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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
SEPTEMBER 29, 1998
Date of report (Date of earliest event reported)
CHILDREN'S BROADCASTING CORPORATION
(Exact Name of Registrant as Specified in Charter)
MINNESOTA 0-21534 41-1663712
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification Number)
724 FIRST STREET NORTH, MINNEAPOLIS, MINNESOTA 55401
(Address of Principal Executive Offices, including Zip Code)
(612) 338-3300
(Registrant's Telephone Number, including Area Code)
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ITEM 5 OTHER EVENTS
ABC/Disney Litigation
On September 30, 1998, Children's Broadcasting Corporation (the "Company")
was awarded $20 million in damages by a federal court jury in its lawsuit
against ABC Radio Networks, Inc. and The Walt Disney Company (collectively,
"ABC/Disney"). The jury found that ABC/Disney failed to perform under a
strategic alliance with the Company, misappropriated one trade secret and
used what they learned from the Company to launch their own children's
radio format.
Sale of Assets to Catholic Radio Network, LLC
On September 29, 1998, the Company entered into an agreement with Catholic
Radio Network, LLC ("CRN"), attached hereto as exhibit 10.1, extending the
scheduled closing of the sale of assets through October 16, 1998. This
delay was required in order to enable CRN to obtain an alternate source of
secondary financing after Bank of America announced, upon its merger with
NationsBanc, that it would no longer provide financing to broadcast
entities.
The Company has communicated this information to Nasdaq and has requested
that Nasdaq allow the Company's Common Stock to continue to list on the
Nasdaq National Market through October. There can be no assurance that
the sale of assets to CRN will be completed in October, if at all, and
there can be no assurance that the Company's Common Stock will continue to
list on Nasdaq.
Los Angeles Conditional Use Permit
The Company has obtained a conditional use permit which allows it to
proceed with its Los Angeles station power upgrade from 2,500 watts
to 50,000 watts. The receipt of such permit represents the last regulatory
approval required to upgrade the station's power which should have a
significant impact on the value of the station to be sold to CRN.
Redemption of Series B Convertible Preferred Stock
The Company has notified the holders of its Series B Convertible Preferred
Stock (the "Preferred Shares") that the Company plans to redeem such
shares, in their entirety, at a redemption price of $4.0425 per share on
October 22, 1998. On October 1, 1998, pursuant to the terms of the related
Securities Purchase Agreement, the Company issued additional five-year
warrants to purchase an aggregate of 25,000 shares of Common Stock to the
holders of Preferred Shares exercisable at $2.6755062 per share. Since the
Company plans to fund this redemption with proceeds from the sale of assets
to CRN, there can be no assurance that the Company will be able to redeem
such shares.
2
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Share Repurchase Program
The Company previously announced that it had authorized a share repurchase
program pursuant to which it had repurchased 385,000 shares of its Common
Stock at $3.187 per share, including commissions. Contrary to the
instructions of the Company, the Company has learned that the broker-dealer
with which it was working accumulated such shares, acting as principal, for
the purpose of reselling such shares to the Company. While the Company
plans to repurchase up to 385,000 shares of its Common Stock in the future,
the Company has rescinded the previously announced repurchase due to the
failure of its broker-dealer to comply with Rule 10b-18. Since the Company
plans to fund future repurchases with the proceeds from the sale of assets
to CRN, there can be no assurance that the Company will be able to
repurchase shares.
General
Reference is made to the cautionary statements of the Company, presented in
its Annual Report on Form 10-KSB for the year ended December 31, 1998,
filed on March 31, 1998.
ITEM 7 FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
10.1 First Amendment to Asset Purchase Agreement with Catholic Radio
Network, LLC, dated September 29, 1998.
3
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized on October 2, 1998.
CHILDREN'S BROADCASTING CORPORATION
By:/s/ James G. Gilbertson
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James G. Gilbertson
Chief Operating Officer
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EXHIBIT INDEX
Exhibit
Number Description
10.1 First Amendment to Asset Purchase Agreement with Catholic Radio
Network, LLC, dated September 29, 1998.
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EXHIBIT 10.1
FIRST AMENDMENT TO PURCHASE AGREEMENT
This First Amendment to Purchase Agreement (this "Amendment") is made this
29th day of September, 1998, by and among Catholic Radio Network, LLC, a
California Limited Liability Company ("CRN"), Children's Broadcasting
Corporation, a Minnesota corporation ("CBC") and the wholly-owned subsidiaries
of CBC listed on the signature pages hereto (collectively, the "Subsidiaries"
and collectively with CBC, the "Sellers").
WHEREAS. CRN and the Sellers are parties to that certain Purchase Agreement
dated as of April 17, 1998 (the "Purchase Agreement") regarding the sale by the
Sellers to CRN of substantially all of the assets of nine (9) radio stations and
all of the stock of Children's Radio of New York, Inc. ("CRNY"), owner of
WBAH-AM.
WHEREAS, CRN and the Sellers wish to amend the terms of the Purchase
Agreement to provide for an adjustment to the purchase price payable for the
Stations and to set a closing date for the consummation of the transactions
contemplated by the Purchase Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledge, the parties hereto agree as
follows:
1. The Sellers hereby acknowledge and consent to the assignment by
CRN of the right to receive the Acquired Assets (other than the FCC Licenses)
and the CRNY Stock to CRN Operations, LLC, a wholly-owned subsidiary of CRN, and
the right to receive the assignment of the FCC Licenses and the WJDM Co. Stock
to CRN Licenses, LLC, a wholly-owned subsidiary of CRN.
2. Section 4.1 of the Purchase Agreement is hereby amended and
restated in its entirety as follows:
4.1 Purchase Price. As the purchase price for
the Acquired Assets and the CRNY Stock, Buyer
agrees to pay to CBC the sum of Fifty-seven
Million Dollars ($57,000,000), subject to
adjustment as provided herein (the "Purchase
Price"), PROVIDED, HOWEVER, that Two Hundred
Thirty Five Thousand Dollars ($235,000) of the
Purchase Price shall be retained by Buyer as the
KPLS Holdback as provided in Section 4.2.5 below.
3. Section 4.2.2 of the Purchase Agreement is hereby amended and
restated in its entirety as follows:
4.2.2 Forty-Eight Million Seven Hundred Sixty
Five Dollars ($48,765,000.00) shall be paid to
Sellers (or their designees to pay off outstanding
liens or encumbrances on the Station Assets) in
immediately available funds by wire transfer at
Closing and Two Hundred Thirty Five Thousand
Dollars ($235,000) shall be retained by Buyer as
the KPLS Holdback;
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5. The following provisions shall be added to Section 4.2.5 to the
Purchase Agreement:
4.2.5 Two Hundred Thirty Five Thousand Dollars
($235,000) of the Purchase Price (the "XPLS
Holdback") shall be retained by the Buyer as
consideration for the increase in the purchase
price payable for the land for the KPLS tower site
(the "Vander Eyk Property"). In the event that the
purchase price paid by Buyer for the Vander Eyk
Property (the "Vander Eyk Purchase Price") is less
than Three Million Six Hundred Eighty Thousand
Eight Hundred Dollars ($3,680,800), Buyer shall
remit to Sellers from the KPLS Holdback one-half
of the amount that the Vander Eyk Purchase Price
is less than Three Million Six Hundred Eighty
Thousand Eight Hundred Dollars ($3,680,800), up to
a maximum of the amount of the Holdback, and the
balance of the Holdback, if any, shall remain the
property of Buyer and shall be considered a
reduction in the Purchase Price. In the event that
the Vander Eyk Purchase Price is Three Million Six
Hundred Eighty Thousand Eight Hundred Dollars
($3,680,800) or more, the entire Holdback shall
remain the property of Buyer.
6. Section 6.21 of the Purchase Agreement is hereby amended and
restated in its entirety as follows:
6.21 Since December 31, 1997 there has not been
any material adverse change in the operation of
the Stations or WJDM of condition of the Station
Assets except as disclosed on SCHEDULE K. As used
in this Agreement, a "material adverse change"
shall expressly include anything which would
prevent Buyer from consummating the purchase of
Real Property contemplated under the Vander Eyk
Agreement on the terms and conditions as reflected
therein as of the day hereof or from constructing
its KPLS tower array thereon in the ordinary
course.
7. Section 11.1 of the Purchase Agreement is hereby amended and
restated in its entirety as follows;
11.1 Closing Date. The Closing of the
transactions contemplated under this Agreement
shall be held at such time and date or dates that
shall be mutually agreed by the Sellers and Buyer;
PROVIDED, HOWEVER, that absent such agreement, the
Closing shall occur no later than October 16,
1998; and PROVIDED, FURTHER HOWEVER, that Buyer
may extend the Closing up through and to October
30, 1998 at Buyer's sole option in exchange for a
payment to Sellers, by wire transfer, of One
Hundred Twenty Five Thousand Dollars (S ($125,000)
(the "Extension Fee") per week the
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Closing is so extended, prorated for any partial period, The
Extension Fee shall be payable on the first business day of each
week the Closing Date is so extended, and any proration of the
Extension Fee in favor of Buyer shall be applied towards payment
of the Purchase Price. The date scheduled, or required to be
scheduled for Closing hereunder is referred to herein as the
"Closing Date." Unless otherwise agreed by the parties in
writing. the Closing shall take place at the offices of Gray Cary
Ware & Freidenrich in San Diego, California.
8. Notwithstanding the provisions of Section 6.16.4 of the Purchase
Agreement, by the execution of this Amendment. CRN hereby agrees that the
Sellers may initiate discussions with third parties regarding the sale of the
Stations solely as a backup to the transactions contemplated by the Purchase
Agreement, PROVIDED, HOWEVER, that such discussions must be preceded by written
disclosure of the pending transactions between CRN and the Sellers, including
CRN's right to extend the Closing Date through October 30, 1998, a copy of which
written disclosure shall be promptly provided to CRN, and PROVIDED, FURTHER,
that the Sellers shall promptly notify CRN of the parties with whom the Sellers
are holding such discussions. The Sellers acknowledge and agree that any
agreement or understanding that the Sellers may reach with a third party
regarding a sale, lease or other disposition of any or all of the Stations will
expressly be subject to CRN's rights under the Purchase Agreement and any
agreement or understanding by the Sellers that is not expressly subject to CRN's
rights under the Purchase Agreement shall be a breach of the Sellers'
obligations under the Purchase Agreement. In the event that the parties fail to
consummate the transactions contemplated by the Purchase Agreement for any
reason other than a breach of the Purchase Agreement by the Sellers, provided
the Sellers have continued to act in good faith and have used their best efforts
to consummate the transactions contemplated by the Purchase Agreement, the sale
of one or more of the Stations to a party with whom the Sellers have initiated
discussions pursuant to this Section 8 shall not result in the payment of the
Fee provided under Section 6.16.4 of the Purchase Agreement. Except as expressly
provided herein and agreed to by CRN above, all other provisions of Section
6.16.4 of the Purchase Agreement remain in full force and effect.
9. The parties hereto acknowledge that Sellers are currently
effecting repairs to certain of the Acquired Assets and addressing signal
problems at three (3) Stations. These items consist of (i) the repair of the
WWTC towers to address structural integrity, (ii) the repair weld of the WAUR
towers, (iii) the completion of the installation of the new ground systems at
WBAH, (iv) the cure of the WAUR signal variance as documented by the STA issued
by the FCC under which the Station is operating as of the date hereof, (v) the
grant by the FCC of the pending direct measurement application and accompanying
waiver request with respect to the WPWA signal as documented by application
#BZ-980720AB pending before the FCC as of the date hereof, and (vi) the KPLS
signal operating at slightly higher levels than currently provided under the FCC
licenses issued to KPLS (collectively, the "Currently Identified Items"). With
respect to the Currently Identified Items, CRN and the Sellers hereby agree as
follows:
(a) The Sellers hereby acknowledge their responsibility to remedy the
Currently Identified Items to the reasonable satisfaction CRN and its engineers,
and the Sellers covenant to complete such repairs and remedy such signal
problems as soon as possible. Provided CBC continues to promptly and diligently
remedy the Currently Identified Items, but such repair. are not complete prior
to the Closing Data, CRN will agree to close with the repairs in process, and
accept a firm commitment from the Sellers to insure completion of the repairs to
the Currently Identified Items to CRN's reasonable satisfaction supported by an
appropriate hold back and payment/security mechanism. In the event the repairs
are not completed prior to the Closing Date, the parties agree that reasonable
holdbacks for items (i) and (ii) and (iii) above , shall be a minimum of
$20,000, $18,000 and S 10,000, respectively.
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(b) In addition to the Sellers' obligations under Article B of the
Purchase Agreement, the Sellers agree that they will indemnify and hold harmless
CRN and every affiliate of CRN from and against any loss, damage, liability,
claim, demand, judgment or expense sustained by CRN or Its affiliate., including
claims of third parties, arising out of or relating to the Currently Identified
Items. The Sellers agree that the indemnification pursuant to this paragraph
shall not be subject to, or limited by, the $25,000 indemnification threshold
provided in Section 8.3 of the Purchase Agreement and that such indemnification
shall be provided to CRN and its affiliates pursuant to the procedures outlined
in Section 8.5. of the Purchase Agreement.
With respect to any new casualty events that arise between the date of this
Amendment to the Purchase Agreement and the Closing, the parties agree to
jointly use their best efforts to reach an agreement to adequately protect CRN's
interests and satisfy CRN's lenders to allow the parties to close the Purchase
Agreement in accordance with the dates outlined in Section 11.1 of the Purchase
Agreement, as amended hereby.
Except as expressly provided herein, all of the terms and provisions of the
Purchase Agreement shall remain in full force and effect. Unless otherwise
defined, all capitalize terms herein shall have the meaning ascribed to them in
the Purchase Agreement.
IN WITNESS WHEREOF, the Parties hereto, by their properly authorized
representatives, have caused this Amendment to Purchase Agreement to be executed
as of the day and date first written above.
Children's Broadcasting Corporation Catholic Radio Network, LLC
By: /s/ James G. Gilbertson By: /s/ John T. Lynch
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Its: COO Its: President and CEO
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Children's of Chicago, Inc. WAUR-AM, Inc.
By: /s/ James G. Gilbertson By: /s/ James G. Gilbertson
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Its: COO Its: COO
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Children's Radio of Dallas, Inc. KAHZ-AM, Inc.
By: /s/ James G. Gilbertson By: /s/ James G. Gilbertson
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Its: COO Its: COO
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Children's Radio of Denver, Inc. KKYD-AM, Inc.
By: /s/ James G. Gilbertson By: /s/ James G. Gilbertson
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Its: COO Its: COO
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Children's Radio of Kansas City, Inc. KCNW-AM, Inc.
By: /s/ James G. Gilbertson By: /s/ James G. Gilbertson
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Its: COO Its: COO
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Children's Radio of Los Angeles, Inc. KPLS-AM, Inc.
By: /s/ James G. Gilbertson By: /s/ James G. Gilbertson
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Its: COO Its: COO
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Children's Radio of Milwaukee, Inc. WZER-AM, Inc.
By: /s/ James G. Gilbertson By: /s/ James G. Gilbertson
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Its: COO Its: COO
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Children's Radio of Minneapolis, Inc. WWTC-AM, Inc.
By: /s/ James G. Gilbertson By: /s/ James G. Gilbertson
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Its: COO Its: COO
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Children's Radio of New York, Inc. WJDM-AM, Inc.
By: /s/ James G. Gilbertson By: /s/ James G. Gilbertson
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Its: COO Its: COO
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Children's Radio of Philadelphia, Inc. WPWA-AM, Inc.
By: /s/ James G. Gilbertson By: /s/ James G. Gilbertson
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Its: COO Its: COO
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Children's Radio of Phoenix, Inc. KIDR-AM, Inc.
By: /s/ James G. Gilbertson By: /s/ James G. Gilbertson
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Its: COO Its: COO
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(Signature Page for First Amendment to Purchase Agreement)
