U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For Quarterly period ended March 31, 1998 or
[ ] Transition report under to 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
(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 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 May 13, 1998, there were outstanding 6,673,516 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 - March 31, 1998 and December
31, 1997.
Consolidated Statements of Operations -- Three months ended March
31, 1998 and 1997.
Consolidated Statements of Cash Flows -- Three months ended
March 31, 1998 and 1997.
Notes to Consolidated Financial Statements -- March 31, 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
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
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHILDREN'S BROADCASTING CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31,
1998 1997
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 664,258 $ 545,258
Accounts receivable 857,514 1,696,756
Allowance for doubtful accounts (345,691) (472,000)
Accounts receivable - affiliates 123,855 142,868
Prepaid expenses 61,725 108,174
------------ ------------
TOTAL CURRENT ASSETS 1,361,661 2,021,056
Investment in Harmony 5,808,887 6,281,728
Property & equipment, net 4,541,922 4,708,327
Broadcast license, net 19,365,869 19,679,154
Intangible assets, net 1,771,511 1,550,100
Deferred debt issue costs 1,272,275 1,173,209
------------ ------------
TOTAL ASSETS $ 34,122,125 $ 35,413,574
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,049,456 $ 1,688,832
Accrued interest 387,540 324,994
Other accrued expenses 1,269,045 1,203,331
Line of credit 356,161 453,838
Short-term debt 1,900,000 1,172,500
Long-term debt - current portion 23,800,688 22,857,386
Obligation under capital lease - current portion 28,387 26,367
------------ ------------
TOTAL CURRENT LIABILITIES 29,791,277 27,727,248
Long-term debt - net of current portions 2,480,145 2,508,819
Obligation under capital lease 44,369 48,836
------------ ------------
TOTAL LIABILITIES 32,315,791 30,284,903
------------ ------------
Shareholders' equity:
Common stock, $.02 par value:
Authorized shares - 50,000,000
Issued & outstanding shares - voting: 6,484,475
1998 and 5,842,460-- 1997;
Issued and outstaning shares - 189,041 nonvoting -
1998 and 1997 133,470 132,997
Additional paid-in capital 46,743,575 46,387,536
Stock subscription receivable (529,563) (529,563)
Accumulated deficit (44,541,148) (40,862,299)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 1,806,334 5,128,671
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 34,122,125 $ 35,413,574
============ ============
</TABLE>
<PAGE>
CHILDREN'S BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
REVENUES
Owned, Operated and LMA Stations $ 744,680 $ 944,255
Network 91,315 206,466
----------- -----------
REVENUES $ 835,995 $ 1,150,721
OPERATING EXPENSES:
Owned, Operated and LMA Stations:
General and Administrative 529,376 757,640
Technical and Programming 253,579 240,273
Selling 108,264 341,515
----------- -----------
891,219 1,339,428
Network
General and Administrative 109,758 150,820
Programming 125,101 206,980
Selling 150,912 454,588
Marketing 7,991 119,295
----------- -----------
393,762 931,683
Corporate 1,207,726 887,244
Depreciation & Amortization 546,891 458,563
----------- -----------
TOTAL OPERATING EXPENSES 3,039,598 3,616,918
----------- -----------
LOSS FROM OPERATIONS (2,203,603) (2,466,197)
Equity Loss in Harmony 472,841 --
Interest Expense (Net of Interest Income) 1,002,405 313,996
----------- -----------
NET LOSS ($3,678,849) ($2,780,193)
=========== ===========
NET LOSS PER SHARE ($ 0.55) ($ 0.47)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 6,656,000 5,905,000
=========== ===========
</TABLE>
<PAGE>
CHILDREN'S BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($3,678,849) ($2,780,193)
Adjustments to reconcile net loss to net
cash from operating activities:
Provision for doubtful accounts (126,309) 19,381
Depreciation & amortization 546,891 458,563
Amortization of deferred debt issue costs 176,934 --
Net barter activity 16,708 (36,102)
Issuance of common stock for payment of attorney fees -- 183,184
Issuance of common stock for payment of interest 27,710 21,084
Equity loss in Harmony 472,841 --
Decrease (Increase) in:
Accounts Receivable 822,534 84,164
Other Receivables 19,013 --
Prepaid Expenses 46,449 (100,810)
Increase (Decrease) in:
Accounts Payable 360,624 (116,459)
Accrued Interest 62,546 27,720
Other Accrued Expenses 65,714 94,011
----------- -----------
NET CASH USED IN OPERATIONS (1,187,194) (2,145,457)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale/Purchase of Property & Equipment (26,705) (271,014)
Sale/Purchase of Intangible Assets (122,906) (1,623,080)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (149,611) (1,894,094)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Capital Lease Obligation (2,447) (10,528)
Payment of Debt (57,748) (1,359,051)
Proceeds from Debt Financings 1,511,000 3,905,000
Proceeds from Issuance of Common Stock 5,000 36,119
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,455,805 2,571,540
----------- -----------
Increase (Decrease) in Cash 119,000 (1,468,011)
Cash - Beginning of Period 545,258 3,370,038
----------- -----------
CASH - END OF PERIOD $ 664,258 $ 1,902,027
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid During the Period for Interest $ 762,039 $ 317,297
=========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the three months ended March 31, 1998:
The Company recognized revenues of $58,555 and expenses of
$44,614 through barter activity.
The Company issued 21,151 shares of common stock valued at
$75,510 for the payment of a principal and interest installment
due in February 1998 totaling $47,800 and $27,710 respectively,
for the note payable outstanding to the seller of WAUR (AM).
The Company incurred debt issuance costs aggregating $276,000 as
a result of the issuance and repricing of warrants related to
the Foothill financing.
<PAGE>
CHILDREN'S BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 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 three month period ended March 31, 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 included 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 three 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 bears interest at 15%, is unsecured and due upon demand.
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 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.
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
<PAGE>
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 and amended the exercise price of a
previously granted warrant 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 includes $52 million in cash and a $5 million subordinated secured
promissory note. The note will carry interest at the rate of 10% per annum
and will be payable in two years. The Company will have the option to
convert the note to equity in CRN after 18 months. CRN deposited $3
million into an escrow account, of which, $1 million was released to the
Company on April 27, 1998, and $1 million is scheduled to be released on
May 17, 1998 and June 17, 1998 each. The Company simultaneously entered
into a pre-closing time brokerage agreement regarding the stations until
the transaction is consummated. The consummation of the transaction is
subject to regulatory and shareholder approvals and customary closing
conditions.
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
consummation of the transaction is subject to regulatory and shareholder
approvals and customary closing conditions.
F. In May 1998, the Company signed a definitive purchase agreement with 1090
Investments, LLC to sell the assets of WCAR(AM) in Detroit for a purchase
price of $2.0 million cash. The purchase agreement requires the buyer to
deposit $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) until the transaction is consummated. The transaction
is subject to regulatory and shareholder approvals and customary closing
conditions.
G. The Credit Agreement with Foothill is currently being amended effective
April 17, 1998. Pursuant to the amendment, the Company will obtain an
additional term note payable advance of $2,000,000, of which the Company
will receive proceeds totaling $1,000,000, pay a loan origination fee of
$200,000, and establish an interest reserve of $800,000 to be used for
payment of future interest. Also, pursuant to the amendment, the variable
interest rate will be increased by 1% on the entire outstanding loan
balance, and the Company will receive
<PAGE>
a forbearance of all principal payments and certain covenant requirements
through September 30, 1998. As additional consideration for the amendment,
the Company will issue Foothill an additional warrant to purchase 200,000
shares of the Company's common stock.
NOTE 3--INVESTMENT IN HARMONY
In 1997, the Company acquired an equity interest in Harmony Holdings, Inc.
("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
exercisable at $1.50 per share and expiring at various dates through
October 2001. The Company's investment represents 33.7% of the outstanding
common stock of Harmony at March 31, 1998. Harmony's most recent fiscal
year end was June 30, 1997, and Harmony's operations are summarized as
follows for the three and nine months ended March 31, 1998:
Three Months Nine Months
------------ -----------
Ended 3/31/98 ended 3/31/98
Contract revenues $ 14,750,601 $ 37,470,837
Cost of production 11,861,074 30,115,564
------------ ------------
Gross profit 2,889,526 7,355,272
Operating expenses 3,886,887 9,625,796
------------ ------------
Income (loss) from
Operations (997,361) (2,270,524)
Interest income 4,466 21,717
------------ ------------
Income (loss) before (992,896) (2,248,808)
Income Taxes 23,142
Net income (loss) $ (992,896) $ (2,271,950)
------------- -------------
<PAGE>
ITEM 2.
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 broadcast revenue. On April 20, 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. On April
29, 1998 the Company signed a definitive purchase agreement with Salem
Communications Corporation to sell the assets of two additional owned and
operated stations for a total purchase price of $2.7 million cash. On May 7,
1998, the Company signed a definitive purchase agreement with 1090 Investments,
LLC to sell the assets of its remaining station in Detroit for a purchase price
of $2.0 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 to barter do not have a material effect on the
Company's operating profit in a given period.
RESULTS OF OPERATIONS:
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1997.
Revenue:
<PAGE>
Owned, Operated and LMA Station Revenues:
Total revenues from the Company's owned, operated and LMA stations
decreased $199,000 or 21% from $944,000 in the first quarter of 1997 to $745,000
for the same period 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.
Network:
Total revenues of $91,000 were produced by the network during the
first quarter of 1998, a decrease of $115,000 or 56% compared to the first
quarter of 1997 revenues. This decrease in network revenues was due to the
cessation of broadcasting the Aahs World Radio programming on January 30, 1998.
OPERATING EXPENSES:
Owned, Operated and LMA Station Expenses:
General and administrative expenses decreased 30% to $529,000 for
the first quarter of 1998 from $758,000 in the same period of 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.
Expenses will continue to diminish as stations are sold or Local Marketing
Agreements ("LMA"'s) are entered into.
Technical and programming expenses increased to $254,000 in the
first quarter of 1998 from $240,000 during the same period in 1997, an increase
of 6%. Expenses will diminish as stations are sold or LMA'd.
Sales expenses totaled $108,000 in the first quarter of 1998
compared to $342,000 in the first quarter of 1997. This decrease is due to the
reduction of sales personnel in anticipation of the sale of the Company's
stations. Expenses will continue to diminish as stations are sold or LMA'd.
Network Expenses:
General and administrative expenses decreased $41,000 in the first
quarter of 1998 to $110,000 as compared to $151,000 for the first quarter of
1997 due to the reduction in general overhead expenses tied to the cessation of
the broadcasting of Aahs World Radio programming.
Programming expenses decreased $82,000 to $125,000 in the first
quarter of 1998 compared to $207,000 in the same period of 1997 because of the
reduction of staff due to the discontinuation of the broadcasting of Aahs World
Radio
<PAGE>
programming and in anticipation of the sale of the Company's owned and operated
stations.
Sales expenses decreased 67% from $455,000 in the first quarter of
1997 to $151,000 in the same period of 1998. This decrease was due to the
reduction of sales personnel in conjunction with the discontinuation of
broadcasting the Aahs World Radio format.
Marketing expenses were $8,000 during the first quarter of 1998
compared to $119,000 in that same period in 1997, a decrease of 93% due to the
elimination of the Company's marketing effort in conjunction with the cessation
of the broadcasting of Aahs World Radio programming on January 30, 1998.
Corporate charges were $1,208,000 in the first quarter of 1998
compared to $887,000 in the first quarter of 1997, representing an increase of
36%. This increase is attributable to the increase in legal fees incurred
relating to the ABC/Disney litigation. Such litigation is anticipated to
continue to utilize the Company's working capital. Further, professional
services required in connection with the sale of the Company's owned and
operated stations will reduce the Company's working capital.
Depreciation and amortization increased to $547,000 in the first
quarter of 1998 from $459,000 in that same period of 1997 due to a full quarter
of depreciation and amortization on all the Company's radio broadcast licenses
("RBLS") and certain related assets.
Net interest expense for the first quarter of 1998 increased
$688,000 as a result of the additional interest incurred related to the
financing provided in by Foothill Capital Corporation ("Foothill").
The net loss increased 32% in the first quarter of 1998 to
$3,679,000 from $2,780,000 in the first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity, as measured by its working capital, was a
deficit of $28,430,000 at March 31, 1998 compared to a deficit of $25,706,000 at
December 31, 1997. A portion of the Company's negative net working capital
position for the first quarter of 1998 and 1997 was the result of the
reclassification of the long-term portion of the Foothill term loan as the
Company has historically not met certain restrictive financial covenants
contained in its credit agreement with Foothill. The failure to meet these
covenants was principally due to the Company's continued operating losses.
Foothill has waived its rights pursuant to these violations through September
30, 1998. Pursuant to generally accepted accounting principles (EITF No. 86-30),
if similar restrictive covenants must be met at future interim periods, the debt
must continue to be classified as current unless
<PAGE>
it is probable that the Company will satisfy the covenants in the future or if
Foothill agrees to waive its rights to such potential future covenant
violations. Foothill would not provide the Company with such a waiver and
accordingly, the principal balances outstanding at March 31, 1998 have been
entirely classified as current obligations.
During the first quarter of 1998, the Company experienced a cash
working capital loss of approximately $439,000. While the sale by the Company of
its stations is expected to further reduce future broadcast revenue, the Company
has implemented plans to decrease its expenses to offset the loss of revenue.
Additionally, 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.
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 bears interest of 15%, is unsecured and due upon demand.
The Company entered into a second amendment to its credit agreement
with Foothill on March 13, 1998 pursuant to which the Company obtained
$1,000,000 of additional financing. In connection with this additional
financing, the rate of interest payable on all of the Company's indebtedness to
Foothill was adjusted to 4.75% over prime. Additionally, the Company provided
Foothill with a warrant to purchase 100,000 shares of its Common Stock at $3.68
per share and repriced a previously issued warrant to purchase 100,000 shares of
Common Stock from $5.29 per share to $3.68 per share.
Currently, the Credit Agreement with Foothill is being amended
effective retroactively to April 17, 1998. Pursuant to the third amendment, the
Company will obtain an additional term note payable advance of $2,000,000, of
which the Company will receive proceeds totaling $1,000,000, pay a loan
origination fee of $200,000, and establish an interest reserve of $800,000 to be
used for payment of future interest (see Note G).
The Company believes that the financing it received from Foothill in
connection with the second and third amendments to the credit agreement and the
$3 million escrow releases from CRN will be sufficient to operate the Company
through September 1998. The sale of the Company's radio stations is expected to
provide the Company with sufficient working capital to meet its cash
requirements. If any such sale is delayed or does not occur, or the additional
Foothill financing is not consummated, the Company believes it will need to
obtain alternative financing. Because the credit agreement with Foothill
requires the Company to grant
<PAGE>
liens and security interests on substantially all of its assets, the Company's
ability to incur additional indebtedness may be limited. If the Company is not
able to obtain adequate financing, or financing on acceptable terms, it could be
forced to reduce or terminate its operation, curtail future acquisitions or
other projects, sell or lease its current assets under unfavorable
circumstances, delay certain capital projects or potentially default on
obligations to creditors, all of which may be materially adverse to the
Company's operation and prospects.
Consolidated cash was $664,000 at March 31, 1998 and $545,000 at
December 31, 1997, an increase of $119,000.
Accounts receivable at March 31, 1998 decreased $713,000 from
December 31, 1997, other receivables decreased $19,000, and prepaid expenses at
March 31, 1998 decreased $46,000 from December 31, 1997. Accounts payable at
March 31, 1998 increased $361,000 from December 31, 1997, accrued interest
increased $63,000 from December 31, 1997 to March 31, 1998 and other accrued
expenses increased $66,000 during that same period. The $1,187,000 cash used for
operations was provided by the proceeds obtained through the Foothill financing.
During the first quarter of 1998, $150,000 cash was used for
investing activities. This cash was used primarily for miscellaneous studio
equipment and tower projects.
Cash obtained through financing activities amounted to $1,456,000
during the first quarter of 1998. This cash represents the $900,000 term loan
advance from Foothill, the $611,000 loan from Harmony and $5,000 obtained
through the issuance of common stock through the exercise of stock options, less
the repayment of debt.
SEASONALITY AND INFLATION
The Company's revenues generally follow 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. The Company
does not believe inflation has affected the results of its operations, and does
not anticipate that inflation will have an impact on its future operation.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company's former business strategy was to derive revenue from
the sale of network advertising time to national advertisers and from local
advertising sales from Company-owned or operated stations. The Company's
strategy, in entering into an operations agreement with ABC Radio Networks, Inc.
("ABC Radio"), was to use the resources and reputation of ABC Radio to market
Aahs World Radio(SM), attract national advertising and further build the
Company's network through affiliations. The Company sought out and developed
strategic relationships in order to enhance and reinforce its brand, and to
allow the Company to explore business opportunities at minimal cost to it and
without detracting from management's focus upon the Company's core business. In
1995, the Company developed such a relationship with ABC Radio, pursuant to
which ABC Radio agreed, through representations and agreements, that ABC Radio
would commit its affiliate development and national advertising sales staffs and
other resources to assist and augment the Company's efforts to market the Aahs
World Radio format to broadcasters and advertisers. Throughout the course of its
relationship with ABC Radio, the Company disclosed significant confidential
proprietary business information to ABC Radio and The Walt Disney Company
("Disney")(collectively, "ABC/Disney"). In June 1996, ABC Radio announced to the
Company that ABC Radio was terminating its relationship with the Company and
that ABC Radio would join with Disney to immediately commence competing directly
with the Company in the field of children's radio broadcasting. ABC/Disney
thereupon rolled out its Radio Disney programming at several locations
throughout the country. The Company filed a lawsuit in the fall of 1996 with the
United States District Court for the District of Minnesota against ABC/Disney.
The suit seeks injunctive relief and to recover substantial monetary damages
based on alleged wrongful conduct by ABC/Disney, including acts and omissions of
fraud, business interference, breach of contractual and fiduciary obligations
and misappropriation of the Company's confidential and proprietary business
information, trade secrets and business opportunities. In September 1997, ABC
Radio asserted its own counterclaim for breach of contractual obligations,
seeking to recover an unspecified amount of damages said only "to exceed
$75,000.00" for an alleged failure by the Company to pay certain commissions and
fees allegedly earned during the course of the parties' relationship. The
Company has denied ABC Radio's counterclaim in all respects, and has moved to
have the counterclaim dismissed as untimely. The ABC/Disney suit is likely to
proceed to trial in late 1998.
ITEM 2. CHANGES IN SECURITIES.
a. NOT APPLICABLE.
b. NOT APPLICABLE.
<PAGE>
c. On February 25, 1998, the Company issued 21,151 shares of
common stock to Nelson Broadcasting, Inc. at an offering price
of $3.57 per share. The shares were issued pursuant to a
Promissory Note, dated January 25, 1997, between the Company
and Nelson Broadcasting, Inc. in connection with the Company's
purchase of the assets of radio station WAUR(AM), licensed to
Sandwich, Illinois (the "Note"). Under the Note, the Company,
at it option, is entitled to issued shares of common stock in
lieu of each $75,000 quarterly payment due under the Note.
On March 13, 1998, the Company issued a warrant for the
purchase of an aggregate of 100,000 shares of common stock,
exercisable at $3.68 per share, to its lender, Foothill
Capital Corporation ("Foothill"). In addition to the
foregoing, the Company repriced a warrant for the purchase of
an aggregate of 100,000 shares of its common stock originally
issued to Foothill on July 3, 1997 from $5.29 per share to
$3.68 per share.
In connection with the foregoing issuances, no broker-dealer
or underwriter was involved in the transactions. No general
solicitation or advertising was made and the number of
offerees was limited to the parties named and did not involve
a public offering. Each of the offerees is believed to be an
accredited investor within the meaning of Rule 701 of
Regulation D. Each of the investors acquired the securities in
question for investment and not with a view to distribution,
as evidenced by the written representations contained in the
agreements relating to such securities and legends contained
on the certificates. The Company claims that each of the
issuances was exempt from registration under Section 4(2) of
the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
NOT APPLICABLE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
a. A Special Meeting of Shareholders was held on January 6, 1998.
b. NOT APPLICABLE.
c. THE FOLLOWING MATTER WAS SUBMITTED TO A VOTE OF SECURITY
HOLDERS AT THE COMPANY'S
<PAGE>
SPECIAL MEETING OF SHAREHOLDERS HELD ON JANUARY 6, 1998:
1. To approve the sale of substantially all of the assets
of the Company to Global Broadcasting Company, Inc. for
$72.5 million.
4,057,656 votes for the proposal
45,175 votes against the proposal
32,356 votes abstained on the proposal
d. NOT APPLICABLE.
ITEM 5. OTHER INFORMATION.
a. Reference is made to the Asset Purchase Agreement, dated May
1, 1998, between and among the Registrant and 1090
Investments, L.L.C. and attached hereto as an Exhibit for the
sale of one of the Registrant's AM radio broadcast license and
certain related assets for a purchase price of $2.0 million.
b. Reference is made to the cautionary statements of the
Registrant, presented in the Registrant's Form 10-KSB for the
year ended December 31, 1997, filed on March 31, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
10.1 Asset Purchase Agreement between and among Children's
Broadcasting Corporation and 1090 Investments, L.L.C.,
dated May 1, 1998.
27 Financial Data Schedule
b. Current Reports on Form 8-K
The Company filed the following documents with the Commission
(File No. 0-21534) during the quarter for which this report is filed:
1. The Company's Current Report on Form 8-K filed on
January 7, 1998 (File No. 0-21534), relating to the
Company's shareholders approving the sale of all of the
Company's owned and operated radio stations to Global
Broadcasting Company, Inc. for $72.5 million in cash
(subject to adjustment).
<PAGE>
2. The Company's Current Report on Form 8-K filed on
January 28, 1998 (File No. 0-21534), relating to Global
Broadcasting Company, Inc.'s failure to close on the
purchase of the Company's stations within the time
provided under the Asset Purchase Agreement.
3. The Company's Current Report on Form 8-K filed on
February 20, 1998 (File No. 0-21534), relating to (i)
the declaration of a dividend of one common share
purchase right for each share of Common Stock
outstanding as of February 27, 1998, (ii) the
announcement that the Company has signed letters of
intent to sell seven radio stations, and (iii) the
election of a new board member.
<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 thereunto duly authorized on May 15, 1998.
CHILDREN'S BROADCASTING
CORPORATION
By: /s/ Patrick D. Grinde
------------------------
Patrick D. Grinde
Its: Chief Financial Officer
<PAGE>
EXHIBIT INDEX
10.1 Asset Purchase Agreement between and among Children's Broadcasting
Corporation and 1090 Investments, L.L.C., dated May 1, 1998.
27 Financial Data Schedule
EXHIBIT 10.1
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated as of May 1, 1998, is made between and among
CHILDREN'S BROADCASTING CORPORATION (referred to herein as "CBC"), CHILDREN'S
RADIO OF DETROIT, INC. ("CRD"), and WCAR-AM, INC. ("WCAR- AM"), all Minnesota
corporations (CBC, CRD and WCAR-AM are sometimes collectively referred to herein
as the "Sellers"); and 1090 INVESTMENTS, L.L.C., a Michigan limited liability
company (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 CRD; and
WHEREAS, CRD is the owner of all the assets of radio station
WCAR(AM), licensed to Livonia, Michigan (the "Station"), except for the Federal
Communications Commission (the "FCC" or the "Commission") licenses, permits or
authorizations issued with respect to the Station, and is the owner and holder
of 100% of the issued and outstanding stock of WCAR-AM; and
WHEREAS, the WCAR-AM is the FCC licensee of the Station; and
<PAGE>
WHEREAS, subject to and conditioned upon the consent of the FCC,
the Sellers desire to sell and transfer and Buyer desires to purchase and
acquire the Station and certain of the tangible and intangible assets of the
Sellers used or held for use in connection with the operation of the Station,
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
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 Permitted Encumbrances (as
defined in Section 1.10 below), all the assets of the Sellers described below
used or held for use in connection with the operation of the Station (except for
"Excluded Assets" as described in Section 1.9 below) (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 Station, 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 Station including that described
in Schedule B attached hereto but excluding the owned and leased
properties set forth in Schedule B under the heading "Excluded
Properties," if any ("Real Property");
1.3. All tangible personal property and equipment owned by the Sellers
used or held for use in the operation of the Station including but
not limited to the property and equipment listed on Schedule C
attached hereto, and any replacements therefor or improvements
thereof acquired or constructed prior to Closing ("Personal
Property");
<PAGE>
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 of business between the date of
such Schedule and the Closing approved in writing by Buyer or
otherwise permitted hereunder ("Leases and Agreements");
1.5. All other licenses, permits or authorizations issued by any
government or regulatory agency other than the FCC, which are used
in connection with the operation of the Station, 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 Station (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 Station, including all
accretions thereto, listed on Schedule E attached hereto ("General
Intangibles");
1.7. All of the Sellers' 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 Station, 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" are cash on hand, accounts receivable, employee
benefit plans and those assets specifically labeled and described
on Schedules B through E as Excluded Assets; and
1.10. "Permitted Encumbrances" shall be limited to liens for taxes not
yet due and
<PAGE>
payable, obligations of Sellers which Buyer expressly assumes
hereunder or expressly agrees to accept at Closing, and with
respect to Owned Real Property, Permitted Encumbrances shall
include those matters disclosed on title commitments delivered to
Buyer, relating to building and zoning laws, ordinances, state and
federal regulations, restrictions relating to use or improvements
of the property without effective forfeiture provisions,
reservation of mineral rights in states, utility and drainage
easements which do not interfere with existing improvements.
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 Two Million and
no/100 Dollars ($2,000,000.00), subject to adjustment as provided
herein (the "Purchase Price").
2.2. METHOD OF PAYMENT OF PURCHASE PRICE. The Purchase Price shall be
paid in cash as follows:
2.2.1. ESCROW DEPOSIT. One Hundred Thousand and no/100
Dollars ($100,000.00) (the "Escrowed Funds") shall be
paid into escrow contemporaneously with the execution
hereof pursuant to the terms of that Escrow Agreement
(the "Escrow Agreement") a copy of which is attached
hereto as Exhibit A.
2.2.2. CASH AT CLOSING. The Purchase Price payable hereunder,
including the Escrowed Funds, shall be payable in cash
at Closing.
2.3. ADJUSTMENTS AND PRORATIONS. The operations of the Station and the
income and expenses attributable thereto up to 12:01 A.M. on the
day of the Closing shall, except as otherwise provided in this
Agreement and in that time brokerage agreement ("TBA") to be
entered into between the parties upon execution of this Agreement,
be for the account of the Sellers and thereafter shall be for the
account of Buyer. Expenses such as power and utility charges, lease
rents, property taxes according to year of payment, frequency
discounts, annual license fees (if any), wages, commissions,
payroll taxes, and other fringe benefits of employees of the
Sellers who enter the employment of the Buyer, and similar deferred
items shall be prorated between the Sellers and the Buyer.
<PAGE>
Prepaid deposits shall also be prorated between the Sellers and the
Buyer. Employees' employment with the Sellers shall be terminated
as of or before 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 in accordance with a Schedule to
be prepared and delivered at Closing, with a final settlement
within ninety (90) days after the Closing.
2.4. TBA. The parties shall, contemporaneously with the execution
hereof, enter into the TBA, a copy of which is attached hereto as
Exhibit B. Any material breach or any default under this Agreement
shall be a breach or default of the TBA by the breaching party, and
any material breach or any default under the TBA shall be a breach
or default of this Agreement by the breaching party.
2.5. PARTIAL CLOSING ADJUSTMENTS. Further adjustments to the purchase
price payable hereunder may be made pursuant to the provisions of
Sections 3.9.5 and 6.1 below.
2.6. ASSUMED LIABILITIES. Except as expressly provided for in this
Agreement or the Leases and Agreements listed on the Schedules
hereto, at the Closing Buyer shall not assume, incur or be charged
with, in connection with the transactions herein contemplated, and
shall not be responsible for any liabilities or obligations of any
nature of Sellers whatsoever, contingent or otherwise. Without
limitation of the foregoing, Buyer shall not assume any obligations
to the Station's employees under any employee benefit plans or
employment contracts. The assumption by Buyer of any of Sellers'
liabilities shall in no way expand the rights or remedies of any
third party against Buyer or Seller as compared to the rights and
remedies which such third parties would have had against Sellers
had Buyer not assumed such liabilities. Sellers shall pay all
liabilities not expressly assumed by Buyer hereunder.
2.7. ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated
among the Acquired Assets by Buyer and the Sellers as set forth in
the attached Schedule F. 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.
<PAGE>
ARTICLE 3
THE SELLERS' REPRESENTATIONS,
WARRANTIES AND AGREEMENTS
The Sellers, jointly and separately, represent, warrant and
covenant to Buyer that the statements in this Article 3 are true, correct and
complete in all respects as of the date of this Agreement and will be true,
correct and complete as of the Closing Date as though made on the Closing Date:
3.1. CORPORATE EXISTENCE AND POWERS. The Sellers 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; CRD is, and will be at the time of Closing, qualified
to do business in the State of Michigan and neither the nature of
the business of the Station, nor the character of the properties
owned, leased or otherwise held by Sellers for use in the business
of the Station 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 Station, 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 Station are subject or affected, or conflict with or
violate any provision of any Seller's certificate of incorporation,
bylaws or other organizational documents, or will result the
creation of any lien, charge or encumbrance on any of the Acquired
Assets, other than Permitted Encumbrances; and, except for receipt
of the Commission's Final Approval (as defined herein) with respect
to the assignment of the Licenses to Buyer, no other consents of
any kind are required that have not been obtained for the Sellers
to make or carry out the terms of this Agreement 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
<PAGE>
on Schedule B or D or with respect to assignment and assumption of
specific contract rights and obligations and the consent of CBC's
shareholders. The Sellers shall use their best efforts to obtain
third party consents with respect to any of the Leases and
Agreements designated 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 TBA, the Assignment of Licenses, the Warranty Deed,
an Assignment and Bill of Sale and any other agreements to be
executed and delivered by any Seller hereunder or as otherwise
contemplated herein. The Board of Directors of CBC has determined
to recommend to the shareholders of CBC that they approve the
transactions contemplated hereby.
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 Station 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 Station 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.
WCAR-AM 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 Station as
<PAGE>
they are currently being operated. CRD 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 Station have been properly and timely filed, except as
noted on Schedule A. The Station is operating in accordance with
the Licenses, and in compliance with the Communications Act of
1934, as amended, and the rules and regulations of the Commission,
including, without limitation, those regulations governing the
Station's 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 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 Station 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 Station and the Licenses from
any material adverse impact. All reports, statements and other
documents relating to the Station filed by the Sellers or the
Station with the FCC or any other Governmental Authority were true,
correct and complete in all material respects when filed.
3.3. FINANCIAL STATEMENTS. CBC has delivered to the Buyer unaudited
statements of operations for the twelve months ended December 31,
1996, and December 31, 1997, for the Station, and CBC's Form 10-KSB
for the year ended December 31, 1997, containing CBC's audited
consolidated financial statements for such period. Such financial
information and the notes thereto are true, complete and accurate
in all material respects and fairly present the
<PAGE>
consolidated assets, liabilities and financial condition of the
Station as at the respective dates thereof, including provision for
all liabilities, obligations and commitments, whether fixed or
contingent, 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. The Sellers
will deliver unaudited statements of operations for each of the
Stations and WJDM within fifteen (15) calendar days after their
preparation.
3.4. NO UNDISCLOSED LIABILITIES. The Station has no 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.
Sellers are not aware of any existing, proposed or threatened
change which could result in a material adverse change to Sellers,
the Station, the Acquired Assets or prospects of the Station.
3.5. ACQUIRED ASSETS. The Acquired Assets to be transferred to Buyer at
Closing represent all the assets necessary for the Station's
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. Seller has good and marketable title, 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,
except for the Permitted Encumbrances 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 the
Acquired Assets; the Sellers have conducted the business of the
Station 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 Station
consistent with the past practices of Sellers and recognizing that
the Sellers ended the 24- hour distribution of their Aahs World
Radio(SM) format as of midnight, January
<PAGE>
30, 1998, and have since maintained a 24-hour all-music format at
the Station without significant sales of advertising time. Since
then and for the period from the date hereof to Closing, Sellers
have sought and intend to seek to enter into short term time
brokerage, sports broadcast and similar agreements. The time may be
brokered on an hourly or monthly basis, but such agreements will
not survive Closing except with Buyer's prior written approval.
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, 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, (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 except as
set forth on Schedule B.
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.
<PAGE>
3.6.4. PHYSICAL CONDITION. To Sellers' knowledge, there is no
defect in the physical condition of any improvements
located on or constituting a part of the Real
Property. To Sellers' knowledge, the Real Property,
including, without limitation, such improvements, is
in good condition 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. To the best of
Sellers' knowledge, 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. To the best of Sellers' knowledge, 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. To the best
of Sellers' knowledge, 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
<PAGE>
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 Station 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.
3.6.8. CONDEMNATION. To Sellers' knowledge, there is no
pending or 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 is 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 Station (not including this Agreement and the TBA) which will
be binding on the Buyer other than those specifically identified
herein, including the Schedules
<PAGE>
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 Station, their
employees or any of the Acquired Assets which may result in any
change in the business, operations, assets or financial condition
of the Station 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 have
complied in all material respect with all laws
(including rules and regulations thereunder) of all
applicable federal, state, local and foreign
governments, and their respective agencies, concerning
the environment, public health and safety and employee
health and safety, and no charge, complaint, action,
suit, proceeding, hearing, investigation, claim,
demand or notice has been filed or commenced against
any of them alleging any failure to comply with any
such law or regulation, including, limiting, without
limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Federal
Water Pollution Control Act of 1972, the Clean Air Act
of 1970, the Safe Drinking Water Act of 1974, the
Toxic Substances Control Act of 1976, the Refuse Act
of 1989, the Emergency Planning and Community
Right-to-Know Act of 1986, the Federal Resource
Conservation and Recovery Act, the Michigan Natural
Resources and Environmental Protection Act, each as
amended, or any other law of any government or agency
concerning the storage, treatment, handling,
transport, disposal, or the release or threatened
release of hazardous substances or hazardous
materials, public health and safety or pollution or
protection of the environment (collectively, the
"Environmental Statutes"). Except as set forth on
Schedule B, no environmental conditions have existed
on the Real Property while owned or leased by Sellers,
and no environmental conditions currently exist on the
Real Property that violated or currently violate any
Environmental Statute, where such
<PAGE>
environmental conditions will result in Buyer
incurring any costs or expenses for damages fines,
penalties, environmental remediation expenses or
environmental removal expenses as a result of actions
or proceedings by any federal, state or local
environmental protection agency or department or by
any third party. Except as set forth on Schedule B,
there are no Hazardous Substances, as defined,
currently utilized at or, currently stored at the Real
Property except for those for which permits have been
obtained and are in effect or are present in a manner
or in quantities which do not require issuance of
permits under the Environmental Statutes. Except as
set forth on Schedule B, there is no contamination in
soils or groundwater of or beneath the Real Property
above levels that exceed remediation standards based
on regulations, guidance or risk-based criteria
warranting studies or remediation or both which would
have any reasonable likelihood singly or in the
aggregate, of materially adversely affecting the
Acquired Assets or the Station. "Hazardous Substances"
shall mean any material presently listed, defined,
designated or classified as hazardous, toxic or
radioactive, under any Environmental Statute, whether
by type or by quantity, and petroleum or any
derivative or by-product thereof.
3.9.2. ENVIRONMENTAL COVENANT OF SELLERS. Sellers have
provided Buyer with all information, surveys and
reports in each Seller's or the Station's possession
or control concerning the existence or possible
existence of any Hazardous Substances, 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 the
Station's possession relating to each Seller's or the
Station's potential liability under applicable
Environmental Laws ("Environmental Contamination").
3.9.3. BUYER'S RIGHT TO CONDUCT DUE DILIGENCE. By May 25,
1998, Buyer shall, at its expense, conduct Phase I
environmental assessment activities of the Owned Real
Property, including inspecting individual sites,
submitting environmental questionnaires to Sellers and
the employees of the Station and reviewing existing
environmental reports, correspondence, permits and
related materials regarding the Owned Real Property.
Phase I environmental assessment activities shall not
include any sampling or intrusive testing other than
hand auger soil
<PAGE>
testing, testing equipment for PCBs and testing for
asbestos or asbestos-containing materials. To assist
in its environmental due diligence, Buyer may retain
one or more outside environmental consultants to
assist in its environmental due diligence concerning
the Owned Real Property, and Sellers shall cooperate
with Buyer in connection with such due diligence
efforts.
3.9.4. RESULTS OF ENVIRONMENTAL DUE DILIGENCE. In the event
that Sellers' disclosure pursuant to Section 3.9.2
herein or the Phase I reports obtained by Buyer
pursuant to Section 3.9.3 herein produces evidence
that Environmental Contamination exists or may exist
on any of the Owned Real Property, Buyer shall, within
ten (10) business days after receiving the applicable
Phase I report, notify CBC of such findings, provide
CBC with copies of all reports, written assessments or
other material regarding such contamination, and shall
have the right to conduct Phase II environmental
activities of the Owned Real Property (including, but
not limited to, the taking and analysis of soil,
surface water and ground water samples, testing of
buildings, drilling wells and taking soil borings).
The Phase II environmental activities shall be at the
Buyer's expense. The Sellers agree to cooperate with
the Buyer and with all third parties in permitting the
Buyer to obtain in a timely manner the Phase I Reports
and the Phase II Reports.
3.9.5. EFFECT OF ENVIRONMENTAL DUE DILIGENCE RESULTS.
(a) Either party hereto may terminate this
Agreement by written notice to the other
party within fifteen (15) business days
after Buyer's notification to Sellers of
Environmental Contamination if:
(i) the results of Buyer's
environmental due diligence
investigation indicate the
existence of Environmental
Contamination of any of the
parcels of Owned Real
Property; and
(ii) Both parties reasonably
determine (on the basis of
Buyer's environmental due
diligence) that responding
to and fully
<PAGE>
remediating the foregoing
Environmental Contamination
in accordance with
applicable environmental
laws to a level at or below
the unrestricted residential
level developed pursuant to
Part 201 of the Michigan
Natural Resources
Environmental Protection Act
will exceed One Hundred
Thousand and no/100 Dollars
($100,000.00) (the
"Remediation Ceiling
Amount") with respect to the
facilities, including but
not limited to the Owned
Real Property, used in the
operations of the Station.
(b) If the results of Buyer's environmental
due diligence conducted in accordance
with this Section 3.9 indicate that the
cost of responding to and remediating
Environmental Contamination in accordance
with applicable environmental laws is
equal to or less than the Remediation
Ceiling Amount in the aggregate for the
facilities used in the operations of the
Station, including but not limited to the
Owned Real Property, Sellers shall, at
their sole cost and expense, respond to
and remediate such Environmental
Contamination in accordance with
applicable environmental laws on or
before the Closing.
3.9.6. RADIO FREQUENCY RADIATION. Other than in compliance
with the Communications Act, the operation of the
Station does not cause or result in exposure of
workers or the general public to levels of radio
frequency radiation in excess of the "Radio 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 and FCC requirements.
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.
<PAGE>
3.10. INSURANCE. The Sellers have maintained and 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. Sellers
represent that there has been no material breach of any of the
insurance policies. Except as set forth on Schedule H, Sellers do
not know of any occurence, circumstance or event which could
reasonably be expected to result in any claim.
3.11. ACCESS TO INFORMATION. The Sellers shall give Buyer and its
representatives reasonable access during normal business hours
throughout the period prior to Closing to the operations,
properties, books, accounting records, contracts, agreements,
leases, commitments, programming, technical and sales records and
other records of and pertaining to the Station; provided, however,
such access shall not disrupt the Sellers' normal operation. The
Sellers shall furnish to Buyer all information concerning the
Station's affairs as Buyer may reasonably request. Buyer will
maintain the confidentiality of all the information and materials
delivered to it or made available for its inspection by 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 STATION'S 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
<PAGE>
Course of Business; no employment contract shall be entered into by
the Sellers relating to the Station unless the same is terminable
at will and without penalty; no material increase in compensation
payable or to become payable, to any of the employees employed at
the Station shall be made; no material change in personnel
policies, insurance benefits or other compensation arrangements
shall be made; and the Sellers will cause the Station 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 Station 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 Permitted
Encumbrances or liens for current taxes and
assessments not yet due and payable; and that between
the date of this Agreement and the Closing, there will
be no more than the ordinary normal wear and tear and
expendability of 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 Station which would cause (i) the application
for assignment of the Licenses to Buyer to be
challenged, (ii) the Commission to deny its consent to
the assignment of the Station's Licenses to Buyer, or
(iii) the Commission to grant such application for
assignment subject to material adverse conditions to
Buyer.
(d) The Sellers will have duly filed all tax returns
required to be filed by such Seller 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 impose
by any Governmental Authority, and any interest,
penalties or additions to tax imposed thereon or in
connection therewith (collectively, "Taxes")
<PAGE>
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 the Station 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 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 Station to identify the Station 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 Station other than those
listed in Schedule E, except those of CBC in connection with its
Radio AAHS(R)/Aahs World Radio(SM) children's radio format. 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 Station 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 Station, including, without limitation, compensation, severance
pay, incentive bonuses, health
<PAGE>
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 Station 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, as amended (the "WARN 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 Station by Sellers. Sellers shall be responsible
for ensuring that all requirements of the WARN Act are met in
connection with this Agreement and the transactions contemplated by
this Agreement, including but not limited to, providing proper
notices to employees of Sellers and to others. Sellers also shall
be responsible for all payments due its current or former employees
under the WARN Act.
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
Station. None of the Sellers is a party to or subject to any
collective bargaining agreements with respect to the Station.
Except as shown on Schedule I, all payments determined to be due
from Sellers on account of work, health or welfare insurance under
any agreement will have been paid on the Closing Date. Any such
payments which cannot be determined on the Closing Date shall be
paid immediately by Sellers upon determination without any
liability to Buyer. Sellers have no
<PAGE>
written or oral contracts of employment with any employee of the
Station, other than (i) oral employment agreements terminable at
will without penalty, or (ii) those listed in Schedule D. The
Sellers, in the operations of the Station, have substantially
complied with all applicable laws, rules and regulations relating
to the employment of labor, including those related to wages,
hours, collective bargaining, occupational safety, discrimination
and the payment of social security and other payroll related taxes.
To the best of Sellers' knowledge, there is no representation or
organizing effort pending or threatened against or involving or
affecting the Sellers with respect to employees employed at the
Station.
3.16. EMPLOYEE BENEFITS. Except for the employee benefit plans listed on
Schedule J (collectively, the "Employee Benefit Plans"), Sellers
are not parties to or bound by, and have no liability with respect
to, any profit sharing, stock option, pension, severance,
retirement, stock purchase, hospitalization, group or individual
life, disability or health insurance, or employee welfare benefit
or similar plan or agreement. True and correct copies of each
Employee Benefit Plan and all documents pursuant to which the
Employee Benefit Plans are maintained, administered and funded have
been delivered to Buyer. Sellers shall timely pay all amounts due
under or with respect to the Employee Benefit Plans, and Sellers do
not, nor with they prior to the Closing Date, participate in,
contribute to, nor employee any persons covered by a multiemployer
plan, as defined in Section 3(37) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and have not, and will
not, prior to the Closing Date incur any withdrawal liability
within the meaning of Title IV of ERISA. Sellers have materially
complied with, and will through and after the Closing Date,
continue to materially comply with the Employee Benefit Plans and
all requirements of law relating thereto and Buyer shall have no
liability or responsibility whatsoever with respect to the Employee
Benefit Plans. Sellers have no benefit plan (within the meaning of
Section 3(2) of ERISA) that is subject to Title IV of ERISA, (II)
any multiemployer plan (within the meaning of Section 3(37) of
ERISA), (iii) any employee benefit plan described in Section 4063
of ERISA or Section 413(c) of the Internal Revenue Code of 1986, as
amended, and Treasury regulations promulgated thereunder, or (iv)
any employee benefit plan providing health, life or other
welfare-type benefits to current, future or former employees,
independent contractors, directors or shareholders (and/or their
dependents), other than continuation coverage required pursuant to
Part 6 of Subtitle B of Title I of ERISA or applicable state
continuation coverage law.
3.17. PRE-CLOSING COVENANTS. Between the date hereof and the Closing, the
Sellers covenant that:
<PAGE>
3.17.1. FCC COMPLIANCE. The Sellers shall continue to operate
the Station in conformity with the terms of the
Station's 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 Station's rightful
possession of the Licenses, the potential for
assignment of the Licenses to Buyer, or the
unconditional renewal of the Licenses for full license
terms.
3.17.2. CONDUCT OF BUSINESS. The Sellers shall conduct the
business and technical operations of the Station in
the Ordinary Course of Business and consistent with
past practices, and shall continue all practices,
policies, procedures and technical operations relating
to the Station in substantially the same manner as
heretofore. Sellers shall perform, pay and discharge
when due all of its obligations and liabilities in all
material respects other than those which Buyer has
expressly agreed to assume pursuant to Section 2.6, as
well as known, contingent or unknown liabilities of
Sellers.
3.17.3. 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 Station. 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 Station.
3.17.4. NO SOLICITATION.
(a) Sellers will immediately cease any
existing discussions or negotiations with
any third parties conducted prior to the
date hereof with respect to any
Acquisition Proposal (as defined
<PAGE>
below). Sellers shall not, directly or
indirectly, through any officer,
director, employee, representative or
agent, or otherwise (i) solicit,
initiate, continue or encourage any
inquiries, proposals or offers that
constitute, or could reasonably be
expected to lead to, a proposal or offer
for a merger, consolidation, business
combination, sale of substantially all
the assets or a sale of at least a
majority of capital stock (including,
without limitation, by way of a tender
offer) (a "Fundamental Transaction")
involving CRD or WCAR-AM, other than the
transactions contemplated by this
Agreement, or a Fundamental Transaction
involving CBC conditioned upon
termination of this Agreement (any of the
foregoing inquiries or proposals are
being referred to in this Agreement as an
"Acquisition Proposal"), (ii) solicit,
initiate, continue or engage in
negotiations or discussions concerning,
or provide any information or data to any
person or entity relating to, or
otherwise cooperate in any way with, or
assist or participate in, or facilitate
or encourage any Acquisition Proposal, or
(iii) agree to, approve or recommend any
Acquisition Proposal; provided, that, if
shareholder approval is required for this
transaction, nothing contained in this
Section shall prevent CBC from, prior to
the Closing, furnishing non-public
information to, or entering into
discussions or negotiations with, any
person or entity in connection with any
unsolicited Acquisition Proposal by such
person or entity (including a new and
unsolicited Acquisition Proposal received
by CBC after the execution of this
Agreement from a person or entity whose
initial contact with CBC may have been
solicited by CBC prior to the execution
of this Agreement), and CBC may recommend
such an unsolicited bona fide written
Acquisition Proposal to the shareholders
of CBC, if and only to the extent that
(i) the Board of Directors of CBC
determines in good faith (after
consultation with and based upon the
advice of its financial advisor and
considering the effect of such
Acquisition Proposal upon the employees,
customers and the community) that such
Acquisition Proposal would, if
consummated, result in a transaction more
favorable to the shareholders of CBC than
this Agreement and that the person or
entity making such Acquisition Proposal
has the financial means, or the ability
to obtain the necessary financing, to
conclude such transaction (any such more
favorable Acquisition Proposal is being
referred to in
<PAGE>
this Agreement as a "Superior Proposal"),
(ii) the Board of Directors of CBC
determines in good faith (after
consultation with and based upon the
advice of its outside legal counsel) that
the failure to take such action would be
inconsistent with the fiduciary duties of
such Board of Directors to its
shareholders under applicable law, and
(iii) prior to furnishing such non-public
information to, or entering into
discussions or negotiations with, such
person or entity, the Board of Directors
receives from such person or entity an
executed confidentiality agreement. If
this Agreement is terminated after the
occurrence of a Triggering Event (as
defined below), or CBC shall materially
breach or fail to perform its obligations
under this Section 3.16.4., then Sellers
shall pay Buyer a non-refundable fee of
One Hundred Thousand and no/100 Dollars
($100,000.00) together with an amount
equal to any amounts previously paid to
Sellers or incurred by Buyer under the
TBA, which amount shall be payable by
wire transfer of same day funds on the
date of termination as and for liquidated
damages (the "Fees").
(b) CBC shall reimburse the Buyer in
connection with any legal or other fees
incurred by the Buyer in connection with
the collection of the Fee from CBC.
(c) As used herein, a "Triggering Event"
shall mean any of the following:
(i) the Board of Directors of
CBC shall have withdrawn or
modified its recommendation
of this Agreement or shall
have resolved or publicly
announced its intention to
do so; or
(ii) an Alternative Transaction
shall have taken place or
the Board of Directors of
CBC shall have recommended
such an Alternative
Transaction to shareholders,
or shall have resolved or
publicly announced its
intention to recommend or
engage in an Alternative
Transaction; or
(iii) CBC shall have negotiated
with, entered into any
agreement with, or
consummated or recommended
any transaction with, any
person other than Buyer or
its
<PAGE>
affiliates, based on a
determination regarding a
"Superior Proposal" made as
described herein; or
(iv) the shareholders of CBC do
not approve this Agreement
or the transactions
contemplated hereby after an
Acquisition Proposal shall
have been publicly
announced.
3.17.5. SHAREHOLDER MEETING. CBC shall, in accordance with the
requirements of applicable law, its Articles of
Incorporation and its Bylaws, take all action as may
be necessary, proper or advisable to duly call, give
notice of and fix a record date for a meeting of
shareholders (which may be a special or annual
meeting) to vote on approval of this Agreement and the
transactions contemplated hereby (the "Shareholders'
Meeting"), to be held as promptly as practicable and
in any event not later than August 30, 1998. As
promptly as practicable, CBC shall prepare and file
with the Securities and Exchange Commission (the
"SEC") a proxy statement (the "Proxy Statement") to be
used in connection with the solicitation of proxies
for the Shareholders' Meeting, respond to any comments
or requests from the SEC, as applicable, and mail the
Proxy Statement, together with any materials required
to be delivered to CBC shareholders under applicable
law, to shareholders of CBC in accordance with the
requirements of applicable law. CBC represents,
warrants and covenants that the Proxy Statement will
comply with all requirements of applicable law,
including without limitation SEC Regulation 14A.
Subject to its fiduciary duties in connection with a
Superior Offer (as defined below), the Board of
Directors of CBC shall recommend in the Proxy
Statement that the shareholders of CBC approve this
Agreement and the transactions contemplated hereby.
3.17.6. OTHER SELLER COVENANTS. None of the Sellers shall (a)
merge or consolidate with or into any other entity;
(b) do or omit to do any act (or permit such action or
omission) which will cause a material breach of any of
the Leases and Agreements; (c) waive any claims or
rights of substantial value except in the ordinary
course of business and consistent with past practice;
or (d) agree, whether in writing or otherwise, to do
any of the foregoing.
<PAGE>
3.18. NO MISLEADING STATEMENTS. To Sellers' knowledge, no statement,
representation or warranty made by Sellers herein and no
information provided or to be provided by Sellers to Buyer pursuant
to this Agreement or 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 Station.
3.19. 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)).
3.20. 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.
<PAGE>
ARTICLE 4
BUYER'S REPRESENTATIONS AND WARRANTIES
The Buyer represents, warrants and covenants to Sellers that the
statements in this Article 4 are true, correct and complete in all respects as
of the date of this Agreement and will be true, correct and complete as of the
Closing Date as though made on the Closing Date.
4.1. CORPORATE EXISTENCE AND POWERS. Buyer is a limited liability
company organized and existing in good standing under the laws of
the State of Michigan 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 State of Michigan; 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 consent, or which would materially
hinder or delay receipt of such consent, to the assignment of the
Licenses to Buyer.
<PAGE>
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
of ownership of the Acquired Assets or the operation of the Station
by the Sellers prior to Closing, whether such claim is brought
against Buyer or the Acquired Assets prior to or after 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 facts or circumstances
described in Schedule G, or (iii) 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 Station 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. 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
<PAGE>
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, 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.
5.4. 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
<PAGE>
choosing, on behalf of and for the account and risk of the
indemnifying party.
(c) Anything in this Section 5.4 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.
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 Escrowed Funds shall be returned to
Buyer, except that the Sellers shall have a reasonable
period of time, not to exceed sixty (60) days, to
effect repairs of the damaged Acquired Assets before
Buyer may exercise its option under
<PAGE>
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.
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 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 of Closing 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 TBA upon an Event of Default (as
defined therein) by Seller or in accordance with Section 6.1;
(c) by Sellers 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 of Closing 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 TBA upon an Event of Default (as defined
therein) by Buyer; and
(d) by either party pursuant to the terms of Sections
7.3 and 7.4 below.
<PAGE>
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
Station; provided that the obligations of Buyer and Sellers in
Sections 3.9.5, 5.1, 5.2, 5.3, 5.4, 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 Escrowed Funds, 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 other than
as set forth in this Agreement.
ARTICLE 7
APPLICATION FOR COMMISSION APPROVAL
7.1. FILING AND PROSECUTION OF APPLICATION. Buyer and the Sellers shall,
as soon as practicable after the date of this Agreement and in any
event not later than May 12, 1998, join in an application to be
filed with the Commission requesting its written consent to the
assignment of the Licenses of the Station from WCAR-AM to Buyer.
The parties shall prepare their own portions of the application.
Buyer and the Sellers shall take all steps necessary to the
expeditious prosecution of such application to a favorable
conclusion, using their 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 application and in connection with
the prosecution of such application. The FCC filing fees shall be
shared equally between the Sellers on the one hand and the Buyer on
the other.
7.3. DESIGNATION FOR HEARING. If, for any reason, any application for an
assignment of license is designated for hearing by the Commission
prior to grant thereof, either of the parties shall have the right
by written notice within
<PAGE>
thirty (30) days of such designation for hearing, to terminate this
Agreement if the allegations raised relate to the other party.
Should Closing occur and upon reconsideration should the FCC
designate the assignment for hearing, Buyer may elect to rescind
this Agreement, and if Buyer so elects, Buyer and the Seller agree
to cooperate in filing an application to reassign the License to
the Seller, if necessary, in order to comply with any FCC order and
to take all necessary actions to reverse this transaction as if
Closing had not occurred.
7.4. TIME FOR COMMISSION CONSENT. Subject to the provisions of Section
7.3 above, if the Commission has not given its written consent to
the assignment of the Licenses set forth herein within twelve (12)
months from the date of acceptance for filing of the application
for such assignment, 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 Escrowed Funds shall be
returned to Buyer promptly.
7.5. CONTROL OF STATION. Until Closing, Buyer shall not directly or
indirectly, control, supervise, direct or attempt to control,
supervise or direct the operations of the Station, 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 Station.
7.6. SHARING INFORMATION. Each party hereto shall as promptly as
possible, and in any event within two (2) 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.
<PAGE>
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 the first day of the
first month after final Commission approval of the assignment of
the Licenses has become final, the finality of the assignment
subject to waiver by Buyer ("Final Approval") 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.") Final Approval shall be the approval
of the FCC to the renewal and assignment of the Licenses which are
no longer subject to rehearing, reconsideration or review by the
Commission or to review by any court under the Communications Act
of 1934, as amended, and which action is not reversed, stayed,
enjoined or set aside, and with respect to which no timely request
or petition for stay, reconsideration, review or rehearing or a
notice of appeal is pending and the time for such filing has
expired. Unless otherwise agreed by the parties in writing, the
Closing shall take place at Buyer's counsel's offices in Detroit,
Michigan.
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 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, other than
Permitted Encumbrances;
(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;
<PAGE>
(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 of the appropriate filing officers and
federal and state litigation searches dated not more
than thirty (30) days prior to the Closing Date in
Minnesota, Michigan and Wayne County evidencing no
judgments, financing statements, or liens, other than
Permitted Encumbrances, 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 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, 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
<PAGE>
hereunder consistent with the intent expressed herein;
(k) Escrow instructions releasing Escrowed Funds to Buyer;
(l) The Acquired Assets; and
(m) A tax letter from the Michigan Department of Treasury
and Form 1027 from the Michigan Employment Security
Administration.
8.3. BUYER'S OBLIGATIONS AT CLOSING. At Closing, Buyer shall deliver to
CBC the following:
(a) Delivery of 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 consent of the Commission evidencing its
Final Approval to the assignment of the Licenses to
Buyer subject to the provisions
<PAGE>
of Section 7.3 above, provided that any such approvals are without
any condition that is materially adverse to Buyer;
(b) The satisfaction at or before Closing in all material
respects of all agreements, obligations and conditions
of the Sellers hereunder required to be performed or
complied with by them on or before Closing;
(c) The material accuracy of the representations and
warranties made by the Sellers;
(d) Written third party consents to all material Leases
and Agreements where required by the terms of the
Lease or Agreement or substitution by Sellers of
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 TBA shall have become effective in accordance with
the terms and conditions thereof and, from and after
the date the TBA first becomes effective through and
including the Closing Date, the TBA shall have not
been terminated due to the Sellers' breach thereof;
and
(g) Sellers shall have complied with each and every one of
its obligations set forth in Section 8.2.
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 consent of the Commission evidencing its Final
Approval to the assignment 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;
<PAGE>
(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 TBA shall have become effective in accordance with
the terms and conditions thereof and, from and after
the date the TBA first becomes effective through and
including the Closing Date, the TBA shall have not
been terminated due to the Buyer's breach thereof;
(f) The approval of CBC's shareholders; and
(g) Buyers shall have complied with each and every one of
its obligations set forth in Section 8.3.
ARTICLE 9
MISCELLANEOUS PROVISIONS
9.1. SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES. The
representations and warranties set forth in Sections 3 and 4 of
this Agreement shall survive for a period of two (2) years after
the Closing Date except that the representations and warranties
contained in Sections 3.1, 3.2, 3.5 (insofar as it relates to title
to the Acquired Assets), 3.18 and 4.1 shall survive the Closing
Date indefinitely, the representations and warranties set forth in
Section 3.9 shall survive the Closing date for a period of six (6)
years, and the representations and warranties set forth in Sections
3.6.7 and 3.12(d) shall survive the Closing Date for the applicable
statute of limitations period; except that such representations and
warranties shall survive the Closing Date indefinitely if they
relate to a tax liability of the Station that is based on
misrepresentation or fraud.
9.2. INVESTIGATION. The investigation by Buyer and its employees, agents
and representatives of the Acquired Assets, the Station and any
other matters concerning Sellers prior to or subsequent to the
Closing Date, shall not negate or diminish the representations and
warranties of Sellers contained or provided for herein except to
the extent Sellers can demonstrate that Buyer had actual knowledge
of an inaccurate warranty or representation.
<PAGE>
9.3. 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.
9.4. NOTICES. All notices, requests, elections, demands and other
communications given pursuant to this Agreement shall be in writing
and shall be duly given when delivered personally or 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: 1090 Investments, L.L.C.
500 North Woodward Avenue
Bloomfield Hills, Michigan 48304-2964
Attention: John F. X. Browne, P.A
Facsimile Number: (248) 642-6027
with copy to: Sara Kruse, Esq.
One Woodward Avenue
Suite 2400
Detroit, Michigan 48226
Facsimile Number: (313) 961-8358
9.5. EXHIBITS AND SCHEDULES. All Exhibits and Schedules referred to
herein are incorporated into this Agreement by reference for all
purposes and shall be
<PAGE>
deemed part of this Agreement.
9.6. ENTIRE AGREEMENT. This Agreement together with all Exhibits and
Schedules referred to herein, and the TBA contain all of the terms
and conditions agreed upon by the parties hereto with respect to
the transactions contemplated hereunder.
9.7. 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.
9.8. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the representatives, heirs, estates, successors, and
assigns of the parties hereto.
9.9. 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.
9.10. COUNTERPARTS. This Agreement and any other instrument to be signed
by the parties hereto may be executed by the parties, together or
separately, in two or more identical counterparts, each of which
shall be deemed an original, but all of which together shall
constitute but one and the same instrument. Notwithstanding the
foregoing, facsimile and photostatic reproductions may be relied
upon to the same extent as an original provided that originals are
provided within five (5) days of the date thereof.
9.11. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Michigan without regard to
principles of conflicts of laws. The parties hereto hereby
irrevocably and unconditionally consent to submit to the exclusive
jurisdiction of the courts of the State of Michigan and of the
United States of America located in the State of Michigan for any
actions, suits or proceedings arising out of or relating to this
Agreement and the transactions contemplated hereby (and they agree
not to commence any action, suit or proceeding relating thereto
except in such courts) and further agree that service of any
process, summons, notice or document by U.S. registered mail to the
addresses set forth above shall be effective service of process for
any action, suit or proceeding arising out of this Agreement, in
the courts of the State of Minnesota or the United States of
<PAGE>
America located in the State of Minnesota, and hereby further
irrevocably and unconditionally waive and agree not to plead or
claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient
forum.
9.12. 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 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. Buyer has no obligation to pay any
brokerage fee due Star Media Group, Inc.
9.13. SALES TAX. Any sales tax, including bulk sales taxes (if
applicable), due upon consummation of this transaction will be
computed at Closing and paid by the Sellers and any claims or
proceedings arising therefrom shall be the sole responsibility of
Buyer. Sellers agree to indemnify and hold Buyer harmless against
any such claims in connection with the transactions contemplated
hereunder.
9.14. 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.
9.15. MAIL. Sellers hereby authorize and empower Buyer from and after the
Closing Date (a) to receive and open mail addressed to the Station
and (b) to deal with the contents thereof in any manner Buyer sees
fit, provided such mail and the contents thereof relate to the
Station or the Acquired Assets. Sellers agree to deliver to Buyer
any mail, checks or other documents received by them pertaining to
the Station 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
<PAGE>
Agreement or otherwise and to which Sellers is entitled.
9.16. 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.
9.17. MODIFICATION. No modification of any provision of this Agreement
shall be effective unless made in writing and signed by the parties
hereto.
9.18. REORGANIZATION OF SUBSIDIARIES. Notwithstanding any covenant or
other provision of this Agreement to the contrary, Buyer
acknowledges that Sellers may be desirous of merging the License
Subsidiaries into the Asset Subsidiaries or similarly reorganizing
said entities prior to Closing for tax purposes, and agrees to
reasonably cooperate with Sellers if necessary to accomplish such
reorganization to the extent that such cooperation is necessary in
the execution and delivery of appropriate amendments hereto,
consents or applications to the FCC, provided, however, that
nothing in this Section 12.10 shall require Buyer to take any
action or amend this Agreement in any way if such action or
amendment is reasonably likely to delay the Closing, cause any
diminution of Buyer's enjoyment of its rights hereunder or cause
any economic loss to Buyer as a result. Sellers agree to reimburse
Buyer for any legal fees reasonably incurred by Buyer in connection
with the fulfillment of its obligations under this Section.
9.19. FURTHER ASSURANCES. From time to time after the Closing Date, at
Buyer's request and without further consideration, sellers shall
execute and deliver or cause to be executed and delivered such
further instruments of conveyance, assignment and transfer and
shall take such other action as Buyer may reasonably request in
order more effectively to convey, transfer, reduce to possession or
record title to any of the Acquire Assets purchased pursuant hereto
or to otherwise carry out the purpose and intent of this Agreement.
Upon the request of Buyer, Sellers will cooperate and will use
their best efforts to have the officers, directors and other
employees of Sellers cooperate with Buyer on or after the Closing
Date by furnishing information, evidence, testimony and other
assistance in connection with any actions, proceedings,
arrangements or disputes involving Buyer and which are based upon
contracts, leases, arrangements or acts of Sellers which were in
effect or occurred on or prior to the Closing Date. Buyer shall
reimburse Sellers and their officers, directors and other employees
for any costs incurred by them in fulfilling this covenant, except
to the extent that the provisions of Section 5 are applicable.
<PAGE>
9.20. NO THIRD PARTY BENEFICIARIES. The obligations undertaken by Buyer
and Sellers in this Agreement are for the benefit of Buyer and
Sellers only, and neither any creditor of Buyer or Sellers, nor any
other party (other than a successor in interest to Buyer or
Sellers) shall have the right to rely on or enforce the provisions
of this Agreement as a third-party beneficiary or otherwise.
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 1090 INVESTMENTS, L.L.C.
CORPORATION
BY: /s/ James G. Gilbertson BY: /s/ John Kruse
ITS: COO ITS: Partner
CHILDREN'S RADIO OF DETROIT, INC. WCAR-AM, INC.
BY: /s/ James G. Gilbertson BY: /s/ James G. Gilbertson
ITS: COO ITS: COO
<PAGE>
EXHIBIT A
ESCROW AGREEMENT
SEE SECTION 2.2.1
<PAGE>
EXHIBIT B
TIME BROKERAGE AGREEMENT
SEE SECTION 2.4
<PAGE>
SCHEDULE A
LICENSES, PERMITS AND AUTHORIZATIONS
SEE SECTION 1.1
<PAGE>
SCHEDULE B
REAL PROPERTY
SEE SECTION 1.2
<PAGE>
SCHEDULE C
PERSONAL PROPERTY
SEE SECTION 1.3
<PAGE>
SCHEDULE D
LEASES AND AGREEMENTS
SEE SECTION 1.4
<PAGE>
SCHEDULE E
GENERAL INTANGIBLES
SEE SECTION 1.6
<PAGE>
SCHEDULE F
ALLOCATION OF PURCHASE PRICE
SEE SECTION 2.7
<PAGE>
SCHEDULE G
LITIGATION
SEE SECTION 3.8
<PAGE>
SCHEDULE H
INSURANCE
SEE SECTION 3.10
<PAGE>
SCHEDULE I
LABOR RELATIONS
SEE SECTION 3.15
<PAGE>
SCHEDULE J
EMPLOYEE BENEFIT PLANS
SEE SECTION 3.16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 664,258
<SECURITIES> 0
<RECEIVABLES> 857,514
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<CURRENT-ASSETS> 1,361,661
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<DEPRECIATION> 2,529,266
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0
0
<COMMON> 133,470
<OTHER-SE> 1,672,864
<TOTAL-LIABILITY-AND-EQUITY> 34,122,125
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<TOTAL-REVENUES> 835,995
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<INCOME-CONTINUING> (3,678,849)
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<NET-INCOME> (3,678,849)
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