=================================================================
</TABLE>
- --------------------------------------------------
(1) To eliminate the assets of the stations sold in the CRN transaction,
capitalized debt issue costs related to the repaid debt (See note 2).
(2) To reflect the gross proceeds from the CRN transaction of $36.9 million
(consisting of cash payments totaling $21.9 million, $3.0 million of which
was received prior to September 30, 1998, and a $15.0 million note
receivable), net of estimated debt repayments totalling $16.9 million and
approximately $2.0 million in transaction costs.
(3) To reflect payment of debt totaling $16.9 million utilizing proceeds from
the CRN transaction net of approximately $400,000 of income taxes payable
as a result of the CRN transaction.
(c) Exhibits
See Exhibit Index.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index.
(b) The Company filed the following documents with the Securities
and Exchange Commission (File No. 0-21534) during the quarter
for which this report is filed:
(1) Current Report on Form 8-K, filed on September 15,
1998, relating to (i) the closing of the sale of the
Company's Detroit radio station to 1090 Investments
and (ii) the adoption of a share repurchase program.
(2) Current Report on Form 8-K, filed on October 2, 1998,
relating to (i) the ABC/Disney verdict, (ii) an
amendment to the purchase agreement with Catholic
Radio Network, (iii) receipt of a conditional use
permit for the Los Angeles radio station, (iv)
redemption of Series B Convertible Preferred Stock,
and (v) cancellation of share repurchase.
(3) Current Report on Form 8-K, filed on July 6, 1998,
relating to (i) the Company's private placement of
606,061 shares of Series B Convertible Preferred
Stock and (ii) the Company's acquisition of
additional shares of common stock of Harmony
Holdings, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized on November 16, 1998.
CHILDREN'S BROADCASTING CORPORATION
By: /s/ James G. Gilbertson
---------------------------
James G. Gilbertson
Chief Operating Officer
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
2.1 Purchase Agreement with Catholic Radio Network, LLC, dated
April 17, 1998 (incorporated by reference to the Registrant's
Definitive Schedule 14A (Proxy Statement) filed on July 8,
1998).
2.2 First Amendment to Purchase Agreement with Catholic Radio
Network, LLC, dated September 29, 1998 (incorporated by
reference to the Registrant's Current Report on Form 8-K filed
on October 2, 1998).
2.3 Second Amendment to Purchase Agreement with Catholic Radio
Network, LLC, dated October 26, 1998.
4.1 Articles of Incorporation, as amended and restated.
10.1 See Exhibit 2.1.
10.2 See Exhibit 2.2.
10.3 See Exhibit 2.3.
10.4 Asset Purchase Agreement by and between the Company and Radio
Unica Corp., dated October 26, 1998.
10.5 First Amendment to Asset Purchase Agreement by and between the
Company and Radio Unica Corp., dated October 27, 1998.
10.6 Amendment No. 1 to Securities Purchase Agreement by and
between the Company, Talisman Capital Opportunity Fund Ltd.,
Dominion Capital Limited and Sovereign Partners L.P., dated
October 22, 1998.
10.7 Form of Common Stock Purchase Warrant issued by the Company to
Talisman Capital Opportunity Fund Ltd. (incorporated by
reference to the Registrant's Current Report on Form 8-K filed
on July 6, 1998).
10.8 Form of Common Stock Purchase Warrant issued by the Company to
Dominion Capital Limited (incorporated by reference to the
Registrant's Current Report on Form 8-K filed on July 6,
1998).
10.9 Form of Common Stock Purchase Warrant issued by the Company to
Sovereign Partners LP (incorporated by reference to the
Registrant's Current Report on Form 8-K filed on July 6,
1998).
<PAGE>
10.10 Promissory Note issued by Catholic Radio Network, LLC to the
Company, dated October 30, 1998.
10.11 Loan Agreement by and between the Company and CRN
Broadcasting, LLC, dated October 30, 1998.
10.12 Amendment No. 4 to the Amended and Restated Loan and Security
Agreement by and between the Company and Foothill Capital
Corporation, dated as of October 1, 1998.
27.1 Financial Data Schedule.
EXHIBIT 2.3
SECOND AMENDMENT TO PURCHASE AGREEMENT
This Second Amendment to Purchase Agreement (this "Amendment") is
made this 26th day of October, 1998, by and among Catholic Radio Network, LLC, a
California Limited Liability Company ("CRN"), Children's Broadcasting
Corporation, a Minnesota corporation ("CBC") and the wholly-owned subsidiaries
of CBC listed on the signature pages hereto (collectively, the "Subsidiaries"
and collectively with CBC, the "Sellers").
WHEREAS, CRN and the Sellers are parties to that certain Purchase
Agreement dated as of April 17, 1998, as amended on September 29, 1998 (the
"Purchase Agreement") regarding the sale by the Sellers to CRN of substantially
all of the assets of nine (9) radio stations and all of the stock of Children's
Radio of New York, Inc. ("CRNY"), owner of WBAH(AM)/WJDM(AM).
WHEREAS, CRN and the Sellers wish to amend the terms of the Purchase
Agreement to reduce the number of Stations to be purchased by CRN and to provide
for an adjustment to the amount and method of payment of the purchase price
payable for the Stations.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. The Sellers, and each of them, hereby waive any and all
claims they may have against CRN, its officers, directors, employees and
affiliates (collectively, the "CRN Parties") regarding any alleged breach of the
Purchase Agreement by the CRN Parties as of, or prior to the date of this
Amendment.
2. The provisions of the Purchase Agreement are hereby amended
to delete from the list of "Stations" to be sold to CRN under the Purchase
Agreement the following: KAHZ(AM), Fort Worth, Texas; KIDR(AM), Phoenix,
Arizona; and WBAH(AM)/WJDM(AM), Elizabeth, New Jersey (collectively, the
"Excluded Stations"). The provisions of the Purchase Agreement are also hereby
amended to delete all references to the Excluded Stations, the assets and
liabilities of the Excluded Stations, Children's Radio of Dallas, Inc., KAHZ-AM,
Inc., Children's Radio of Phoenix, Inc., KIDR-AM, Inc., Childrens' Radio of New
York, Inc., WJDM-AM, Inc. and the stock of Children's Radio of New York, Inc.
and WJDM-AM, Inc.
3. The Schedules attached to the Purchase Agreement are hereby
amended to delete all references to information pertaining solely to the
Excluded Stations. Within three (3) business days of the effective date of this
Amendment, the Sellers will deliver to CRN revised Schedules acceptable to CRN,
deleting all information pertaining to the Excluded Stations, with such deletion
of information being the only change from the forms of Schedules delivered to
CRN at the time of the execution of the Purchase Agreement.
4. CRN hereby waives its rights to purchase the Excluded
Stations under the Purchase Agreement and acknowledges and agrees that the
Sellers are free to contract with a third party for the sale of the Excluded
Stations. CRN acknowledges and agrees that the
<PAGE>
provisions of Section 6.16.4 of the Purchase Agreement shall no longer be
applicable to any actions taken by the Sellers in connection with the Excluded
Stations.
5. The Sellers, and each of them, hereby expressly acknowledge
that the amendment to Sections 4.1, 4.2.2 and 4.2.5 below and the payment by CRN
of the additional $125,000 at Closing through a reduction of the KPLS Holdback
to $110,000 will constitute payment in full of the second Extension Fee called
for under Section 7 of the First Amendment to the Purchase Agreement.
6. Article 2 of the Purchase Agreement is hereby deleted in
its entirety.
7. Section 4.1 of the Purchase Agreement is hereby amended and
restated in its entirety as follows:
4.1 PURCHASE PRICE. As the purchase price for the Acquired
Assets, Buyer agrees to pay to CBC the sum of Thirty-Seven
Million Dollars ($37,000,000), subject to adjustment as provided
herein (the "Purchase Price"), provided, however, that One
Hundred Ten Thousand Dollars ($110,000) of the Purchase Price
shall be retained by Buyer as the KPLS Holdback as provided in
Section 4.2.5 below.
8. Section 4.2.2 of the Purchase Agreement is hereby amended
and restated in its entirety as follows:
4.2.2 Eighteen Million Eight Hundred Ninety Dollars
($18,890,000.00) shall be paid to Sellers (or their designees to
pay off outstanding liens or encumbrances on the Station Assets)
in immediately available funds by wire transfer at Closing and
One Hundred Ten Thousand Dollars ($110,000) shall be retained by
Buyer as the KPLS Holdback;
9. Section 4.2.3 of the Purchase Agreement is hereby amended
and restated in its entirety as follows:
4.2.3 Fifteen Million Dollars ($15,000,000) of the Purchase
Price payable hereunder shall be payable to CBC in the form of a
promissory note from CRN Broadcasting, LLC, a wholly-owned
subsidiary of Buyer ("CRNB"), in form reasonably acceptable to
counsel for the Sellers and Buyer (the "Note"). The Note shall
have a term of eighteen (18) months, bear simple interest at a
rate of 10% per annum, and be prepayable, in whole or in part,
by Buyer at any time without penalty. Interest only shall be
payable on a monthly basis through the term of the Note, with
the outstanding principal being due at the maturity of the Note.
CRNB will establish a One Million Dollar ($1,000,000) interest
reserve escrow account pursuant to an Interest Reserve Escrow
Agreement in form and substance reasonably acceptable to counsel
for the Sellers and Buyer. CRNB's obligations under the Note
shall be secured by the following in form and substance
reasonably acceptable to counsel for the Sellers and
-2-
<PAGE>
Buyer: (i) a Security Agreement (the
"Security Agreement"); (ii) mortgages or deeds of trust
on the Owned Real Property being purchased from the
Sellers; (iii) UCC financing statements covering the
Acquired Assets being purchased from the Sellers; and
(iv) a Pledge Agreement for a pledge covering all
membership interests in CRNB.
10. Section 4.2.5 of the Purchase Agreement is hereby amended
and restated in its entirety as follows:
4.2.5 One Hundred Ten Thousand Dollars ($110,000) of
the Purchase Price (the "KPLS Holdback") shall be
retained by the Buyer as consideration for the
increase in the purchase price payable for the land
for the KPLS tower site (the "Vander Eyk Property").
In the event that the purchase price paid by Buyer for
the Vander Eyk Property (the "Vander Eyk Purchase
Price") is less than Three Million Six Hundred Eighty
Thousand Eight Hundred Dollars ($3,680,800), Buyer
shall remit to Sellers from the KPLS Holdback one-half
of the amount that the Vander Eyk Purchase Price is
less than Three Million Six Hundred Eighty Thousand
Eight Hundred Dollars ($3,680,800), up to a maximum of
the amount of the KPLS Holdback, and the balance of
the KPLS Holdback, if any, shall remain the property
of Buyer and shall be considered a reduction in the
Purchase Price. In the event that the Vander Eyk
Purchase Price is Three Million Six Hundred Eighty
Thousand Eight Hundred Dollars ($3,680,800) or more,
the entire KPLS Holdback shall remain the property of
Buyer
11. The parties agree that the amount to be deposited in escrow
pursuant to the terms of the Indemnity Escrow Agreement attached as Exhibit C to
the Purchase Agreement will be One Million Three Hundred Thousand Dollars
($1,300,000), and that if such Indemnity Escrow is funded following the first
anniversary of the Closing Date, Six Hundred and Fifty Thousand Dollars
($650,000) will be the amount of the deposit.
12. Article 5 of the Purchase Agreement is hereby amended and
restated in its entirety as follows:
At Closing, the parties shall enter into a Consulting
and Non-Competition Agreement (the "Non-Competition
Agreement") in the form attached as Exhibit 1 to the
Second Amendment to the Purchase Agreement, pursuant to
which Buyer shall pay to Christopher T. Dahl the sum of
Seven Hundred and Fifty Thousand Dollars ($750,000)
according to the terms and conditions set forth herein.
13. Section 6.19 of the Purchase Agreement is hereby
deleted in its entirety.
14. The second clause of Section 7.1 of the Purchase Agreement
is hereby amended and restated in its entirety as follows:
Buyer, or its designee which acquires the Acquired Assets (other
than the Licenses), is, or will be at the time of Closing,
qualified to
-3-
<PAGE>
do business in the States of California, Colorado, Illinois,
Kansas, Minnesota, Pennsylvania and Wisconsin;
15. Sections 6.19, 7.3, 11.2(b) and 11.2(f), of the Purchase
Agreement are hereby deleted in their entirety:
Except as expressly provided herein, all of the terms and provisions of the
Purchase Agreement, as amended, shall remain in full force and effect. Unless
otherwise defined, all capitalized terms herein shall have the meaning ascribed
to them in the Purchase Agreement
IN WITNESS WHEREOF, the parties hereto, by their properly authorized
representatives, have caused this Second Amendment to Purchase Agreement to be
executed as of the day and date first written above.
Children's Broadcasting Corporation Catholic Radio Network, LLC
By: /s/ Christopher T. Dahl By: /s/ John T. Lynch
-------------------------- -------------------------
Its: President & CEO Its: President & CEO
-------------------------- -------------------------
Children's Radio of Chicago, Inc. WAUR-AM, Inc.
By: /s/ Christopher T. Dahl By: /s/ Christopher T. Dahl
-------------------------- -------------------------
Its: President & CEO Its: President & CEO
-------------------------- -------------------------
Children's Radio of Dallas, Inc. KAHZ-AM, Inc.
By: /s/ Christopher T. Dahl By: /s/ Christopher T. Dahl
-------------------------- -------------------------
Its: President & CEO Its: President & CEO
-------------------------- -------------------------
Children's Radio of Denver, Inc. KKYD-AM, Inc.
By: /s/ Christopher T. Dahl By: /s/ Christopher T. Dahl
-------------------------- -------------------------
Its: President & CEO Its: President & CEO
-------------------------- -------------------------
Children's Radio of Kansas City, Inc. KCNW-AM, Inc.
By: /s/ Christopher T. Dahl By: /s/ Christopher T. Dahl
-------------------------- -------------------------
Its: President & CEO Its: President & CEO
-------------------------- -------------------------
-4-
<PAGE>
Children's Radio of Los Angeles, Inc. KPLS-AM, Inc.
By: /s/ Christopher T. Dahl By: /s/ Christopher T. Dahl
-------------------------- -------------------------
Its: President & CEO Its: President & CEO
-------------------------- -------------------------
Children's Radio of Milwaukee, Inc. WZER-AM, Inc.
By: /s/ Christopher T. Dahl By: /s/ Christopher T. Dahl
-------------------------- -------------------------
Its: President & CEO Its: President & CEO
-------------------------- -------------------------
Children's Radio of Minneapolis, Inc. WWTC-AM, Inc.
By: /s/ Christopher T. Dahl By: /s/ Christopher T. Dahl
-------------------------- -------------------------
Its: President & CEO Its: President & CEO
-------------------------- -------------------------
Children's Radio of New York, Inc. WJDM-AM, Inc.
By: /s/ Christopher T. Dahl By: /s/ Christopher T. Dahl
-------------------------- -------------------------
Its: President & CEO Its: President & CEO
-------------------------- -------------------------
Children's Radio of Philadelphia, Inc. WPWA-AM, Inc.
By: /s/ Christopher T. Dahl By: /s/ Christopher T. Dahl
-------------------------- -------------------------
Its: President & CEO Its: President & CEO
-------------------------- -------------------------
Children's Radio of Phoenix, Inc. KIDR-AM, Inc.
By: /s/ Christopher T. Dahl By: /s/ Christopher T. Dahl
-------------------------- -------------------------
Its: President & CEO Its: President & CEO
-------------------------- -------------------------
(Signature Page for Second Amendment to Purchase Agreement)
-5-
EXHIBIT 4.1
STATE OF MINNESOTA
SECRETARY OF STATE
CERTIFICATE OF INCORPORATION
I, Joan Anderson Growe, Secretary of State of Minnesota, do certify
that: Articles of Incorporation, duly signed and acknowledged under oath, have
been filed on this date in the Office of the Secretary of State, for the
incorporation of the following corporation, under and in accordance with the
provisions of the chapter of Minnesota Statutes listed below.
This corporation is now legally organized under the laws of Minnesota.
Corporate Name: CD Broadcasting Corporation of Minneapolis
Corporate Charter Number: 60 568
Chapter Formed Under: 302A
This certificate has been issued on 02/07/1990.
/s/ Joan Anderson Growe
----------------------------------
Secretary of State
<PAGE>
STATE OF MINNESOTA See instructions on
OFFICE OF THE SECRETARY OF STATE reverse side for
completing this form
ARCTICLES OF INCORPORATION
CHAPTER 302A
- --------------------------------------------------------------------------------
CORPORATE NAME
CD Broadcasting Corporation of Minneapolis
- --------------------------------------------------------------------------------
The undersigned incorporators, who are natural persons 18 years of age or older,
in order to form a corporate entity under Minnesota Statues, Chapter 302A, adopt
the following articles of incorporation:
ARTICLE I
The name of the corporation is:
- --------------------------------------------------------------------------------
CORPORATION NAME
CD Broadcasting Corporation of Minneapolis
- --------------------------------------------------------------------------------
ARTICLE II
The registered office of this corporation is located at:
- --------------------------------------------------------------------------------
STREET ADDRESS CITY, STATE, ZIP COUNTY
5200 Willson Road, Ste. 308 Edina, MN 55424 Hennepin
- --------------------------------------------------------------------------------
The registered agent at that address is (Note: The appointment of an agent is
optional):
- --------------------------------------------------------------------------------
NAME OF AGENT
None
- --------------------------------------------------------------------------------
ARTICLE III
The corporation is authorized to issue an aggregate total of: NUMBER OF SHARES
(The minimum number of authorized shares is one.) 1,000
ARTICLE IV
The names and addresses of the incorporators are (Note: Only one incorporator is
required under Section 302A.105):
Name Address (may not be a post office Incorporator's Signature (All
box) incorporators must sign the
articles)
Lance W. Riley 5200 Willson Road, Ste. 308 /s/ Lance W. Riley
Edina, Mn 55424
<PAGE>
STATE OF MINNESOTA
ss
County of Hennepin
The foregoing instrument was acknowledged before me this 2nd day of February,
1990.
/s/ Phylis Schaffer
(Notary Public)
(Notarial Seal)
- --------------------------------------------------------------------------------
INSTRUCTIONS
1. Type or print with dark black ink.
2. Total filing fee as required by Minnesota Statues, Section 302A.011;
302.153 for
valid incorporation.
Filing Fee - $15.00.
Incorporation Fee - $70.00
3. Make check for the total filing fee of $85 payable to the Secretary of
State.
4. Mail or bring completed form to:
Secretary of State
Corporation Division
180 State Office Building
St. Paul, MN 55155
(612) 296-2803
Note: This form is intended merely as a guide in the formation of a Minnesota
business corporation under Minnesota Statutes Chapter 302A and is not intended
to cover all situations anticipated by that Statute. If this form does not meet
the specific needs and requirements of the corporation that is being formed, the
incorporators should draft their own articles specifically listing the
modifications or denials of each provision to which they wish to be subject or
from which they wish to be exempt.
FOR USE ONLY BY SECRETARY OF STATE
<PAGE>
STATE OF MINNESOTA See instructions on
OFFICE OF THE SECRETARY OF STATE reverse side for
completing this form
CERTIFICATE OF CHANGE OF REGISTERED OFFICE
by
- --------------------------------------------------------------------------------
NAME OF CORPORATION
CD BROADCASTING CORPORATION OF MINNEAPOLIS
- --------------------------------------------------------------------------------
Pursuant to Minnesota Status Section 302A.123, or 317.19, the undersigned hereby
certifies that the Board of Directors of the above named Minnesota corporation
has resolved to change the corporation's registered office:
- --------------------------------------------------------------------------------
F ADDRESS (NO. 5200 Wilson Road, Suite 308
R & STREET)
O
M CITY COUNTY ZIP
Hennepin Edina MN 55424
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADDRESS 5001 West 80th Street, Suite 255
T (NO. & STREET)
O
CITY COUNTY ZIP
Hennepin Bloomington MN 55437
- --------------------------------------------------------------------------------
The effective date of the change will be the 25th day of February, 19__, or the
day of filing of this certificate with the Secretary of State, whichever is
later.
I swear that the foregoing is true and accurate and that I have the authority to
sign this document on behalf of the corporation.
NAME OF OFFICER OR OTHER AUTHORIZED AGENT OF CORPORATION SIGNATURE
Lance W. Riley /s/ Lance W. Riley
TITLE OR OFFICE DATE
Secretary March 15, 1991
STATE OF MINNESOTA ) The foregoing instrument was acknowledged
)SS. before me on this 15th day of March, 1991.
COUNTY OF Hennepin )
/s/ Kathleen K. Patchen
(Notarial (Notary Public)
Seal)
- --------------------------------------------------------------------------------
Receipt Number File Data
- --------------------------------------------------------------------------------
<PAGE>
ARTICLES OF AMENDMENT
OF
CD BROADCASTING CORPORATION OF MINNEAPOLIS
RESTATING AND AMENDING THE
ARTICLES OF INCORPORATION
The undersigned, President of CD Broadcasting Corporation of
Minneapolis, a corporation subject to Chapter 302A, hereby certifies that the
Articles of Amendment set forth below, containing the restatement of the
Articles of Incorporation with amendments thereto, were adopted by unanimous
written authorization of the directors and shareholders pursuant to Sections
302A.239 and 302A.441, Minnesota Statutes:
ARTICLE I.
NAME
The name of this corporation shall be Children's Broadcasting
Corporation.
ARTICLE II.
REGISTERED OFFICE
The registered office of this corporation is located at 215 South
Eleventh Street, Minneapolis, MN 55403.
ARTICLE III.
The names and addresses of the members of the Board of Directors at the
time of the adoption of these Amended and Restated Articles are:
NAME ADDRESS
Christopher T. Dahl 5404 Interlachen Blvd.
Edina, MN 55436
Richard W. Perkins 1485 Fox Street
Orono, MN 55391
ARTICLE IV.
CAPITAL
The aggregate number of shares of stock which this corporation shall
have the authority to issue is ten million shares with a par value of One Cent
($0.01) per share.
<PAGE>
ARTICLE V.
CLASSES AND SERIES OF STOCK
In addition to, and not by way of limitation of, the powers granted to
the Board of Directors by Minnesota Statutes, Chapter 302A, the Board of
Directors of this corporation shall have the power and authority to fix by
resolution any designation, class, series, voting power, preference, right,
qualification, limitation, restriction, dividend, time and price of redemption,
and conversion right with respect to any stock of the corporation. Upon adoption
of such resolution, a statement shall be filed with the Secretary of State in
compliance with Section 302A.401, Minnesota Statutes, before the issuance of any
shares for which the resolution creates rights or preferences not set forth in
these Articles; provided, however, where the shareholders have received notice
of the creation of shares with rights or preferences not set forth in the
Articles before the issuance of the shares, the statement may be filed any time
within one year after the issuance of the shares.
ARTICLE VI.
SHAREHOLDER VOTING
No shareholder of this corporation shall be entitled to any cumulative
voting rights.
The shareholders of the corporation shall take action by the
affirmative vote of the holders of a majority of the shares present and entitled
to vote, except where a larger proportion is required by law, these Articles of
Incorporation or a shareholder control agreement.
The affirmative vote of a majority of the voting power of all shares
entitled to vote shall be required to authorize the sale, lease, exchange or
other disposition of all or substantially all of the property and assets of the
corporation, including its goodwill, to amend the Articles of Incorporation, to
adopt or reject an agreement of merger or to authorize the dissolution of the
corporation.
ARTICLE VII.
PREEMPTIVE RIGHTS
No shareholder of this corporation shall have any preferential,
preemptive, or other rights of subscription to any shares of any class or series
of stock of this corporation allotted or sold or to be allotted or sold, whether
now or hereafter authorized, or to any obligations or securities convertible
into any class or series of stock of this corporation.
ARTICLE VIII.
DIRECTOR LIABILITY
A director of the corporation shall not be personally liable to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for (i) liability based on a breach of the duty of
loyalty to the corporation or the shareholders; (ii) liability for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law; (iii) liability based on the payment of an improper dividend
or an improper repurchase of the corporation's stock under Minnesota Statutes,
Section 302A.559, or on violations
<PAGE>
of federal or state securities laws; (iv) liability for any transaction from
which the director derived an improper personal benefit; or (v) liability for
any act or omission occurring prior to the date this Article becomes effective.
If Minnesota Statutes, Chapter 302A, hereafter is amended to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of the corporation in addition to the limitation on
personal liability provided herein, shall be limited to the fullest extent
permitted by the amended Chapter 302A. Any repeal of this provision as a matter
of law or any modification of this Article by the shareholders of the
corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such repeal or modification.
ARTICLE IX.
BOARD OF DIRECTORS VOTE
The affirmative vote of a majority of the Board of Directors of the
corporation present at a meeting is required for an action of the Board.
ARTICLE X.
BOARD ACTION WITHOUT A MEETING
Any action required or permitted to be taken at any meeting of the
Board of Directors may be taken without a meeting by written action signed by a
majority of the Board of Directors then in office, except as to those matters
which require shareholder approval, in which case the written action shall be
signed by all members of the Board of Directors then in office. Whenever written
action is taken by less than all of the directors, all directors shall be
notified immediately of the text and the effective date. Failure to provide the
notice to the other directors shall not invalidate the written action.
The undersigned has been authorized and directed to sign and file these
Articles of Amendment in the manner required by law.
/s/ Christopher T. Dahl
President
<PAGE>
CHILDREN'S BROADCASTING CORPORATION
CERTIFICATE OF DESIGNATION OF STOCK
The undersigned, being the duly appointed Secretary of Children's
Broadcasting Corporation, hereby certifies that the Board of Directors of the
Corporation, acting pursuant to Chapter 302A, Minnesota Statutes, took action by
unanimous resolution on November 18, 1991 to designate 378,083 shares of
non-voting Common Stock of the Corporation, pursuant to which resolution said
stock was issued on April 16, 1992.
The undersigned further certifies that the following resolution has
been duly adopted by the Board of Directors of the Corporation with respect to
the establishment and designation of non-voting stock:
DESIGNATION OF NON-VOTING STOCK
RESOLVED, in accordance with the Articles of Incorporation of
the Corporation and pursuant to Minnesota Statutes, Chapter
302A, the Board of Directors hereby establishes and designates
from the Corporation's unauthorized and unissued shares,
378,083 shares of common stock without voting rights (except
as hereinafter provided), which shares shall in all respects,
except for voting, be equal and have the same rights as, the
common stock of the Corporation, such non-voting common stock
hereinafter referred to as "Nonvoting Common Stock".
Notwithstanding the foregoing, such non-voting stock shall
have full voting rights at such time as the transfer of such
shares is legally permitted pursuant to the terms of an
agreement dated August 1,1991 between this Corporation,
Russell Cowles II, Marguerite A. Cowles and First Bank
Minneapolis, N.A., Trustees of the John Cowles Family Trust
for the benefit of Russell Cowles, II.
RESOLVED FURTHER, that the President and Secretary of the
Corporation are authorized and directed to take such further
action as shall be necessary or required to issue said
Non-Voting Common Stock and they, or any of them, are
authorized and directed to file a certificate of designation
pursuant to Section 302A.401, Subd. 3 of the Minnesota
Business Corporation Act with the Minnesota Secretary of
State.
I certify that I am authorized to execute this instrument and
I further certify that I understand that by signing this amendment I am
subject to the penalties of perjury as set forth in Section 609.48 as
if I had signed this Amendment under oath.
/s/ Lance W. Riley
Secretary of
CHILDREN'S BROADCASTING
CORPORATION
s
<PAGE>
CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS
OF CONVERTIBLE PREFERRED STOCK SERIES 1993-A
OF CHILDREN'S BROADCASTING CORPORATION
Children's Broadcasting Corporation, a corporation organized and
existing under the laws of Minnesota (the "Corporation"), does hereby certify:
That pursuant to authority vested in it by the provisions of the
Articles of Incorporation, the Board of Directors of the Corporation, at a
meeting of the Board held on December 8, 1993, at which meeting a quorum of
directors was present and acting throughout, did adopt the following resolution
authorizing the creation and issuance of a series of Preferred Stock designated
as Convertible Preferred Stock Series 1993-A:
RESOLVED, that the Corporation hereby designates 290,213 shares of its
authorized but unissued Preferred Stock, par value $.01, as Convertible
Preferred Stock, Series 1993-A, which shall have the following designations,
preferences, rights, qualifications, limitations and restrictions in addition to
those set forth in the Articles of Incorporation, as amended, of the
Corporation:
1. Designation: Number of Shares: Stated Value: Dividends.
Two Hundred Ninety Thousand Two Hundred Thirteen (290,213) shares of
Preferred Stock shall be designated Convertible Preferred Stock 1993-A
(hereinafter sometimes referred to as the "Convertible Preferred Stock" or as
this "Series"). Shares of this Series shall have a stated value of $10.00 per
share ("Stated Value"). Except as provided herein, shares of this Series shall
not be entitled to dividends or other distributions and shall be
non-participating for all purposes.
2. Redemption At Option of Holders.
(a) Commencing with the second day following the fifth
anniversary of the date of issuance (the "Redemption Commencement
Date"), the Corporation shall, subject to the requirements of the
Minnesota Business Corporation Act, from time to time, redeem all
shares of this Series tendered to the Corporation for redemption at the
option of the holders of the Convertible Preferred Stock. The
redemption price shall be the Stated Value. Such redemption shall be
effected on the terms and conditions hereinafter provided.
(b) Each holder of shares of this Series who elects to require
the Corporation to purchase all or any of such holder's shares shall
surrender to the Corporation's transfer agent (or other fiduciary
designated in writing by the Corporation as agent for redemption)
certificates of this Series then outstanding as soon as practicable
following the Redemption Date (hereinafter defined). The "Redemption
Date" shall mean a date which is eight (8) calendar months following
the giving of written notice (the "Redemption Notice") by such holder
to the Corporation. The Redemption Notice may be given up to eight
months prior to the Redemption Commencement Date and at any time after
the Redemption Commencement Date. A Redemption Notice shall contain the
holder's demand for redemption and be given to the Company at its
principal executive offices last set forth in the Corporation's
l0-Q/l0-QSB report filed with the Securities and Exchange Commission
or, if no such report has been filed, to the Corporation's registered
office in the state of its incorporation, as certified to or disclosed
by the secretary of state of such state. Such notice shall be deemed
given if in writing and sent postage prepaid by certified or registered
first class mail or by nationwide overnight courier. Once given, a
Redemption Notice may not be withdrawn; however, a holder
<PAGE>
may elect to convert, in accordance with paragraph 3 hereof, any or all
of the shares of this Series prior to the Redemption Date.
(c) The Corporation shall, on or before the Redemption Date,
deposit with its transfer agent (or such other agent for redemption
selected by the Corporation) as a trust fund, a sum sufficient to
redeem the shares of this Series subject to redemption, with
irrevocable instructions and authority to such transfer agent or other
redemption agent to give or complete the notice of redemption thereof
and to pay to the respective holders of such shares, as evidenced by a
list of such holders who have duly exercised such rights of redemption,
certified by an officer of the Corporation, the redemption price upon
surrender of their respective share certificates. Such deposit shall be
deemed to constitute full payment of such shares to their holders; and
from and after the date of such deposit, notwithstanding that any
certificates for such shares shall not have been surrendered for
cancellation by holders who have given a Redemption Notice, the shares
represented thereby shall no longer be deemed outstanding, and all
rights of such holders of the shares of Convertible Preferred Stock
shall cease and terminate, except the right to receive the redemption
price, without interest, as of the Redemption Date.
3. Conversion.
(a) The holder of any shares of this Series may at any time,
prior to a Redemption Date applicable to such holder, elect to convert
all or any portion of the shares of this Series into fully paid and
non-assessable shares of Common Stock at the initial rate of one (1)
share of Common Stock for each share of this Series, subject to
adjustment pursuant to the provisions of subparagraph (c) of this
paragraph 3. Such right of conversion shall be exercised by the
surrender of the shares so to be converted to the Corporation at any
time during normal business hours at the principal executive offices of
the Corporation or at the office of any agent for conversion from time
to time designated by it for conversion of ("Conversion Agent") the
shares of this Series accompanied by written notice of such holder's
election to convert and (if so required by the Corporation or the
Conversion Agent) by instruments of transfer, in form satisfactory to
the Corporation and to the Conversion Agent, duly executed by the
registered holder or by his duly authorized attorney, and transfer tax
stamps or funds therefor, if required pursuant to subparagraph (h) of
this paragraph 3.
(b) As promptly as practicable after the surrender for
conversion of any shares of this Series in the manner provided in
subparagraph (a) of this paragraph 3 and the payment in cash of any
amount required by the provisions of subparagraphs (a) and (h) of this
paragraph 3, the Corporation will deliver or cause to be delivered at
the principal executive offices of the Corporation or at the office of
the Conversion Agent to or upon the written order of the holder of such
shares, certificates representing (i) the number of full shares of
Common Stock issuable upon such conversion, and (ii) if less than the
full number of shares evidenced by the Convertible Preferred Stock
certificate are being converted, a new certificate for the remaining
number of shares thereof issued in such name or names as such holder
may direct. Such conversion shall be deemed to have been immediately
prior to the close of business on the date of such surrender of the
shares, and all rights of the holder of such shares as a holder of such
shares shall cease at such time and the person or persons In whose name
or names the certificates for such shares of Common Stock are to be
issued shall be treated for all purposes as having become the record
holder or holders thereof at such time and such conversion shall be at
the conversion rate in effect at such time; provided, however, that any
such surrender and payment on any date when the stock transfer books of
the Corporation shall be closed shall constitute the person or persons
in whose name or names the certificates for such shares of Common Stock
are to be issued as the record holder or holders thereof for all
purposes immediately prior to the close of business on the next
succeeding day on which such stock transfer books are opened and such
conversion shall be at the conversion rate in effect at such time on
such succeeding day.
<PAGE>
(c) The initial conversion rate shall be one (1) share of
Common Stock per share of this Series (equivalent to a conversion price
of $10.00 per share). The conversion rate shall be subject to
adjustment as follows:
(i) In case the Corporation shall (A) pay a dividend
or make a distribution in shares of its capital stock (whether
shares of Common Stock or of capital stock of any other
class), (B) subdivide its outstanding shares of Common Stock,
(C) combine its outstanding shares of Common Stock into a
smaller number of shares, (D) issue by reclassification of its
shares of Common Stock (whether by merger or consolidation or
otherwise) any shares of capital stock of the Corporation or
(E) take any action with the same effect as any of the
foregoing, the conversion privilege and the conversion rate in
effect immediately prior to such action shall be adjusted so
that the holder of any shares of this Series thereafter
surrendered for conversion shall be entitled to receive
(subject to further adjustments pursuant to subparagraphs
(c)(ii) and (c)(iii) hereof) the number of shares of capital
stock of the Corporation (or of the corporation surviving or
resulting from any merger or consolidation) which he would
have owned immediately following such action had such share
been converted immediately prior thereto. An adjustment made
pursuant to this subparagraph (c)(i) shall become effective
retroactively immediately after the record date in the case of
a dividend or distribution and shall become effective
immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result
of an adjustment made pursuant to this subparagraph (c)(i),
the holder of any shares thereafter surrendered for conversion
shall become entitled to receive shares of two or more classes
of capital stock of the Corporation, the Board of Directors
(whose determination shall be conclusive) shall determine the
allocation of the adjusted conversion rate between or among
shares of such classes of capital stock.
(ii) In case the Corporation shall issue rights or
warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock at a price
per share less than the current market price per share (as
determined pursuant to subparagraph (c)(iv) below) on the
record date mentioned below, other than pursuant to a dividend
reinvestment plan, the conversion rate shall be adjusted so
that the same shall equal the rate determined by multiplying
the conversion rate in effect immediately prior to the date of
issuance of such rights or warrants by a fraction of which the
numerator shall be the number of shares of Common Stock
outstanding on the date of issuance of such rights or warrants
plus the number of additional shares of Common Stock offered
for subscription or purchase, and of which the denominator
shall be the number of shares of Common Stock outstanding on
the date of issuance of such rights or warrants plus the
number of shares in which the aggregate offering price of the
total number of shares so offered would purchase at such
current market price. Such adjustment shall become effective
retroactively immediately after the record date for the
determination of stockholders entitled to receive such rights
or warrants. For the purposes of this paragraph 3(c)(ii), the
issuance of rights or warrants to subscribe for or purchase
stock or securities convertible into shares of Common Stock
shall be deemed to be the issuance of rights or warrants to
purchase the shares of Common Stock into which such stock or
securities are convertible at an aggregate offering price
equal to the aggregate offering price of such stock or
securities plus the minimum aggregate amount (if any) payable
upon conversion of such stock or securities into Common Stock.
(iii) In case the Corporation shall distribute to all
holders of its Common Stock evidences of its indebtedness or
assets (excluding any cash dividend paid from retained
earnings of the Corporation) or rights or warrants to
subscribe to securities of the Corporation (excluding those
referred to in subparagraph (c)(ii) above), then in each such
case the conversion rate shall be adjusted so that the same
shall equal the rate determined by multiplying the conversion
rate in
<PAGE>
effect immediately prior to the date of such distribution by a
fraction of which the numerator shall be the current market
price per share (determined as provided in subparagraph
(c)(iv) below) of the Common Stock on the record date
mentioned below, and of which the denominator shall be such
current market price per share of Common Stock less the then
fair market value (as determined by the Board of Directors of
the Corporation, whose determination shall be conclusive) of
the portion of the assets or evidences of indebtedness so
distributed or of such subscription rights or warrants
applicable to one share of Common Stock. Such adjustment shall
become effective retroactively immediately after the record
date for the determination of stockholders entitled to receive
such distribution.
(iv) For the purpose of any computation under
subparagraphs (c)(ii) and (c)(iii) above, the current market
price per share of Common Stock on any date shall be deemed to
be the average of the daily closing prices for 30 consecutive
trading days commencing 45 trading days before the day in
question. The "closing price" on any day shall mean the
reported last sale price on such day or, in case no such
reported sales takes place on such day, the average of the
reported closing bid and asked prices, in each case on the New
York Stock Exchange, or, if the Common Stock is not listed or
admitted to trading on such exchange, on the principal
national securities exchange on which the Common Stock is
listed or admitted to trading, or, if not listed or admitted
to trading on any national securities exchange, then in the
over-the-counter market as reported on NASDAQ or a similar
reporting service, or, if no such quotations are available,
the fair market price as determined by the Corporation (whose
determination shall be conclusive).
(v) In any case in which this subparagraph (c) shall
require that an adjustment be made retroactively immediately
following a record date, the Corporation may elect to defer
(but only until five business days following the mailing by
the Corporation of the certificate of independent public
accountants described in subparagraph (c)(vii) below) issuing
to the holder of any shares converted after such record date
(x) the shares of Common Stock and other capital stock of the
Corporation issuable upon such conversion over and above (y)
the shares of Common Stock and other capital stock of the
Corporation issuable upon such conversion only on the basis of
the conversion rate prior to adjustment.
(vi) No adjustment in the conversion rate shall be
required unless such adjustment would require an increase or
decrease of at least 1% in such rate; provided, however, that
any adjustments which by reason of this subparagraph (c)(vi)
are not required to be made shall be carried forward and taken
into account in any subsequent adjustment; and, provided
further, that the provisions of this paragraph 3 (other than
this subparagraph (c)(vi)) not later than such time as may be
required in order to preserve the tax-free nature of a
distribution to the holders of shares of Common Stock. All
calculations under this paragraph 3 shall be made to the
nearest cent or to the nearest one-hundredth of a share, as
the case may be. Anything in this paragraph 3 to the contrary
notwithstanding, the Corporation shall be entitled to make
such increases in the conversion rate in addition to those
required by this subparagraph (c) as it in its discretion
shall determine to be advisable in order that any stock
dividends, subdivision of shares, distribution of rights to
purchase stock or securities, or distribution of securities
convertible into or exchangeable for stock hereafter made by
the Corporation to its stockholders shall not be taxable.
(vii) Whenever the conversion rate is adjusted as
herein provided, the Corporation shall promptly (x) file with
the Conversion Agent a certificate of a firm of independent
public accountants selected by the Board of Directors (who may
be the regular accountants employed by the Corporation)
setting forth the conversion rate after such adjustment and
setting forth a brief
<PAGE>
statement of the facts requiring such adjustment, which
certificate shall be conclusive evidence of the correctness of
such adjustment, and (y) mail or cause to be mailed a notice
of such adjustment to the holders of shares of this Series at
their last addresses as they shall appear upon the books of
the Corporation.
(viii) The term "Common Stock" shall mean the
Corporation's voting Common Stock, par value $.01 per share,
as the same exists at the date of filing of this Certificate
of Designation, Preferences and Rights of the Convertible
Preferred Stock, or any other class of stock resulting from
successive changes or reclassifications of such Common Stock
consisting solely of changes in par value or from par value to
no par value, or from no par value to par value. In the event
that at any time as a result of an adjustment made pursuant to
subparagraph (c)(i) above, the holder of any share thereafter
surrendered for conversion shall become entitled to receive
any shares of the Corporation other than shares of its Common
Stock, thereafter the conversion rate of such other shares so
receivable upon conversion of any share shall be subject to
adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with
respect to Common Stock contained in subparagraphs (c)(i)
through (c)(vii) above, and the provisions of subparagraphs
(a) through (c) and subparagraphs (e) through (k) of this
paragraph 4 with respect to the Common Stock shall apply on
like or similar terms to any such other shares.
(d) No fractional shares of stock shall be issued upon the
conversion of any share or shares of this Series. If more than one such
share of this Series shall be surrendered for conversion at the same
time by the same holder, the number of full shares which shall be
issuable upon the conversion thereof shall be computed on the basis of
the aggregate number of shares so surrendered. If any fractional
interest in a share of Common Stock would, except for the provisions of
this subparagraph (e), be deliverable upon the conversion of any share
or shares, the Corporation shall in lieu of delivering the fractional
share therefor, adjust such fractional interest by payment to the
holder of such surrendered share or shares of an amount in cash equal
(computed to the nearest cent) to the current market value of such
fractional interest on the last business day prior to the date of
conversion, computed on the basis of the last reported sale price on
such day or, in case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices, in each case on
the New York Stock Exchange or, if the Common Stock is not listed or
admitted to trading on such Exchange, on the principal national
securities exchange on which the Common Stock is listed or admitted to
trading, or, if not listed or admitted to trading on any national
securities exchange, then in the over-the-counter market as reported by
NASDAQ or a similar reporting service, or if no such quotations are
available, the fair market price as determined by the Corporation
(whose determination shall be conclusive).
(e) If either of the following shall occur, namely: (i) any
consolidation or merger to which the Corporation is a party, other than
a consolidation or a merger in which consolidation or merger the
Corporation is a continuing corporation and which does not result in
any reclassification of, or change (other than a change in par value or
from par value to no par value or from no par value to par value, or as
a result of a subdivision or combination) in, outstanding shares of the
Common Stock, or (ii) any sale or conveyance to another corporation of
the property of the Corporation as an entirety or substantially as an
entirety in consideration for property or securities of such other
corporations; then the holder of each share of Convertible Preferred
Stock then outstanding shall have the right to convert such share into
the kind and amount of shares of stock and other securities and
property receivable upon such consolidation, merger, sale or conveyance
by a holder of the number of shares of Common Stock issuable upon
conversion of such share immediately prior to such consolidation,
merger, sale or conveyance, subject to adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for
in this paragraph 3. In any such event, effective provision shall be
made in the articles or certificate of incorporation of the
<PAGE>
resulting or surviving corporation or other corporation issuing or
delivering such shares of stock or other securities or property or
otherwise, so that the provisions set forth herein for the protection
of the conversion rights of the Convertible Preferred Stock shall
thereafter be applicable, as nearly as reasonably may be, to any such
other shares of stock and other securities and property deliverable
upon conversion of the Convertible Preferred Stock remaining
outstanding or other convertible stock or securities received by the
holders in place thereof; and any such resulting surviving corporation
or other corporation issuing or delivering such shares or other
securities or property shall expressly assume the obligation to
deliver, upon the exercise of the conversion privilege, such shares of
stock or other securities or property as the holders of the Convertible
Preferred Stock remaining outstanding, or other convertible stock or
securities received by the holders of the Convertible Preferred Stock
remaining outstanding, or other convertible stock or securities
received by the holders in place thereof, shall be entitled to receive,
pursuant to the provisions hereof, and to make provision for the
protection of the conversion right as above provided. In case shares,
securities or other property other than Common Stock shall be issuable
or deliverable upon conversion as aforesaid, then all references to
Common Stock in this paragraph 3(e) shall be deemed to apply, so far as
provided and as nearly as is reasonable, to any such shares of stock
and other securities and property. The provisions of this subparagraph
(e) shall similarly apply to successive consolidations, mergers, sales
or conveyances.
(f) The Corporation covenants that it will at all times
reserve and keep available, solely for the purpose of issue upon
conversion of the shares of this Series, such number of shares of
Common Stock as shall be issuable upon the conversion of all such
outstanding shares; provided, that nothing contained herein shall be
construed to preclude the Corporation from satisfying its obligations
in respect of the Conversion of the shares by delivery of purchased
shares of Common Stock which are held in the treasury of the
Corporation. For the purpose of this subparagraph (f), the full number
of shares of Common Stock issuable upon the conversion of all
outstanding shares of this Series shall be computed as if at the time
of computation of such number of shares of Common Stock all outstanding
shares of this Series were held by a single holder.
The Corporation will endeavor to list the shares of Common
Stock required to be delivered upon conversion of shares prior to such
delivery on NASDAQ or each national securities exchange upon which the
outstanding Common Stock is listed at the time of such delivery.
The Corporation covenants that all shares of Common Stock
which shall be issued upon conversion of the shares will upon issue be
fully paid and non-assessable and not subject to any preemptive rights.
(g) Before taking any action which would cause an adjustment
reducing the conversion price per share of this Series below the then
par value of the Common Stock, the Corporation will take any corporate
action which may, in the opinion of its counsel, be necessary in order
that the Corporation may validly and legally issue fully paid and
non-assessable shares of Common Stock at the conversion rate as so
adjusted. If as a result of conversion of the shares of this Series it
becomes necessary to authorize additional shares of Common Stock, the
Corporation covenants that it will take such action at such time as is
necessary by amendment of the Corporation's Articles of Incorporation.
(h) The Corporation shall pay any and all issue or other taxes
payable in respect of any issue or delivery of shares of Common Stock
upon conversion. However, if any such certificate is to be issued in a
name other than that of the holder of the share or shares converted,
the person or persons requesting the issuance thereof shall pay to the
Corporation the amount of any tax which may be payable in respect of
any transfer involved in such issuance or shall establish to the
satisfaction of the Corporation that such tax has been paid.
<PAGE>
(i) Notwithstanding anything elsewhere contained in this
Certificate, any funds which at any time shall have been deposited by
the Corporation or on its behalf with any paying agent for the purpose
of paying dividends on or the redemption price of any shares of this
Series and which shall not be required for such purposes because of the
conversion of such shares, as provided in this paragraph 3, shall be,
upon delivery to the paying agent of evidence satisfactory to it of
such conversion, after such conversion be repaid to the Corporation by
the paying agent.
(j) In case:
(i) the Corporation shall take any action which would
require an adjustment in the conversion rate pursuant to
subparagraph (c) of this paragraph 3; or
(ii) the Corporation shall authorize the granting to
the holders of its Common Stock of rights or warrants to
subscribe for or purchase any shares of stock of any class or
of any other rights and notice thereof shall be given to
holders of Common Stock; or
(iii) there shall be any capital reorganization or
reclassification of the Common Stock (other than a subdivision
or combination of the outstanding Common Stock and other than
a change in par value or from par value to no par value or
from no par value to par value of the Common Stock), or any
consolidation or merger to which the Corporation is a
consolidation or merger to which the Corporation is a party
and for which approval of any stockholders of the Corporation
is required, or any sale or transfer of all or substantially
all of the assets of the Corporation; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed with any conversion agent,
and shall cause to be given to the holders of the shares of this Series
at least ten business days prior to the applicable date hereinafter
specified, a notice setting forth (x) the date on which a record is to
be taken for the purpose of any distribution or grant to holders of
Common Stock, or, if a record is not to be taken, the date as of which
the holders of Common Stock of record to be entitled to such
distribution or grant are to be determined or (y) the date on which
such reorganization, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up is expected to become
effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, transfer
dissolution, liquidation or winding-up. Failure to give such notice or
any defect therein shall not affect the legality or validity of the
proceedings described in clauses (i) through (iv) of this subparagraph
(j).
4. Voting.
The shares of this Series shall not have any voting powers either
general or special, except as provided by law. In exercising any voting rights
conferred by law, each share of Convertible Preferred Stock shall be entitled to
one vote.
5. Liquidation Rights.
Upon the dissolution, liquidation or winding-up of the Corporation,
whether voluntary or involuntary, the holders of the shares of this Series shall
be entitled to receive, before any payment or distribution of the assets of
<PAGE>
the Corporation or proceeds thereof (whether capital or surplus) shall be made
to or set apart for the holders of the Common Stock or any other class or series
of stock, the amount of $10.00 per share. If, upon any liquidation, dissolution
or winding-up of the Corporation, the assets of the Corporation, or proceeds
thereof, distributable among the holders of shares of the Convertible Preferred
Stock and any other class or series of Preferred Stock ranking on a parity with
the Convertible Preferred Stock as to payments upon liquidation, dissolution or
winding-up shall be insufficient to pay in full the preferential amount
aforesaid, then such assets or the proceeds thereof, shall be distributed among
such holders ratably in accordance with the respective amounts which would be
payable on such shares if all amounts payable thereon were paid in full. For the
purposes of this paragraph 5, the voluntary sale, conveyance, lease, exchange or
transfer (for cash, shares of stock, securities or other consideration) of all
or substantially all the property or assets of the Corporation to, or a
consolidation or merger of the Corporation with, one or more other corporations
(whether or not the Corporation is the corporation surviving such consolidation
or merger) shall not be deemed to be a liquidation, dissolution or winding-up,
voluntary or involuntary.
6. No Purchase. Retirement or Sinking Fund.
The shares of this Series shall not be subject to the operation of any
purchase, retirement or sinking fund.
7. Status.
Shares of this Series which have been issued and reacquired in any
manner by the Corporation shall, upon compliance with any applicable provisions
of the Minnesota Business Corporation Act, have the status of authorized and
unissued shares of Preferred Stock and may be reissued as a part of this Series
or as part of a new series of Preferred Stock to be established by the Board of
Directors or as part of any other series of Preferred Stock the terms of which
do not prohibit such reissue; provided, however, that such shares may not be
reissued as shares of this Series.
8. Priority.
The Common Stock and all other series of Preferred Stock of the
Corporation, now or hereafter issued, shall rank junior to the Convertible
Preferred Stock as to payment of dividends and as to distributions of assets
upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary.
9. Relative Rights of Convertible Preferred Stock.
So long as any of the Convertible Preferred Stock is outstanding, the
Corporation will not:
(a) Declare, or pay, or set apart for payment, or make any
distribution in cash or other property on any other class or series of
stock of the Corporation ranking junior to the Convertible Preferred
Stock either upon liquidation, dissolution or winding-up, and will not
redeem, purchase or otherwise acquire any shares of any such junior
class or series if at the time of making such declaration, payment,
distribution, redemption, purchase or acquisition the Corporation shall
be in default with respect to any obligation to redeem shares of
Convertible Preferred Stock which shall have been tendered for
redemption; and
(b) Without the affirmative vote or consent of the holders of
at least a majority of all the Convertible Preferred Stock at the time
outstanding, voting separately as a class, given in person or by proxy,
either in writing or by resolution adopted either at an annual meeting
or special meeting called for the purpose, (i) authorize, create, or
issue, or increase the authorized or issued amount, of any class or
series of stock ranking on a par with or prior to the Convertible
Preferred Stock, upon liquidation, dissolution or winding-up or (ii)
amend, alter or repeal (whether by merger, consolidation or otherwise)
any of the
<PAGE>
provisions of the Corporation's Articles of Incorporation, or of the
Certificate of Designation, Preferences and Rights of the Convertible
Preferred Stock, so as to materially and adversely affect the
preferences, special rights, privileges or powers of the Convertible
Preferred Stock; provided, however, that the creation and issuance of
other series of Preferred Stock ranking junior to the Convertible
Preferred Stock shall not be deemed to materially and adversely affect
such preferences, rights, privileges or powers.
<PAGE>
IN WITNESS WHEREOF, CHILDREN'S BROADCASTING CORPORATION has caused its
corporate seal to be hereunto affixed and this Certificate of Designation of
Preferences and Rights to be signed by its President and attested by its
Secretary this 21st day of August, 1994.
CHILDREN'S BROADCASTING CORPORATION
[Corporate Seal]
By: /s/ Christopher T. Dahl
Christopher T. Dahl
Attest: Chief Executive Officer
/s/ Lance W. Riley
Lance W. Riley, Secretary
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
CHILDREN'S BROADCASTING CORPORATION
The undersigned officer, on behalf of Children's Broadcasting
Corporation, a Minnesota corporation (the "Corporation"), hereby certifies that
an amendment to the Corporation's Articles of Incorporation has been duly
approved by the Company's Board of Directors and shareholders in accordance with
Sections 302A.135 and 302A.139 of the Minnesota Statutes. Accordingly, Article
IV is amended in its entirety to read as follows:
ARTICLE IV
CAPITAL
The aggregate number of shares of stock which this corporation shall
have the authority to issue is twenty-five million (25,000,000) shares with a
par value of one cent ($0.01) per share.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to the Articles of Incorporation to be executed this 31st day of
October, 1994.
CHILDREN'S BROADCASTING CORPORATION
By: /s/ Christopher T. Dahl
Its: President
<PAGE>
ARTICLES OF AMENDMENT
TO
RESTATED ARTICLES OF INCORPORATION
OF
CHILDREN'S BROADCASTING CORPORATION
CHILDREN'S BROADCASTING CORPORATION, a corporation organized and
existing under the laws of the State of Minnesota (herein referred to as the
"Corporation"), in accordance with the provisions of Minnesota Statutes, Section
302A.139, does hereby certify that:
1. Effective as of January 11, 1996, pursuant to the authority conferred
upon the Board of Directors by Minnesota Statutes, Section 302A.402,
Subdivision 3, the Board of Directors authorized and adopted in writing
resolutions providing for a one (1) for two (2) "Combination" and the
following is a true copy of such resolutions:
RESOLVED, that there is hereby declared a Reverse Stock Split
or Combination, pursuant to which every two (2) shares of
issued and outstanding voting or nonvoting Common Stock, $.0l
par value per share, and every two (2) shares of authorized
but unissued voting or nonvoting Common Stock, $.01 par value
per share, existing on the Combination Effective Date, shall
be converted into one (1) share of Common Stock, $.02 par
value per share; and every two (2) shares of Common Stock,
$.0l par value per share issuable or reserved for issuance
upon conversion of convertible preferred stock, or upon
exercise of outstanding stock options and stock purchase
warrants, shall, as of the Combination Effective Date, be
converted automatically into one (1) share of Common Stock,
$.02 par value per share.
FURTHER RESOLVED, that in order to effect the Combination,
Article IV of the Corporation's Restated Articles of
Incorporation is amended in its entirety as follows:
ARTICLE IV
CAPITAL
The aggregate number of shares of stock
which this corporation shall have the authority to
issue is twelve million five hundred thousand
(12,500,000) shares with a par value of two cents
($.02) per share.
FURTHER RESOLVED, that such Combination shall be effected
automatically on January 23, 1996, or such later date when the
Amendment shall be filed with the Minnesota Secretary of State
without further action by the Board of Directors or
shareholders.
FURTHER RESOLVED, that the appropriate officers are hereby
authorized and directed to prepare, execute, acknowledge and
file on the Combination Effective Date the Articles of
Amendment to the Restated Articles of Incorporation of this
Corporation together with any other document or instrument
necessary in connection with such Combination; and to request
shareholders to exchange their stock certificates representing
shares of Common Stock held prior to the Combination for new
certificates representing shares of Common Stock issued as a
result of the Combination.
<PAGE>
FURTHER RESOLVED, that, promptly following the Combination
Effective Date, the Corporation shall furnish the shareholders
with the necessary materials and instructions to effect the
exchange of their stock certificates in accordance with the
Combination.
FURTHER RESOLVED, that shareholders who after the Combination
would otherwise be entitled to receive fractional shares of
Common Stock, will, upon surrender of their stock certificates
representing shares of Common Stock owned as of the
Combination Effective Date, receive a cash payment in lieu
thereof equal to the value of such fractional shares
determined by reference to the average closing bid price of
the Common Stock for a period of ten trading days immediately
preceding the Combination Effective Date, as reported by the
NASDAQ SmallCap Market.
FURTHER RESOLVED, that certificates representing shares of
Common Stock outstanding immediately prior to the Combination
Effective Date which are subsequently presented for transfer
will not be transferred on the books and records of the
Corporation until the certificates representing such shares of
Common Stock have been exchanged of record for certificates
representing shares of Common Stock reflecting the
Combination.
FURTHER RESOLVED, that in the event any certificate
representing shares of Common Stock outstanding prior to the
Combination is not presented for exchange upon request by the
Corporation, any dividends that may be declared after the
Combination Effective Date with respect to the Common Stock
represented by such certificate will be withheld by the
Corporation until such certificate has been properly presented
for exchange.
FURTHER RESOLVED, that the appropriate officers of the
Corporation, be and they hereby are authorized and directed,
upon filing of the Amendment pursuant to Minnesota Statutes,
Section 302A.402, to proceed promptly to carry out the
foregoing Actions and to execute and file all documents and
instruments and to take such other actions as such officers
deem necessary and appropriate to complete the Combination in
accordance with Minnesota Statutes, Chapter 302A.
FURTHER RESOLVED, that the effective date of the above
Resolutions shall be as of January 11, 1996.
2. The foregoing amendment to Article IV of the Restated Articles of
Incorporation will not adversely affect the rights or preferences of
the holders of outstanding shares of any class or series of the
Corporation's stock and will not result in the percentage of authorized
shares that remains unissued after the Combination exceeding the
percentage of authorized shares that were unissued before the
Combination.
3. The amendment to Article IV of the Restated Articles of Incorporation
was adopted pursuant to Chapter 302A.
IN WITNESS WHEREOF, Children's Broadcasting Corporation has caused
these Articles of Amendment to be signed by its President this 18th day of
January, 1996.
CHILDREN'S BROADCASTING CORPORATION
By: /s/ Christopher T. Dahl
-----------------------------------
Christopher T. Dahl
President
<PAGE>
ARTICLES OF AMENDMENT
TO
RESTATED ARTICLES OF INCORPORATION
OF
CHILDREN'S BROADCASTING CORPORATION
CHILDREN'S BROADCASTING CORPORATION, a corporation organized and
existing under the laws of the State of Minnesota (herein referred to as the
"Corporation"), in accordance with the provisions of Minnesota Statutes, Section
302A.139, does hereby certify that:
1. Effective as of January 11, 1996, pursuant to the authority conferred
upon the Board of Directors by Minnesota Statutes, Section 302A.402,
Subdivision 3, the Board of Directors authorized and adopted "I writing
resolutions providing for a one (1) for two (2) "Combination" and the
following is a true copy of such resolutions:
RESOLVED, that there is hereby declared a Reverse Stock Split
or Combination, pursuant to which every two (2) shares of
issued and outstanding voting or nonvoting Common Stock, $.01
par value per share, and every two (2) shares of authorized
but unissued voting or nonvoting Common Stock, $.0l par value
per share, existing on the Combination Effective Date, shall
be converted into one (1) share of Common Stock, $.02 par
value per share; and every two (2) shares of Common Stock,
$.0l par value per share issuable or reserved for issuance
upon conversion of convertible preferred stock, or upon
exercise of outstanding stock options and stock purchase
warrants, shall, as of the Combination Effective Date, be
converted automatically into one (1) share of Common Stock,
$.02 par value per share.
FURTHER RESOLVED, that in order to effect the Combination,
Article IV of the Corporation's Restated Articles of
Incorporation is amended in its entirety as follows:
ARTICLE IV
CAPITAL
The aggregate number of shares of stock
which this corporation shall have the authority to
issue is twelve million five hundred thousand
(12,500,000) shares with a par value of two cents
($.02) per share.
FURTHER RESOLVED, that such Combination shall be effected
automatically on January 23, 1996, or such later date when the
Amendment shall be filed with the Minnesota Secretary of State
without further action by the Board of Directors or
shareholders.
FURTHER RESOLVED, that the appropriate officers are hereby
authorized and directed to prepare, execute, acknowledge and
file on the Combination Effective Date the Articles of
Amendment to the Restated Articles of Incorporation of this
Corporation together with any other document or instrument
necessary in connection with such Combination; and to request
shareholders to exchange their stock certificates representing
shares of Common Stock held prior to the Combination for new
certificates representing shares of Common Stock issued as a
result of the Combination.
<PAGE>
FURTHER RESOLVED, that, promptly following the Combination
Effective Date, the Corporation shall furnish the shareholders
with the necessary materials and instructions to effect the
exchange of their stock certificates in accordance with the
Combination.
FURTHER RESOLVED, that shareholders who after the Combination
would otherwise be entitled to receive fractional shares of
Common Stock, will, upon surrender of their stock certificates
representing shares of Common Stock owned as of the
Combination Effective Date, receive a cash payment in lieu
thereof equal to the value of such fractional shares
determined by reference to the average closing bid price of
the Common Stock for a period of ten trading days immediately
preceding the Combination Effective Date, as reported by the
Nasdaq SmallCap Market.
FURTHER RESOLVED, that certificates representing shares of
Common Stock outstanding immediately prior to the Combination
Effective Date which are subsequently presented for transfer
will not be transferred on the books and records of the
Corporation until the certificates representing such shares of
Common Stock have been exchanged of record for certificates
representing shares of Common Stock reflecting the
Combination.
FURTHER RESOLVED, that in the event any certificate
representing shares of Common Stock outstanding prior to the
Combination is not presented for exchange upon request by the
Corporation, any dividends that may be declared after the
Combination Effective Date with respect to the Common Stock
represented by such certificate will be withheld by the
Corporation until such certificate has been properly presented
for exchange.
FURTHER RESOLVED. that the appropriate officers of the
Corporation be and they hereby are authorized and directed
upon filing of the Amendment pursuant to Minnesota Statutes,
Section 302A.402, to proceed promptly to carry out the
foregoing Actions and to execute and file all documents and
instruments and to take such other actions as such officers
deem necessary and appropriate to complete the Combination in
accordance with Minnesota Statutes, Chapter 302A.
FURTHER RESOLVED, that the effective date of the above
Resolutions shall be as of January 11, 1996.
2. The foregoing amendment to Article IV of the Restated Articles of
Incorporation will not adversely affect the rights or preferences of
the holders of outstanding shares of any class or series of the
Corporation's stock and will not result in the percentage of authorized
shares that remains unissued after the Combination exceeding the
percentage of authorized shares that were unissued before the
Combination.
3. The amendment to Article IV of the Restated Articles of Incorporation
was adopted pursuant to Chapter 302A.
IN WITNESS WHEREOF, Children's Broadcasting Corporation has caused
these Articles of Amendment to be signed by its President this 18th of January,
1996.
CHILDREN'S BROADCASTING CORPORATION
By: Christopher T. Dahl
----------------------------------
Christopher T. Dahl
President
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
CHILDREN'S BROADCASTING CORPORATION
The undersigned officer, on behalf of Children's Broadcasting
Corporation, a Minnesota (the "Corporation"), hereby certifies that an amendment
to the Corporation's Articles of Incorporation has been duly approved by the
Company's Board of Directors and shareholders in accordance with Sections
302A.135 and 302A.139 of the Minnesota Statutes. Accordingly, Article IV is
amended in its entirety to read as follows:
ARTICLE IV
CAPITAL
The aggregate number of shares of stock which this corporation shall
have the authority to issue is fifty million (50,000,000) shares with a par
value of two cents ($.02) per share.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to the Articles of Incorporation to be executed this 3rd day of
October, 1996.
CHILDREN'S BROADCASTING CORPORATION
By: /s/ James G. Gilbertson
Its: COO
<PAGE>
CHILDREN'S BROADCASTING CORPORATION
CERTIFICATE OF DESIGNATION OF STOCK
The undersigned, being duly appointed Secretary of Children's
Broadcasting Corporation (the "Corporation"), hereby certifies that the Board of
Directors of the Corporation, acting pursuant to the authority contained in
Article V of the Articles of Incorporation of the Corporation and the provisions
of Chapter 302A, Minnesota Statutes, took action by unanimous resolution on
November 28, 1995, and duly adopted the following resolutions to establish and
designate 2,177,368 shares of Common Stock of the Corporation as Class A Common
Stock.
DESIGNATION OF CLASS A COMMON STOCK
RESOLVED, in accordance with Article V of the Articles of Incorporation
of the Corporation and pursuant to Minnesota Statutes, Chapter 302A,
the Board of Directors hereby establishes, designates and reserves from
the Corporation's unauthorized and unissued shares of Common Stock,
Class A Common Stock in the amount and the voting powers and other
special rights as follows:
SECTION 1. DESIGNATION AND AMOUNT. The shares of such class of Common
Stock shall be designated as "Class A Common Stock" and the number of
shares constituting such class shall be 2,177,368.
SECTION 2. ALL OTHER RIGHTS. Other than with respect to voting and
conversion as set forth in Sections 3 and 4 below, the Class A Common
Stock shall in all respects be equal and have the same rights as the
Common Stock of the Corporation.
SECTION 3. VOTING RIGHTS. Except as otherwise required by law, each
outstanding share of Class A Common Stock shall not be entitled to vote
on any matter on which the shareholders of the Corporation shall be
entitled to vote and shares of Class A Common Stock shall not be
included in determining the number of shares voting or entitled to vote
on any such matter, provided that, notwithstanding the foregoing,
holders of shares of Class A Common Stock shall be entitled to vote as
a separate class on any amendment to the Certificate of Designation of
Stock establishing such class and on any amendment, repeal or
modification of any provision of the Articles of Incorporation of the
Corporation that adversely affects the powers, preferences or special
rights of holders of Class A Common Stock. Upon a conversion to Common
Stock in accordance with Section 4 below, the holders of Class A Common
Stock shall have full voting rights with respect to the shares of
Common Stock issued by virtue of the conversion.
SECTION 4. CONVERSION.
<PAGE>
(a) Conversion Rights. Subject to the provisions of this
Section 4, each holder of Class A Common Stock shall
be entitled to convert, at any time and from time to
time, at its option, any or all of the shares of
Class A Common Stock held by such holder into an
equivalent number of shares of voting Common Stock,
provided that if pursuant to any federal law, rule,
regulation or regulatory policy such conversion would
cause the broadcast or other media interests of the
holder to be attributed to the Corporation, or the
broadcast or other media interest of the Corporation
to be attributed to the holder and, as a result of
the attribution of such broadcast or other media
interests, (i) the holder would be foreclosed from
the ownership of voting securities of the
Corporation, or (ii) the Corporation would be
foreclosed from the ownership of its broadcast or
media interests or from the acquisition of any
additional broadcast or media interests, the Class A
Common Stock shall not be convertible, except in such
amount as would not cause such broadcast or media
interests to be so attributable.
(b) Conversion Procedure. Each conversion of shares of
Class A Common Stock into shares of Common Stock
shall be effected by the surrender of the certificate
or certificates representing the shares to be
converted (the "Converting Shares") at the principal
office of the Corporation (or such other office or
agency of the Corporation as the Corporation may
designate by written notice to the holders of Class A
Common Stock) at any time during its usual business
hours, together with written notice by the holder of
such Converting Shares, stating that such holder
desires to convert the Converting Shares, or a stated
number of the shares represented by such certificate
or certificates, into an equal number of shares of
Common Stock (the "Converted Shares"). Such notice
shall also state the name or names (with addresses)
and denominations in which the certificate or
certificates for Converted Shares are to be issued
and shall include instructions for the delivery
thereof. Promptly after such surrender and the
receipt of such written notice, the Corporation will
issue and deliver in accordance with the surrendering
holder's instructions the certificate or certificates
evidencing the Converted Shares issuable upon such
conversion, and the Corporation will deliver to the
converting holder a certificate (which shall contain
such legends as were set forth on the surrendered
certificate or certificates) representing any shares
which were represented by the certificate or
certificates that were delivered to the Corporation
in connection with such conversion, but which were
not converted; provided, however, that the
Corporation shall issue shares to persons other than
those indicated on the certificate or certificates
representing the Converting Shares only in compliance
with the Securities Act of 1933, as amended, and any
other applicable state or federal securities law.
Such conversion, to the extent permitted by law,
shall be deemed to have been effected as of the close
of business on the date on which such certificate or
certificates shall have been surrendered and such
notice shall have been received by the Corporation,
and at such time the rights of the holder of the
Converting Shares as such holder shall cease and the
person or persons in whose name or names the
certificate or certificates for the Converted Shares
are to be issued upon such conversion shall be deemed
to have become the holder or holders or record of the
Converted Shares.
<PAGE>
(c) Reservation of Shares. The Corporation shall at all
times reserve and keep available out of its
authorized but unissued shares of Common Stock or its
treasury shares, solely for the purpose of issuance
upon the conversion of shares of Class A Common
Stock, such number of shares of Common Stock as are
then issuable upon the conversion of all outstanding
shares of Class A Common Stock.
FURTHER RESOLVED, that the President and the Secretary of the
Corporation are authorized and directed to take such further action as
shall be necessary or required to carry into effect the intent of the
foregoing resolution and they, or any of them, are authorized and
directed to file a certificate of designation pursuant to Section
302A.401, Subd. 3 of the Minnesota Business Corporation Act with the
Minnesota Secretary of State.
IN WITNESS WHEREOF, Children's Broadcasting Corporation has caused this
Certificate of Designation to be signed by Lance W. Riley, its Secretary, this
27th day of February, 1996.
CHILDREN'S BROADCASTING CORPORATION
/s/ Lance W. Riley
-----------------------------------
LANCE W. RILEY, SECRETARY
<PAGE>
ARTICLES OF MERGER
These Articles of Merger (the "Articles") are entered into this 14th
day of January, 1997, between Children's Broadcasting Corporation, a Minnesota
corporation ("CBC"), and Children's Radio Group, Inc., a Minnesota corporation
("CRG").
CBC and CRG hereby agree that on the Effective Date (as defined below),
CBC and CRG shall merge into a single corporation on the following terms and
conditions:
R E C I T A L S:
A. The Boards of Directors of CBC and CRG, and all of the shareholders
of CRG (the "Shareholder's), have approved the merger (the "Merger") of CRG into
CBC, upon the terms and subject to the conditions set forth in that certain
Agreement and Plan of Merger (the "Plan") entered into as of January 14, 1997,
between CBC and CRG, a copy of which Plan is attached hereto as Exhibit A.
ARTICLE 1
MERGER
On the Effective Date, CRG shall be merged with and into CBC (the
"Merger"), and CBC shall be the surviving corporation (hereinafter called the
"Surviving Corporation"). Upon the effectiveness of the Merger, the separate
corporate existence of CRG shall cease, and the Surviving Corporation shall
succeed, without other transfer, to all of the rights and properties of CRG and
shall be subject to all the debts and liabilities of CRG in the same manner as
if the Surviving Corporation had itself incurred them; and shall continue to be
vested with all the rights and property of CBC and be subject to all the debts
and liabilities of CBC.
ARTICLE 2
EFFECTIVE DATE
The Merger provided for in the Articles shall become effective on the
filing by and in the office of the Secretary of State of the State of Minnesota
of an executed copy of these Articles. The date and time of such filing is
referred to in the Articles as the "Effective Date."
ARTICLE 3
ARTICLES OF INCORPORATION; BYLAWS
3.1 ARTICLES OF INCORPORATION. Upon the effectiveness of the Merger,
the Articles of Incorporation of CBC shall be the Articles of Incorporation of
the Surviving Corporation, and thereafter may be amended in accordance with its
terms and as provided by law.
3.2 BYLAWS. The Bylaws of CBC as in effect on the Effective Date of the
Merger shall be the Bylaws of the Surviving Corporation until amended or
repealed as provided therein.
ARTICLE 4
CANCELLATION OF CRC SHARES
Upon the effectiveness of the Merger, each share of CRG's Common Stock
issued and outstanding immediately prior to the Effective Time of the Merger
shall, by virtue of the Merger and without any action on the
<PAGE>
part of the holder thereof, be canceled. The Common Stock of CRG so canceled
shall cease to exist as such. No shares of CBC shall be issued in respect
thereto.
ARTICLE 5
APPROVAL OF PLAN
The Plan has been approved by CBC and CRG pursuant to Chapter 302A of
Minnesota statutes.
ARTICLE 6
OUTSTANDING SHARES
The outstanding shares of the Surviving Corporation shall remain
outstanding and are not affected by the Merger.
ARTICLE 7
CHOICE OF LAW
The validity, interpretation, and performance of these Articles shall
be controlled by and construed under the internal laws of the State of
Minnesota.
ARTICLE 8
COUNTERPARTS
These Articles may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has caused these Articles to be
executed on its behalf by its duly authorized officers, all as of the day and
year first above written, and caused its corporate seal to be affixed hereto.
SURVIVOR:
CHILDREN'S BROADCASTING CORPORATION
Attest:
/s/ Lance W. Riley By: /s/ Christopher T. Dahl
- ------------------------------ --------------------------------
Lance W. Riley, Secretary
Its: CEO
------------------------------
NON-SURVIVOR:
CHILDREN'S RADIO GROUP, INC.
Attest:
/s/ Lance W. Riley By: /s/ Christopher T. Dahl
- ------------------------------ --------------------------------
Lance W. Riley, Secretary
Its: CEO
------------------------------
<PAGE>
AGREEMENT AND PLAN
OF
MERGER
AGREEMENT AND PLAN OF MERGER, dated as of this 14th day of January,
1997, by and between Children's Broadcasting Corporation, a Minnesota
corporation ("CBC"), and Children's Radio Group, Inc., a Minnesota corporation
("CRG").
WHEREAS, CBC and CRG desire that CRG merge with and into CBC, and that
CBC shall continue as the surviving corporation of such merger, upon the terms
and subject to the conditions set forth herein and in accordance with Section
302A.601 of the Minnesota Business Corporation Act (the "MBCA").
WHEREAS, the respective Boards of Directors have approved this
Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, the parties hereto agree to merge as follows:
ARTICLE 1
MERGER
1.1 MERGER. Subject to the terms and conditions of this Agreement, CRG
shall be merged with and into CBC (the "Merger") in accordance with Section
302A.601 of the MBCA, and the separate existence of CRG shall cease and CBC
shall be the surviving corporation and continue its corporate existence under
the laws of the State of Minnesota.
1.2 EFFECT OF THE MERGER. At the Effective Time of the Merger (as
hereinafter defined), CBC shall possess and succeed all the rights, privileges,
immunities and franchises, of a public as well as of a private nature, of CRG;
all property, real, personal and mixed, and all debts due on any account,
including subscriptions for shares, and all other chooses in action, and every
other interest of or belonging to or due to each of CRG shall vest in CBC
without any further act or deed; the title to any real estate or any interest
therein vested in CRG shall revert to CBC by reason of the Merger; CBC shall be
responsible and liable for all the liabilities and obligations of CRG the CBC; a
claim of or against or a pending proceeding by or against CRG may be prosecuted
as if the Merger had not taken place, or CBC may be substituted in the place of
CRG; and neither the rights of creditors nor any liens upon the property of CRG
or CBC shall be impaired by the Merger.
1.3 EFFECTIVE TIME OF THE MERGER. The Merger shall become effective as
of the date and time (the "Effective Time of the Merger") the Articles of Merger
of CRG and CBC are filed with the Minnesota Secretary of State.
ARTICLE 2
NAME, ARTICLES OF INCORPORATION, BYLAWS,
DIRECTORS AND OFFICERS OF CBC
2.1 NAME OF SURVIVING CORPORATION. The name of the surviving
corporation shall be "Children's Broadcasting Corporation."
<PAGE>
2.2 ARTICLES OF INCORPORATION. The Articles of Incorporation of CBC
shall be the articles of incorporation of the surviving corporation from and
after the Effective Time of the Merger until amended thereafter as provided
therein or by law.
2.3 BYLAWS. The Bylaws of CBC shall be the Bylaws of the surviving
corporation from and after the Effective Time of the Merger until amended
thereafter as provided therein or by law.
2.4 DIRECTORS AND OFFICERS. The directors and officers of CBC at the
Effective Time of the Merger shall be the directors and officers, respectively,
of the surviving corporation from and after the Effective Time of the Merger and
shall hold office in accordance with the Articles of Incorporation and Bylaws of
CBC.
ARTICLE 3
CANCELLATION OF CRG SHARES
3.1 CANCELLATION OF ALL CRG SHARES. At the Effective Time of the
Merger, each share of CRG's Common Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger and
without any action on the part of the holder thereof, be canceled. The Common
Stock of CRG so canceled shall cease to exist as such. No shares of CBC stock
shall be issued in respect thereto.
ARTICLE 4
GENERAL
4.1 TERMINATION AND ABANDONMENT. This Agreement may be terminated and
the Merger and other transactions herein provided for abandoned at any time
prior to the Effective Time of the Merger if the board of directors of CBC or
CRG determine that the consummation of the transactions provided for herein
would not, for any reason, be in the best interests of such corporations and
their respective shareholders.
4.2 AMENDMENT. This Agreement may be amended at any time prior to the
Effective Time of the Merger with the mutual consent of the Boards of Directors
of CRG and CBC.
4.3 DEFERRAL. Consummation of the transactions herein provided for may
be deferred by the Board of Directors of CRG and CBC, or any authorized officer
thereof for a reasonable period of time if the Board of Directors of either
corporation determines that such deferral would be in the best interests of CRG,
CBC or their respective shareholders.
4.4 HEADINGS. The headings set forth herein are inserted for
convenience or reference only and are not intended to be part of, or to affect
the meaning or interpretation of, this Agreement.
4.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, and all of which, when
taken together, shall constitute one and the same instrument.
4.6 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota without giving effect to the
principles of conflicts of law thereof.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf and attested by its officers hereunto
duly authorized, all as of the day and year first above written.
CHILDREN'S BROADCASTING CORPORATION
Attest:
/s/ Lance W. Riley By: /s/ Christopher T. Dahl
- ------------------------------ --------------------------------
Lance W. Riley, Secretary
Its: CEO
------------------------------
CHILDREN'S RADIO GROUP, INC.
Attest:
/s/ Lance W. Riley By: /s/ Christopher T. Dahl
- ------------------------------ --------------------------------
Lance W. Riley, Secretary
Its: CEO
------------------------------
<PAGE>
CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS OF
SERIES B CONVERTIBLE PREFERRED STOCK OF
CHILDREN'S BROADCASTING CORPORATION
I, the undersigned, Christopher T. Dahl, the President, Chief Executive
Officer and Chairman of Children's Broadcasting Corporation, a Minnesota
corporation subject to the Minnesota Business Corporation Act, do hereby certify
that the Board of Directors of said corporation, by action duly taken in writing
on June 25, 1998, did adopt the following resolution:
RESOLVED that, pursuant to authority expressly granted to the Board of
Directors of the Corporation by the provisions of the Articles of Incorporation
of the Corporation, the Board of Directors of the Corporation hereby creates and
authorizes the issuance of a series of shares of preferred stock of the
Corporation (such series being hereinafter called "this Series" or the
"Preferred Stock") and hereby fixes, in addition to the relative rights, voting
power, preferences and restrictions stated in the Articles of Incorporation of
the Corporation, the following designation and number of shares of this Series
and the following voting, dividend rate, liquidation preference, redemption,
conversion right and other rights, preferences and restrictions with respect to
the Preferred Stock:
(A) Designation: Number of Shares: Stated Value.
Six Hundred Six Thousand Sixty-One (606,061) shares of Preferred Stock,
shall be designated Series B Convertible Preferred Stock. The shares of this
Series have a stated value of $3.30 per share (the "Stated Value").
(B) Voting.
The shares of this Series shall be nonvoting.
(C) Dividends.
The shares of this Series shall not be entitled to dividends.
(D) Other Terms of the Preferred Stock.
(a) Liquidation Preference. In the event of an involuntary or voluntary
liquidation or dissolution of the Corporation at any time, the holders of shares
of Preferred Stock shall be entitled to receive out of the assets of the
Corporation an amount equal to the Stated Value for each share of this Series
(appropriately adjusted to reflect stock splits, stock dividends,
reorganizations, consolidations and similar changes hereafter effected), plus
dividends unpaid and accrued thereon, if any. In the event of either an
involuntary or a voluntary liquidation or dissolution of the Corporation payment
shall be made to the holders of shares of this Series in the amounts herein
fixed before any payment shall be made or any assets distributed to the holders
of the Common Stock or any other class of shares of the Corporation ranking
junior to this Series with respect to payment upon dissolution or liquidation of
the Corporation. If upon any liquidation or dissolution of the Corporation the
assets available for distribution shall be insufficient to pay the holders of
all outstanding shares of this Series the full amounts to which they
respectively shall be entitled, the holders of such shares shall share pro rata
in any such distribution.
After payment has been made to the holders of this Series in the
amounts to which they are entitled as aforesaid and to the holders of any other
class or series of stock having a preference upon liquidation, in the amounts to
which they are entitled as set forth in the Articles of Incorporation of the
Corporation, the holders of the Preferred Stock and the Common Stock shall be
entitled to receive ratably on a per share basis (based upon the number of
<PAGE>
shares of Common Stock into which each share of Preferred Stock may be then
convertible) all the remaining assets of the Corporation.
At any time, in the event of the merger or consolidation of the
Corporation into or with another corporation or the merger or consolidation of
any other corporation into or with the Corporation or a plan of exchange between
the Corporation and any other corporation (in which consolidation or merger or
plan of exchange any shareholders of the Corporation receive distributions of
cash or securities or other property), or the sale, transfer or other
disposition of all or substantially all of the assets of the Corporation, and if
the shareholders of the Corporation immediately prior to such transaction hold
less than a majority of the outstanding voting securities of the surviving
corporation immediately following consummation of such transaction, then,
subject to the provisions of this paragraph, such transaction shall be deemed,
solely for purposes of determining the amounts to be received by the holders of
the Preferred Stock in such merger, consolidation, plan of exchange, sale,
transfer or other disposition, and for purposes of determining the priority of
receipt of such amounts as among the holders of the Preferred Stock and the
holders of the Common Stock, to be a liquidation or dissolution of the
Corporation if the holders of a majority of the outstanding shares of Preferred
Stock so elect by giving written notice thereof to the Corporation at least two
days before the effective date of such transaction. If no such notice is given,
the provisions of subparagraph (c)(6) below hereof shall apply. The Corporation
shall give each holder of record of Preferred Stock written notice of such
impending transaction not later than 14 days prior to the shareholder's meeting
of the Corporation called to approve such transaction, or 14 days prior to the
closing of such transaction, whichever is earlier, and shall also notify such
holders in writing of the final approval of such transaction. The first of such
notices shall describe the material terms and conditions of the transaction and
of this subparagraph (a) (including, without limiting the generality of the
foregoing, a description of the value of the consideration, if any, being
offered to the holders of the Preferred Stock in the transaction and the amount
to which such holders would be entitled if such transaction were (as described
above) to be deemed to be a liquidation or dissolution of the Corporation), and
the Corporation shall thereafter give such holders prompt notice of any material
changes to such terms and conditions. The transaction shall in no event take
place sooner than 14 days after the mailing by the Corporation of the first
notice provided for herein or sooner than ten days after the mailing by the
Corporation of any notice of material changes provided for herein; provided,
however, that such periods may be reduced upon the written consent of the
holders of a majority of the Preferred Stock, voting together as a single class.
Nothing hereinabove set forth shall affect in any way the right of each
holder of shares of Preferred Stock to convert such shares in accordance with
subparagraph (c) below.
(b) Redemption.
(1) At any time on or before the date which is 60 days following
the closing of the transaction contemplated by that certain
purchase agreement between the Corporation and Catholic Radio
Network, LLC, dated April 17, 1998, but in no event earlier
than three business days after such closing, if the holders of
at least Twenty-Five Percent (25%) of the outstanding
unconverted shares of this Series so elect by giving written
notice thereof to the Corporation, the Corporation shall, to
the extent that funds are legally available therefor, redeem
all of the outstanding unconverted shares of this Series by
payment in cash of the sum equal to One Hundred Twenty-Two and
One Half Percent (122.5%) of the Stated Value for each
outstanding unconverted share of this Series (appropriately
adjusted to reflect stock splits, stock dividends,
reorganizations, consolidations and similar changes hereafter
effected). If at the time of any required redemption the funds
legally available for such redemption shall be insufficient to
redeem the number of shares of this Series specified in the
immediately preceding sentence, redemptions shall be made as
among the holders of such shares of this Series on a pro rata
basis to the extent funds are then legally available for such
redemptions. Thereafter, as and to the extent legally
available funds for the redemption
<PAGE>
thereof exist from time to time, the Corporation shall redeem
additional shares of this Series, pro rata as among the
holders thereof until all shares of this Series required by
this subparagraph (b)(1) to be redeemed have been redeemed. In
the event of a redemption of less than all of the outstanding
shares of Preferred Stock pursuant to this subparagraph
(b)(1), redemptions as among the holders of such shares of
Preferred Stock shall be on a pro rata basis.
(2) If the Corporation so elects by giving written notice thereof
to the holders of the outstanding unconverted shares of this
Series, the Corporation may at anytime, to the extent that
funds are legally available therefor, redeem all or any part
of the outstanding unconverted shares of this Series, upon
payment in cash of the sum equal to One Hundred Twenty-Two and
One HalfPercent (122.5%) ofthe Stated Value for each
outstanding unconverted share of this Series (appropriately
adjusted to reflect stock splits, stock dividends,
reorganizations, consolidations and similar changes hereafter
effected).
(3) The Corporation shall give notice by mail of redemptions to
the holders of record of the shares of this Series at least 30
days prior to the date of redemption. The notice (i) shall
specify the date of redemption, the number of shares to be
redeemed from each shareholder and the redemption price, and
(ii) shall be addressed to each shareholder at his address as
shown on the records of the Corporation. On or after the date
fixed for redemption, each holder of shares of this Series
called for redemption shall surrender the certificate or
certificates evidencing such shares to the Corporation at the
place designated in such notice and shall thereupon be
entitled to receive payment. If less than all of the shares
represented by any such surrendered certificate or
certificates are redeemed, the Corporation shall issue a new
certificate for the unredeemed shares. If the Corporation
deposits, on or prior to any date fixed for redemption of
shares of this Series, with any bank or trust company having
capital and surplus of at least $10,000,000, as a trust fund,
a sufficient sum to redeem, on the date fixed for redemption
thereof the shares then called for redemption, with
instructions and authority to such bank or trust company to
pay the redemption price on or after the date fixed for
redemption or prior thereto upon the surrender of the
certificates representing the shares then being redeemed, then
and from and after the date of such deposit, and
notwithstanding that any certificate for shares so called for
redemption shall not have been surrendered for cancellation,
the shares so called for redemption shall no longer be deemed
to be outstanding and all rights with respect thereto shall
forthwith cease and terminate, except only the right of the
holders thereof to receive from such bank or trust company, at
any time after the date of such deposit, the sum so deposited,
without interest, and the right to convert such shares as
provided in subparagraph (c) below. Any funds so deposited and
unclaimed at the end of four years from such redemption date
shall be released or repaid to the Corporation, after which
the holders of the shares so called for redemption shall be
entitled to receive payment of the redemption price only from
the Corporation.
(c) Conversion Right. At the option of the holders thereof at any time
after the date 120 days following the Initial Closing Date, the shares of this
Series shall, subject to subparagraph (c)(l), be convertible, into fully paid
and nonassessable shares (calculated as to each conversion to the nearest
1/100th of a share) of Common Stock of the Corporation, at the conversion price
determined as hereinafter provided, in effect at the time of conversion, each
share of this Series being deemed to have the Stated Value for the purpose of
such conversion. The number of shares of Common Stock to be delivered upon
conversion of a share of this Series shall be the Stated Value, divided by the
lesser of(x) One Hundred Ten (110%) of the average best bid price of the Common
Stock for the five (5) consecutive trading days ending on the day preceding the
Conversion Date (the "Fixed Strike Price"), or (y) Ninety-Four Percent (94%) of
the average of the three lowest closing prices of the Common Stock during the 60
calendar day period ending on the day preceding the Conversion Date (herein
called the "conversion price"), provided however, that such
<PAGE>
initial conversion price shall be subject to adjustment from time to time in
certain instances as hereinafter provided. The number of shares so issuable upon
conversion shall be multiplied by the number of shares of this Series to be
converted, and the product thereof shall be delivered to the holder.
Notwithstanding the foregoing, if the Common Stock is not traded on the New York
Stock Exchange, the American Stock Exchange, the Nasdaq National Market or the
Nasdaq SmallCap Market on the Conversion Date, then the percentage specified in
clause (y) above shall be Eighty-Four Percent (84%).
(1) The Preferred Stock may be converted, at the option of the
holder, in accordance with the following schedule:
Number of Days Percentage of Original
Elapsed Following Issuance Preferred Stock Convertible
-------------------------- ---------------------------
120 20%
150 40%
180 60%
210 80%
240 100%
In the case of the call for redemption of any shares of this
Series, such right of conversion shall cease and terminate as
to the shares designated for redemption on the day such shares
are actually redeemed by the Corporation; provided, however,
that the holder may, upon giving a Conversion Notice to the
Company within ten (10) business days after receipt of the
Company's notice of redemption, convert such number of shares
of this Series as such holder would have been entitled to
convert had such notice of redemption not been given by the
Company. In the event that any shares of this Series have not
been redeemed or converted into Common Stock on or before June
15, 2002, such shares shall automatically be converted in
accordance with the provisions of subparagraph (c)(2).
(2) In order to convert shares of this Series, the holder thereof
shall (j) surrender at the office of the Corporation the
certificate or certificates therefor, duly endorsed (signature
guaranteed) to the Corporation or in blank, and give written
notice (the "Conversion Notice") to the Corporation at such
office that such holder elects to convert such shares or (ii)
telecopy prior to 5:00 p.m. (Minneapolis time) to the office
of the Corporation the Conversion Notice and deliver within
three (3) business days thereafter the original Conversion
Notice by express courier, together with the certificate or
certificates for the Preferred Stock duly endorsed (signature
guaranteed) to the Corporation or in blank. The Conversion
Notice shall specify the number of shares of this series to be
converted. Shares of this Series shall be deemed to have been
converted immediately prior to the close of business on the
day (which must be a business day) of the surrender of such
shares for conversion as herein provided (the "Conversion
Date"), and the person entitled to receive the shares of
Common Stock of the Corporation issuable upon such conversion
shall be treated for all purposes as the record holder of such
shares of Common Stock at such time. As promptly as
practicable on or after the Conversion Date, the Corporation
shall issue and deliver or cause to be
<PAGE>
issued and delivered at such office a certificate or
certificates for the number of shares of Common Stock of the
Corporation issuable upon such conversion.
(3) The conversion price shall be subject to adjustment from time
to time as hereinafter provided. Upon each adjustment of the
conversion price each holder of shares of this Series shall
thereafter be entitled to receive the number of shares of
Common Stock of the Corporation obtained by multiplying the
conversion price in effect immediately prior to such
adjustment by the number of shares issuable pursuant to
conversion immediately prior to such adjustment and dividing
the product thereof by the conversion price resulting from
such adjustment.
(4) In case the Corporation shall (j) declare a dividend upon the
Common Stock payable in Common Stock (other than a dividend
declared to effect a subdivision of the outstanding shares of
Common Stock, as described in subparagraph (c)(5)) or
convertible securities, or distribute to the holders of its
Common Stock any rights or options to purchase Common Stock or
convertible securities, or (ii) declare any other dividend or
make any other distribution upon the Common Stock payable
otherwise than out of earnings or earned surplus, then
thereafter each holder of shares of this Series upon the
conversion thereof will be entitled to receive the number of
shares of Common Stock into which such shares of this Series
have been converted, and, in addition and without payment
therefor, each dividend described in clause (i) above and each
dividend or distribution described in clause (ii) above which
such holder would have received by way of dividends or
distributions if continuously since such holder became the
record holder of such shares of this Series such holder (j)
had been the record holder of the number of shares of Common
Stock then received, and (ii) had retained all dividends or
distributions in stock or securities (including Common Stock
or convertible securities, and any rights or options to
purchase any Common Stock or convertible securities) payable
in respect of such Common Stock or in respect of any stock or
securities paid as dividends or distributions and originating
directly or indirectly from such Common Stock. For the
purposes of the foregoing a dividend or distribution other
than in cash shall be considered payable out of earnings or
earned surplus only to the extent that such earnings or earned
surplus are charged an amount equal to the fair value of such
dividend or distribution as determined by the Board of
Directors of the Corporation.
(5) In case the Corporation shall at any time subdivide its
outstanding shares of Common Stock into a greater number of
shares, the conversion price in effect immediately prior to
such subdivision shall be proportionately reduced, and
conversely, in case the outstanding shares of Common Stock of
the Corporation shall be combined into a smaller number of
shares, the conversion price in effect immediately prior to
such combination shall be proportionately increased.
(6) If any capital reorganization or reclassification of the
capital stock of the Corporation, or consolidation or merger
of the Corporation with another corporation, or the sale of
all or substantially all of its assets to another corporation
shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities or assets with
respect to or in exchange for Common Stock, then, as a
condition of such reorganization, reclassification,
consolidation, merger or sale, and subject to subparagraph (a)
above, lawful and adequate provision shall be made whereby the
holders of this Series shall thereafter have the right to
receive upon the basis and upon the terms and conditions
specified herein and in lieu of the shares of the Common Stock
of the Corporation immediately theretofore receivable upon the
conversion of this Series, such shares of stock, securities or
assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such stock immediately
theretofore receivable upon the conversion of this Series had
such reorganization,
<PAGE>
reclassification, consolidation, merger or sale not taken
place, plus all dividends unpaid and accumulated or accrued
thereon to the date of such reorganization, reclassification,
consolidation, merger or sale, and in any such case
appropriate provision shall be made with respect to the rights
and interests of the holders of this Series to the end that
the provisions hereof (including without limitation provisions
for adjustments of the conversion price and of the number of
shares receivable upon the conversion of this Series) shall
thereafter be applicable, as nearly as may be in relation to
any shares of stock, securities or assets thereafter
receivable upon the conversion of this Series. The Corporation
shall not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor
corporation (if other than the Corporation) resulting from
such consolidation or merger or the corporation purchasing
such assets shall assume by written instrument executed and
majied to the registered holders of this Series, at the last
addresses of such holders appearing on the books of the
Corporation, the obligation to deliver to such holders such
shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holders may be entitled to
receive.
(7) Upon any adjustment of the conversion price, then and in each
case the Corporation shall give written notice thereof by
first-class mail, postage prepaid, addressed to the registered
holders of this Series, at the addresses of such holders as
shown on the books of the Corporation, which notice shall
state the conversion price resulting from such adjustment and
the increase or decrease, if any, in the number of shares
receivable at such price upon the conversion of this Series,
setting forth in reasonable detail the method of calculation
and the facts upon which such calculation is based.
(8) In case at any time:
(i) the Corporation shall declare any cash dividend on
its Common Stock at a rate in excess of the rate of
the last cash dividend theretofore paid;
(ii) the Corporation shall pay any dividend payable in
stock upon its Common Stock or make any distribution
(other than regular cash dividends) to the holders of
its Common Stock;
(iii) the Corporation shall offer for subscription pro rata
to the holders of its Common Stock any additional
shares of stock of any class or other rights;
(iv) there shall be any capital reorganization, or
reclassification of the capital stock of the
Corporation, or consolidation or merger of the
Corporation with, or sale of all or substantially all
of its assets to, another corporation; or
(v) There shall be a voluntary or involuntary
dissolution, liquidation or winding up of the
Corporation;
then, in any one or more of said cases, the Corporation shall
give written notice, by first-class mail, postage prepaid,
addressed to the registered holders of Preferred Stock at the
addresses of such holders as shown on the books of the
Corporation, of the date on which (a) the books of the
Corporation shall close or a record shall be taken for such
dividend, distribution or subscription rights, or (b) such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up shall take place, as
the case may be. Such notice shall also spevify the date as of
which the holders of Common Stock of record shall participate
in such dividend, distribution or subscription rights, or
shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such
reorganization, reclassification, consolidation,
<PAGE>
merger, sale, dissolution, liquidation, or winding up, as the
case may be. Such written notice shall be given at least 20
days prior to the action in question and not less than 20 days
prior to the record date or the date on which the
Corporation's transfer books are closed in respect thereto.
(9) If any event ovcurs as to whjvh jn the opinion of the Board of
Directors of the Corporation the other provisions of this
subparagraph (c) are not strictly applicable or if strictly
applicable would not fairly protect the rights of the holders
of Preferred Stock in accordance with the essential intent and
principles of such provisions, then the Board of Directors
shall make an adjustment in the application of such
provisions, in accordance with such essential intent and
principles, so as to protect such rights as aforesaid.
(10) As used in this subparagraph (c) the term "Common Stock" shall
mean and include the Corporation's presently authorized Common
Stock and shall also include any capital stock of any class of
the Corporation hereafter authorized which shall not be
limited to a fixed sum or percentage in respect of the rights
of the holders thereof to participate in dividends or in the
distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
provided that the shares receivable pursuant to conversion of
shares of this Series shall include shares designated as
Common Stock of the Corporation as of the date of issuance of
such shares of this Series, or, in case of any
reclassification of the outstanding shares thereof the stock,
securities or assets provided for in subparagraph (c)(6)
above.
(11) No fractional shares of Common Stock shall be issued upon
conversion, but, instead of any fraction of a share which
would otherwise be issuable, the Corporation shall pay a cash
adjustment in respect of such fraction in an amount equal to
the same fraction of the market price per share of Common
Stock as of the close of business on the day of conversion.
"Market price" shall mean if the Common Stock is traded on a
securities exchange or on the Nasdaq National Market, the
closing price of the Common Stock on such exchange or the
Nasdaq National Market, or, if the Common Stock is otherwise
traded in the over-the-counter market, the best bid price, in
each case averaged over a period of 20 consecutive trading
days ending on the date preceding the day as of which omarket
priceo is being determined. If at any time the Common Stock is
not traded on an exchange or the Nasdaq National Market, or
otherwise traded in the over-the-counter market, the "market
price" shall be deemed to be the higher of (i) the book value
thereof as determined by any firm of independent public
accountants of recognized standing selected by the Board of
Directors of the Corporation as of the last day of any month
ending within 60 days preceding the date as of which the
determination is to be made, or (ii) the fair value thereof
determined in good faith by the Board of Directors of the
Corporation as of a date which is within 15 days of the date
as of which the determination is to be made.
(12) The Corporation will take all steps necessary to be in a
position to issue shares of Common Stock on conversion of the
Preferred Stock without violating Nasdaq Rule
4310(v)(25)(H)(i)(d)(2) (the "Cap Regulations"). If despite
taking such steps, the Corporation still cannot issue such
shares of Common Stock without violating the Cap Regulations,
the holder of Preferred Stovk which cannot be converted as a
result of the Cap Regulations (each suvh share, an
"Unconverted Share") shall have the option, exercisable in
such holder's sole and absolute discretion, to elevt either of
the following remedies:
(i) require the Corporation to issue shares of Common
Stock in accordance with such holder's notice of
conversion at a conversion purchase price equal to
the average of the best bid price of a share of
Common Stock for the five (5) consecutive trading
days (subject to
<PAGE>
certain equitable adjustments for certain events
occurring during each period) ending on the day
preceding the date of notice of conversion or
exercise; or
(ii) require the Corporation to redeem each Unconverted
Share for an amount in cash equal to One Hundred
Fifteen Pervent (115%) of the Fixed Strike Price of
an Unconverted Share.
IN WITNESS WHEREOF, I have subscribed my name hereto this 25th day of
June, 1998.
/s/ Christopher T. Dahl
----------------------------------------------------
Christopher T. Dahl
President, Chief Executive Officer and Chairman
<PAGE>
State of Minnesota
Office of the Secretary of State
See instructions
on reverse side
for completing
this form.
NOTICE OF CHANGE OF
REGISTERED OFFICE - REGISTERED AGENT OR BOTH
BY
- --------------------------------------------------------------------------------
NAME OF CORPORATION
CHILDREN'S BROADCASTING CORPORATION
- --------------------------------------------------------------------------------
Pursuant to Minnesota Statutes, Section 302A.123, 303.10, or 317.19 the
undersigned hereby certifies that the Board of Directors of the above named
Corporation has resolved to change the corporation's registered office or agent:
- --------------------------------------------------------------------------------
Agent's (Fill in this box only if you already have an agent. Do not
Name list the corporate name in this box.)
F
R
O
M
Address 215 South Eleventh Street
(No. & Street)
City County MN Zip
Minneapolis, Hennepin 55403
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Agent's (Fill in this box only if you already have an agent. Do not
Name list the corporate name in this box.)
T
O (You may not list a P.O. Box, but you may list a rural
route and box number.)
Address 5501 Excelsior Boulevard
(No. & Street)
City County MN Zip
Saint Louis Park Hennepin 55416
- --------------------------------------------------------------------------------
The new address may not be a post office box. It must be a street address,
pursuant to Minnesota Statutes, Section 302A.011, Subd. 3
This change is effective on the day it is filed with
the Secretary of State, unless you indicate another
date, no later than 30 days after filing with the
Secretary of State, in this box:
-------------------------
-------------------------
I certify that I am authorized to execute this certificate and I further certify
that I understand that by signing this certificate I am subject to the penalties
of perjury as set forth in section 609.48 as if I had signed this certificate
under oath.
- --------------------------------------------------------------------------------
Name of Officer or Other Authorized Signature
Agent of Corporation
Christopher T. Dahl /s/ Christopher T. Dahl
- --------------------------------------------------------------------------------
Title or Office
President
- --------------------------------------------------------------------------------
Do not write below this line. For Secretary of State's use only
- --------------------------------------------------------------------------------
Receipt Number File Data
- --------------------------------------------------------------------------------
EXHIBIT 10.4
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated as of October 26, 1998, is made between and among
CHILDREN'S BROADCASTING CORPORATION (referred to herein as "CBC"), CHILDREN'S
RADIO OF DALLAS, INC., a Minnesota corporation ("CR Dallas"), CHILDREN'S RADIO
OF PHOENIX, INC., a Minnesota corporation ("CR Phoenix"), and CHILDREN'S RADIO
OF NEW YORK, INC., a New Jersey corporation ("CR New York") (CR Dallas, CR
Phoenix and CR New York are sometimes collectively referred to herein as the
"Asset Subsidiaries"); KAHZ-AM, INC., a Minnesota corporation ("KAHZ-AM"),
KIDR-AM, INC., a Minnesota corporation ("KIDR-AM"), and WJDM-AM, INC.,
("WJDM-AM"), a Minnesota corporation (KAHZ-AM, KIDR-AM and WJDM-AM are sometimes
collectively referred to herein as the "License Subsidiaries"; the Asset
Subsidiaries and the License Subsidiaries are sometimes collectively referred to
herein as the "Subsidiaries"; and CBC and the Subsidiaries are sometimes
collectively referred to herein as the "Sellers"); and RADIO UNICA CORP., a
Delaware corporation (the "Buyer"); and
W I T N E S S E T H :
THAT, WHEREAS, CBC is the owner and holder of 100% of the issued
and outstanding stock of the Asset Subsidiaries; and WHEREAS, each of the Asset
Subsidiaries is the owner of all the assets of the radio station indicated below
licensed to the community listed below (collectively referred to herein as the
"Stations"), except for the Federal Communications Commission (the "FCC" or the
"Commission") licenses, permits or authorizations issued with respect to the
Stations, and are the owners and
<PAGE>
holders of 100% of the issued and outstanding stock of the License Subsidiary
designated by the respective Station's call letters:
CR Dallas KAHZ(AM) Fort Worth, Texas
1360 kHz
CR Phoenix KIDR(AM) Phoenix, Arizona
740 kHz
CR New York WJDM(AM) Elizabeth, New Jersey
1530 kHz
CR New York WBAH(AM) Elizabeth, New Jersey
1660 kHz
WHEREAS, the License Subsidiaries are the FCC licensees and/or
permittees of the Stations indicated above; and
WHEREAS, Sellers have previously entered into a purchase agreement
with Catholic Radio Network, LLC ("CRN"), dated April 17, 1998, as amended (the
"CRN Agreement") and the parties are desirous of entering into this agreement
subject to the rights of CRN and CBC to close upon the CRN Agreement; and
WHEREAS, subject to and conditioned upon the consent of the FCC, the
termination of CRN's right to acquire the Stations under the CRN Agreement or
amendment of the CRN Agreement to exclude the Stations and the other conditions
set forth herein, the Sellers desire to sell and transfer and Buyer desires to
purchase and acquire the Stations and certain of the tangible and intangible
assets of the Sellers used or held for use in connection with the operation of
the Stations, all as is more fully described below.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions contained herein, the parties hereto hereby agree as follows:
ARTICLE 1
SALE AND TRANSFER OF ASSETS
2
<PAGE>
Buyer acknowledges that Sellers have entered into the CRN Agreement.
Buyer further acknowledges that the CRN Agreement is in full force and effect as
of the date of execution hereof, and that the First Amendment to the CRN
Agreement provides, among other things that the transaction will close on
October 16, 1998, subject to CRN's right to extend the closing date until
October 30, 1998, upon payment of a fee to Sellers no later than October 19,
1998 (the "First Extension Fee") and October 26, 1998 (the "Second Extension
Fee"). Accordingly, Buyer acknowledges that Sellers' obligations under this
Agreement are subject to Sellers' and CRN's rights and obligations under the CRN
Agreement. Sellers agree that if at the close of business on October 19, 1998,
all of the conditions to CRN's obligations to close under the CRN Agreement have
been satisfied and CRN has not paid to Sellers the First Extension Fee, Sellers
will immediately terminate the CRN Agreement. Further, Sellers agree that if at
the close of business on October 26, 1998, all of the conditions to CRN's
obligations to close under the CRN Agreement have been satisfied and CRN has not
paid to Sellers the Second Extension Fee, Sellers will immediately terminate the
CRN Agreement. Further, Sellers agree that if CRN has paid the First Extension
Fee and the Second Extension Fee, and all of the conditions to CRN's obligations
to close have been fulfilled, Sellers will grant no further extensions of the
closing date under the CRN Agreement beyond November 5, 1998, and will terminate
the CRN Agreement if all the conditions to CRN's obligations to close have been
fulfilled.
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 for Excluded Assets (as
defined below), and except as otherwise expressly provided herein, all the
assets of the Sellers described below, including the business and goodwill, used
or held for use in connection with the operation of the Stations and including
all replacements and additions thereto between October 8, 1998, and the Closing
Date (as hereinafter defined) (collectively, the "Acquired Assets"):
1.1. All licenses, permits and authorizations ("Licenses") issued by the
Commission for the operation of or used in connection with the
operation of the Stations, all of which are listed on Schedule A
attached hereto, and all applications therefor, together with any
renewals, extensions or modifications thereof and additions thereto;
1.2. All of the Sellers' owned or leased real property interests relating
to the operation of the Stations including that described in Schedule
B attached hereto;
1.3. All tangible personal property owned by the Sellers used or held for
use in the operation of the Stations including but not limited to the
property listed on Schedule C attached hereto, and any replacements
therefor or improvements thereof acquired or constructed prior to
Closing ("Personal Property");
1.4. Subject to Section 2.6 of this Agreement, all of the Sellers' rights
and benefits under the business agreements, leases and contracts
listed on Schedule D attached hereto, including any renewals,
extensions, amendments or modifications thereof, and any additional
agreements, leases and contracts made or entered into by the Sellers
in the ordinary course
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of business between October 8, 1998 and the
Closing approved in writing by Buyer or otherwise permitted hereunder
("Leases and Agreements");
1.5. All other licenses, permits or authorizations issued by any government
or regulatory agency other than the FCC, which are used in connection
with the operation of the Stations, all of which are listed on
Schedule A ("Permits") and pending applications therefor;
1.6. All right, title and interest of the Sellers in and to the use of the
call letters for the Stations (referred to herein as the "Call
Letters"), to the extent they can be conveyed; together with all
common law property rights, goodwill, copyrights, trademarks, service
marks, trade names and other similar rights used in connection with
the operation of the Stations, including all additions thereto, listed
on Schedule E attached hereto ("General Intangibles");
1.7. All of the Subsidiaries' magnetic media, electronic data processing
files, systems and computer programs, logs, public files, records
required by the FCC, vendor contracts, supplies, maintenance records
or similar business records relating to or used in connection with the
operation of the Stations, but not including records pertaining to
corporate affairs (including tax records) and original journals,
provided copies are supplied to Buyer. The Sellers shall have
reasonable access to all such records which might be in the possession
of Buyer for a period of two (2) years following the Closing, and
shall, at its own expense, have the right to make copies thereof; and
1.8. All rights and claims of Sellers whether mature, contingent or
otherwise, against third parties relating to the Acquired Assets,
whether in tort, contract, or otherwise, under or pursuant to all
warranties, representations and guarantees made by manufacturers,
suppliers or vendors.
1.9 "Excluded Assets" means cash on hand, accounts receivable and the
office lease with Lincoln Building Associates.
ARTICLE 2
PURCHASE PRICE AND PAYMENTS
2.1. PURCHASE PRICE. As the purchase price for the Acquired Assets, Buyer
agrees to pay to the Sellers the sum of Twenty-Nine Million Two
Hundred Fifty Thousand and no/100 Dollars ($29,250,000.00), subject to
adjustment as provided herein (the "Purchase Price").
2.2. METHOD OF PAYMENT OF PURCHASE PRICE. The Purchase Price shall be
payable as follows:
2.2.1. ESCROW DEPOSIT. Contemporaneously with the earlier
of (i) the termination of the CRN Agreement or (ii) the
termination of CRN's right to acquire the Stations by
amendment or waiver of the CRN Agreement (the "Effective
Time"), Buyer and Sellers shall enter into an escrow
agreement substantially in the form attached hereto as
Exhibit 1-A with such changes as First Union National Bank
may in its
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discretion reasonably require,, pursuant to which Buyer will
deposit into escrow the sum of Two Million Nine Hundred
Twenty-Five Thousand and no/100 Dollars ($2,925,000.00) (the
"Damages Escrow Funds"). At Closing, the Damages Escrow
Funds, including any interest thereon, shall be delivered to
Sellers and shall be a credit to Buyer against the Purchase
Price subject to the provisions governing the release and
delivery of the Damages Escrow Funds contained in Article 6
hereof.
In addition to entering into the escrow agreement in the
form attached hereto as Exhibit 1-A, at the Effective Time
Buyer and Sellers shall enter into a second escrow agreement
substantially in the form attached hereto as Exhibit 1-B
with such changes as First Union National Bank may in its
reasonable discretion require, pursuant to which Buyer will
deposit into escrow the sum of Seven Million Seventy-Five
Thousand and No/100 Dollars ($7,075,000.00) (the "Purchase
Price Escrow Funds"). At Closing, the Purchase Price Escrow
Funds, including any interest thereon, shall be delivered to
Sellers and shall be a credit to Buyer against the Purchase
Price. Further provisions governing release and delivery of
the Purchase Price Escrow Funds shall be as set forth in
Article 6 hereof.
2.2.2. At Closing, Buyer shall also receive a credit against the
Purchase Price in an amount equal to the portion of the LMA
Deposit, as defined in Section 2.4 below, which is allocable
to periods of time after the Closing, together with interest
on one-half of the LMA Deposit at the rate of 5.5% per annum
from the date hereof until Closing.
2.2.3. The balance of the Purchase Price payable hereunder shall be
paid in cash by the Buyer on the Closing Date by wire
transfer of immediately available funds to such bank or
other financial institution as shall be designated by
Sellers at least one (1) business day prior to the Closing
Date.
2.3. ADJUSTMENTS AND PRORATIONS. The operations of the Stations and
the income and expenses attributable thereto up to 12:01 A.M. on the
day of the Closing shall, except as otherwise provided in this
Agreement and in that local marketing agreement ("LMA") to be entered
into between the parties in the form attached hereto as Exhibit 2 at
the time the Effective Time, be for the account of the Sellers and
thereafter shall be for the account of Buyer. Expenses such as power
and utility charges, lease rents, property taxes according to year of
payment, frequency discounts, annual license fees (if any), wages,
commissions, payroll taxes, and other fringe benefits of employees of
the Sellers who enter the employment of the Buyer, and similar
deferred items shall be prorated between the Sellers and the Buyer.
Prepaid deposits shall also be prorated between the Sellers and the
Buyer. 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.
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2.4. LMA. Any material breach or any default under this
Agreement shall be a breach or default of the LMA by the breaching
party, and any material breach or any default under the LMA shall be a
breach or default of this Agreement by the breaching party. At the
Effective Time, the Buyer shall pay to Sellers the sum of Two Million
Five Hundred Thousand and no/100 Dollars ($2,500,000.00) as a
prepayment of payments called for under the LMA with respect to radio
station WBAH(AM), and upon approval of the HSR Filing (as defined in
Section 7.7 below), Buyer shall pay to Seller the additional sum of
Five Hundred Thousand and no/100 Dollars ($500,000.00) as a prepayment
of payments called for under the LMA with respect to radio stations
KAHZ(AM) and KIDR(AM) (as initially funded and subsequently increased,
the "LMA Deposit").
2.5. NON-COMPETITION AGREEMENT. On the Closing Date, the Buyer shall enter
into a non-competition agreement with Christopher T. Dahl ("Dahl") the
form attached hereto as Exhibit 3 (the "Non-Competition Agreement"),
pursuant to which Dahl will agree not to own, operate or be employed
by a radio station broadcasting from a site within 100 miles of any
site from which any of the Stations broadcast for a period of two (2)
years, and Buyer, in consideration thereof, shall make a lump sum
payment to Dahl in the amount of Seven Hundred Fifty Thousand and
no/100 Dollars ($750,000.00) on the Closing Date.
2.6. PARTIAL CLOSING ADJUSTMENTS. Further adjustments to the purchase
price payable hereunder may be made pursuant to the provisions of
Sections 6.1 and 7.3 below.
2.7. ASSUMED LIABILITIES. Except as expressly provided for in this
Agreement or the Leases and Agreements listed on the Schedules hereto,
at the Closing Buyer shall not assume, incur or be charged with, in
connection with the transactions herein contemplated, any liabilities
or obligations of any nature whatsoever, contingent or otherwise.
Without limitation of the foregoing, Buyer shall not assume any
obligations to the Stations' employees under any employee benefit
plans or employment contracts.
2.8. ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated
among the Acquired Assets by Buyer and the Sellers as set forth in the
attached Schedule F. The values of the Acquired Assets with respect to
each of the Stations are set forth with an aggregate allocation value
as to all Acquired Assets associated with the operation of each of the
Stations set out thereon as the station aggregate value (the "Station
Aggregate Value") for each of the Stations. Such allocation will be
used for all purposes, including preparation and filing of IRS Form
8594 with respect to the transactions contemplated by this Agreement.
2.9. SECURITY AGREEMENT AND INTERCREDITOR AGREEMENT. At the Effective Time,
and upon Buyer's funding of the Escrow Deposit and the LMA Deposit,
Sellers agree to execute and deliver to Buyer a Security Agreement in
the form attached hereto as Exhibit 4, and Buyer agrees to execute and
deliver to Sellers' lender, Foothill Capital Corporation, an
Intercreditor Agreement in the form attached hereto as Exhibit 5.
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ARTICLE 3
THE SELLERS' REPRESENTATIONS,
WARRANTIES AND AGREEMENTS
The Sellers represent, warrant and agree as follows, which
representations and warranties shall be deemed to have been made again at
Closing and which agreements shall remain in effect from the date hereof until
the Closing or such later time specified herein:
3.1. CORPORATE EXISTENCE AND POWERS. The Sellers, except CR New York,
are corporations organized and existing in good standing under the
laws of the State of Minnesota, with full power and authority to enter
into this Agreement and the other Transaction Documents (as defined
herein) and to enter into and complete the transactions contemplated
herein and therein without shareholder approval; CR New York is a
corporation organized and existing in good standing under the laws of
the State of New Jersey, with full power and authority to enter into
this Agreement and the other Transaction Documents (as defined herein)
and to enter into and complete the transactions contemplated herein
and therein; CR Dallas is, and will be at the time of Closing,
qualified to do business in the State of Texas; and CR Phoenix is, and
will be at the time of Closing, qualified to do business in the State
of Arizona and neither the nature of the business of the Stations, nor
the character of the properties owned, leased or otherwise held by
Sellers for use in the business of the Stations makes any
qualification necessary in any other state, country, territory or
jurisdiction; all required corporate actions have been taken by the
Sellers to make and carry out this Agreement and the other Transaction
Documents and the transactions contemplated herein and therein; this
Agreement constitutes, and upon execution and delivery, each other
Transaction Document will constitute a valid and binding obligation of
Sellers enforceable in accordance with its terms; the execution of
this Agreement and the other Transaction Documents and the completion
of the transactions herein and therein involved will not result in the
violation of any law, regulation, order, license, permit, rule,
judgment or decree to which any of the Sellers, the Acquired Assets or
the Stations, is subject, or conflict with or constitute the breach of
any contract, agreement or other commitment to which any of the
Sellers is a party or by which they are bound or as to which any of
the Acquired Assets or the Stations are subject or affected, or
conflict with or violate any provision of any of the respective
Sellers' certificates of incorporation, bylaws or other organizational
documents; and, except for receipt of the Commission's Consent (as
defined herein) with respect to the assignment of the Licenses to
Buyer, no other consents of any kind are required that have not been
obtained for the Sellers to make or carry out the terms of this
Agreement and the other Transaction Documents, except with respect to
those consents identified on Schedule B or D which are required of
parties to Leases and Agreements listed on Schedule B or D or with
respect to assignment and assumption of specific contract rights and
obligations. The Sellers shall use their best efforts to obtain third
party consents with respect to any of the Leases and Agreements
designated on Schedule B or D as "material," to the extent required by
such documents. Buyer shall cooperate with the Sellers in obtaining
all such required consents. As used herein, the term "Transaction
Documents" refers collectively to this Agreement, the LMA, the
Assignment of Licenses, the Warranty Deeds, an Assignment and Bill of
Sale and any
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other agreements to be executed and delivered by any Seller hereunder
or as otherwise contemplated herein.
3.2. COMPLIANCE WITH LAWS; LICENSES AND PERMITS. Sellers are not in
violation of, and have not received any notice asserting any material
noncompliance by Sellers with, any applicable statute, law, rule or
regulation, whether federal, state, local or otherwise, in connection
with the ownership of the Acquired Assets. Sellers have complied and
are in compliance in all material respects with all laws, regulations
and governmental orders applicable to Sellers' operation of the
Stations and ownership of the Acquired Assets, except as disclosed on
Schedule A. Sellers have obtained and hold all permits, licenses and
approvals (other than the Licenses), none of which has been rescinded
and all of which are in full force and effect, from all Governmental
Authorities (as defined herein) necessary in order to conduct the
operations of the Stations in accordance with applicable law, as
presently conducted and to own, use and maintain the Acquired Assets,
all of which permits, licenses and approvals are identified on
Schedule A. As used herein, "Governmental Authorities" means
any agency, board, bureau, court, commission, department,
instrumentality or administration of the United States government, any
state government or any local or other governmental body in a state of
the United States or the District of Columbia. No filing or
registration with, notification to, or authorization, consent or
approval of, any Governmental Authority is required in connection with
the execution and delivery of this Agreement and the other
Transactional Documents by any Seller or the performance by any Seller
of its obligations hereunder or thereunder except compliance with any
applicable requirements of the Communications Act of 1934 as amended,
(the "Communications Act") and the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 ("HSR"). Each of the License Subsidiaries is
the holder of the Licenses indicated on Schedule A, all of
which are valid, in full force and effect and which have been
unconditionally issued for the full license term. The Licenses
constitute all of the licenses, grants, permits, waivers and
authorizations issued by the FCC and required for and/or used in the
operation of the Stations as they are currently being operated. Each
License Subsidiary is fully qualified to hold its Licenses. All
ownership and employment reports, renewal applications, and other
reports and documents required to be filed for the Stations have been
properly and timely filed, except as noted on Schedule A. The Stations
are operating in accordance with the Licenses, and in
compliance with the Communications Act, and the rules and regulations
of the Commission, including, without limitation, those regulations
governing the Stations' equal employment opportunity practices and
public files, and any other applicable laws, ordinances, rules and
regulations, except as disclosed on Schedule A. Sellers have complied
in all material respects with all requirements of the FCC
and the Federal Aviation Administration with respect to the
construction and/or alteration of Seller's antenna structures, and "no
hazard" determinations for each antenna structure have been obtained.
The Licenses are unimpaired by any act or omission of Sellers or their
officers, directors, employees and agents and Sellers will not,
without Buyer's prior written consent, by an act or omission,
surrender, modify, forfeit or fail to seek renewals on regular terms,
of any License, or cause the Commission or other regulatory authority
to institute any proceeding for the cancellation or modification of
any such License, or fail to prosecute with due diligence any pending
application to the
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Commission. There is not now pending, or to the best of Sellers'
knowledge threatened, any action by or before the Commission or other
regulatory authority to revoke, cancel, rescind, modify (except as to
any applications by the Sellers shown on Schedule A) or refuse to
renew in the ordinary course any of the Licenses, or any
investigation, order to show cause, notice of violation, notice of
inquiry, notice of apparent liability or of forfeiture or complaint
against the Stations or Sellers, and Sellers have no knowledge of any
basis for the commencement of any such proceeding in the future.
Should any such action or investigation be commenced, order or notice
be released, or complaint be filed, Sellers will promptly notify Buyer
and take all actions necessary to protect the Stations and the
Licenses from any material adverse impact. All reports, statements and
other documents relating to the Stations filed by the Sellers or the
Stations with the FCC or any other Governmental Authority were true,
correct and complete in all material respects when filed.
3.3. FINANCIAL STATEMENTS. The Sellers have delivered to the Buyer
unaudited balance sheets dated December 31, 1996, and December 31,
1997 (the latter of which are referred to herein as the "1997 Balance
Sheets") and unaudited statements of operations for the twelve months
ended December 31, 1996, and December 31, 1997, for each of the
Stations, other than KIDR(AM), as to which no 1996 financial
statements have been delivered. Such balance sheets and the notes
thereto are true, complete and accurate in all material respects and
fairly present the consolidated assets, liabilities and financial
condition of the Stations as at the respective dates thereof, and such
statements of operations and the notes thereto are true, complete and
accurate in all material respects and fairly present the results of
operations for the periods indicated, all in accordance with generally
accepted accounting principles consistently applied throughout the
periods involved.
3.4. NO UNDISCLOSED LIABILITIES. None of the Stations has any material
liabilities or obligations of any nature (absolute, accrued,
contingent or otherwise) which were not fully reflected or reserved
against in the 1997 Balance Sheets, except for liabilities and
obligations incurred in the ordinary course of business and consistent
with past practice since the date thereof (none of which liabilities
and obligations is a liability for breach of contract, tort,
infringement or violation of law); and the reserves reflected in the
1997 Balance Sheets are adequate, appropriate and reasonable.
3.5. ACQUIRED ASSETS. The Acquired Assets to be transferred to Buyer
at Closing represent all the assets necessary for the Stations'
current and continuing operations; until Closing, none of the Acquired
Assets will be sold, leased or otherwise disposed of unless replaced
by a substantially similar asset of equal or greater value, and, at
Closing, all of the Acquired Assets shall be owned by and transferred
by the Sellers to Buyer free and clear of all liens, encumbrances,
interests or restrictions of any kind whatsoever excepting only those
obligations, liens or encumbrances expressly provided to be assumed by
Buyer herein or the Leases and Agreements listed on Schedule B or D.
The Acquired Assets have been maintained in good condition, subject to
normal wear and tear. Since the date of the 1997 Balance Sheets, there
has not been any material adverse change in the Acquired Assets; the
Sellers are not aware of any circumstance that could cause a material
adverse effect in
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the Acquired Assets; the Sellers have conducted the business of the
Stations in the Ordinary Course of Business; and the Sellers have not
taken any action that would be prohibited by Section 3.16. As used
herein, the term "Ordinary Course of Business" means, with respect to
Sellers, the ordinary course of business of the Stations consistent
with the past practices of Sellers and recognizing that the Sellers
ended the 24-hour distribution of their Aahs World RadioK format as of
midnight, January 30, 1998, and have since maintained a 24-hour
all-music format at the Stations without any sales of advertising
time, except with respect to WBAH-AM, which has been programmed by
Buyer.
3.6. REAL ESTATE.
3.6.1. OWNED PROPERTIES. Schedule B sets forth a list of all real
property owned by the Sellers ("Owned Real Property"). With
respect to each parcel of Owned Real Property, except as
disclosed on Schedule B, there are no leases, subleases,
licenses, concessions or other agreements, written or oral,
granting any person the right of use or occupancy of any
portion of such parcel and there are no outstanding actions
or rights of first refusal to purchase such parcel or any
portion thereof or interest therein.
3.6.2. LEASED PROPERTIES. Schedule B sets forth a list of all
real property leased by the Sellers (the "Leased Real
Property") and all of the leases (the "Leases") of the
Leased Real Property. With respect to the Leased Real
Property, except as disclosed on Schedule B, (a) all
obligations of the landlord or lessor under the Leases that
have accrued have been performed, and no landlord or lessor
is in default under or in arrears in the payment of any sum
or in the performance of any obligation required of it under
any Lease, and no circumstance presently exists which, with
notice or the passage of time, or both, would give rise to a
default by the landlord or lessor under any Lease; (b) all
obligations of the tenant or lessee under the Leases that
have accrued have been performed, and Sellers are not in
default under or in arrears in the payment of any sum or in
the performance of any obligation required of it under any
Lease, and no circumstance presently exists which, with
notice or the passage of time, or both, would give rise to a
default by Sellers; and (c) there are no consents of any
landlord or lessor required to transfer the Leased Real
Property to Buyer.
3.6.3. TITLE AND DESCRIPTION. Sellers hold a valid and enforceable
freehold interest in the Owned Real Property and valid and
enforceable leasehold interests in the Leased Real Property
pursuant to the Leases as shown on Schedule B, subject only
to the right of reversion of the landlord or lessor under
the Leases and those rights of third parties disclosed on
Schedule B.
3.6.4. PHYSICAL CONDITION. There is no defect in the physical
condition of any improvements located on or constituting a
part of the Real Property. The Real Property, including,
without limitation, such improvements, is in good condition
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and repair and is adequate for the uses to which it is being
put, and the Real Property is not in need of maintenance or
repairs except for ordinary, routine maintenance and repairs
which are not material in nature or cost. The soil condition
of the Real Property is such that it will support all of the
improvements thereon for the foreseeable life of the
improvements without the need for unusual or new subsurface
excavations, fill, footings, caissons or other
installations.
3.6.5. UTILITIES. All water, sewer, gas, electric, telephone,
drainage and other utility equipment, facilities and
services required by law or necessary for the operation of
the Real Property as it is now improved and operated are
installed and connected pursuant to valid permits, are
sufficient to service the Real Property and are in good
operating condition except in such case as will not
materially detract from the marketability or value of the
Real Property and do not impair the operations of the lessee
thereof.
3.6.6. COMPLIANCE WITH LAW; GOVERNMENTAL APPROVALS. Sellers
have received no notice from any Governmental Authority of
any violation of any zoning, building, fire, water, use,
health, or other law, ordinance, code, regulation, license,
permit or authorization issued in respect of any of the Real
Property that has not been heretofore corrected, and know of
no such violation or violations that now exist that would
materially detract from the marketability or value of the
Real Property or impair the operations of the occupant
thereof in any material respect. Sellers' improvements
located on or constituting a part of the Real Property and
the construction, installation, use and operation thereof
(including, without limitation, the construction,
installation, use and operation of any signs located
thereon) are in compliance with all applicable municipal,
state, federal or other governmental laws, ordinances,
codes, regulations, licenses, permits and authorizations,
including, without limitation, applicable zoning, building,
fire, water, use, or health laws, ordinances, codes,
regulations, licenses, permits and authorizations, and there
are presently in effect all certificates of occupancy,
licenses, permits and authorizations required by law,
ordinance, code or regulation or by any governmental or
private authority having jurisdiction over the ownership or
operation of the Sellers' businesses or any of the Acquired
Assets, including the Stations and the Real Property or any
portion thereof, or the occupancy thereof or any present use
thereof, except such non-compliance as will not materially
detract from the marketability or value of the Real Property
and do not impair the operations of the occupant thereof in
any respect. All such approvals required by law, ordinance,
code, regulation or otherwise to be held by the occupant of
any of the Real Property shall be transferred to Buyer at
Closing, if and to the extent transferable. There is legally
enforceable pedestrian and vehicular access to the Real
Property.
3.6.7. REAL PROPERTY TAXES. Sellers have received no notice of any
pending or threatened special assessment or reassessment of
all or any portion of any of the Real Property.
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3.6.8. CONDEMNATION. There is no pending or, to Sellers'
knowledge, threatened condemnation of all or any part of the
Real Property.
3.6.9. INSURABILITY. Sellers have not received any notice from any
insurance company of any material defects or inadequacies in
the Real Property or any part thereof, which would
materially, adversely affect the insurability of the same or
of any termination or threatened termination of any policy
of insurance.
3.7. CONTRACTS, LEASES, AGREEMENTS, ETC. Each of the Leases and
Agreements are in full force and effect, and there are no
outstanding notices of cancellation, acceleration or
termination in connection therewith except as noted upon
Schedule B or D. Sellers are not in breach or default in
connection with any of the Leases and Agreements and, to the
best of Sellers' knowledge, there is no basis for any claim,
breach or default with respect to Sellers or any other party
under any of said Leases and Agreements. Sellers have made
available to Buyer true and correct copies of all agreements
and instruments listed on Schedule D, and will make
available to Buyer true and correct copies of any additional
agreements, leases and contracts entered into by the Sellers
in Ordinary Course of Business, as provided in Section 1.4
hereof. On the Closing Date there will be no Leases or
Agreements relating to the Stations (not including this
Agreement and the LMA) which will be binding on the Buyer
other than those specifically identified herein, including
the Schedules attached hereto, as assumed by Buyer, or as
otherwise approved in writing by Buyer.
3.8. LITIGATION. Except as set forth on Schedule G, no strike, labor
dispute, investigation, litigation, court or administrative
proceeding is pending or, to the best of Sellers' knowledge,
threatened against the Sellers relating to the Stations,
their employees or any of the Acquired Assets which may
result in any change in the business, operations, assets or
financial condition of the Stations or may materially affect
Buyer's use and enjoyment of the Acquired Assets, or which
would hinder or prevent the consummation of the transaction
contemplated by this Agreement and the other Transaction
Documents, and the Sellers know of no basis for any such
possible action.
3.9. ENVIRONMENTAL MATTERS.
3.9.1. ENVIRONMENTAL REPRESENTATION OF SELLERS. Sellers are in
compliance in all material respects with all applicable
federal, state and local laws and regulations relating to
pollution or protection of human health or the environment
("Environmental Laws") (which compliance includes, but is
not limited to, the possession by such Sellers of any
permits and other governmental authorizations required under
applicable Environmental Laws and compliance with the terms
and conditions thereof) with respect to the Real Property
and the business of the stations. None of Sellers has
received any communication (written or oral), whether from a
Governmental Authority, citizens' group, employee or
otherwise, alleging that Sellers are not in such compliance,
and to the Sellers' knowledge, there are no past or present
actions, activities, circumstances, conditions, covenants or
incidents that may prevent or interfere with such compliance
in the
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future. Sellers have not participated in nor approved, nor
has there occurred, to the best of their knowledge, except
as disclosed on Schedule B, any production, disposal or
storage on the Real Property of any hazardous waste or toxic
substance, nor does such waste or substance exist on the
Owned Real Property (above or beneath the surface), nor is
there any proceeding or inquiry, by any governmental
authority (federal or state) with respect to the presence of
such waste or substance on the Real Property to the best of
the Sellers' knowledge, nor are there any underground
storage tanks on the Owned Real Property, to the best of
Sellers' knowledge. There is no Environmental Claim (as
defined below) pending, or to the knowledge of Sellers,
threatened against any Seller with respect to the Owned Real
Property or the business of the Stations or, to the best of
the Sellers' knowledge, against any Person whose liability
for any Environmental Claim any Seller has or may have
retained or assumed either contractually or by operation of
law. To the best of the Sellers' knowledge, there are no
past or present actions, activities, circumstances,
conditions, events or incidents with respect to the Owned
Real Property, any Seller or the business of the Stations
that could form the bases of any Environmental Claim against
any Seller or against any Person whose liability for any
Environmental Claim any Seller has or may have retained or
assumed either contractually or by operation of law. As used
herein, "Environmental Claim" means any claim, action, cause
of action, investigation or notice (written or oral) by any
Person alleging potential liability arising out of, based on
or resulting from (a) the presence or release of any
hazardous waste at any location, whether or not owned or
operated by the Seller or (b) circumstances forming the
basis of any violation of any Environmental Law. "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 USCss.9601, et seq.,
or in the Hazardous Materials Transportation Act, 49
USCss.1801, et seq., or in the Resources Conservation and
Recovery Act, 42 USCss.6901, et seq., and all substances
defined as "hazardous waste" under the Statutes of the
States of New Jersey, Texas and Arizona or any regulations
adopted pursuant to those statutes.
3.9.2. ENVIRONMENTAL COVENANT OF SELLERS. Sellers have provided
Buyer with all information, surveys and reports in each
Seller's or each Station's possession or control concerning
the existence or possible existence of any underground
storage tanks, polychlorinated biphenyls, asbestos or
asbestos-containing materials, radon gas, radioactive
materials, liquid petroleum or liquid petroleum products, or
other hazardous wastes, and any other reports, studies or
documents in each Seller's or each Station's possession
relating to each Seller's or each Station's potential
liability under applicable Environmental Laws
("Environmental Contamination").
3.9.3. RADIO FREQUENCY RADIATION. Other than in compliance with the
Communications Act, the operation of the Stations does not
cause or result in exposure of workers or the general public
to levels of radio frequency radiation in excess of the
"Radio
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Frequency Protection Guides" recommended in "American
National Standard Safety Levels with Respect to Human
Exposure to Radio Frequency Electromagnetic Fields 300 kHz
to 100 gHz" (ANSI C95.1-1982), issued by the American
National Standards Institute. Renewal of the FCC Licenses
would not constitute a "major action" within the meaning of
Section 1.1301, et seq., of the FCC's rules.
3.10. INSURANCE. The Sellers shall maintain in full force and effect all of
their existing casualty, liability, and other insurance covering any
or all of the Acquired Assets through the day following the Closing
Date in amounts not less than those in effect on the date hereof, and
Sellers have set forth on Schedule H an abstract of such casualty
insurance coverage. Such coverage is for replacement value against
risks commonly insured against in the radio broadcast industry and
Sellers are not in default under any such policies. Sellers have not
received any notice from any issuer of such policies of its intention
to cancel, terminate or refuse to renew any policy issued by it to
Sellers.
3.11. ACCESS TO INFORMATION AND CONFIDENTIALITY. The Sellers shall
give Buyer and its representatives reasonable access during normal
business hours throughout the period prior to Closing to the
operations, properties, books, accounting records, contracts,
agreements, leases, commitments, programming, technical and sales
records and other records of and pertaining to the Stations; provided,
however, such access shall not disrupt the Sellers' normal operation.
The Sellers shall furnish to Buyer all information concerning the
Stations' affairs as Buyer may reasonably request. Buyer will maintain
the confidentiality of all the information and materials delivered to
it or made available for its inspection by the Sellers hereunder.
Nothing shall be deemed to be confidential information that: (a) is
known to Buyer at the time of its disclosure to Buyer; (b) becomes
publicly known or available other than through disclosure by Buyer;
(c) is received by Buyer from a third party not actually known by
Buyer to be bound by a confidentiality agreement with or obligation to
Sellers; or (d) is independently developed by Buyer as clearly
evidenced by its records. Notwithstanding the foregoing provisions of
this Section 3.11, Buyer may disclose such confidential information
(x) to the extent required or deemed advisable to comply with
applicable laws and regulations, (y) to its officers, directors,
employees, representatives, financial advisors, attorneys,
accountants, and agents with respect to the transactions contemplated
hereby (so long as such parties are informed of the confidentiality of
such information), and (z) to any Governmental Authority in connection
with the transactions contemplated hereby. In the event this Agreement
is terminated, Buyer will return to Sellers all confidential
information prepared or furnished by Sellers relating to the
transactions contemplated hereunder, whether obtained before or after
the execution of this Agreement.
3.12. CONDUCT OF THE STATIONS' BUSINESS. Until Closing, without the
written consent of Buyer, the Sellers shall not enter into any
transaction, agreement or understanding (whether or not in writing)
other than those in the Ordinary Course of Business; no employment
contract shall be entered into by the Sellers relating to the Stations
unless the same is terminable at will and without penalty; no material
increase in compensation payable or to become
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payable, to any of the employees employed at the Stations shall be
made; no material change in personnel policies, insurance benefits or
other compensation arrangements shall be made; and the Sellers will
cause the Stations to be operated in compliance with the Licenses and
Permits and all applicable laws and regulations;
the Sellers further represent, warrant and covenant:
(a) Between the date hereof and Closing, the Sellers shall not
take any action which will prevent or impede Buyer from
obtaining at the Closing the actual and immediate occupancy
and possession of the Stations and all of the Acquired
Assets.
(b) On the Closing date, the Sellers will be the owner of the
Acquired Assets except such of the same replaced by
substantially similar property of no less than equivalent
value in the ordinary course of business, with good and
marketable title thereto, free and clear of all liens and
encumbrances, except liens for current taxes and assessments
not yet due and payable or to secure obligations to be
assumed by Buyer hereunder pursuant to the Leases and
Agreements; and that between the date of this Agreement and
the Closing, there will be no more than the ordinary normal
wear and tear and expendability of the Acquired Assets, and
that the Acquired Assets will be in good working condition.
(c) The Sellers do not know of any facts relating to them or the
Stations which would cause (i) the applications for
assignment of the Licenses to Buyer to be challenged, (ii)
the Commission to deny its consent to the assignments of the
Stations' Licenses to Buyer, or (iii) the Commission to
grant such applications for assignment subject to material
adverse conditions to Buyer.
(d) The Sellers will have duly filed all tax returns required
to be filed by each of the Sellers on or before the Closing
Date and will have paid and discharged all taxes,
assessments, excises, levies, or other similar charges of
every kind, character or description imposed by any
Governmental Authority, and any interest, penalties or
additions to tax imposed thereon or in connection therewith
(collectively, "Taxes") known to the Sellers which are due
and payable and have not been paid and that would interfere
with the Sellers' enjoyment of the Acquired Assets. There is
no action, suit, proceeding, audit, investigation or claim
pending or, to the Sellers' best knowledge, threatened in
respect of any Taxes been proposed, asserted or threatened.
(e) The Sellers shall (i) upon receiving notice or otherwise
becoming aware of any violation relating to the Licenses,
any violation by any of the Stations of any rules and
regulations of the FCC, or any material violations under any
other applicable laws and regulations, promptly notify Buyer
and, at Sellers' expense, use reasonable commercial efforts
to cure all such violations prior to the Closing Date, (ii)
promptly notify Buyer in writing if the Station ceases to
broadcast at its
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authorized power for more than 48 consecutive hours; such
notice shall specify the reason or reasons for such
cessation and the corrective measures taken or to be taken
by Sellers, and (iii) promptly inform Buyer in writing of
any material variances from the representations and
warranties contained in this Article 3 that become known to
the Sellers or any breach of any agreement hereunder by
Sellers.
3.13. COPYRIGHTS, TRADEMARKS AND SIMILAR RIGHTS. The call letters listed
on Schedule E are the call letters used by Sellers during the radio
broadcast operations of the Stations to identify each of the
respective Stations to its local audience. Sellers have full right and
authority from the FCC to use such call letters except as may be
provided in the Leases and Agreements. Sellers have not licensed or
consented to, and have no knowledge of, any other entity's or
individual's use of such call letters. There is no other name,
trademark, service mark, copyright, or other trade, or service right
or mark currently being used in the business and operations of the
Stations other than those listed in Schedule E. Sellers pay no royalty
to anyone for use of the General Intangibles and have the right to
bring action for the infringement thereof to the extent permitted by
applicable law. Sellers represent that the operations of the Stations
do not infringe on any trademark, service mark, copyright or other
intellectual property or similar right owned by others.
3.14. EMPLOYEES. Sellers shall be solely responsible for any and all
liabilities and obligations Sellers may have to the employees of the
Stations, including, without limitation, compensation, severance pay,
incentive bonuses, health expenses, and accrued vacation time, sick
leave and obligations under any of Sellers' employee benefit plans.
Sellers acknowledge that Buyer has no obligation hereunder to offer
employment to any employee of Sellers; however, Buyer shall have the
right to hire such of the employees of the Stations as Buyer may
select. With respect to any employee that Buyer hires, Sellers further
acknowledge that Buyer shall have no obligation for, and shall not
assume as part of the transaction contemplated by this Agreement, any
compensation, incentive bonuses, health expenses, or "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 may be hired by Buyer, and
where any such compensation, incentive bonuses, health expenses, or
accrued leave time exists for said employees, Sellers will retain the
responsibility for any liability arising therefrom. The consummation
of the transactions contemplated hereby will not cause Buyer to incur
or suffer any liability relating to, or obligation to pay, severance,
termination, or other payments to any person or entity, or any
liability under any employee benefit plans of Sellers, including,
without limitation, any liability under the Internal Revenue Code of
1986, as amended, or the Employee Retirement Income Security Act of
1974, as amended. Sellers shall comply with the provisions of the
Worker Adjustment and Retraining and Notification Act and similar laws
and regulations, if applicable, and shall be solely responsible for
any and all liabilities, penalties, fines, or other sanctions that may
be assessed or otherwise due under such applicable laws and
regulations on account of the dismissal or termination of the
employees of the Stations by Sellers.
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3.15. LABOR RELATIONS. Schedule I lists the names, dates of hire and
current annual salaries of all persons employed by the Sellers
directly and principally in connection with the operation of the
Stations. None of the Sellers is a party to or subject to any
collective bargaining agreements with respect to any of the Stations.
Sellers have no written or oral contracts of employment with any
employee of the Stations, other than (i) oral employment agreements
terminable at will without penalty, or (ii) those listed in Schedule
D. The Sellers, in the operations of the Stations, have substantially
complied with all applicable laws, rules and regulations relating to
the employment of labor, including those related to wages, hours,
collective bargaining, occupational safety, discrimination and the
payment of social security and other payroll related taxes. To the
best of Sellers' knowledge, there is no representation or organizing
effort pending or threatened against or involving or affecting the
Sellers with respect to employees employed at any of the Stations.
3.16. PRE-CLOSING COVENANTS. Between the date hereof and the Closing, the
Sellers covenant that:
3.16.1. FCC COMPLIANCE. The Sellers shall continue to operate the
Stations in conformity with the terms of the Stations'
Licenses and in conformity in all material respects with all
applicable laws, regulations, rules and ordinances,
including but not limited to the rules and regulations of
the FCC. The Sellers shall file all reports, applications
and other filings required by the FCC in a timely and
accurate manner. Sellers will maintain the Licenses in full
force and effect and take any action necessary before the
FCC to preserve such Licenses in full force and effect
without material adverse change. Sellers will not take any
action that would jeopardize the License Subsidiaries'
rightful possession of the Licenses, the potential for
assignment of the Licenses to Buyer, or the unconditional
renewal of the Licenses for full license terms. Sellers
shall continue to prosecute any pending applications before
the FCC in the ordinary course.
3.16.2. CONDUCT OF BUSINESS. The Sellers shall conduct the business
and technical operations of the Stations in the Ordinary
Course of Business and consistent with past practices, and
shall continue all practices, policies, procedures and
technical operations relating to the Stations in
substantially the same manner as heretofore.
3.16.3. MAINTENANCE OF ASSETS. The Sellers shall maintain all of
the Acquired Assets in a good condition and, with respect
to the Personal Property, shall maintain inventories of
spare parts at levels consistent with the past practices of
the Sellers and the Stations. The Sellers shall not sell,
convey, assign, transfer or encumber any of the Acquired
Assets, except for the retirement of tangible Acquired
Assets consistent with the normal and customary practices
of the Sellers and the Stations.
3.17. NO MISLEADING STATEMENTS. To Sellers' knowledge, no statement,
representation or warranty made by Sellers herein and no information
provided or to be provided by Sellers
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to Buyer pursuant to this Agreement or the other Transaction Documents
or in connection with the negotiations covering the purchase and sale
contemplated herein contains or will contain any untrue statement of a
material fact, or omits or will omit a material fact. There are no
facts or circumstances known to Sellers and not disclosed herein or in
the Schedules hereto that, either individually or in the aggregate,
will materially adversely affect after Closing the Acquired Assets or
the condition of the Stations.
3.18. CONSENTS. The Sellers shall use commercially reasonable efforts
to obtain any third party consents required to assign to Buyer all
Leases and Agreements. If, on the Closing Date, Sellers have not
obtained any required consent for the assignment of any Lease and
Agreement (other than the material Leases and Consents referred to in
Section 8.4(d) hereof) to Buyer and the Closing occurs, then after the
Closing Date, Sellers will continue to use commercially reasonable
efforts, and the Buyer will cooperate with Sellers, to obtain any such
consent and/or to remove any other impediments to the assignment of
any such Lease and Agreement. From and after the Closing, until the
valid assignment of all such Leases and Agreements, Sellers will take
such lawful actions as are reasonably necessary to assure that Buyer
shall receive the benefits of, and shall be obligated to perform the
obligations of Sellers under, all such Leases and Agreements after the
Closing Date to the same extent as if Buyer were a party thereunder
(and Buyer agrees to cooperate with Sellers in connection with any
such actions and to enter into, at the time of the Closing, any lawful
arrangements in furtherance thereof (but at no additional cost to
Buyer other than such costs as Buyer would incur as a party to such
Leases and Agreements)).
3.19. SUPPLEMENTAL DISCLOSURE. From time to time prior to the Closing, the
Sellers will promptly supplement or amend the Schedules hereto with
respect to any matter hereafter arising which, if existing or
occurring at the date of the Agreement, would have been required to be
set forth or described in such Schedules. No supplement or amendment
of any Schedule made pursuant to this section shall be deemed to cure
any breach of any representation or warranty made in this Agreement
unless Buyer specifically agrees thereto in writing.
3.20 UNWIND AGREEMENTS. In the event that a Closing occurs hereunder prior
to the receipt of a Final Order (as defined below), and upon the
receipt of an FCC order requiring Buyer to return the Acquired Assets
(including any Licenses issued by the FCC) to Sellers as a result of
Sellers' failure to comply with the Communications Act or the rules
and regulations of the FCC, Sellers agree that upon Sellers receipt of
the Acquired Assets (including any Licenses issued by the FCC),
Sellers shall return the Purchase Price to Buyer. In such event,
Sellers and Buyer agree to cooperate to return the Acquired Assets to
Sellers, the Purchase Price to Buyer and to otherwise place the
parties in the same positions as they were in immediately prior to the
Closing and to ensure that neither party has been otherwise
economically damaged. The term "Final Order" as used herein shall mean
an FCC order or action as to which the time for filing a request for
administrative or judicial review, or for instituting administrative
review sua sponte, shall have expired without any such filing having
been made or notice of such review having been issued; or in the event
of such filing or review sua sponte, as to which such filing or review
shall have been
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disposed of favorably to the grant and the time for seeking further
relief with respect thereto shall have expired without any request for
such further relief having been filed.
ARTICLE 4
BUYER'S REPRESENTATIONS AND WARRANTIES
The Buyer represents and warrants as follows, which representations
and warranties shall be deemed to have been made again at Closing.
4.1. CORPORATE EXISTENCE AND POWERS. Buyer is a corporation organized
and existing in good standing under the laws of the State of Delaware
with full power and authority to enter into this Agreement and the
other Transaction Documents to which it is a party and enter into and
complete the transactions contemplated herein and therein; Buyer is,
or will be at the time of Closing, qualified to do business in the
States of New York, New Jersey, Texas and Arizona; all required
corporate action has been taken by Buyer to make and carry out this
Agreement and the other Transaction Documents to which it is a party
and the transactions contemplated herein and therein; this Agreement
constitutes, and upon execution and delivery, each other Transaction
Document will constitute, valid and binding obligation of Buyer
enforceable in accordance with its terms; the execution of the
Agreement and the other Transaction Documents to which it is a party
and, once the consent referred to in the next clause of this sentence
is obtained, the completion of the transactions herein involved will
not result in the violation of any order, license, permit, rule,
judgment or decree to which 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 or conflict with or violate any provision of
Buyer's certificate of incorporation, bylaws or other organizational
documents; and except for the consent of the Commission to the
assignment of the Licenses to Buyer and the consents identified by the
Sellers on Schedule B or D, to the Buyer's knowledge, no other consent
of any kind is required that has not been obtained for Buyer to make
or carry out the terms of this Agreement.
4.2. BUYER'S QUALIFICATIONS. At Closing, Buyer will be legally and
financially qualified to become the licensee of the Commission. Buyer
does not know of any facts relating to it which would cause the
Commission to deny its consents, or which would materially hinder or
delay receipt of such consents, to the assignments of the Licenses to
Buyer.
ARTICLE 5
BREACH OF AGREEMENTS,
REPRESENTATIONS AND WARRANTIES
5.1. BREACH OF THE SELLERS' AGREEMENTS, REPRESENTATIONS AND
WARRANTIES. The Sellers shall jointly and severally indemnify and hold
harmless Buyer and every affiliate of Buyer and any of its or their
directors, members, stockholders, officers, partners, employees,
agents, consultants, representatives, transferees and assignees from
and against any loss, damage, liability, claim, demand, judgment or
expense, including claims of third parties arising out
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of ownership of the Acquired Assets or the operation of the Stations
by the Sellers prior to Closing, and including without being limited
to, reasonable counsel fees and reasonable accounting fees, sustained
by Buyer by reason of, or arising out of or relating to, (i) any
material breach of any warranty, representation, covenant or agreement
of the Sellers contained herein or in any other Transactional Document
or in the Schedules attached hereto, (ii) any error contained in any
statement, report, certificate or other instrument delivered to Buyer
by Sellers pursuant to this Agreement, (iii) any failure by Sellers to
pay or discharge any liability relating to the Stations that is not
expressly assumed by Buyer hereunder, (iv) any facts or circumstances
described in Schedule G, or (v) the failure to comply with any
applicable bulk sales or tax notice statutes; provided, however, that
such indemnification shall be required only if written notice, with
respect to any matter for which indemnification is claimed, is given.
5.2. BREACH OF BUYER'S AGREEMENTS, REPRESENTATIONS AND WARRANTIES.
Buyer shall indemnify and hold harmless the Sellers and every
affiliate of Sellers and any of their directors, members,
stockholders, officers, partners, employees, agents, consultants,
representatives, transferees and assignees from and against any loss,
damage, liability, claim, demand, judgment or expense, including
claims of third parties arising out of ownership of the Acquired
Assets or operation of the Stations by Buyer after Closing, and
including without being limited to, reasonable counsel fees and
reasonable accounting fees, sustained by the Sellers by reason of, or
arising out of or relating to, any material breach of any warranty,
representation, covenant or agreement of Buyer contained herein or any
other Transaction Document; provided, however, that such
indemnification shall be required only if written notice, with respect
to any matter for which indemnification is claimed, is given.
5.3. THRESHOLD. Neither Buyer nor Seller shall be liable to the other for
indemnification until the aggregate of all indemnification claims of
the party seeking indemnification exceeds $25,000.00, but after such
threshold is exceeded, the applicable party shall be entitled to
indemnification for all claims.
5.4. SPECIFIC PERFORMANCE. Sellers acknowledge that the Acquired
Assets 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, 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 Acquired Assets contrary to the
provisions of this Agreement pending the determination of such
controversy. Sellers, for themselves and their successors and assigns,
hereby waive the claim or defense that an adequate remedy at law
exists. In the event of a suit by Buyer to obtain specific
performance, and if Buyer shall prevail in such action, Buyer shall be
entitled to reimbursement by Sellers of all reasonable attorneys' fees
and other out-of-pocket expenses incurred by Buyer with respect
thereto.
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5.5. PROCEDURES: THIRD PARTY CLAIMS. The indemnified party agrees to give
written notice within a reasonable time 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 5 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 satisfies 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) 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 5.5 to the contrary
notwithstanding, (i) the indemnifying party shall not, without the
indemnified party's written consent, 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 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) The indemnifying party hereby agrees to pay the amount
of any established Claim within fifteen (15) days after the
establishment thereof. The amount of established Claims shall be paid
in cash. Any amounts for such Claims not paid when due under this
Article shall bear interest at a rate equal to 15% per annum until
paid.
5.6. Sellers covenant that, upon the initiation by CBC of any
bankruptcy, insolvency, reorganization, arrangement, readjustment of
debt, dissolution, liquidation, or similar proceeding relating to it
under any jurisdiction (a "Liquidation Announcement"), Sellers
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shall enter into an escrow agreement with Buyer and a mutually
agreeable esrow agent (the "Indemnity Escrow Agreement"). Sellers
further covenant that, in the event an Indemnity Escrow Agreement is
executed by the parties, the balance of the escrow fund contemplated
by the Indemnity Escrow Agreement shall be One Million and no/100
Dollars ($1,000,000.00) during the first twelve months following the
execution of this Agreement and Five Hundred Thousand and no/100
Dollars ($500,000.00) during the second twelve months following the
execution of this Agreement regardless of the date on which a
Liquidation Announcement is made and that such balance shall be
applied to payment of any indemnification obligations owed by Sellers
to Buyer under this Article V.
ARTICLE 6
RISK OF LOSS; TERMINATION
6.1. BUYER'S OPTIONS. The risk of any loss, damage or destruction
to any of the Acquired Assets to be transferred to the Buyer hereunder
from fire or other casualty or loss shall be borne by the Sellers at
all times prior to the Closing. Upon the occurrence of any material
loss or damage to any of the Acquired Assets to be transferred
hereunder as a result of fire, casualty, or other causes prior to the
Closing, the Sellers shall notify the Buyer of same in writing
immediately, stating with particularity the reasonable estimates of
the loss or damage incurred, the cause of damage, if known, and the
extent to which restoration, replacement and repair of the Acquired
Assets lost or destroyed is believed reimbursable under any insurance
policy with respect thereto. Provided the Sellers, at their sole
expense, have not repaired, restored or replaced the damaged Acquired
Assets to Buyer's reasonable satisfaction by the Closing, and if the
Buyer is not then in default of this Agreement, 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 Escrow Funds shall be returned to Buyer, except that
the Sellers shall have a reasonable period of time, not to
exceed one hundred (100) days, to effect repairs of the
damaged Acquired Assets before Buyer may exercise its
option under this subparagraph 6.1 (i);
(ii) postpone the Closing for up to one hundred eighty (180)
days as necessary to allow the property to be completely
repaired, replaced or restored, at the Sellers' sole
expense, in which event the Sellers shall use their best
efforts to complete such repairs; or
(iii) elect to consummate the Closing and accept the property in
its "then" condition, in which event the Sellers shall
assign to Buyer all rights under any insurance claim
covering the loss and pay over to the Buyer the proceeds
under any such insurance policy previously received by the
Sellers with respect thereto and provided that Buyer's
election to proceed with the Closing under this Section
6.1(iii) shall not relieve Sellers of any of the
indemnification obligations under Article 5 hereof with
respect to damaged Acquired Assets or in any other respect.
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6.2. TERMINATION BY EITHER PARTY. This Agreement may be terminated prior to
Closing as follows:
(a) by mutual agreement of Buyer and Sellers at any time;
(b) by Buyer, if not otherwise in material default or
breach of this Agreement, by written notice to Sellers if any of the
conditions specified in Section 8.4 is not satisfied in all material
respects at the time for Commission consent as provided in Section 7.4
hereof or if satisfaction of any such condition is or becomes
impossible, provided that in the event of a breach by any Seller of
any covenant or agreement contained herein, Buyer shall first give
Sellers written notice thereof, and if Sellers shall have undertaken
to cure such breach within fifteen (15) days, they shall have a total
of thirty (30) days to cure such breach, or if Buyer terminates the
LMA upon an Event of Default (as defined therein) by Seller or in
accordance with Section 6.1;
(c) by Sellers, if not otherwise in material default or
breach of this Agreement, by written notice to Buyer if any of the
conditions specified in Section 8.5 is not satisfied in all material
respects at the time for Commission consent as provided in Section 7.4
hereof or if satisfaction of any such condition is or becomes
impossible, provided that in the event of a breach by Buyer of any
covenant or agreement contained herein, Sellers shall first give Buyer
written notice thereof, and if Buyer shall have undertaken to cure
such breach within fifteen (15) days, it shall have a total of thirty
(30) days to cure such breach, or if Seller terminates the LMA upon an
Event of Default (as defined therein) by Buyer; or
6.3. EFFECT OF TERMINATION. In the event this Agreement is terminated
as provided in Section 6.2, this Agreement shall be deemed null, void
and of no further force or effect, and the parties hereto shall be
released from all future obligations hereunder with respect to the
Stations; provided that the obligations of Buyer and Sellers in
Sections 2.2.1, 3.9.5, 5.1, 5.2, 5.3, 5.5, 6.3, 7.2, 9.3, and 9.10
shall survive such termination, and provided further that the
termination of this Agreement shall not relieve any party for
liability for any material breach of this Agreement, and provided
further that, if this Agreement is terminated pursuant to Section
6.2(c) due to material breach or default by the Buyer of this
Agreement, and the Sellers are not then in material breach or default
of this Agreement, the Sellers shall be paid the Damages Escrow Funds
in accordance with and subject to the terms of Section 1.2 of the
escrow agreement attached as Exhibit 1-B hereto and this Section
6.2(c), together with any interest earned thereon, as liquidated
damages, it being agreed that such payment shall constitute full
payment for any and all damages suffered by Sellers by reason thereof
and that Sellers shall have no rights to or claims for damages from
Buyer. Sellers acknowledge and expressly agree that their right to
receive the Damages Escrow Funds as liquidated damages shall be
Sellers' sole and exclusive remedy (for damages or otherwise) under
this Agreement in the event that it is terminated pursuant to Section
6.2(c) hereof, or in the event that the Closing does not occur due to
a material breach or default by the Buyer of this Agreement (occurring
when the Sellers are not in material breach or default of this
Agreement) except that Sellers shall be entitled to recover
23
<PAGE>
its costs and legal fees incurred in any successful effort to collect
the Damages Escrow Funds. Notwithstanding any other provision of this
Agreement, Sellers and Buyer acknowledge and expressly agree that (i)
until the satisfaction of all the conditions to Buyer's obligations to
close under this Agreement and actual occurrence of the Closing.
Sellers shall neither have nor be deemed to have any legal or
equitable right, title or interest in the Purchase Price Escrow Funds
or right to delivery thereof, (ii) Buyer shall retain all legal and
equitable rights, title and interest in and to the Purchase Price
Escrow Funds as the exclusive property of Buyer pending actual
occurrence of the Closing and (iii) in any event, if this Agreement is
earlier terminated for any reason, the Buyer shall be entitled to
immediate return and delivery of the Purchase Price Escrow Funds free
and clear of all claims of Sellers. Sellers and Buyer further
acknowledge and agree that (i) Sellers shall neither have nor be
deemed to have any legal or equitable right, title or interest in or
to the Damages Escrow Funds or right to delivery thereof until either
(x) a court of competent jurisdiction determines and finds by final
order (that is not subject to appeal, review or rehearing, and as to
which no appeal or petition for review or rehearing was filed or, if
filed, remains pending) that the Closing did not occur as the proximate
result of a material breach or default by Buyer of this Agreement
(occurring when Sellers were not in material breach or default of the
Agreement) or (y) all -- the conditions to Buyer's obligations to close
under this Agreement are satisfied and the Closing actually occurs;
(ii) Buyer shall retain all legal and equitable rights, title and
interests in and to the Damages Escrow Funds as the exclusive property
of Buyer unless Sellers' rights to delivery of the Damages Escrow Funds
mature in accordance with the preceding "(i)" of this sentence; and
(iii) in the event that this Agreement is earlier terminated (except
pursuant to Section 6.2(c) due to a material breach or default by the
Buyer of this Agreement, and the Sellers are not then in material
breach or default of this Agreement), Buyer shall be entitled to
immediate return and delivery of the Damages Escrow Funds free and
clear of all claims of Sellers.
ARTICLE 7
APPLICATION FOR COMMISSION AND HSR APPROVAL
7.1. FILING AND PROSECUTION OF FCC APPLICATION. Buyer and the Sellers
shall, not later than five (5) days after the Effective Time, join in
applications to be filed with the Commission requesting its written
consents to the assignments of the Licenses of the Stations from the
License Subsidiaries to Buyer (or such other entity under common
control with Buyer as Buyer may designate). The parties shall prepare
their own portions of the applications. Buyer and the Sellers shall
take all steps necessary to the expeditious prosecution of such
applications to a favorable conclusion, using their reasonable best
efforts throughout.
7.2. EXPENSES. The parties shall bear their own legal, accounting and other
expenses in connection with the consummation of the contemplated
transaction. The parties shall cooperate with the preparation of the
Commission applications and in connection with the prosecution of such
applications. The filing fees shall be shared equally between the
Sellers on the one hand and the Buyer on the other.
24
<PAGE>
7.3. DESIGNATION FOR HEARING. If, for any reason, any application for an
assignment of any of the Licenses is designated for hearing by the
Commission prior to grant thereof, the Buyer shall have the right by
written notice within thirty (30) days of such designation for
hearing, to exclude from the Acquired Assets those assets associated
with the operation of the Station affected, and the Purchase Price
payable hereunder shall be reduced by an amount equal to the Station
Aggregate Value of the affected Station.
7.4. TIME FOR COMMISSION CONSENT. Subject to the provisions of Section 7.3
above, if the Commission has not given its written consents to the
assignments of the Licenses set forth herein within five (5) months
from the date of acceptance for filing of the applications for such
assignments, any of the parties, if not then in default, may terminate
this Agreement by giving written notice to the other parties. Upon
such termination, if not otherwise in material breach or default of
this Agreement, none of the parties shall have any right or liability
hereunder and all Escrow Funds shall be returned to Buyer promptly.
7.5. CONTROL OF STATIONS. Until Closing, Buyer shall not directly or
indirectly, control, supervise, direct or attempt to control,
supervise or direct the operations of the Stations, but such
operations shall be the sole responsibility of the Sellers, subject to
and consistent with all rules, regulations and policies of the FCC. On
and after the Closing Date, the Sellers shall not directly or
indirectly, control, supervise, direct or attempt to control,
supervise or direct the operations of the Stations.
7.6. SHARING INFORMATION. Each party hereto shall as promptly as possible,
and in any event within five (5) business days, inform the other of
any material communications between such party and the FCC or any
other Governmental Authority regarding this Agreement or the
transactions contemplated hereby. If any party receives a request for
additional information or documentary material from any such
Governmental Authority, then such party shall endeavor in good faith
to make, or cause to be made, as promptly as practicable and after
consultation with the other party, an appropriate response to such
request.
7.7 HSR APPLICATION. Within five (5) days of the Effective Time, the
parties shall complete any filing that may be required pursuant to HSR
(the "HSR Filing"). Sellers and Buyer shall diligently take, or fully
cooperate in the taking of, all necessary and proper steps, and
provide any additional information reasonably requested in order to
comply with the requirements of HSR. Buyer and Sellers shall each pay
half of any necessary HSR filing fees, and each party shall be
responsible for its own counsel fees.
ARTICLE 8
CLOSING
Subject to the terms and conditions herein stated, the parties agree
as follows:
8.1. CLOSING DATE. The Closing of the transactions contemplated under this
Agreement shall be held at such time and date as shall be mutually
agreed by the Sellers and Buyer; provided, however, that in any event
Buyer must close no later than five business (5) days
25
<PAGE>
after the Commission grants its consent to the assignments of the
Licenses and all other conditions to Closing shall have been satisfied
in all material respects on or before the Closing Date. (The date
scheduled, or required to be scheduled for Closing hereunder is
referred to herein as the "Closing Date.") Unless otherwise agreed by
the parties in writing, the Closing shall take place at Buyer's
counsel's offices in Washington, D.C.
8.2. THE SELLERS' OBLIGATIONS AT CLOSING. At Closing, the Sellers shall
deliver to Buyer the following:
(a) An Assignment of the Licenses described in Schedule A,
Warranty Deeds as to the Owned Real Property and described
on Schedule B and an Assignment and Bill of Sale, or
similar instruments, including third party consents to all
"material" Leases and Agreements, transferring to Buyer all
other Acquired Assets to be transferred hereunder, free and
clear of all liens, encumbrances and restrictions of any
kind whatsoever, except as expressly provided for in this
Agreement or in the Leases and Agreements;
(b) The business records described in Section 1.7;
(c) An opinion of the Sellers' counsel, addressed to Buyer,
confirming the correctness of the Sellers' representations
made in Sections 3.1 and 3.2;
(d) A certificate of CBC's CEO verifying that the Sellers'
representations, warranties and covenants as provided
herein remain materially true and correct up to and through
the Closing Date;
(e) Certificates of Sellers' Secretary certifying as to
Sellers' Articles of Incorporation, By-Laws, and Board of
Directors approvals (all of which shall be attached
thereto);
(f) UCC reports dated not more than thirty (30) days
prior to the Closing Date of the appropriate filing
officers in the jurisdictions specified in Schedule J
evidencing no judgments, financing statements, or liens on
file with respect to the Acquired Assets, and, if such
report evidences that judgments, financing statements, or
liens are on file with respect to any of the Acquired
Assets, a termination statement or other appropriate
document signed by the secured party or lienholder
evidencing the release or termination of such financing
statement or such lien or a pay-off letter from such
secured party or lienholder indicating that such party or
lienholder will provide such release or termination
statement upon receipt of payment from the proceeds of the
sale contemplated herein;
(g) Good and valid ALTA title insurance commitments dated
as of the Closing Date insuring the Sellers' title as fee
owner in each parcel of Owned Real Property; in each
instance, the title shall be insured by means of the
preferred policy used in the location where such real
estate exists, and each such policy, as to the insurer,
26
<PAGE>
the insured, the dollar limit and amount of coverage and
the exceptions and conditions thereof shall be, in all
respects, in form and substance reasonably satisfactory to
the Buyer;
(h) Internal Revenue Service Form 8594 completed by the Sellers
in connection with the acquisition of the Acquired Assets
by the Buyer;
(i) A check or checks, or other evidence of payment acceptable
to Buyer, with respect to the expenses payable by Sellers,
if any, on the Closing Date in accordance with the
Agreement;
(j) Such other documents and instruments as might reasonably be
requested by Buyer to consummate the transaction
contemplated hereunder consistent with the intent expressed
herein; and
(k) Escrow instructions releasing the Damages Escrow Funds to
Buyer.
(l) The Non-Competition Agreement executed by Dahl.
8.3. BUYER'S OBLIGATIONS AT CLOSING. At Closing, Buyer shall deliver to
CBC the following:
(a) The Purchase Price in the manner set forth in Section 2.2;
(b) An Agreement to assume the obligations of Sellers under the
Leases and Agreements with respect to periods of time from
and after Closing;
(c) An opinion of Buyer's counsel, addressed to the Sellers,
confirming the correctness of certain of the Buyer's
representations made in Section 4.1;
(d) Internal Revenue Service Form 8594 completed by the Buyer
in connection with the acquisition of the Acquired Assets
from the Sellers;
(e) A check or checks, or other evidence of payment acceptable
to Sellers, with respect to the expenses payable by Buyer,
if any, on the Closing Date in accordance with the
Agreement; and
(f) Such other documents and instruments as might reasonably be
requested by Sellers to consummate the transactions
contemplated hereunder consistent with the intent expressed
herein.
8.4. CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of Buyer to
consummate the transaction herein contemplated at Closing are subject
to and conditioned upon:
(a) The written consents of the Commission to the assignments
of the Licenses to Buyer subject to the provisions of
Section 7.3 above, provided that any such approvals are
without any condition that is materially adverse to Buyer;
27
<PAGE>
(b) The satisfaction at or before Closing in all material
respects of all agreements, obligations and conditions of
the Sellers hereunder required to be performed or complied
with by them on or before Closing;
(c) The material accuracy of the representations and warranties
made by the Sellers;
(d) Written third party consents to all material Leases and
Agreements where required by the terms of the Lease or
Agreement or substitution by Sellers of substantially
equivalent rights without materially adverse impact upon
Buyer's enjoyment of the Acquired Assets;
(e) There shall not be in effect any judgment, order,
injunction or decree of any court of competent jurisdiction
enjoining the consummation of the transactions contemplated
hereby;
(f) The LMA shall have become effective in accordance with the
terms and conditions thereof and, from and after the date
the LMA first becomes effective through and including the
Closing Date, the LMA shall have not been terminated due to
the Sellers' breach thereof; and
(g) Receipt of approval to the HSR Filing.
8.5. CONDITIONS TO OBLIGATIONS OF THE SELLERS. The obligations of the
Sellers to consummate the transaction herein contemplated at Closing
are subject to and conditioned upon:
(a) Subject to the provisions of Section 7.3 above, the written
consents of the Commission evidencing its Final Approvals
to the assignments of the Licenses to Buyer, provided that
any such approval is without any conditions that are
materially adverse to the Sellers;
(b) The satisfaction at or before Closing in all material
respects of all agreements, obligations and conditions of
Buyer hereunder required to be performed or complied with
by it at or before the Closing;
(c) The material accuracy of the representations and warranties
made by Buyer;
(d) There shall not be in effect any judgment, order,
injunction or decree of any court of competent jurisdiction
enjoining the consummation of the transactions contemplated
hereby;
(e) The LMA shall have become effective in accordance with the
terms and conditions thereof and, from and after the date
the LMA first becomes effective through and including the
Closing Date, the LMA shall have not been terminated due to
the Buyer's breach thereof;
28
<PAGE>
(f) The termination of the CRN Agreement; and.
(g) Receipt of approval to the HSR Filing.
29
<PAGE>
ARTICLE 9
MISCELLANEOUS PROVISIONS
9.1. SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES. All
representations, warranties and covenants of Sellers contained in this
Agreement shall survive for a period of twenty-four (24) months after
the Closing Date.
9.2. EXECUTION OF DOCUMENTS. The parties agree to execute all applications,
documents and instruments which may be necessary for the consummation
of the transactions contemplated hereunder, or which might be from
time to time reasonably requested by any party hereto in connection
therewith, whether before or after the date of Closing.
9.3. NOTICES. All notices, requests, elections, demands and other
communications given pursuant to this Agreement shall be in writing
and shall be duly given when delivered personally or by facsimile
transmission (upon receipt of confirmation) or when deposited in the
mail, certified or registered mail, postage prepaid, return receipt
requested, and shall be addressed as follows:
If to the Sellers
(or any of them): Children's Broadcasting Corporation
724 First Street North, Fourth Floor
Minneapolis, Minnesota 55401
Attention: Mr. Christopher T. Dahl
Facsimile Number: (612) 338-4318
with copy to: Children's Broadcasting Corporation
724 First Street North, Fourth Floor
Minneapolis, Minnesota 55401
Attention: Lance W. Riley, Esq.
Facsimile Number: (612) 330-9558
If to Buyer: Radio Unica Corp.
8400 N.W. 52nd Street, Suite 101
Miami, Florida 33166
Attention: Mr. Joaquin F. Blaya
Facsimile Number (305) 463-5001
30
<PAGE>
with copy to: Mr. Andrew Goldman
4 Miller Circle
Armonk, NY 10504
Facsimile Number (914) 273-0885
and to: Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005
Attention: John C. Quale, Esq.
Facsimile Number: (202) 371-7475
9.4. EXHIBITS AND SCHEDULES. All Exhibits and Schedules referred to herein
are incorporated into this Agreement by reference for all purposes and
shall be deemed part of this Agreement.
9.5. ENTIRE AGREEMENT. This Agreement together with all Exhibits and
Schedules referred to herein, and the LMA contain all of the terms and
conditions agreed upon by the parties hereto with respect to the
transactions contemplated hereunder. No modification or amendment to
any provision in this Agreement shall be effective unless made in
writing and signed by the parties hereto.
9.6. ASSIGNABILITY. None of the parties may assign their rights or
obligations under this Agreement without the prior written consent of
the other parties, except that the Buyer may make an assignment to an
entity under essentially common control as the assigning entity.
9.7. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the representatives, heirs, estates, successors, and
assigns of the parties hereto.
9.8. HEADING. The headings contained in this Agreement are for
reference only and shall not effect in any way the meaning or
interpretation of this Agreement.
9.9. COUNTERPARTS. This Agreement and any other instrument to be signed by
the parties hereto may be executed by the parties, together or
separately, in two or more identical counterparts, each of which shall
be deemed an original, but all of which together shall constitute but
one and the same instrument.
9.10. GOVERNING LAW; ARBITRATION. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware. Any
dispute arising under or related to this Agreement shall be resolved
by binding arbitration in Wilmington, Delaware in accordance with the
then existing Rules of Practice and Procedure of Judicial Arbitration
& Mediation Services, Inc., and any judgment upon any award rendered
by the arbitrator(s) may be entered by any State or Federal court
having jurisdiction thereof. The prevailing party shall be awarded all
of its legal fees, disbursements and costs of arbitration.
31
<PAGE>
9.11. BROKER COMMISSION. The Sellers and Buyer each represent to the other
that they have not engaged a broker in connection with the
contemplated transaction, except that CBC has engaged Star Media
Group, Inc., and Buyer has engaged Ted Hepburn Company and each party
agrees to pay the respective commissions owed under such engagements
and agrees to indemnify and hold the other party or parties harmless
against any claims made by a broker through it or them in connection
with the transactions contemplated hereunder.
9.12. SALES TAX. Any sales tax, including bulk sales taxes (if applicable),
due upon consummation of this transaction will be computed at Closing
and paid by the Seller and any claims or proceedings arising therefrom
shall be the sole responsibility of Sellers. Sellers agree to
indemnify and hold Buyer harmless against any such claims in
connection with the transactions contemplated hereunder.
9.13. PUBLIC ANNOUNCEMENTS. Sellers and Buyer shall consult with each
other before making any public statements with respect to this
Agreement, the other Transaction Documents or the transactions
contemplated herein or therein and shall not issue any such press
release or make any such public statement without the prior written
consent of the other party, which shall not be unreasonably withheld,
conditioned or delayed; provided, however, that a party may, without
the prior consultation with or written consent of the other party,
issue such press release or make such public statement as may be
required by applicable law if it has used all reasonable efforts to
consult with the other party and to obtain such party's consent but
has been unable to do so in a timely manner.
9.14. MAIL. Sellers hereby authorize and empower Buyer from and after the
Closing Date (a) to receive and open mail addressed to the Stations
and (b) to deal with the contents thereof in any manner Buyer sees
fit, provided such mail and the contents thereof relate to the
Stations or the Acquired Assets. Sellers agree to deliver to Buyer any
mail, checks or other documents received by them pertaining to the
Stations or the Acquired Assets. Buyer agrees to deliver to Sellers
any mail which it receives to which it is not entitled by reason of
this Agreement or otherwise and to which Sellers is entitled.
9.15. CLAUSES SEVERABLE. The provisions of this Agreement are severable. If
any provision of this Agreement or the application thereof to any
person or circumstance is held invalid, the provision or its
application shall be modified to the extent possible to reflect the
expressed intent of the parties but in any event, invalidity shall not
affect other provisions or applications of this Agreement which can be
given effect without the invalid provision or application.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
32
<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.
CHILDREN'S BROADCASTING
CORPORATION RADIO UNICA CORP.
BY: /s/ James G. Gilbertson BY: /s/ Joaquin F. Blaya
----------------------------- ---------------------------
ITS: COO ITS: President
----------------------------- ---------------------------
CHILDREN'S RADIO OF DALLAS, INC. KAHZ-AM, INC.
BY: /s/ James G. Gilbertson BY: /s/ James G. Gilbertson
----------------------------- ---------------------------
ITS: COO ITS: COO
----------------------------- ---------------------------
CHILDREN'S RADIO OF PHOENIX, INC. KIDR-AM, INC.
BY: /s/ James G. Gilbertson BY: /s/ James G. Gilbertson
----------------------------- ---------------------------
ITS: COO ITS: COO
----------------------------- ---------------------------
CHILDREN'S RADIO OF NEW YORK, INC. WJDM-AM, INC.
BY: /s/ James G. Gilbertson BY: /s/ James G. Gilbertson
----------------------------- ---------------------------
ITS: COO ITS: COO
----------------------------- ---------------------------
33
EXHIBIT 10.5
FIRST AMENDMENT
TO
ASSET PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT (the "First
Amendment"), dated as of October 27, 1998, is between and among Children's
Broadcasting Corporation, a Minnesota corporation ("CBC"), Children's Radio of
Dallas, Inc., a Minnesota corporation, Children's Radio of Phoenix, Inc., a
Minnesota corporation, Children's Radio of New York, a New Jersey corporation
(collectively, the "Asset Subsidiaries"), KAHZ-AM, Inc., a Minnesota
corporation, KIDR-AM, Inc., a Minnesota corporation, WJDM-AM, Inc., a Minnesota
corporation (the "License Subsidiaries", and together with the Asset Subs and
CBC, the "Sellers") and Radio Unica Corp. (the "Buyer").
W I T N E S S E T H:
WHEREAS, the parties hereto are also parties to that certain
Asset Purchase Agreement, dated as of October 26, 1998 (the "APA") pursuant to
which the Buyer has agreed to purchase from Sellers radio broadcast stations
KAHZ (AM), Fort Worth, Texas, KIDR (AM), Phoenix, Arizona, WJDM (AM), Elizabeth,
New Jersey, and WBAH (AM), Elizabeth, New Jersey (the "Stations");
WHEREAS, Sellers previously entered into a purchase agreement
with Catholic Radio Network, LLC ("CRN"), dated April 17, 1998, as amended (the
"CRN Agreement") pursuant to which Sellers agreed to sell to CRN, among other
things, the Stations;
WHEREAS, Sellers and CRN have entered into a second amendment
to the CRN Agreement, dated as of October 26, 1998 (the "Second Amendment"),
pursuant to which CRN has terminated its rights to acquire the Stations; and
WHEREAS, the Effective Time (as defined in the APA) has
occurred as a consequence of the Second Amendment and Sellers and Buyer desire
to remove certain conditions to the obligations of the parties to the APA
relating to the termination of CRN's rights to acquire the Stations and the CRN
Agreement.
<PAGE>
2
NOW, THEREFORE, in consideration of the mutual promises and
agreements contained herein and other valuable consideration, receipt of which
is hereby acknowledged, Sellers and Buyer agree as follows:
1. The first paragraph in Article 1 (Sale and Transfer of
Assets) of the APA is hereby deleted in its entirety.
2. Section 8.5(f) (regarding the termination of the CRN
Agreement) is hereby deleted in its entirety.
3. Except where inconsistent with the express terms of this
First Amendment, all provisions of the APA as originally entered into shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed as of the day and year first written above.
RADIO UNICA CORP.
By: /s/ Joaquin F. Blaya
-------------------------------
Name: Joaquin F. Blaya
Title: Chairman & CEO
CHILDREN'S BROADCASTING CORPORATION
By: /s/ Christopher T. Dahl
-------------------------------
Name: Christopher T. Dahl
Title: President & CEO
CHILDREN'S RADIO OF DALLAS, INC.
By: /s/ Chistopher T. Dahl
-------------------------------
Name: Christopher T. Dahl
Title: President & CEO
<PAGE>
3
CHILDREN'S RADIO OF PHOENIX, INC.
By: /s/ Christopher T. Dahl
-------------------------------
Name: Christopher T. Dahl
Title: President & CEO
CHILDREN'S RADIO OF NEW YORK, INC.
By: /s/ Christopher T. Dahl
-------------------------------
Name: Christopher T. Dahl
Title: President & CEO
KAHZ-AM, INC.
By: /s/ Christopher T. Dahl
-------------------------------
Name: Christopher T. Dahl
Title: President & CEO
KIDR-AM, INC
By: /s/ Christopher T. Dahl
-------------------------------
Name: Christopher T. Dahl
Title: President & CEO
WJDM-AM, INC.
By: /s/ Christopher T. Dahl
-------------------------------
Name: Christopher T. Dahl
Title: President & CEO
EXHIBIT 10.6
AMENDMENT NO. 1
TO
SECURITIES PURCHASE AGREEMENT
THIS AMENDMENT is entered into as of this 22nd day of
October, 1998, by and among CHILDREN'S BROADCASTING CORPORATION, a Minnesota
corporation (the "Company"), TALISMAN CAPITAL OPPORTUNITY FUND LTD.
("Talisman"), DOMINION CAPITAL LIMITED ("Dominion") and SOVEREIGN PARTNERS L.P.
("Sovereign") (Talisman, Dominion and Sovereign are collectively referred to
herein as the "Buyers").
RECITALS:
WHEREAS, the Company and the Buyers entered into a Securities Purchase
Agreement, dated June 25, 1998 (the "Agreement"), pursuant to which the Buyers
acquired an aggregate of 606,061 shares of Series B Convertible Preferred Stock
of the Company (the "Preferred Shares");
WHEREAS, the Company provided notice to the Buyers on September 22,
1998 of the Company's intent to redeem all of the Preferred Shares pursuant to
the Agreement on October 22, 1998;
WHEREAS, the Company is unable to redeem all of the Preferred Shares as
of October 22, 1998; and
WHEREAS, the Company seeks alter the conversion schedule of the
Preferred Shares to extend its absolute right to redeem the Preferred Shares and
the Buyers have agreed to such modification on the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Notwithstanding the terms of the Certificate of Designation of
Preferences and Rights of Series B Preferred Stock of
Children's Broadcasting Corporation (the "Certificate of
Designation"), the first paragraph of Section (D)(c)(1) of the
Certificate of Designation and the conversion schedule
immediately following such paragraph shall be restated in
their entirety as follows:
At the option of the holders thereof at any time after the
date 221 days following the Initial Closing Date, the shares
of this Series shall, subject to subparagraph (c)(1), be
convertible, into fully paid and nonassessable shares
(calculated as to each conversion to the nearest 1/100th of a
share) of Common Stock of the Corporation, at the conversion
price determined as hereinafter provided, in effect at the
time of
<PAGE>
conversion, each share of this Series being deemed to have the
Stated Value for the purpose of such conversion. The number of
shares of Common Stock to be delivered upon conversion of a
share of this Series shall be the Stated Value, divided by the
lesser of (x) One Hundred Ten (110%) of the average best bid
price of the Common Stock for the five (5) consecutive trading
days ending on the day preceding the Conversion Date (the
"Fixed Strike Price"), or (y) Ninety-Four Percent (94%) of the
average of the three lowest closing prices of the Common Stock
during the 60 calendar day period ending on the day preceding
the Conversion Date (herein called the "conversion price"),
provided however, that such initial conversion price shall be
subject to adjustment from time to time in certain instances
as hereinafter provided. The number of shares so issuable upon
conversion shall be multiplied by the number of shares of this
Series to be converted, and the product thereof shall be
delivered to the holder. If any of the Preferred Stock remains
outstanding as of February 1, 1999 then the percentage
specified in clause (y) above shall be Eighty Percent (80%)
effective February 1, 1999 and such percentage shall be
Seventy Five Percent (75%) effective May 1, 1999.
(1) The Preferred Stock may be converted, at the option
of the holder, in accordance with the following
schedule:
Number of Days Percentage of Original
Elapsed Following Issuance Preferred Stock Convertible
-------------------------- ---------------------------
221 (Feb. 1, 1999) 80%
251 (March 1, 1999) 100%
2. The Buyers agree that the Company may file a certificate of
designation and perform other acts which may be necessary or
advisable to reflect the agreement of the parties expressed in
paragraph 1 above.
3. Concurrent with the execution of this Amendment, the
Company agrees to issue to the Buyers stock purchase warrants
entitling the Buyers to purchase an aggregate of up to 65,000
shares of Common Stock (the "Additional Warrant"). The
Additional Warrant shall bear an exercise price per share of
Common Stock equal to the lesser of (i) 100% of the average
closing price of a share of Common Stock for the five (5)
consecutive trading days ending on the day preceding the
Closing Date, or (ii) 80.77% of the closing price of a share
of Common Stock on September 30, 1998. The Additional Warrant
shall be exercisable immediately upon issuance, and for a
period of five (5) years thereafter. Upon issuance of the
Additional Warrant, the Additional Warrant Shares shall be
entitled to registration rights substantially in the form of
the Registration Rights Agreement.
<PAGE>
4. If the Company has not redeemed 100% of the outstanding
Preferred Shares on or prior to December 31, 1998, the Company
agrees to issue to the Buyers stock purchase warrants
entitling the Buyers to purchase an aggregate of up to 35,000
shares of Common Stock (the "Second Additional Warrant"). The
Second Additional Warrant, if issued, shall bear an exercise
price per share of Common Stock equal to the lesser of (i)
100% of the average closing price of a share of Common Stock
for the five (5) consecutive trading days ending on the day
preceding the Closing Date, or (ii) 80.77% of the closing
price of a share of Common Stock on September 30, 1998. The
Additional Second Warrant shall be exercisable immediately
upon issuance, and for a period of five (5) years thereafter.
Upon issuance of the Additional Second Warrant, the Additional
Warrant Shares shall be entitled to registration rights
substantially in the form of the Registration Rights
Agreement. .
5. If the Company has not redeemed 100% of the outstanding
Preferred Shares on or prior to January 31, 1999, the Company
agrees to issue to the Buyers stock purchase warrants
entitling the Buyers to purchase an aggregate of up to 25,000
shares of Common Stock (the "Third Additional Warrant"). The
Third Additional Warrant, if issued, shall bear an exercise
price per share of Common Stock equal to the lesser of (i)
100% of the average closing price of a share of Common Stock
for the five (5) consecutive trading days ending on the day
preceding the Closing Date, or (ii) 80.77% of the closing
price of a share of Common Stock on September 30, 1998. The
Additional Third Warrant shall be exercisable immediately upon
issuance, and for a period of five (5) years thereafter. Upon
issuance of the Additional Third Warrant, the Additional
Warrant Shares shall be entitled to registration rights
substantially in the form of the Registration Rights
Agreement. .
6. Except as otherwise modified or amended herein, the parties
hereto ratify and affirm the terms of the Agreement and the
Certificate of Designation.
IN WITNESS WHEREOF, this Amendment has been duly executed by the
parties hereto as of the date first above written.
CHILDREN'S BROADCASTING CORPORATION
By /s/ James G. Gilbertson
----------------------------------------
James G. Gilbertson
Chief Operating Officer
<PAGE>
TALISMAN CAPITAL OPPORTUNITY FUND LTD.
By /s/ Brian Ladin
----------------------------------------
Brian Ladin
Vice President
DOMINION CAPITAL LIMITED
By /s/ Terez S. Curry/Carol M. O'Connell
----------------------------------------
SOVEREIGN PARTNERS LP
By /s/ Stephen Hicks
----------------------------------------
EXHIBIT 10.10
TERM
PROMISSORY NOTE
$15,000,000.00 Minneapolis, Minnesota
Due: April 30, 2000 October 30, 1998
FOR VALUE RECEIVED, the undersigned, CRN BROADCASTING, LLC (the
"Borrower"), promises to pay to the order of CHILDREN'S BROADCASTING, LLC (the
"Lender"), at its offices in Minneapolis, Minnesota, on or before April 30, 2000
(the "Maturity Date"), the sum of FIFTEEN MILLION and NO/100 DOLLARS
($15,000,000.00) or such lesser sum as may actually be owing under borrowings
made pursuant to that certain Loan Agreement, dated October 30, 1998, by and
between the Borrower and the Lender, as the same may be amended, modified,
restated or supplemented from time to time hereafter (the "Loan Agreement"),
together with interest on the unpaid principal balance from the date hereof
until paid in full at the rate or rates per annum provided for in the Loan
Agreement.
This Note shall be payable in monthly installments of accrued interest
only payable on the last day of each month, commencing November 30, 1998, and on
the last day of each month thereafter until the Maturity Date, on which date the
entire outstanding principal balance plus accrued interest shall be due and
payable in full.
This Note is the "Note" issued under the terms and provisions of the
Loan Agreement. The holder hereof is entitled to all the benefits provided for
in the Loan Agreement, or referred to therein, to which Loan Agreement reference
is made for a statement of the terms and conditions under which the indebtedness
evidenced hereby was incurred and is to be repaid. The provisions of the Loan
Agreement are incorporated by reference herein with the same force and effect as
if fully set forth herein.
All payments on this Note shall be applied first to the payment of fees
and charges payable under the Loan Agreement, next to the payment of accrued
interest and thereafter to the outstanding principal balance. This Note may be
prepaid from time to time in whole or in part without premium or penalty.
Presentment, demand for payment, notice of dishonor, protest and notice
of protest are hereby waived. The Borrower agrees to pay all costs of collection
including, but not limited to, reasonable attorneys' fees, whether or not suit
is commenced.
<PAGE>
TERM
PROMISSORY NOTE
Page 2
$15,000,000.00 Minneapolis, Minnesota
Due: April 30, 2000 October 30, 1998
This Note shall be governed by and construed in accordance with the
laws of the State of Minnesota. The Borrower consents to the personal
jurisdiction of the federal and state courts located in the State of Minnesota,
waives any argument that such a forum is not convenient, and agrees that any
litigation relating to this Note initiated by it or on its behalf shall be
venued in either the District Court of Hennepin County, Minnesota or the Federal
District Court, District of Minnesota, Fourth Division.
Any provision of this Note, the Loan Agreement or any other document
relating to the loan evidenced hereby to the contrary notwithstanding (the "Loan
Documents"), Borrower may from time to time offset against any sums due
hereunder an amount equal to the amount of any "Claims" of the Borrower against
the Lender pursuant to Article 8 of that certain Purchase Agreement dated April
17, 1998, as amended through the Second Amendment to Purchase Agreement, by and
between Lender, Lender's wholly-owned subsidiaries and Catholic Radio Network,
LLC.
Any provision of Loan Documents to the contrary notwithstanding, all
payments and prepayments of principal hereunder shall be paid directly into the
escrow established pursuant to that certain Indemnity Escrow Agreement by and
between CRN Operations, LLC and Lender in substantially the form attached as
Exhibit B to the Closing Agreement between Lender and Borrower dated of even
date herewith, up to the full amount of the sums to be so deposited therein.
CRN BROADCASTING, LLC
/s/ John T. Lynch
------------------------------------------------
By John T. Lynch
Its President and Chief Executive Officer
EXHIBIT 10.11
LOAN AGREEMENT
BY AND BETWEEN
CHILDREN'S BROADCASTING CORPORATION,
AS LENDER
AND
CRN BROADCASTING, LLC,
AS BORROWER
DATED AS OF OCTOBER 30, 1998
<PAGE>
TABLE OF CONTENTS
Page(s)
1. DEFINITIONS AND CONSTRUCTION..........................................1
1.1 Definitions..................................................1
1.2 Accounting Terms............................................11
1.3 Construction................................................11
1.4 Schedules and Exhibits......................................11
2. TERM LOAN AND TERMS OF PAYMENT.......................................11
2.1 Term Loan...................................................11
2.2 Interest: Rates, Payments, and Calculations................12
3. CONDITIONS; TERM OF AGREEMENT........................................13
3.1 Conditions Precedent to the Term Loan.......................13
3.2 Additional Conditions Precedent to the Term Loan............16
3.3 Condition Subsequent........................................16
3.4 Term........................................................17
4. REPRESENTATIONS AND WARRANTIES.......................................17
4.1 Corporate Existence.........................................17
4.2 Subsidiaries................................................17
4.3 Corporate Power and Authority...............................17
4.4 Ownership...................................................18
4.5 Validity of Obligations.....................................18
4.6 Financial Statements........................................18
4.7 Liens.......................................................18
4.8 Litigation..................................................19
4.9 Accuracy of Information.....................................19
4.10 Tax Returns; Audits.........................................19
4.11 Corporate Takeovers.........................................19
4.12 Investment Company Act......................................19
4.13 Consents, etc...............................................19
4.14 ERISA.......................................................19
4.15 No Events of Default........................................20
4.16 Solvency....................................................20
4.17. Licenses and Permits........................................20
5. REPRESENTATIONS AND WARRANTIES OF LENDER.............................20
5.1 Corporate Existence.........................................21
5.2 Corporate Power and Authority...............................21
<PAGE>
5.3 Validity of Obligations.....................................21
6. AFFIRMATIVE COVENANTS................................................21
6.1 Maintain Assets.............................................22
6.2. Accounting System...........................................22
6.3. Insurance...................................................22
6.4. Financial Statements........................................22
6.5. Access to Records...........................................23
6.6. Taxes, Assessments and Charges..............................23
6.8. Notification of Changes.....................................24
6.9. Existence...................................................24
6.10. Conduct of Business.........................................24
6.11. Books and Records...........................................24
6.12 Vander Eyk Agreement........................................24
6.13. Survival of Representations, Etc............................25
6.14. Costs and Expenses..........................................25
7. NEGATIVE COVENANTS...................................................25
7.1. Liens and Encumbrances......................................25
7.2. Indebtedness................................................26
7.3. Default on Other Obligations................................27
7.4. Change in Control, Merge, Consolidate or Sell...............27
7.6. Sale and Leaseback..........................................27
7.7. Loans.......................................................27
7.8. Guaranties, Etc.............................................27
7.9. Dividends...................................................28
7.10. Capital Expenditures........................................28
7.11. Investments.................................................28
7.12. Payment on Subordinated Indebtedness........................29
7.13. Transactions with Affiliates................................29
7.14. Financial Covenants.........................................29
8. EVENTS OF DEFAULT....................................................30
9. LENDER'S RIGHTS AND REMEDIES.........................................31
9.1 Rights and Remedies.........................................31
9.2 Remedies Cumulative.........................................31
10. WAIVERS; INDEMNIFICATION.............................................32
10.1 Demand; Protest; etc........................................32
10.2 Indemnification.............................................32
11. NOTICES..............................................................32
<PAGE>
12. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER...........................33
13. GENERAL PROVISIONS...................................................34
13.1 Effectiveness...............................................34
13.2 Successors and Assigns......................................34
13.3 Section Headings............................................34
13.4 Interpretation..............................................34
13.5 Severability of Provisions..................................35
13.6 Amendments in Writing.......................................35
13.7 Counterparts; Telefacsimile Execution.......................35
13.8 Revival and Reinstatement of Obligations....................35
13.9 Integration.................................................35
13.10 Purchase Agreement..........................................35
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement"), is entered into and shall be
effective as of October 30, 1998, between CRN BROADCASTING, LLC, a Delaware
limited liability company ("Borrower"), with its chief executive office located
at 8910 University Lane, Suite 130, San Diego, California 92122 and CHILDREN'S
BROADCASTING CORPORATION, a Minnesota corporation ("Lender"), with its chief
executive office located at 724 First Street, Fourth Floor, Minneapolis,
Minnesota 55401.
RECITALS:
FIRST: Catholic Radio Network, LLC, Lender and certain wholly-owned
subsidiaries of the Lender are parties to that certain Purchase Agreement, dated
April 17, 1998, as amended by that certain First Amendment to Purchase
Agreement, dated September 29, 1998, and by that certain Second Amendment to
Purchase Agreement, dated October 30, 1998 (collectively, the "Purchase
Agreement"), pursuant to which Catholic Radio Network, LLC agreed to purchase
substantially all of the assets of seven (7) radio stations currently owned by
the Lender or by certain wholly-owned subsidiaries of the Lender;
SECOND: Pursuant to the Purchase Agreement, Catholic Radio Network, LLC
has requested the Lender to make an eighteen month term loan to the Borrower in
the original principal amount of $15,000,000 ("Term Loan"), the proceeds of
which will be used to finance, in part, the purchase of such radio stations;
THIRD: Lender has agreed to such request, in accordance with and
subject to the terms contained herein.
AGREEMENT
NOW THEREFORE, in consideration of the premises and the terms and
conditions contained herein, and to induce the Lender to make the Term Loan to
the Borrower, the parties hereto agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following
terms shall have the following definitions:
"Accounts" means all currently existing and hereafter arising accounts,
contract rights, and all other forms of obligations owing to an Obligor arising
out of the sale or lease of goods or the
1
<PAGE>
rendition of services by an Obligor, irrespective of whether earned by
performance, and any and all credit insurance, guaranties, or security therefor.
"Acquisition" means any purchase or other acquisition by the Borrower
of the assets or stock of any other Person, other than the purchase of inventory
or equipment in the ordinary course of business.
"Additional Subordinated Indebtedness" means any Indebtedness of
Borrower (other than Initial Subordinated Indebtedness) which is subordinated to
the Note, in a manner and to an extent which the Lender has determined to be
satisfactory, as evidenced either (a) by a writing sent to the Borrower prior to
the creation of such Indebtedness, which consent will not be unreasonably denied
or delayed or (b) by the lapse of ten (10) Business Days without objection of
the Lender following the delivery to the Lender in writing of a request for such
consent together with the form of agreement setting forth the manner and extent
of the proposed subordination.
"Affiliate" means, as applied to any Person, any other Person who
directly or indirectly controls, is controlled by, is under common control with
or is a director or governor or an officer or manager of such Person. For
purposes of this definition, "control" means the possession, directly or
indirectly, of the power to vote 5% or more of the securities having ordinary
voting power for the election of directors or governors or the direct or
indirect power to direct the management and policies of a Person, whether
through ownership of securities, membership interests, by contract or otherwise.
"Agreement" means this Loan Agreement, as the same may be amended,
modified, supplemented or restated from time to time.
"Asset Disposition" means the disposition of the following, whether by
sale, lease, transfer, loss, damage, destruction, condemnation or otherwise: any
or all of the assets of the Borrower provided that "Asset Disposition" shall not
include (a) the sale of inventory in the ordinary course of business, (b) the
disposition of obsolete equipment sold or disposed of in the ordinary course of
business, (c) disposition of instruments and other rights to the payment of
money in the ordinary course of business in the course of collection or deposit
thereof, or (d) the transfer of casualty property to an insurance company upon
prepayment of policy proceeds with respect to such property.
"Assets" shall have the meaning usually given that term in accordance
with GAAP, except that investments in or monies due from any Affiliate shall be
excluded therefrom.
"Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C.
ss. 101 et seq.), as amended, and any successor statute.
2
<PAGE>
"Benefit Plan" means a "defined benefit plan" (as defined in Section
3(35) of ERISA) for which Borrower, any Subsidiary of Borrower, or any ERISA
Affiliate has been an "employer" (as defined in Section 3(5) of ERISA) within
the past six years.
"Borrower" has the meaning set forth in the preamble to this Agreement.
"Borrower Pledge Agreements" has the meaning assigned to it in
Section 3.1(b)(4).
"Borrower Security Agreement" has the meaning assigned to it in
Section 3.1(b)(2).
"Broadcast System" means all of the properties and operating rights
constituting a complete, fully integrated system for transmitting radio signals
from a transmitter licensed by the FCC, together with any sub-system which is
ancillary to any system referred to above.
"Business Day" means any day that is not a Saturday, Sunday, or other
day on which national banks are authorized or required to close in Minneapolis,
Minnesota.
"Capital Expenditures" shall mean all expenditures for any fixed assets
or improvements, or for replacements, substitutions or additions thereto, which
have a useful life of more than one year, including, but not limited to, the
direct or indirect acquisition of such assets by way of increased product or
service charges, offset items or otherwise, and shall include capitalized lease
payments.
"Capitalized Lease" means, at the time any determination thereof is to
be made, any lease of property, real or personal, in respect of which the
present value of the minimum rental commitment is capitalized on the balance
sheet of the lessee in accordance with GAAP.
"Capitalized Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a Capitalized
Lease which would at such time be required to be capitalized on the balance
sheet of the lessee in accordance with GAAP.
"Change of Control" shall be deemed to have occurred at such time as
(a) Borrower shall cease to own and control, beneficially, directly, and of
record, all of the issued and outstanding capital stock of CRNO or CRNL, or (b)
a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) other than CRNH becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly
or indirectly, of more than 10% of the membership interest of the Borrower.
"Closing Date" means October 30, 1998.
"Code" means the Minnesota Uniform Commercial Code.
3
<PAGE>
"Collateral" shall mean all real and personal property and all
interests in real and personal property now owned or hereafter acquired by any
of the Obligors in or upon which a security interest, Lien or Mortgage is
granted to the Lender, whether under this Agreement or the other Loan Documents
or under any other documents, instruments or writings executed by any of the
Obligors and delivered to the Lender, including, without limitation, Accounts,
General Intangibles, Inventory, Intellectual Property, Fixtures, Equipment and
Real Property (each as defined herein).
"Collateral Access Agreement" means a landlord waiver, mortgagee
waiver, bailee letter, or acknowledgement agreement of any warehouseman,
processor, lessor, consignee, or other Person in possession of, having a Lien
upon, or having rights or interests in equipment or inventory, in each case, in
form and substance reasonably satisfactory to Lender.
"Collateral Assignments of Key Leases" means one or more collateral
assignments, mortgages, or deeds of trust, in form and substance reasonably
satisfactory to Lender, between one or more of the Obligors (including Borrower)
and Lender respecting the hypothecation of such Obligor's rights under the Key
Leases.
"Collateral Assignments of Tower Leases" means one or more collateral
assignments, mortgages, or deeds of trust, in form and substance reasonably
satisfactory to Lender, between one of the Obligors and Lender respecting the
hypothecation of such Obligor's rights under the Tower Leases.
"Collections" means all cash, checks, notes, instruments, and other
items of payment (including, insurance proceeds, proceeds of cash sales, rental
proceeds, and tax refunds).
"CRN" means Catholic Radio Network, LLC, a California limited liability
company.
"CRN Guaranty" has the meaning assigned to it in Section 3.1(b)(7).
"CRNH" means Catholic Radio Network Holdings, a Delaware limited
liability company.
"CRNH Guaranty" has the meaning assigned to it in Section 3.1(b)(8).
"CRNL" means CRN Licenses, LLC, a Delaware limited liability company.
"CRNL Security Agreement" has the meaning assigned to it in
Section 3.1(b)(15).
"CRNO" means CRN Operations, LLC, a Delaware limited liability company.
"CRNO Guaranty" has the meaning assigned to it in Section 3.1(b)(9).
"CRNO Security Agreement" has the meaning assigned to it in
Section 3.1(b)(13).
4
<PAGE>
"Cumulative Operating Income" has the meaning assigned to such term
on Schedule D-1.
"Default" means an event, condition, or default that, with the giving
of notice, the passage of time, or both, would be an Event of Default.
"Dollars or $" means United States dollars.
"Equipment" means all of the Obligors' present and hereafter acquired
machinery, machine tools, motors, equipment, furniture, furnishings, fixtures,
vehicles (including motor vehicles and trailers), tools, parts, goods (other
than consumer goods, farm products, or Inventory), wherever located, including,
(a) any assets acquired by the Borrower pursuant to the Purchase Agreement, and
(b) all attachments, accessories, accessions, replacements, substitutions,
additions, and improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, 29
U.S.C. ss.ss. 1000 et seq., amendments thereto, successor statutes, and
regulations or guidance promulgated thereunder.
"ERISA Affiliate" means (a) any corporation subject to ERISA whose
employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which Borrower is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC, any party subject to ERISA that is a party to an arrangement
with Borrower and whose employees are aggregated with the employees of Borrower
under IRC Section 414(o).
"ERISA Event" means (a) a Reportable Event with respect to any Benefit
Plan or Multiemployer Plan, (b) the withdrawal of Borrower, any of its
Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan year in which
it was a "substantial employer" (as defined in Section 4001(a)(2) of ERISA), (c)
the providing of notice of intent to terminate a Benefit Plan in a distress
termination (as described in Section 4041(c) of ERISA), (d) the institution by
the PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan, (e)
any event or condition (i) that provides a basis under Section 4042(a)(1), (2),
or (3) of ERISA for the termination of, or the appointment of a trustee to
administer, any Benefit Plan or Multiemployer Plan, or (ii) that may result in
termination of a Multiemployer Plan pursuant to Section 4041A of ERISA, (f) the
partial or complete withdrawal within the meaning of Sections 4203 and 4205 of
ERISA, of Borrower, any of its Subsidiaries or ERISA Affiliates from a
Multiemployer Plan, or (g) providing any security to any Plan under Section
401(a)(29) of the IRC by Borrower or its Subsidiaries or any of their ERISA
Affiliates.
"Event of Default" has the meaning set forth in Section 8.
5
<PAGE>
"FCC" means the United States Federal Communications Commission (or any
successor agency, commission, bureau, department, or other political subdivision
of the United States).
"FCC License" means any license, permit, certificate of compliance,
franchise, approval, or authorization, rented or issued by the FCC for the
operation of a Broadcast System, including the stations.
"FEIN" means Federal Employer Identification Number.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States, consistently applied.
"General Intangibles" means all of the Obligors' present and future
general intangibles and other personal property (including contract rights,
rights arising under common law, statutes, or regulations, choses or things in
action, goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable
from pension funds, route lists, rights to payment and other rights under any
royalty or licensing agreements (including all FCC Licenses)), infringement
claims, computer programs, information contained on computer disks or tapes,
literature, reports, catalogs, deposit accounts, insurance premium rebates, tax
refunds, and tax refund claims).
"Guarantors" means Catholic Radio Network, LLC, a California limited
liability company, Catholic Radio Network Holdings, LLC, a Delaware limited
liability company, and CRNO.
"Hazardous Materials" means the substances defined as "hazardous
substances," "hazardous substances," "hazardous materials," or "toxic
substances" int eh Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended, 42 USC ss. 9601, et seq., or in the Hazardous
Materials Transportation Act, 49 USC ss.1801, et seq., or in the Resources
Conservation and Recovery Act, 42 USC ss. 6901, et seq., and all substances
defined as "hazardous waste" under the Statutes of the States of California,
Colorado, Illinois, Kansas, Minnesota, Pennsylvania and Wisconsin (with respect
to Real Property located in such states) or any regulations adopted pursuant to
those statues, including, but not limited to, asbestos and asbestos containing
materials.
"Indebtedness" shall mean at a particular time, (i) indebtedness for
borrowed money or for the deferred purchase price of property or services in
respect of which any Borrower is liable, contingently or otherwise, as obligor
or otherwise or any commitment by which any Borrower assures a creditor against
loss, including contingent reimbursement obligations with respect to letters of
credit, (ii) indebtedness guaranteed in any manner by any Borrower, including
guarantees in the form of an agreement to repurchase or reimburse; provided,
however, that the amount of indebtedness represented by any guarantee of limited
recourse shall be the lesser of the amount of indebtedness so guaranteed or the
value of the asset to which the recourse of such indebtedness is limited to,
(iii) Capitalized Lease Obligations, (iv) any unfunded obligation of any
Borrower to a "multiemployer plan" as such term is defined under the Employee
Retirement Income Security Act
6
<PAGE>
of 1974, as amended ("ERISA"), and (v) all accounts payable of any Borrower,
which are not being contested in good faith by appropriate proceedings and which
are more than 90 days past due.
"Initial Subordinated Indebtedness" means the Indebtedness not
exceeding $15,000,000 described in Schedule 7.13, including all renewals and
refinancings thereof.
"Insolvency Proceeding" means any proceeding commenced by or against
any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law, assignments for the benefit of creditors, formal
or informal moratoria, compositions, extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar relief.
"Intellectual Property" shall mean each Obligor's present and future
designs, patents, patent rights and applications therefor, trademarks and
registrations or applications therefor, trade names, inventions, copyrights and
all applications and registrations therefor, software or computer programs,
license rights, trade secrets, methods, processes, know-how, drawings,
specifications, descriptions, and all memoranda, notes, and records with respect
to any research and development, and any interest of any Obligor in the
foregoing, whether now owned or hereafter acquired by such Obligor and proceed s
of all the foregoing, including, without limitation, proceeds of insurance
policies thereon.
"Interest Reserve Escrow Agreement" means that certain Interest Reserve
Escrow Agreement of even date herewith between Borrower and Lender.
"Inventory" shall mean all of the inventory of each Obligor of every
kind and description, now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of such Borrower, wherever located,
including, but not limited to, all merchandise, raw materials, parts, supplies,
work-in-process and finished goods intended for sale, together with all the
containers, packing, packaging, shipping and similar materials related thereto,
and including such inventory as is temporarily out of such Obligor's custody or
possession, including inventory on the premises of others and items in transit,
and including any returns and repossessions upon any accounts, documents,
instruments or chattel paper relating to or arising from the sale of inventory,
and all substitutions and replacements therefor, and all additions and
accessions thereto, and all ledgers, books of account, records, computer
printouts, computer runs, and other computer-prepared information relating to
any of the foregoing, and any and all proceeds of any of the foregoing,
including, without limitation, proceeds of insurance policies thereon.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Key Leases" has the meaning assigned to such term in the Purchase
Agreement.
"Lender Expenses" means all: reasonable actual costs or expenses
(including taxes and insurance premiums) required to be paid by any Obligor
under any of the Loan Documents that are
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paid or incurred by Lender; reasonable fees or charges paid or incurred by
Lender in connection with the Term Loan, all reasonable fees or charges for
photocopying, notarization, couriers and messengers, tax lien, litigation, and
UCC searches, filing, recording, publication, and real estate title policies and
endorsements; actual costs and expenses incurred by Lender in the disbursement
of funds to Borrower (by wire transfer or otherwise); actual charges paid or
incurred by Lender resulting from the dishonor of checks; reasonable costs and
expenses paid or incurred by Lender to correct any default or enforce any
provision of the Loan Documents, including any extension fees advanced by the
Lender pursuant to Section 9.1(c); or in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, preparing for sale, or
advertising to sell the Collateral, or any portion thereof, irrespective of
whether a sale is consummated; and Lender's reasonable attorneys fees and
expenses incurred in advising, structuring, drafting, reviewing, administering,
amending, terminating, enforcing (including attorneys fees and expenses incurred
in connection with a "workout," a "restructuring," or an Insolvency Proceeding
concerning any Obligor), defending, or concerning the Loan Documents,
irrespective of whether suit is brought, provided however, that if any party
commences a proceeding for the interpretation, reformation, enforcement or
rescission of this Agreement, the prevailing party shall be entitled to recover
from the other parties reasonable attorneys' fees and court and other litigation
costs incurred, including but not limited to service of process, filing fees,
court and court reporter costs, investigative costs, expert witness fees, and
the cost of any bonds, whether taxable or not, and that such reimbursement shall
be included in any judgment or final order issued in that proceeding. The
"prevailing party" means the party determined by the court to most nearly
prevail and not necessarily the one in whose favor a judgment is rendered.
"Lien" means any interest in property securing an obligation owed to,
or a claim by, any Person other than the owner of the property, whether such
interest shall be based on the common law, statute, or contract, whether such
interest shall be recorded or perfected, and whether such interest shall be
contingent upon the occurrence of some future event or events or the existence
of some future circumstance or circumstances, including the lien or security
interest arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, security agreement, adverse
claim or charge, conditional sale or trust receipt, or from a lease,
consignment, or bailment for security purposes and also including reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases, and other title exceptions and encumbrances affecting Real
Property.
"Loan Documents" means this Agreement, the Note, the Mortgages, the
Collateral Assignments of Key Leases, the Collateral Assignments of Tower
Leases, the CRN Guaranty, the CRNH Guaranty, the Interest Reserve Escrow
Agreement, the Borrower Security Agreement, the Borrower Pledge Agreements, the
CRNO Security Agreement, the CRNO Limited Guaranty, the CRNL Security Agreement,
and any other agreement entered into now or in the future, in connection with
this Agreement.
"Material Adverse Occurrence" means, with respect to any Obligor, (a) a
material adverse change in the business, prospects, operations, results of
operations, assets, liabilities or condition
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(financial or otherwise) of such Obligor, (b) the material impairment of such
Obligor's ability to perform its obligations under the Loan Documents to which
it is a party or of Lender to enforce the Obligations or realize upon that
Obligor's Collateral, or (c) a material impairment of the priority of Lender's
Liens with respect to that Obligor's Collateral.
"Maturity Date" has the meaning set forth in Section 3.4.
"Mortgages" means one or more mortgages, deeds of trust, or deeds to
secure debt, executed by an Obligor in favor of Lender, the form and substance
of which shall be satisfactory to Lender.
"Multiemployer Plan" means a "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA) to which Borrower, any of its Subsidiaries, or any
ERISA Affiliate has contributed, or was obligated to contribute, within the past
six years.
"Obligations" means all obligations of Borrower to Lender under the
Note (including any interest that, but for the provisions of the Bankruptcy
Code, would have accrued), and the other Loan Documents, and all Lender Expenses
(including any fees or expenses that, but for the provisions of the Bankruptcy
Code, would have accrued).
"Obligors" means Borrower, CRNO and CRNL, or any of them.
"PBGC" means the Pension Benefit Guaranty Corporation as defined in
Title IV of ERISA, or any successor thereto.
"Permitted Liens" means Liens set forth on Schedule P-1.
"Permitted Protest" means the right of an Obligor to protest any Lien
other than any such Lien that secures the Obligations, tax (other than payroll
taxes or taxes that are the subject of a United States federal tax lien), or
rental payment, provided that (a) a reserve with respect to such obligation is
established on the books of the applicable Obligor in an amount that is
reasonably satisfactory to Lender, (b) any such protest is instituted and
diligently prosecuted by such Obligor in good faith, and (c) Lender is
reasonably satisfied that, while any such protest is pending, there will be no
impairment of the enforceability, validity, or priority of any of the Liens of
Lender in and to the Collateral.
"Person" means and includes natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Plan" means any employee benefit plan, program, or arrangement
maintained or contributed to by Borrower or with respect to which it may incur
liability.
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"Purchase Agreement" has the meaning assigned to it in the Recitals.
"Real Property" means any estates or interests in real property now
owned or hereafter acquired by any of the Obligors.
"Reportable Event" means any of the events described in Section 4043(c)
of ERISA or the regulations thereunder other than a Reportable Event as to which
the provision of 30 days notice to the PBGC is waived under applicable
regulations.
"Solvent" means, with respect to any Person on a particular date, that
on such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts,including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual or matured liability.
"Stations" means the radio stations listed on Schedule S-1.
"Subordinated Indebtedness" means Initial Subordinated Indebtedness
together with Additional Subordinated Indebtedness, if any.
"Subsidiary" of a Person means a corporation, partnership, limited
liability company, or other entity in which that Person directly or indirectly
owns or controls the shares of stock or other ownership interests having
ordinary voting power to elect a majority of the board of directors (or appoint
other comparable managers) of such corporation, partnership, limited liability
company, or other entity.
"Term Loan" has the meaning set forth in the Recitals.
"Term Loan Commitment" means $15,000,000.
"Tower Leases" has the meaning assigned to such term in the Purchase
Agreement.
"Unrestricted Cash Balances" has the meaning set forth in Schedule
D-1 hereto.
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"Vander Eyk Agreement" means certain Agreement for Purchase and Sale of
Real Property and Escrow Instructions, made and entered into as of August 20,
1997, by and between Cornelius Vander Eyk, Sr. and Nellie Vander Eyk, husband
and wife ("Seller") and Lender with respect to approximately sixty-seven (67)
acres in San Bernardino County, State of California, as amended, which Agreement
for Purchase and Sale of Real Property and Escrow Instructions has been assigned
to the Borrower pursuant to the terms of the Purchase Agreement.
"Voidable Transfer" has the meaning set forth in Section 15.8.
1.2 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. When used herein, the
term "financial statements" shall include the notes and schedules thereto.
Whenever the term "Borrower" is used in respect of a financial covenant or a
related definition, it shall be understood to mean Borrower on a consolidated
basis unless the context clearly requires otherwise.
1.3 CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting, and the
term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. An Event of Default
shall "continue" or be "continuing" until such Event of Default has been waived
in writing by Lender. Section, subsection, clause, schedule, and exhibit
references are to this Agreement unless otherwise specified. Any reference in
this Agreement or in the Loan Documents to this Agreement or any of the Loan
Documents shall include all alterations, amendments, changes, extensions,
modifications, joinders, renewals, replacements, substitutions, and supplements,
thereto and thereof, as applicable.
1.4 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. TERM LOAN AND TERMS OF PAYMENT.
2.1 TERM LOAN.
(a) As of the date hereof, Lender agrees to make
the Term Loan to Borrower.
(b) The Term Loan shall be repaid in monthly
installments of accrued interest only. Each such installment shall be due and
payable on the last day of each month commencing on November 30, 1998 and
continuing on the last day of each succeeding month until and including April
30, 2000, when the remaining unpaid principal balance plus accrued interest of
the Term Loan shall be due and payable in full. The outstanding principal
balance and all accrued and unpaid interest under the Term Loan shall be due and
payable upon the termination of
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this Agreement, whether by its terms, by prepayment, by acceleration, or
otherwise. All amounts outstanding under the Term Loan shall constitute
Obligations.
(c) The Lender is hereby authorized and directed
to advance the entire proceeds of the Term Loan directly to the Lender and its
wholly-owned subsidiaries for application against the Purchase Price, as that
term is defined in the Purchase Agreement. Borrower acknowledges receipt of the
loan proceeds of the Term Loan.
2.2 INTEREST: RATES, PAYMENTS, AND CALCULATIONS.
(a) Interest Rate. So long as no Event of
Default has occurred and is continuing, the outstanding principal balance of the
Note as well as all other outstanding and unpaid Obligations shall bear interest
at a fixed rate per annum equal to ten percent (10.0%).
(b) Default Rate. Upon the occurrence and
during the continuation of an Event of Default, the outstanding principal
balance of the Note as well as all other outstanding and unpaid Obligations
shall bear interest at a per annum rate equal to four and one-half percent
(4.5%) above the rate of interest otherwise applicable thereto.
(c) Payments. Interest payable hereunder
shall be due and payable, in arrears, on the last day of each month during the
term hereof. All payments and prepayments by the Borrower on the Term Note shall
be made in immediately available funds to the Bank at its main office in
Minneapolis, Minnesota, not later than 2:00 p.m. (Minneapolis time) on the day
such payment is due. Funds received after such hour shall be deemed to have been
received by the Bank on the next Business Day. Borrower hereby authorizes
Lender, at its option, without prior notice to Borrower, to charge such interest
due under the Term Note to the Interest Reserve Escrow Agreement, in the manner
provided for therein. The Term Note may be prepaid from time to time in whole or
in part without penalty or premium.
(d) Computation. All interest and fees
chargeable under the Loan Documents shall be computed on the basis of a 365/366
day year.
(e) Excess Interest. It is the intention
of the Lender and the Borrower to comply with the laws of the State of
Minnesota, and notwithstanding any provision to the contrary contained herein or
in the other Loan Documents, the Borrower shall not be required to pay, and the
Lender shall not be permitted to collect any amount in excess of, the maximum
amount of interest permitted by law ("Excess Interest"). If any Excess Interest
is provided for or determined to have been provided for by a court of competent
jurisdiction in this Agreement or in any of the other Loan Documents, then in
such event (A) the provisions of this subparagraph shall govern and control; (B)
neither the Borrower nor any guarantor or endorser shall be obligated to pay any
Excess Interest; (C) any Excess Interest that the Lender may have received
hereunder shall be, at the Lender's option, (1) applied as a credit against the
outstanding principal balance of the Obligations or accrued and unpaid interest
(not to exceed the maximum amount permitted by law), (2) refunded
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to the payor thereof, or (3) any combination of the foregoing; (D) the interest
rate(s) provided for herein shall be automatically reduced to the maximum lawful
rate allowed under applicable law, and this Agreement and the other Loan
Documents shall be deemed to have been, and shall be, reformed and modified to
reflect such reduction; and (E) neither the Borrower nor any Guarantor shall
have any action against the Lender for any damages arising out of the payment or
collection of any Excess Interest.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO THE TERM LOAN. The obligation of
Lender to make the Term Loan is subject to the fulfillment, to the satisfaction
of Lender and its counsel, of each of the following conditions on or before the
Closing Date:
(a) the Closing Date of the Purchase Agreement
shall have occurred;
(b) Lender shall have received each of the
following documents, duly executed, and each such document shall be in full
force and effect:
(1) a Term Promissory Note, of even date
herewith executed by the Borrower and
payable to the order of the Lender in the
original principal amount of $15,000,000
("Note");
(2) a Borrower Security Agreement of even
date herewith, whereby the Borrower grants
to the Lender a Lien in and to all of
Borrower's now owned or hereafter acquired
Accounts, Chattel Paper, Contracts,
Documents, Equipment, General Intangibles,
Inventory, and other personal property
together with proceeds of the foregoing
("Borrower Security Agreement");
(3) UCC-1 Financing Statements, listing
Borrower, as debtor, and Lender, as secured
party, and containing a description of the
collateral set forth in the Borrower
Security Agreement for filing with the
Secretaries of State of California,
Colorado, Illinois, Kansas, Minnesota,
Pennsylvania and Wisconsin and such other
offices as the Lender deems necessary to
protect its Lien in such collateral;
(4) a Membership Interest Pledge Agreement,
of even date herewith, executed by the
Borrower in favor of Lender, with respect to
the Borrower's membership interest in CRNO
and a duly executed Membership Interest
Pledge Agreement, of even date herewith,
executed by the Borrower in favor of the
Lender, with respect to the Borrower's
membership interest in CRNL (collectively,
the "Borrower Pledge Agreements");
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(5) UCC-1 Financing Statements, listing
Borrower, as debtor and Lender, as secured
party and containing a description of the
collateral set forth in the Borrower Pledge
Agreements, for filing with the Secretaries
of State of Delaware and California and such
other offices as the Lender deems necessary
to protect its Lien in such collateral;
(6) an Assignment Instruction, of even date
herewith, executed by the Borrower and
acknowledged by CRNO with respect to the
Borrower's membership interest in CRNO and
an Assignment Instruction, of even date
herewith, executed by the Borrower and
acknowledged by CRNL with respect to
Borrower's membership interest in CRNL;
(7) a Guaranty of the Note, executed by
CRN ("CRN Guaranty");
(8) a Guaranty of the Note, executed
by CRNH ("CRNH Guaranty");
(9) a Guaranty of the Note, executed by
CRNO ("CRNO Guaranty");
(10) each of the Mortgages;
(11) each of the Collateral Assignments of
Key Leases, together with an appropriate
consent to hypothecation from the lessor
under the relevant Key Lease, except to the
extent Lender permits one or more of such
consents to be delivered after the Closing
Date pursuant to Section 3.3 hereof;
(12) the Collateral Assignments of Tower
Leases, together with an appropriate consent
to hypothecation from the lessor under the
relevant Tower Lease, except to the extent
Lender permits one or more of such consents
to be delivered after the Closing Date
pursuant to Section 3.3;
(13) a Security Agreement, of even date
herewith, executed by CRNO in favor of the
Lender ("CRNO Security Agreement");
(14) duly executed UCC-1 Financing
Statements listing CRNO, as debtor, and
Lender, as secured party, and containing a
description of the collateral set forth in
the CRNO Security Agreement, for filing with
the Secretaries of State of California,
Colorado, Illinois, Kansas,
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Minnesota, Pennsylvania and Wisconsin and
such other offices as the Lender deems
necessary to protect its Lien in such
collateral;
(15) a Security Agreement, of even date
herewith, executed by CRNL in favor of the
Lender ("CRNL Security Agreement");
(16) duly executed UCC-1 Financing
Statements listing CRNL, as debtor, and
Lender, as secured party, and containing a
description of the collateral set forth in
the CRNL Security Agreement, for filing with
the Secretaries of State of Delaware and
California and such other offices as the
Lender deems necessary to protect its Lien
in such collateral;
(17) duly executed Interest Reserve Escrow
Agreement, executed by the Borrower and CRN;
(18) secured transaction and tax lien
searches against each of the Obligors on
such dates as the Lender shall request.
(c) Lender shall have received a certificate
from the Secretary of each Obligor attesting to the resolutions of such
Obligor's Board of Governors authorizing its execution, delivery, and
performance of the Loan Documents to which such Obligor is a party and
authorizing specific officers of such Obligor to execute the same;
(d) Lender shall have received copies of each
Obligor's Governing Documents, as amended, modified, or supplemented to the
Closing Date, certified by the Secretary of the applicable Obligor;
(e) Lender shall have received a certificate of
status with respect to each Obligor, dated within 10 days of the Closing Date,
such certificate to be issued by the appropriate officer of the jurisdiction of
organization of such Obligor, which certificate shall indicate that such Obligor
is in good standing in such jurisdiction;
(f) Lender shall have received a certificate of
insurance, together with the endorsements thereto, as are required by Section
6.3, the form and substance of which shall be satisfactory to Lender and its
counsel, except to the extent Lender permits one or more of the same to be
delivered after the Closing Date pursuant to Section 3.3 hereof;
(g) Lender shall have received balance sheet
information in form reasonably acceptable to Lender, as of September 30, 1998,
for each Obligor;
(h) Lender shall have received an opinion of
Borrower's counsel in form and substance satisfactory to Lender in its sole
discretion;
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(i) Lender shall have received mortgagee title
insurance policies (or marked commitments to issue the same) for the Real
Property Collateral issued by a title insurance company satisfactory to Lender
(each a "Mortgage Policy" and, collectively, the "Mortgage Policies") in amounts
satisfactory to Lender assuring Lender that the Mortgages are valid and
enforceable first priority mortgage Liens, free and clear of all defects and
encumbrances except Permitted Liens, and the Mortgage Policies shall otherwise
be in form and substance reasonably satisfactory to Lender; in each case, except
to the extent Lender permits one or more of the same to be delivered after the
Closing Date pursuant to Section 3.3 hereof;
(j) Lender shall have received payment of the
Lender Expenses as provided for in Section 6.14;
(k) all other documents and legal matters in
connection with the transactions contemplated by this Agreement shall have been
delivered, executed, or recorded and shall be in form and substance reasonably
satisfactory to Lender and its counsel.
3.2 ADDITIONAL CONDITIONS PRECEDENT TO THE TERM LOAN. The
following shall be conditions precedent to the obligation of the Lender to make
the Term Loan hereunder:
(a) the representations and warranties contained
in this Agreement and the other Loan Documents shall be true and correct in all
material respects on and as of the date of such extension of credit, as though
made on and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date);
(b) no Default or Event of Default shall have
occurred and be continuing on the date of such extension of credit, nor shall
either result from the making thereof; and
(c) no injunction, writ, restraining order, or
other order of any nature prohibiting, directly or indirectly, the extending of
such credit shall have been issued and remain in force by any governmental
authority against Borrower, Lender, or any of their Affiliates.
3.3 CONDITION SUBSEQUENT. As conditions subsequent to
closing hereunder, Borrower shall:
3.3.1 (a) within thirty (30) days of the Closing Date,
deliver to Lender the certified copies of the
policies of insurance, together with the endorsements
thereto, as are required by Section 6.3, the form and
substance of which shall be satisfactory to Lender
and its counsel.
(b) within 30 days following the Closing Date,
deliver to Lender each of the Mortgage Policies to
the extent the same were not required by Lender to be
delivered on or before the Closing Date under Section
3.1.
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3.3.2 use its good faith efforts to perform or cause to be
performed each of the following, provided Borrower shall not
be required to incur any additional monetary or other
obligations to lessors in connection therewith:
(a) within days following the Closing Date, deliver
to Lender an appropriate consent to hypothecation
from the lessor under each of the Key Leases
described in the Collateral Assignments of Key
Leases.
(b) within 30 days following the Closing Date,
deliver to Lender an appropriate consent to
hypothecation from the lessor under each of the Tower
Leases described in the Collateral Assignments of
Tower Leases.
(c) within 30 days following the Closing Date,
deliver to Lender the Collateral Access Agreements.
3.4 TERM. This Agreement shall become effective upon the
execution and delivery hereof by Borrower and Lender and shall continue in full
force and effect for a term ending on the date that is 18 months from the
Closing Date (the "Maturity Date"), unless sooner terminated pursuant to the
terms hereof.
4. REPRESENTATIONS AND WARRANTIES.
In order to induce Lender to enter into this Agreement,
Borrower makes the following representations and warranties which shall be true,
correct, and complete in all respects as of the date hereof, and shall be true,
correct, and complete in all respects as of the Closing Date (except to the
extent that such representations and warranties relate solely to an earlier
date) and such representations and warranties shall survive the execution and
delivery of this Agreement:
4.1 CORPORATE EXISTENCE. The Borrower and each of the other
Obligors is a limited liability company duly organized, validly existing and in
good standing under the laws of the State of Delaware, has the requisite power
and authority to own its property and to transact the business in which it is
now engaged, and both Borrower and CRNO are duly qualified and authorized to do
business in California and in each other jurisdiction in which the nature of its
business or properties makes such qualification necessary, except where the
failure to so qualify would not result in Material Adverse Occurrence. The FEINs
for each of the Obligors are as set forth on Schedule 4.1.
4.2 SUBSIDIARIES. Except as listed on Schedule 4.2, the
Borrower has no Subsidiaries and has no other interest in any other corporation,
limited liability company partnership, joint venture, trust, unincorporated
organization or other entity.
4.3 CORPORATE POWER AND AUTHORITY. The Borrower has full
power, right and authority to execute and deliver the Loan Documents, to borrow
the funds herein provided for, and
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to perform and observe each and all of the matters and things provided for in
said Loan Documents. The execution, delivery and performance by the Borrower of
the Loan Documents to which it is a party and the borrowings from time to time
hereunder have been duly authorized by all necessary corporate action and do and
will not (i) require any consent or approval of the members of the Borrower, or
any authorization, consent or approval by any governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
except as disclosed in writing to the Lender on Schedule 4.3, (ii) violate any
provision of any law, rule or regulation or of any order, writ, injunction or
decree presently in effect having applicability to the Borrower or of the
Governing Documents of the Borrower, (iii) result in a breach of or constitute a
default under any indenture or loan or credit agreement or any other agreement
(other than the Purchase Agreement), lease (other than the Key Leases or the
Tower Leases) or instrument to which the Borrower is a party or by which it or
its properties may be bound or affected, or (iv) result in or require the
creation or imposition of any mortgage, deed of trust, pledge, lien, security
interest or other charge or encumbrance of any nature (other than the Borrower
Security Agreement and the Borrower Pledge Agreements) upon or with respect to
any of the properties now owned or hereafter acquired by the Borrower.
4.4 OWNERSHIP. CRNH is the sole member of the Borrower and no
other Person has any rights, options, warrants, conversion or exchange rights,
with respect thereto. Borrower is the sole member of CRNO and CRNL and no other
Person has any rights, options, warrants, conversion or exchange rights, with
respect thereto.
4.5 VALIDITY OF OBLIGATIONS. This Agreement and each of the
other Loan Documents to which the Borrower is a party are the legal, valid and
binding obligation of the Borrower, enforceable against the Borrower, in
accordance with their respective terms, subject only to bankruptcy, insolvency,
reorganization, moratorium or similar laws at the time in effect affecting the
enforceability of rights of creditors generally and to general principles of
equity.
4.6 FINANCIAL STATEMENTS. The Borrower's unaudited, interim
financial statements as of September 30, 1998, copies of which have been
furnished to the Lender, present fairly the financial condition of the Borrower
as at such date and the result of its operations for the period then ended, but
subject to other year-end audit adjustments, and there has been no material
adverse change in said financial condition. The Borrower has no contingent
obligations, liabilities for taxes or other outstanding financial obligations
which are material in the aggregate, which are not otherwise disclosed in the
financial statements referred to above.
4.7 LIENS. Except as listed on Schedule P-1 and Liens existing
on the Closing Date on assets acquired by the Borrower from the Lender pursuant
to the Purchase Agreement, the Borrower has good and marketable title to all of
its properties and assets, which properties and assets are not subject to any
mortgage, pledge, title retention lien, or other lien, encumbrance or security
interest.
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4.8 LITIGATION. Except as listed on Schedule 4.8, as of the
date of this Agreement, there is no action, suit or proceeding at law or equity,
or before or by any federal, state, local or other governmental departments,
commission, board, bureau, agency or instrumentality, domestic or foreign,
pending, or to the knowledge of any officer of Borrower threatened, against the
Borrower and its respective businesses, operations, properties, assets, or
financial conditions which, if determined adversely would constitute a Material
Adverse Occurrence; and the Borrower is not in default with respect to any final
judgment, writ, injunction, decree, rule or regulation of any court or federal,
state, local or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, which, if determined adversely, would
be a Material Adverse Occurrence.
4.9 ACCURACY OF INFORMATION. All factual information
heretofore or contemporaneously furnished by or on behalf of the Borrower, any
Subsidiary or the Guarantors to the Lender for purposes of or in connection with
this Agreement or any transaction contemplated hereby (other than the transfer
of assets pursuant to the Purchase Agreement), is and all other such factual
information hereafter furnished by or on behalf of the Borrower to the Lender
will be, true and accurate in every material respect on the date as of which
such information is dated or certified and not incomplete by omitting to state
any material fact necessary to make such information not misleading on such
date.
4.10 TAX RETURNS; AUDITS. The Borrower has filed all federal
and state income tax returns which, to the knowledge of Borrower, are required
to be filed, and has paid all taxes as shown on said returns and on all
assessments received by them to the extent that such taxes have become due. The
Borrower has no knowledge of any objections to or claims for additional taxes by
federal, state or local taxing authorities for subsequent years.
4.11 CORPORATE TAKEOVERS. No proceeds of the Note will be used
to acquire any security in any transaction which is subject to Section 13 or 14
to the Securities and Exchange Act of 1934, including without limitation
Sections 13(d) and 14(d) thereof.
4.12 INVESTMENT COMPANY ACT. The Borrower is not an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
4.13 CONSENTS, ETC. No consent, approval, authorization of, or
registration, declaration or filing with any governmental authority is required
on the part of the Borrower in connection with the execution and delivery of
this Agreement or the other Loan Documents or the performance of or compliance
with the terms, provisions and conditions hereof, except as described on
Schedule 4.3.
4.14 ERISA. None of Borrower, any of its Subsidiaries, or any
of their ERISA Affiliates maintains or contributes to any Benefit Plan, other
than those listed on Schedule 4.14. Neither a Reportable Event nor a Prohibited
Transaction has occurred and is continuing with respect to any Plan; no notice
of intent to terminate a Plan has been filed, nor has any Plan been terminated;
19
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no circumstances exist which constitute grounds entitling the PBGC to institute
proceedings to terminate, or appoint a trustee to administer, a Plan, nor has
the PBGC instituted any such proceedings; neither the Borrower nor any commonly
controlled Entity has completely or partially withdrawn from a Multiemployer
Plan; the Borrower and each Commonly Controlled Entity have met their minimum
funding requirements under ERISA with respect to all of their Plans, and the
present value of all vested benefits under each Plan does not exceed the fair
market value of all Plan assets allocable to such benefits, as determined on the
most recent valuation date of the Plan and in accordance with the provisions of
ERISA; and neither the Borrower nor any commonly Controlled Entity has incurred
any liability to the PBGC under ERISA.
4.15 NO EVENTS OF DEFAULT. No Default and no Event of
Default has occurred and is continuing as of the date hereof.
4.16 SOLVENCY. (a) Borrower is Solvent. No transfer of
property is being made by Borrower and no obligation is being incurred by
Borrower in connection with the transactions contemplated by this Agreement or
the other Loan Documents with the intent to hinder, delay, or defraud either
present or future creditors of Borrower.
(b) Each of the other Obligors is Solvent. No
transfer of property is being made by such Obligor and no obligation is being
incurred by such Obligor in connection with the transactions contemplated by
this Agreement or the other Loan Documents with the intent to hinder, delay, or
defraud either present or future creditors of such Obligor.
4.17. LICENSES AND PERMITS. All material licenses, permits,
and consents and similar rights (other than licenses, permits and consents
acquired from the Lender pursuant to the Purchase Agreement) required from any
Federal, state, or local governmental body for the ownership, construction, use,
and operation of the Stations and other properties now owned and operated by any
of the Obligors, have been validly issued and are in full force and effect and
each Obligor is in compliance, in all material respects, with all of the
provisions thereof and none of such licenses, permits, or consents is the
subject of any pending or, to the best of Borrower's knowledge and belief,
threatened proceeding for the revocation, cancellation, suspension, or
non-renewal thereof. As of the Closing Date, Schedule 4.17 is a complete and
accurate list of all such licenses, permits, and consents, and such schedule
identifies the date by which an application for the renewal of such license,
permit, or consent must be filed and describes the status of each such pending
application. Each of the Obligors owns or possesses all material patents,
trademarks, trade names, copyrights, and other similar rights necessary for the
conduct of its business as now carried on, without any known conflict of the
rights of others.
5. REPRESENTATIONS AND WARRANTIES OF LENDER
In order to induce Borrower to enter into this Agreement, Lender makes
the following representations and warranties which shall be true, correct, and
complete in all respects as of the date hereof, and shall be true, correct, and
complete in all respects as of the Closing Date (except
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to the extent that such representations and warranties relate solely to an
earlier date) and such representations and warranties shall survive the
execution and delivery of this Agreement.
5.1 CORPORATE EXISTENCE. Lender is a corporation organized,
validly existing and in good standing under the laws of the State of Minnesota,
and has the requisite power and authority to enter into this Agreement and to
enter into and complete the transactions contemplated herein. Lender is duly
qualified and authorized to do business in each other jurisdiction in which the
nature of its business or properties makes such qualification necessary.
5.2 CORPORATE POWER AND AUTHORITY. Lender has full power,
right and authority to execute and deliver the Loan Documents to be executed by
Lender, to lend the funds herein and therein provided for, and to perform and
observe each and all of the matters and things provided for in said Loan
Documents to be performed and observed by Lender. The execution, delivery and
performance by Lender of the Loan Documents to which it is a party and the
transactions contemplated thereunder have been duly authorized by all necessary
corporate action and do and will not (i) require any consent or approval of the
shareholders of Lender, or any authorization, consent or approval by any
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign except as has already been obtained, (ii) violate any
provision of any law, rule or regulation or of any order, writ, injunction or
decree presently in effect having applicability to Borrower, (iii) violate or
result in a breach of or constitute a default under the Articles of
Incorporation, Bylaws or other governing documents of Lender, (iv) result in a
breach of or constitute a default under any indenture, loan agreement, or other
instrument or document to which Lender is a party or by which it or its
properties may be bound or affected, or (v) result in or require the creation or
imposition of any mortgage, deed or trust, pledge, lien, security interest or
other charge or encumbrance of any nature upon and with respect to any of the
properties now owned or hereafter acquired by Lender.
5.3 VALIDITY OF OBLIGATIONS. This Agreement and each of the
other loan documents to which Lender is a party are the legal, valid and binding
obligation of Lender, enforceable against Lender in accordance with their
respective terms, subject only to bankruptcy, insolvency, reorganization,
moratorium or similar laws at the time in effect affecting the enforceability of
rights of creditors generally and to general principles of equity.
6. AFFIRMATIVE COVENANTS.
Borrower hereby covenants and agrees with the Lender that for so long
as any amount remains unpaid on the Term Note or on any other amount payable by
the Borrower to the Lender hereunder or under any Loan Document, Borrower will,
unless the Lender shall otherwise consent in writing:
6.1 MAINTAIN ASSETS. Other than certain post-closing
obligations of the Lender described in the Purchase Agreement, maintain, keep
and preserve, and cause each subsidiary to maintain, keep and preserve all of
its assets, properties and equipment necessary or useful in the
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proper conduct of its business in good repair, working order and condition,
ordinary wear and tear excepted, and from time to time make or cause to be made
all needed renewals, replacements and repairs so that at all times such
businesses can be operated efficiently.
6.2. ACCOUNTING SYSTEM. Maintain, and cause each
Subsidiary to maintain, a standard and modern system of accounting that enables
Borrower and each of the other Obligors to produce financial statements in
accordance with GAAP, and maintain records pertaining to the Collateral that
contain information as from time to time may be requested by Lender.
6.3. INSURANCE. Maintain, and cause each Subsidiary to
maintain, in addition to the insurance required by the Mortgages, the Borrower
Security Agreement, the CRNO Security Agreement and the CRNC Security Agreement,
workers' compensation, liability insurance and property insurance on all of its
properties, assets and businesses with financially sound and reputable insurance
companies or associations in such amounts and covering such risks as are usually
carried by companies engaged in the same or a similar business and similarly
situated, which insurance may provide for reasonable deductibility from coverage
thereof, and furnish to the Lender upon request appropriate evidence of the
carrying of such insurance. Borrower and each Subsidiary will obtain loss
payable endorsements on applicable insurance policies in favor of the Borrower
or Subsidiary and the Lender as their interests appear. Borrower shall cause
each insurer to provide the Lender with thirty (30) days prior written notice of
cancellation or nonrenewable.
6.4. FINANCIAL STATEMENTS. Furnish to the Lender:
6.4.1. ANNUAL. As soon as available and in any event within
120 days after the close of each of Borrower's fiscal years, the
audited balance sheet of the Borrower and its Subsidiaries as at the
end of such year and the audited statement of income and retained
earnings for Borrower and its Subsidiaries for such year, prepared by
an independent certified public accountants of recognized standing
selected by Borrower and acceptable to the Lender. Such statement shall
be accompanied by the written statement of such accountants that in
making the examination necessary for their certification of such
financial statements that they have obtained no knowledge of any
default by Borrower (or the continuance thereof) in the performance of
any of the financial covenants contained in this Agreement, or if such
accountants shall have obtained knowledge of any such default or the
continuance thereof, they shall disclose in such statement such default
or defaults or the continuance thereof, it being understood that such
accountants shall not be liable for failure to obtain knowledge of any
such default or the continuance thereof.
6.4.2. MONTHLY. As soon as available and in any event within
thirty (30) days after the end of each month, Borrower's internally
prepared balance sheet as of the end of such month and statement of
income and retained earnings for the portion of the fiscal year then
ended (such financial statement to be in a format substantially similar
to that of internally prepared financial statements previously
delivered to the Lender), all in reasonable detail
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<PAGE>
but subject to year-end audit adjustments and certified as accurate by the
Borrower's Chief Financial Officer or Controller.
6.4.3. TAX RETURNS. As soon as available and in any event
within thirty (30) days after their filing, the federal and state tax
returns (together with all schedules and attachments) of the Borrower,
CRNO and CRNL for each fiscal year.
6.4.4 GOVERNMENT AUTHORIZATIONS. As soon as practicable, and
in any event within ten (10) days after the receipt by any Obligor from
the FCC or any other governmental agency having jurisdiction over the
operations of any Obligor or filing or receipt thereof by any Obligor,
(i) copies of any order or notice of the FCC or such other agency or
court of competent jurisdiction which designates any material FCC
License or other material franchise, permit, or other governmental
operating authorization of any Obligor, or any application therefor,
for a hearing or which refuses renewal or extension of, or revokes or
suspends the authority of any Obligor to construct or operate a
Communications System (or portion thereof), (ii) a copy of any
competing application filed with respect to any such FCC License or
other authorization, or application therefor, of any Obligor, or any
citation, notice of violation, or order to show cause issued by the FCC
or other agency or any complaint filed by the FCC or other agency which
is available to any Obligor, and (iii) a copy of any notice or
application by any Obligor requesting authority to or notifying the FCC
of its intent to cease broadcasting on any broadcast station for any
period in excess of ten (10) days.
6.4.5. OFF-THE-AIR REPORTS. Promptly deliver notice of each
occurrence of a period of twenty-four (24) consecutive hours or more
during which any Station owned or operated by any Obligor was not
broadcasting.
6.4.6. OTHER. From time to time such other material
information pertaining to Borrower, any Subsidiary and the Guarantors
and their respective financial condition as the Lender may reasonably
request.
6.5. ACCESS TO RECORDS. At any reasonable time and from time
to time, upon seven days prior notice, permit the Lender or any agent or
representative thereof, to examine and make copies of and abstracts from the
records and books of account of Borrower, and to discuss the affairs, finances,
and accounts of Borrower with the Borrower's Chief Executive Officer or Chief
Financial Officer during normal business hours.
6.6. TAXES, ASSESSMENTS AND CHARGES. Promptly pay over to the
appropriate authorities all sums for taxes deducted and withheld from wages as
well as the employer's contributions relating thereto and promptly pay all
taxes, assessments and other governmental charges imposed upon or asserted
against Borrower's income, profits, properties and activities and all claims for
labor, materials, supplies, rental charges or otherwise which are or might
become a lien charged upon Borrower's properties, unless the same are being
contested in good faith by
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appropriate proceedings and adequate reserves shall have been established on
Borrower's books with respect hereto.
6.7 COMPLIANCE WITH LAW. Comply, and cause each of its
Subsidiaries to comply, in all material respects, with all applicable laws,
rules, regulations and orders, including all applicable provisions of ERISA and
the regulations and published interpretations thereunder, except to the extent
that Lender has undertaken the obligation to so comply pursuant to the Purchase
Agreement.
6.8. NOTIFICATION OF CHANGES. Promptly notify the
Lender in writing of:
(i) Any litigation which might materially and adversely
affect Borrower and any of the properties of Borrower;
(ii) The occurrence of any disposal or release of any
Hazardous Materials on, from or under any property owned, operated or
controlled by the Borrower, except as may have occurred in compliance
with applicable environmental laws.
6.9. EXISTENCE. Preserve and maintain, and cause each of its
Subsidiaries to preserve and maintain, its corporate existence and good standing
in the jurisdiction of its incor poration and continue in compliance in all
material respects with all applicable statutes, laws, rules and regulations.
6.10. CONDUCT OF BUSINESS. Continue to engage in a business of
the same general type as that now being conducted by Borrower on the date of
this Agreement, provided, however, that nothing contained in this Section shall
prevent Borrower from discontinuing any part of the business of Borrower, if the
discontinuance is, in the opinion of the Board of Governors of Borrower, in the
best interests of Borrower, and such discontinuance shall not be disadvantageous
to the Lender.
6.11. BOOKS AND RECORDS. Keep true and accurate records
and books of accounts, in accordance with GAAP.
6.12 VANDER EYK AGREEMENT. Pursuant to the terms of the Vander
Eyk Agreement, take all steps necessary and pay all sums required to purchase
the Property, as defined in the Vander Eyk Agreement, by not later than January
12, 1999, including, without limitation, the payment of such extension fees as
may be required under the terms of the Vander Eyk Agreement to extend the
scheduled Close of Escrow, as defined in the Vander Eyk Agreement, through such
date at least five (5) Business Days prior to the date such extension fee
payment would otherwise be due under the terms of the Vander Eyk Agreement, and
to provide the Lender within two (2) Business Days thereafter with written
evidence of the payment of such extension fees.
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6.13. SURVIVAL OF REPRESENTATIONS, ETC. All representations
and warranties by Borrower herein shall survive delivery of the Term Note and
any investigation at any time made by or on behalf of Lender shall not diminish
Lender's right to rely upon such representations and warranties.
6.14. COSTS AND EXPENSES. The Borrower agrees to pay on demand
all Lender Expenses, provided however, that Borrower and Lender have agreed to
share equally the costs related to the Mortgage Policies and the fees in
connection with the Interest Reserve Escrow Agreement and provided further
however, that Lender's actual attorneys' fees and disbursements for the
preparation and negotiation of the Loan Documents shall not exceed $25,000.
7. NEGATIVE COVENANTS.
Borrower hereby covenants and agrees with the Lender that so long as
any amount shall remain unpaid on the Term Note or any amount payable by the
Borrower to the Lender hereunder or under any other Loan Document, Borrower will
not, without the written consent of the Lender:
7.1. LIENS AND ENCUMBRANCES. Create, assume, incur or suffer
to exist any pledge, mortgage, assignment or other Lien or encumbrance of any
kind, of or upon any of its prop erty of any kind, whether now owned or
hereafter acquired, or of or upon the income or profits therefrom except for:
7.1.1. Liens for taxes, assessments and other governmental
charges which are not delinquent or which are being contested in good
faith by appropriate proceedings diligently conducted, against which
required reserves have been set up;
7.1.2. Liens incurred or deposits made in the ordinary course
of business in connection with worker's compensation, unemployment
insurance or other similar laws or to secure the performance of
statutory obligations of a like nature (exclusive of obligations for
the payment of money borrowed);
7.1.3. Liens imposed by law in connection with transactions in
the ordinary course of business, such as liens of carriers,
warehousemen, mechanics and materialmen for sums not yet due or being
contested in good faith and by appropriate proceedings diligently
conducted, against which adequate reserves have been set up;
7.1.4. Landlords' liens under real estate leases to which
Borrower is a party;
7.1.5. First priority purchase money mortgages, liens, or
security interests (which term for purposes of this subsection shall
include conditional sale agreements or other title retention agreements
and leases in the nature of title retention agreements) upon or in real
property or Equipment acquired after the date hereof incurred solely to
secure the financing, and any refinancings from time to time thereof,
of any such real property or Equipment, or
25
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mortgages, liens or security interests existing in such property at the
time of acquisition thereof, provided that no such mortgage, lien or
security interest extends or shall extend to or cover any property of
the Borrower, other than the real property or Equipment then being
acquired and Lender hereby agrees to release or subordinate its Lien in
any such real property or Equipment as requested by the purchase money
lienholder thereof;
7.1.6. Easements, rights-of-way, restrictions and other
similar encumbrances which, in the aggregate, do not materially
interfere with the occupation, use, and enjoyment by Borrower of the
property or assets encumbered thereby in the normal course of its
business or materially impair the value of the property subject
thereto;
7.1.7. Liens that may arise in connection with Capitalized
Leases permitted by Section 7.2, provided no such Lien shall extend to
or cover any assets other than the assets subject to such Capitalized
Lease;
7.1.8. Liens described on Schedule P-1 hereto;
7.1.9. Liens existing on the date hereof in the assets
obtained by the Borrower from the Lender pursuant to the Purchase
Agreement; and
7.1.10. Liens to secure Acquisition Related Indebtedness
permitted under Section 7.4(3).
7.2. INDEBTEDNESS. Create, incur, assume, contract, waive,
having outstanding, suffer to exist, or otherwise become, directly or
indirectly, liable in respect to any Debt, except:
7.2.1. Indebtedness arising out of this Agreement, the Note
and the other Loan Documents;
7.2.2. Trade payables arising in the ordinary course of
Borrower's business;
7.2.3. Indebtedness incurred in connection with Liens
permitted under Schedule P-1 or Sections 7.1.1, 7.1.2 or 7.1.5;
7.2.4. Acquisition Related Indebtedness permitted under
Section 7.4(3);
7.2.5. Indebtedness (other than Subordinated Indebtedness)
existing on the date hereof as described on Schedule 7.2, but no
extension or renewal thereof;
7.2.6. Capital Lease Obligations incurred in connection with
Capital Expenditures permitted by Section 7.10.
7.2.7. Subordinated Indebtedness.
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7.3. DEFAULT ON OTHER OBLIGATIONS. Default upon or fail to pay
any of its other material debts or obligations as the same mature unless
adequate reserves for the payment thereof have been established on Borrower's
books with respect hereto.
7.4. CHANGE IN CONTROL, MERGE, CONSOLIDATE OR SELL. Cause,
permit or suffer directly or indirectly, any change in control, wind up,
liquidate or dissolve itself, reorganization, merge or consolidate with or into,
or convey, sell, assign, transfer, lease, or otherwise dispose of (whether in
one transaction or in a series of transactions) all or substantially all of its
assets (whether now owned or hereafter acquired) to any Person, or acquire all
or substantially all of the assets or the business of any Person, or permit any
Subsidiary to do so, except that (1) any Subsidiary may merge into or transfer
assets to the Borrower, (2) any Subsidiary may merge into or consolidate with or
transfer assets to any other Subsidiary, or (3) the Borrower may merge into or
acquire all or substantially all of the assets or securities of any other Person
provided, however, that notwithstanding any other language in this Agreement to
the contrary, to the extent that the payment of any Indebtedness incurred by the
Borrower in connection with such merger or acquisition ("Acquisition Related
Indebtedness") is to be secured with assets of the Borrower or its Subsidiaries,
the Borrower has, prior to the creating of such Acquisition Related
Indebtedness, either (a) obtained the Lender's written consent to such merger or
acquisition, or (b) funded the Interest Reserve Escrow Agreement with such
additional monies so that at the date of the creation of such Acquisition
Related Indebtedness, the aggregate balance of the Interest Reserve Escrow is at
least equal to the aggregate total remaining interest payments due on the Note
until the Maturity Date. In the event the Borrower funds the Interest Reserve
Escrow Agreement as provided above, the Borrower's obligation to maintain
Unrestricted Cash Balances under Section 7.14(b) shall cease.
7.5. INCONSISTENT AGREEMENTS. Enter into any agreement
containing any provision which would be violated or breached by any borrowing by
Borrower hereunder or by the performance by Borrower of its obligations
hereunder or under any Instrument executed pursuant hereto.
7.6. SALE AND LEASEBACK. Sell, transfer, or otherwise dispose
of any personal property to any entity and thereafter directly or indirectly
lease back the same or similar property.
7.7. LOANS. Make or permit to exist any loans advances or
intercompany transfers to or investments in any Person, entity, firm or
corporation, other than:
7.7.1. The purchase and sale of negotiable instruments;
7.7.2. Loans by CRNO to Borrower to enable Borrower to repay
the Term Loan; and
7.7.3. Loans by Borrower to CRNH to enable CRNH to repay the
Initial Subordinated Indebtedness.
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7.8. GUARANTIES, ETC. Except for guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business, assume, guarantee, endorse, or otherwise be or
become directly or contingently responsible or liable (including, but not
limited to, an agreement to purchase any obligation, stock, assets, goods, or
services, or to supply or advance any funds assets, goods, or services, or to
maintain or cause such person to maintain a minimum working capital or net
worth, or otherwise to assure the creditors of any entity or individual against
loss) for obligations of any entity or individual except for (a) guaranties in
favor of the Lender and (b) guaranties issued by the Borrower in connection with
the acquisition as assets by its Subsidiaries.
7.9. DIVIDENDS. Other than for the purposes described in
Sections 7.7.2 and 7.7.3, declare or pay any distributions or dividends; or
purchase, redeem, retire, or otherwise acquire for value any of its membership
interest now or hereafter outstanding; or make any distribution of assets to its
members as such whether in cash, assets, or obligations of the Borrower; or
allocate or otherwise set apart any sum for the payment of any dividend or
distribution on, or for the purchase, redemption, or retirement of any
membership interest; or make any other distribution by reduction of capital or
otherwise in respect of any membership interest; or permit any of its
Subsidiaries to purchase or otherwise acquire for value any stock of the
Borrower or another Subsidiary.
7.10. CAPITAL EXPENDITURES. Other than Capital Expenditures
not exceeding $1,000,000 expended in connection with Borrower's compliance with
Section 6.12 and the build-out of the property so acquired, create, incur,
assume or make any Capital Expenditure for capital improvements or capital
assets, including Capital Lease Obligations, in any fiscal year in excess of
$400,000, provided however, that upon the occurrence of an Event of Default,
Borrower shall immediately cease making capital expenditures of any type until
such Event of Default is cured to the reasonable satisfaction of the Lender.
7.11. INVESTMENTS. The Borrower will not, nor will it permit
any Subsidiary to, purchase or hold beneficially any stock or other securities
or evidences of indebtedness of, make or permit to exist any loans or advances
to, or make any investment or acquire any interest whatsoever in, any other
Person, except with the prior written consent of the Lender in their sole
discretion and except:
(a) investments in direct obligations or money market funds
holding the obligations of the United States of America or any agency
or instrumentality thereof whose obligations constitute full faith and
credit obligations of the United States of America having a maturity of
one year or less, commercial paper issued by U.S. corporations rated
"A1" or "A2" by Standard & Poor's Corporation or "P1" or "P2" by
Moody's Investors Service, or certificates of deposit or Lenders'
acceptances having a maturity of one year or less issued by members of
the Federal Reserve System having deposits in excess of $200,000,000;
(b) travel advances to officers and employees of the
Borrower;
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(c) advances in the form of progress payments, prepaid
rent or security deposits;
(d) existing investments in Borrower's Subsidiaries
described in Schedule 7.4, as the value attributed to such investments
under GAAP may be increased as a result of earnings of such
Subsidiaries;
(e) loans and distributions permitted by Sections 7.7.2
and 7.7.3.; and
(f) acquisitions permitted under Section 7.4(3).
7.12. PAYMENT ON SUBORDINATED INDEBTEDNESS. Make any payment
of principal or interest on any Subordinated Indebtedness, amend or cancel the
subordination provisions relating to such Subordinated Indebtedness, take or
omit to take any action whereby the subordination of such Subordinated
Indebtedness or any part thereof to the Note might be terminated, impaired or
adversely affected or omit to give the Lender prompt notice of any notice
received from any holder of Subordinated Indebtedness of any default under any
agreement or instrument relating to any Subordinated Indebtedness by reason
whereof such Indebtedness might become or be declared to be due and payable;
provided however, that the Borrower may make regularly scheduled payments on
Subordinated Indebtedness so long as no Default exists either prior to or
immediately following such payment.
7.13. TRANSACTIONS WITH AFFILIATES. The Borrower will not, nor
will it permit any Subsidiary, to enter into any transaction with any Affiliate
upon terms and conditions less favorable to the Borrower or such Subsidiary than
the terms and conditions which would apply in a similar transaction with a
person other than such Affiliate.
7.14. FINANCIAL COVENANTS. Fail to maintain:
(a) Cumulative Operating Income Requirement.
Cumulative Operating Income, as measured on a fiscal quarter-end basis, of at
least the amount set forth below:
================================================================================
Qtr/Yr Minimum Cumulative
Operating Income
- --------------------------------------------------------------------------------
Q4/1998 ($1,161,000)
- --------------------------------------------------------------------------------
Q1/1999 ($1,432,000)
- --------------------------------------------------------------------------------
Q2/1999 ($1,073,000)
- --------------------------------------------------------------------------------
Q3/1999 ($ 804,000)
- --------------------------------------------------------------------------------
Q4/1999 ($ 204,000)
- --------------------------------------------------------------------------------
Q1/2000 ($ 37,000)
================================================================================
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(b) Unrestricted Cash Balances. Unrestricted
Cash Balances measured on a fiscal quarter-end basis, of at least $500,000.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an
event of default (each, an "Event of Default") under this Agreement:
8.1 (a) The Borrower shall fail to make any payment (a) of
principal of, or interest on, the Note or (b) of the Lender Expenses, within
three (3) Business Days after the same become due and payable; or
8.2 The Borrower shall fail to perform or observe any term,
covenant or agreement contained in Section 6.12; or
8.3 Any Obligor shall fail to perform or observe any other
term, covenant or agreement contained in any Loan Document on its part to be
performed or observed and such failure remains unremedied for thirty (30)
consecutive calendar days after the Lender has given such Obligor written notice
of the occurrence thereof, or if such failure cannot be cured within said thirty
(30) day period, then such greater period of time as is reasonably required to
effect such cure provided the Borrower diligently commences and pursues the
same;
8.4 The Borrower shall fail to pay any principal of, premium
or interest on or any other amount payable in respect to any Indebtedness that
is outstanding in a principal amount of at least $1,000,000 (but excluding
Indebtedness outstanding under the Note), when the same shall become due and
payable, whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise), unless the same is being contested by the Borrower in good
faith with adequate reserves established;
8.5 Any order for the payment of money in excess of $250,000
(other than such a judgment or order which is fully covered by insurance for
which the appropriate insures has acknowledged responsibility in writing) shall
be issued against any Obligor and either (a) enforcement proceedings shall have
been commenced by any creditor upon such judgment or order or (b) there shall be
a period of forty-five (45) consecutive calendar days during which a stay of
enforcement of such judgment or order, by reason or a pending appeal or
otherwise, shall not be in effect; or
8.6 Any material provision of any Loan Document after delivery
thereof shall for any reason cease to be valid and binding on or enforceable
against any Obligor which is party to it, or any Obligor shall so state in
writing; or
8.7 An Insolvency Proceeding is commenced by any Obligor;
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8.8 An Insolvency Proceeding is commenced against any Obligor
and any of the following events occur: (a) such Obligor consents to the
institution of the Insolvency Proceeding against it; (b) the petition commencing
the Insolvency Proceeding is not timely controverted; (c) the petition
commencing the Insolvency Proceeding is not dismissed within 45 calendar days of
the date of the filing thereof; (d) an interim trustee is appointed to take
possession of all or a substantial portion of the properties or assets of, or to
operate all or any substantial portion of the business of, any Obligor; or (e)
an order for relief shall have been issued or entered therein;
8.9 An Obligor makes any payment on account of Subordinated
Indebtedness, except to the extent such payment is permitted by the terms of the
subordination provisions applicable to such Subordinated Indebtedness;
8.10 The obligation of any Guarantor is limited or terminated
by operation of law or by such Guarantor thereunder, or any Guarantor becomes
the subject of an Insolvency Proceeding; or
8.11 A Change of Control occurs.
9. LENDER'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the
continuation, of an Event of Default, Lender may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrower (and hereby caused by Borrower to be
authorized by each of the other Obligors):
(a) Declare all Obligations, whether evidenced
by this Agreement, the Note, any of the other Loan Documents, or otherwise,
immediately due and payable in each case without presentment, demand, protest or
other notice of any kind;
(b) Terminate this Agreement and any of the
other Loan Documents as to any future liability or obligation of Lender, but
without affecting Lender's rights under the Loan Documents and without affecting
the Obligations;
(c) Cure any failure of Borrower to comply with
the requirements contained in Section 6.12, including the payment of any
extension fees required under the Vander Eyk Agreement or purchase price or the
receipt of delivery of a deed in Lender's name for the Property;
(d) Pursue any remedies provided herein or in
any other Loan Document, or law or in equity.
9.2 REMEDIES CUMULATIVE. Lender's rights and remedies under
this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Lender shall have all other
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rights and remedies not inconsistent herewith as provided under the Code, by
law, or in equity. No exercise by Lender of one right or remedy shall be deemed
an election, and no waiver by Lender of any Event of Default shall be deemed a
continuing waiver. No delay by Lender shall constitute a waiver, election, or
acquiescence by it.
10. WAIVERS; INDEMNIFICATION.
10.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, nonpayment at maturity, release, compromise, settlement, extension,
or renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Lender on which Borrower or any other Obligor may in any way be
liable.
10.2 INDEMNIFICATION. (a) The Borrower agrees to indemnify and
hold harmless the Lender, and its respective officers, directors, employees,
agents and advisors (each, an "Indemnified Party") from and against any and all
claims, damages, losses, liabilities and expense (including, without limitation,
reasonable fees and expenses of counsel) that may be incurred by or asserted or
awarded against any Indemnified Party, in each case arising out of or in
connection with or by reason of, in connection with the preparation for a
defense of, any investigation, litigation or proceeding arising out of, related
to or in connection with (i) a breach by Borrower of its obligations under the
Loan Documents, or, (ii) any acquisition or proposed acquisition or similar
business combination or proposed business combination by the Borrower or any of
its Subsidiaries of all or any portion of the shares of capital stock or
substantially all of the property and assets of any other Person, except to the
extent such claim, damage, loss, liability or expense is found in a final,
non-appealable judgment by a court of competent jurisdiction to have resulted
from any Indemnified Party's gross negligence or willful misconduct.
11. NOTICES.
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other Loan Document shall
be in writing and (except for financial statements and other informational
documents which may be sent by first-class mail, postage prepaid) shall be
personally delivered or sent by registered or certified mail (postage prepaid,
return receipt requested), overnight courier, or telefacsimile to Borrower or to
Lender, as the case may be, at its address set forth below:
IF TO BORROWER: CRN Broadcasting, LLC
8910 University Center Lane, Suite 130
San Diego, California 92122
Attn: John T. Lynch
Fax: 619.784.6910
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WITH COPIES TO: Gray, Cary, Ware & Freidenrich
4365 Executive Drive
Suite 1100
San Diego, California 92121
Attn: Jeffrey T. Baglio
Fax: 619.677.1477
IF TO LENDER: CHILDREN'S BROADCASTING CORPORATION
724 First Street, Fourth Floor
Minneapolis, Minnesota 55401
Attn: Mr. James G. Gilbertson
Fax No. 612.338.4318
WITH COPIES TO: CHILDREN'S BROADCASTING CORPORATION
724 First Street, Fourth Floor
Minneapolis, Minnesota 55401
Attn: Lance W. Riley, Esq.
Fax No. 612.330.9558
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given to
the other.
12. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN AN ANOTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE
STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF HENNEPIN, STATE OF MINNESOTA
OR, AT THE SOLE OPTION OF LENDER, IN ANY OTHER COURT IN WHICH LENDER SHALL
INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER
JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF BORROWER (FOR ITSELF AND ON
BEHALF OF EACH OF THE OTHER OBLIGORS) AND LENDER WAIVES, TO THE EXTENT PERMITTED
UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE
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DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 11. BORROWER (FOR ITSELF
AND ON BEHALF OF EACH OF THE OTHER OBLIGORS) AND LENDER HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH OF BORROWER (FOR ITSELF AND ON BEHALF
OF EACH OF THE OTHER OBLIGORS) AND LENDER REPRESENTS THAT IT HAS REVIEWED THIS
WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
13. GENERAL PROVISIONS.
13.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrower and Lender.
13.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and
inure to the benefit of the respective successors and assigns of each of the
parties; provided, however, that Borrower may not assign this Agreement or any
rights or duties hereunder without Lender's prior written consent and any
prohibited assignment shall be absolutely void. No consent to an assignment by
Lender shall release Borrower from its Obligations. Lender may assign this
Agreement and the other Loan Documents and its rights and duties hereunder and
thereunder and no consent or approval by Borrower or any other Obligor is
required in connection with any such assignment. Lender reserves the right to
sell, assign, transfer, negotiate, or grant participations in all or any part
of, or any interest in Lender's rights and benefits hereunder and under the
other Loan Documents. In connection with any such assignment or participation,
Lender may disclose all documents and information which Lender now or hereafter
may have relating to any Obligor or any Obligor's business. To the extent that
Lender assigns its rights and obligations hereunder or under any other Loan
Document to a third Person, Lender thereafter shall be released from such
assigned obligations to the relevant Obligor and such assignment shall effect a
novation between the relevant Obligor and such third Person.
13.3 SECTION HEADINGS. Headings and numbers have been set
forth herein for convenience only. Unless the contrary is compelled by the
context, everything contained in each section applies equally to this entire
Agreement.
13.4 INTERPRETATION. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against Lender or
Borrower or any other Obligor, whether under any rule of construction or
otherwise. On the contrary, this Agreement has been reviewed by
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all parties (including Borrower for itself and on behalf of each of the other
Obligors) and shall be construed and interpreted according to the ordinary
meaning of the words used so as to fairly accomplish the purposes and intentions
of all parties hereto.
13.5 SEVERABILITY OF PROVISIONS. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
13.6 AMENDMENTS IN WRITING. This Agreement can only be amended
by a writing signed by both Lender and Borrower.
13.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may
be executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement. The foregoing shall apply to each other Loan Document MUTATIS
MUTANDIS.
13.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the
incurrence or payment of the Obligations by Borrower or any Guarantor of the
Obligations or the transfer by either or both of such parties to Lender of any
property of either or both of such parties should for any reason subsequently be
declared to be void or voidable under any state or federal law relating to
creditors' rights, including provisions of the Bankruptcy Code relating to
fraudulent conveyances, preferences, and other voidable or recoverable payments
of money or transfers of property (collectively, a "Voidable Transfer"), and if
Lender is required to repay or restore, in whole or in part, any such Voidable
Transfer, or elects to do so upon the reasonable advice of its counsel, then, as
to any such Voidable Transfer, or the amount thereof that Lender is required or
elects to repay or restore, and as to all reasonable costs, expenses, and
attorneys fees of Lender related thereto, the liability of Borrower or such
Guarantor automatically shall be revived, reinstated, and restored and shall
exist as though such Voidable Transfer had never been made.
13.9 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby
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and shall not be contradicted or qualified by any other agreement, oral or
written, before the date hereof.
13.10 PURCHASE AGREEMENT. Nothing in this Agreement is
intended to modify, change or abridge the respective representations,
warranties, rights, duties and remedies under the Purchase Agreement parties.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Loan
Agreement to be executed in Minneapolis, Minnesota, the day and year first above
written.
CHILDREN'S BROADCASTING CORPORATION, a
Minnesota corporation
By___________________________________________________
Christopher T. Dahl
Title: Chief Executive Officer
CRN BROADCASTING, LLC,
a Delaware limited liability company
By___________________________________________________
John T. Lynch
Title: President and Chief Financial Officer
37
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SCHEDULES AND EXHIBITS
Schedule D-1 Definitions for Financial Covenants
Schedule P-1 Permitted Liens
Schedule S-1 Stations
Schedule 4.20 Licenses and Permits and Renewals thereof
Schedule 4.1 FEINs
Schedule 4.2 Subsidiaries
Schedule 4.3 Required Consents
Schedule 4.8 Litigation
Schedule 4.14 ERISA Benefit Plans
Schedule 4.17 Licenses Other than Acquired
Schedule 7.2 Existing Indebtedness
Schedule 7.13 Initial Subordinated Indebtedness
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SCHEDULE D-1
FINANCIAL COVENANT DEFINITIONS
"CUMULATIVE OPERATING INCOME" means the net income of the Borrower and
its Subsidiaries plus provisions for income taxes, interest expense,
depreciation, amortization and extraordinary charges or credits.
"UNRESTRICTED CASH BALANCES" means all cash and cash equivalents (i.e.,
certificates of deposit, money market accounts) of the Borrower and its
Subsidiaries which are not subject to any Lien.
39
EXHIBIT 10.12
AMENDMENT NUMBER FOUR TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This AMENDMENT NUMBER FOUR TO AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT ("Amendment"), is entered into as of October 1, 1998, between
FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill"), with a
place of business located at 11111 Santa Monica Boulevard, Suite 1500, Los
Angeles, California 90025-3333, and CHILDREN'S BROADCASTING CORPORATION, a
Minnesota corporation ("Borrower"), with its chief executive office located at
724 First Street, Fourth Floor, Minneapolis, Minnesota 55401.
WHEREAS, Borrower and Foothill are parties to that certain
Amended and Restated Loan and Security Agreement, dated as of July 1, 1997, as
amended by that certain Amendment Number One to Amended and Restated Loan and
Security Agreement dated as of September 24, 1997, by that certain Amendment
Number Two to Amended and Restated Loan and Security Agreement dated as of March
13, 1998, and by that certain Amendment Number Three to Amended and Restated
Loan and Security Agreement dated as of May 21, 1998 (as so amended, the "Loan
Agreement");
WHEREAS, Borrower has requested that Foothill make an
additional term loan in the approximate amount of $1,000,000 (the "Supplemental
Term Loan No. 4") such that the aggregate outstanding amount under the Term Loan
as of the Amendment Date shall be $25,000,000, and the proceeds of which shall
be used in part (a) to repay the existing Overadvance outstanding under the
revolving credit facility provided for in Section 2.1 of the Loan Agreement, (b)
to establish the supplemental interest payment reserve described in Section 2.2
as amended by this Amendment, and (c) to pay Foothill the amendment fee due in
connection with this Amendment as described in described in Section 2.2 as
amended by this Amendment. Upon repayment of the Overadvance outstanding under
Section 2.1 of the Loan Agreement from the proceeds of Supplemental Term Loan
No. 4, Borrower shall be permitted to use the balance of amounts available under
Section 2.1 for general working capital purposes;
WHEREAS, Foothill has agreed to make Supplemental Term Loan
No. 4 in accordance with the terms of this Amendment; and
WHEREAS, Borrower and Foothill desire to amend the Loan
Agreement as provided in this Amendment, it being understood that no repayment
of the obligations under the Loan Agreement is being effected hereby, but merely
an amendment and restatement in accordance with the terms hereof. All
capitalized terms used herein and not defined herein shall have the meanings
ascribed to them in the Loan Agreement.
NOW, THEREFORE, in consideration of the mutual promises
contained herein, Foothill and Borrower hereby agree as follows:
<PAGE>
1. Section 1.1 of the Loan Agreement hereby is amended by (a)
deleting the following defined terms in their entireties: "Amendment Date,"
"Loan Documents," and "Term Loan Commitment", and (b) inserting following
defined terms in alphabetical order:
"Amendment Date" means the date of the making of the Supplemental
Term Loan No. 4 on or after the first date written above.
"Loan Documents" means this Agreement as amended by the Fourth
Amendment, and as otherwise amended, supplemented, modified, or
revised from time to time prior to the Amendment Date, the
Disbursement Letter, the Concentration Account Agreement, the
Mortgages, the Collateral Assignments of Key Leases, the Collateral
Assignments of Tower Leases, the Guaranty, the Guarantor Security
Agreement, the Guarantor Stock Pledge Agreement, the Control
Agreements, the Stock Pledge Agreement, the Trademark Security
Agreement, (if and when executed and delivered pursuant hereto) the
Copyright Security Agreement, any note or notes executed by Borrower
and payable to Foothill, and any other agreement entered into, now or
in the future, in connection with this Agreement.
"Term Loan Commitment" means $25,000,000.
2. Section 1.1 of the Loan Agreement hereby is amended by inserting
following additional defined terms in alphabetical order:
"Supplemental Term Loan No. 4" shall have the meaning ascribed
to such term in the recitals of Amendment Number Four.
"Fourth Amendment" means Amendment Number Four to Loan and
Security Agreement, dated as of October 1, 1998, entered into between
Borrower and Foothill.
3. Paragraph (d) of Section 2.1 of the Loan Agreement is hereby
amended and restated in its entirety as follows:
(d) Amounts borrowed pursuant to this Section 2.1 may be repaid
and, subject to the terms and conditions of this Agreement, reborrowed
at any time during the term of this Agreement.
4. Section 2.2 of the Loan Agreement is hereby amended and restated
in its entirety as follows:
2.2 Term Loan.
(a Foothill previously has made the Term Loan to Borrower. As
of the Amendment Date, Foothill has agreed to make the Supplemental
Term Loan No. 4 to Borrower in accordance with the terms hereof (less
the aggregate amount of any reserves to be established in connection
therewith pursuant to the provisions of Section 2.2(c)).
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<PAGE>
Collectively, the Supplemental Term Loan No. 4 and the prior term
loans made by Foothill to Borrower shall be known as the "Term Loan."
(b) The outstanding principal balance and all accrued and unpaid
interest under the Term Loan shall be due and payable upon the
termination of this Agreement, whether by its terms, by prepayment, by
acceleration, or otherwise. All amounts outstanding under the Term
Loan shall constitute Obligations. Unless sooner terminated as
provided herein, Borrower shall repay the Term Loan in quarterly
installments and such installments shall be due and payable on the
following dates in the following amounts:
Date Installment
---- -----------
9/30/98 -0-
10/31/98 $8,000,000
12/31/98 $3,000,000
3/31/99 $3,000,000
6/30/99 $2,000,000
9/30/99 $2,000,000
12/31/99 $2,000,000
3/31/00 $2,000,000
6/30/00 $2,000,000
9/30/00 $1,000,000
(c) Anything to the contrary contained in Section 2.2(a) above
notwithstanding, it is hereby agreed among the parties hereto that
Foothill shall establish a supplementary interest payment reserve
against the Term Loan in the aggregate amount of $300,000, such
reserve to be applied to reduce the amount of proceeds of Supplemental
Term Loan No. 4 otherwise available on the Amendment Date by $300,000
to provide for the payment of a portion of the estimated interest
payments to be due Foothill on Borrower's Obligations as of the end of
each month from the Amendment Date through the earlier of October 31,
1998 or the date on which such supplementary interest payment reserve
is exhausted, such interest payment reserve to be effective and
commence as of the Amendment Date. On the first day of each month
following the Amendment Date until all amounts contained in the
supplementary interest payment reserve are exhausted, additional
proceeds an amount equal to the amount of interest due on Obligations
shall be advanced under Supplemental Term Loan No. 4, reducing the
amount of the supplementary interest payment reserve by a
corresponding amount, and shall be applied to the Loan Account as
payment of interest due on the Obligations in excess of the aggregate
amount of Collections received and applied by Foothill with respect to
interest due on the Obligations in the corresponding period.
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<PAGE>
5. Section 7.17 of the Loan Agreement is hereby amended to delete
the proviso at the end of such Section, and to replace such proviso with the
following:
; provided, however, that in no event shall any advance under the
Supplemental Term Loan No. 4 be used to finance, in whole or in part,
directly or indirectly, (1) any Permitted Unrestricted Subsidiary
Acquisition, or (2) to advance, by way of loan, investment or
guaranty, or otherwise, any monies or credit to or for the benefit,
directly or indirectly, of Harmony.
6. Conditions Precedent to Effectiveness of Amendment. The
effectiveness of this Amendment and the obligation of Foothill to make the
Supplemental Term Loan No. 3 is subject to the completion, to the satisfaction
of Foothill and its counsel, of each of the following conditions on or before
the Amendment Date:
(a) Foothill shall have received executed consents and
reaffirmations from each Guarantor, in form and substance satisfactory to
Foothill;
(b) Foothill shall have received an amendment fee of $100,000
which shall be earned in full and non-refundable as of the date hereof. The
payment of such amendment fee shall be paid on the Amendment Date out of the
proceeds of the Supplemental Term Loan No. 4.
7. Forbearance. Foothill and Borrower hereby acknowledge that
certain Events of Default previously disclosed to Foothill by Borrower
(including without limitation those certain Events of Default acknowledged and
disclosed Foothill by Borrower in those certain letters from Borrower to
Foothill, dated as of March 3, 1998 and May 8, 1998) have occurred and are
continuing under the Loan Agreement (the "Current Defaults"). Foothill hereby
agrees to forebear from taking any action or exercising any of its remedies
under the Loan Agreement with respect to the Current Defaults during the period
from October 1, 1998, through and including October 31, 1998; provided, however,
that such forbearance shall apply only to the Current Defaults, shall not apply
to any other Event of Default continuing as of the Amendment Date, or to any
Event of Default that may occur after the Amendment Date. Further, this
forbearance shall not constitute a waiver by Foothill of any of its rights or
remedies under the Loan Agreement, but shall only constitute a limited
forbearance. Furthermore, nothing contained in this letter shall diminish,
prejudice or waive any of Foothill's rights or remedies under the Loan Agreement
or applicable law, and Foothill hereby reserves all such rights and remedies.
Anything contained in the foregoing to the contrary notwithstanding,
Foothill's continued forbearance with respect to the Current Defaults shall be
contingent on Borrower's successful consummation of the sale of certain of
Borrower's radio stations to Catholic Radio Network, LLC ("CRN") pursuant to the
transactions contemplated in the proxy statement with respect to the sale of
such radio stations to CRN (the "Proxy"), in accordance with the approvals
obtained from the holders of Borrower's Stock for such sale requested from the
holders in connection with the Proxy, on or before October 31, 1998, and
Borrower's failure to achieve the foregoing on or before the date set forth
above shall terminate Foothill's agreement to the forgoing forbearance from and
after the date of such failure.
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<PAGE>
8. Representations and Warranties. Borrower hereby represents and
warrants to Foothill that (a) the execution, delivery, and performance of this
Amendment, are within its corporate powers, have been duly authorized by all
necessary corporate action, and are not in contravention of any law, rule, or
regulation, or any order, judgment, decree, writ, injunction, or award of any
arbitrator, court, or governmental authority, or of the terms of its charter or
bylaws, or of any contract or undertaking to which it is a party or by which any
of its properties may be bound or affected, and (b) the Loan Agreement, as
amended by this Amendment, constitute Borrower's legal, valid, and binding
obligation, enforceable against Borrower in accordance with its terms.
9. Further Assurances. Borrower shall execute and deliver all
agreements, documents, and instruments, in form and substance satisfactory to
Foothill, and take all actions as Foothill may reasonably request from time to
time, to perfect and maintain the perfection and priority of Foothill's security
interests in the Collateral, and to fully consummate the transactions
contemplated under the Loan Agreement and this Amendment.
10. Effect on Loan Documents. The Loan Agreement, as amended hereby,
and the other Loan Documents shall be and remain in full force and effect in
accordance with their respective terms and each hereby is ratified and confirmed
in all respects. Except as expressly set forth herein, the execution, delivery,
and performance of this Amendment shall not operate as a waiver of or as an
amendment of any right, power, or remedy of Foothill under the Loan Agreement or
any other Loan Document, as in effect prior to the date hereof. This amendment
shall be deemed a part of and hereby is incorporated into the Loan Agreement.
11. Miscellaneous.
(a) Upon the effectiveness of this Amendment, each reference in
the Agreement to "this Agreement", "hereunder", "herein", "hereof" or words of
like import referring to the Agreement shall mean and refer to the Loan
Agreement as amended by this Amendment.
(b) Upon the effectiveness of this Amendment, each reference in
the Loan Documents to the "Loan Agreement", "thereunder", "therein", "thereof"
or words of like import referring to the Agreement shall mean and refer to the
Loan Agreement as amended by this Amendment.
(c) This Amendment shall be governed by and construed in
accordance with the laws of the State of California.
(d) This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Amendment by signing
any such counterpart. Delivery of an executed counterpart of this Amendment by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Amendment. Any party delivering an executed counterpart of
this Amendment by telefacsimile also shall deliver an original executed
counterpart of this Amendment but the failure to deliver an original executed
counterpart shall not affect the
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validity, enforceability, and binding effect of this Amendment.[Remainder of
page intentionally omitted.]
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed as of the date first written above.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ Thomas Signrdson
---------------------------------------------------
Title: Vice President
-----------------------------------------------
CHILDREN'S BROADCASTING CORPORATION,
a Minnesota corporation
By /s/ James G. Gilbertson
---------------------------------------------------
Title: COO
-----------------------------------------------
6
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CONSENT, RATIFICATION, AND REAFFIRMATION BY GUARANTORS
Each of the undersigned Guarantors hereby consents to the
execution, delivery, and performance of the foregoing Amendment Number Four to
Amended and Restated Loan and Security Agreement and agrees, ratifies, and
reaffirms that its obligations as a guarantor with respect to the Loan
Documents, as heretofore amended, and as amended by the foregoing amendment,
remain in full force and effect and are not impaired, diminished, or discharged
in any respect.
Dated as of the date first set forth above:
CHILDREN'S RADIO OF LOS ANGELES, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------------------
Title: COO
--------------------------------------------
CHILDREN'S RADIO OF NEW YORK, INC.,
a New Jersey corporation
By /s/ James G. Gilbertson
------------------------------------------------
Title: COO
--------------------------------------------
CHILDREN'S RADIO OF MINNEAPOLIS, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------------------
Title: COO
--------------------------------------------
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CHILDREN'S RADIO OF GOLDEN VALLEY, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------------------
Title: COO
--------------------------------------------
CHILDREN'S RADIO OF MILWAUKEE, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------------------
Title: COO
--------------------------------------------
CHILDREN'S RADIO OF DENVER, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------------------
Title: COO
--------------------------------------------
CHILDREN'S RADIO OF KANSAS CITY, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------------------
Title: COO
--------------------------------------------
8
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CHILDREN'S RADIO OF DALLAS, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------------------
Title: COO
--------------------------------------------
CHILDREN'S RADIO OF HOUSTON, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------------------
Title: COO
--------------------------------------------
CHILDREN'S RADIO OF PHILADELPHIA, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------------------
Title: COO
--------------------------------------------
CHILDREN'S RADIO OF CHICAGO, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------------------
Title: COO
--------------------------------------------
9
<PAGE>
CHILDREN'S RADIO OF PHOENIX, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------------------
Title: COO
--------------------------------------------
WWTC-AM, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------------------
Title: COO
--------------------------------------------
KYCR-AM, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------------------
Title: COO
--------------------------------------------
WZER-AM, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------------------
Title: COO
--------------------------------------------
10
<PAGE>
KKYD-AM, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------------------
Title: COO
--------------------------------------------
KCNW-AM, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------------------
Title: COO
--------------------------------------------
KAHZ-AM, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------------------
Title: COO
--------------------------------------------
KTEK-AM, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------------------
Title: COO
--------------------------------------------
11
<PAGE>
WPWA-AM, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------------------
Title: COO
--------------------------------------------
WCAR-AM, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------------------
Title: COO
--------------------------------------------
WJDM-AM, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------------------
Title: COO
--------------------------------------------
KPLS-AM, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------------------
Title: COO
--------------------------------------------
12
<PAGE>
WAUR-AM, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------------------
Title: COO
--------------------------------------------
KIDR-AM, INC.,
a Minnesota corporation
By /s/ James G. Gilbertson
------------------------------------------------
Title: COO
--------------------------------------------
13
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<ARTICLE> 5
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 166,641
<SECURITIES> 0
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0
2,312,439
<COMMON> 134,380
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<TOTAL-LIABILITY-AND-EQUITY> 31,457,099
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</TABLE>
