<PAGE>
As filed with the Securities and Exchange Commission on May 21, 1998
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CHILDREN'S BROADCASTING CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 5961 41-1663712
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification
Number)
724 FIRST STREET NORTH
MINNEAPOLIS, MINNESOTA 55401
(612) 338-3300
(Address and telephone number, including area code, of registrant's principal
executive offices)
JAMES G. GILBERTSON, CHIEF OPERATING OFFICER
CHILDREN'S BROADCASTING CORPORATION
724 FIRST STREET NORTH
MINNEAPOLIS, MINNESOTA 55401
(612) 338-3300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
AVRON L. GORDON, ESQ. LANCE W. RILEY, ESQ.
BRETT D. ANDERSON, ESQ. CHILDREN'S BROADCASTING CORPORATION
BRIGGS AND MORGAN, P.A. 724 FIRST STREET NORTH
2400 IDS CENTER MINNEAPOLIS, MINNESOTA 55401
MINNEAPOLIS, MINNESOTA 55402 (612) 330-9521
(612) 334-8400
-----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
-----------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: /X/
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box: / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SHARE(1) PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK ($0.02 PAR VALUE) . . . . . . . 421,528 $3.28125 $1,383,139 $409
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and based upon the average of the high and low
prices for such stock on May 19, 1998, as reported by the Nasdaq National
Market.
__________________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED MAY 21, 1998
PROSPECTUS
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421,528 SHARES
CHILDREN'S BROADCASTING CORPORATION
COMMON STOCK
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This Prospectus relates to 421,528 shares of Common Stock (the "Shares"),
par value $0.02 per share (the "Common Stock"), of Children's Broadcasting
Corporation (the "Company") that may be offered for sale for the account of
certain shareholders of the Company as stated herein under the heading "Selling
Shareholders." Certain of the Shares are issuable upon the exercise of warrants
held by the Selling Shareholders. No period of time has been fixed within which
the Shares may be offered or sold. The Company's Common Stock is traded on the
Nasdaq National Market under the symbol "AAHS." On May 19, 1998, the average of
the high and low sale prices of the Common Stock on the Nasdaq National Market
was $3.28 share. Current market quotations are listed in THE WALL STREET
JOURNAL and many other newspapers of general circulation.
The Selling Shareholders have advised the Company that sales of the Shares
by them, or by their pledgees, donees, transferees or other successors in
interest, may be made from time to time in the over-the-counter market, through
negotiated transactions or otherwise at market prices prevailing at the time of
sale or at negotiated prices. The Shares may be sold by one or more of the
following methods: (a) a block trade in which the broker or dealer so engaged
will attempt to sell the Shares as agent but may purchase and resell a portion
of the block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; and (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers. Sales may be made
pursuant to this Prospectus to or through broker-dealers who may receive
compensation in the form of discounts, concessions or commissions from the
Selling Shareholders or the purchasers of Common Stock for whom such
broker-dealer may act as agent or to whom they may sell as principal, or both
(which compensation as to a particular broker-dealer may be in excess of
customary commissions). One or more supplemental prospectuses will be filed
pursuant to Rule 424 under the Securities Act of 1933, as amended (the
"Securities Act"), to describe any material arrangements for the sales of the
Shares when such arrangements are entered into by any of the Selling
Shareholders and any other broker-dealers that participate in the sale of the
Shares.
The Selling Shareholders and any broker-dealers or other persons acting on
their behalf in connection with the sale of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commissions
received by them and any profit realized by them on the resale of the Shares as
principals may be deemed to be underwriting commissions under the Securities
Act. As of the date hereof, there are no special selling arrangements between
any broker-dealer or other person and any Selling Shareholder.
The Company will not receive any part of the proceeds of any sales of
Shares pursuant to this Prospectus. Pursuant to the terms of registration
rights granted to the Selling Shareholders, the Company will pay all the
expenses of registering the Shares, except for selling expenses incurred by the
Selling Shareholders in connection with this offering, including any fees and
commissions payable to broker-dealers or other persons, which will be borne by
the Selling Shareholders. In addition, such registration rights provide for
certain other usual and customary terms, including indemnification by the
Company of the Selling Shareholders against certain liabilities arising under
the Securities Act.
THE SHARES INVOLVE CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 7
OF THIS PROSPECTUS.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------
THE DATE OF THIS PROSPECTUS IS __________, 1998
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company pursuant to the Exchange
Act may be inspected and copied at the public reference facilities maintained by
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the Commission located at Seven World Trade
Center, Suite 1300, New York, New York 10048 and Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can also be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The Commission maintains a Web site that contains reports,
proxy statements and other information regarding registrants that file
electronically with the Commission at http://www.sec.gov. In addition, the
Company's Common Stock is quoted on the Nasdaq National Market. Reports, proxy
statements and other information concerning the Company can be inspected and
copied at the Public Reference Room of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act. This Prospectus does not
contain all of the information, exhibits and undertakings set forth in the
Registration Statement, certain parts of which are omitted as permitted by the
rules and regulations of the Commission. For further information, reference is
hereby made to the Registration Statement which may be inspected and copied in
the manner and at the sources described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company (File No. 0-21534)
with the Commission pursuant to the Exchange Act are incorporated into this
Prospectus by reference:
(a) The Company's Annual Report on Form 10-KSB for the year ended December
31, 1997, filed on March 31, 1998.
(b) The Company's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1998, filed on May 15, 1998.
(c) The Company's Current Report on Form 8-K filed on May 7, 1998,
relating to the Company signing a purchase agreement with Salem
Communications Corporation for the sale of two of the Company's AM
radio broadcast licenses and certain related assets for $2.7 million.
(d) The Company's Current Report on Form 8-K filed on April 22, 1998,
relating to the Company signing a purchase agreement with Catholic
Radio Network, LLC for the sale of ten of the Company's AM radio
broadcast licenses and certain related assets for $57.0 million.
(e) The description of the Company's Common Stock contained in its
Registration Statement on Form S-2 (No. 33-80721) filed on
December 21, 1995, and amended by Amendment Nos. 1, 2, 3 and 4 filed
on February 1, February 20, February 27 and February 28, 1996,
respectively.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering hereunder shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents.
Any statement contained herein or in a document all or any portion of which
is incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated
2
<PAGE>
by reference herein modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to each person to whom this
Prospectus is delivered, upon written or oral request of any such person, a copy
of any or all of the foregoing documents (other than exhibits to such documents
which are not specifically incorporated by reference in such documents).
Written requests for such copies should be directed to the Company at 724 First
Street North, Minneapolis, Minnesota 55401, Attention: Chief Financial Officer.
Telephone requests may be directed to the office of the Chief Financial Officer
of the Company at (612) 338-3300.
3
<PAGE>
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED BY THE MORE DETAILED INFORMATION AND
CONSOLIDATED FINANCIAL STATEMENTS APPEARING ELSEWHERE OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS.
THIS PROSPECTUS CONTAINS "FORWARD-LOOKING STATEMENTS," AS DEFINED IN THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (THE "LITIGATION REFORM ACT"),
THAT INVOLVE RISKS AND UNCERTAINTIES. PURCHASERS OF THE COMPANY'S COMMON STOCK
ARE CAUTIONED THAT THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM
THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE FACTORS DISCUSSED HEREIN
UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
Children's Broadcasting Corporation (the "Company") formerly broadcast
24-hour children's radio programming, known as Aahs World Radio-SM-(*), via
satellite to markets representing approximately 40% of the U.S. population.
Pursuant to its former growth strategy, the Company acquired AM radio
broadcast licenses ("RBLs") in 13 U.S. markets. Notwithstanding the growth
of the Company's network, the Company's network operations and revenue from
owned and operated stations was below levels needed to offset operating
expenses. The Company terminated its network affiliation agreements and
ceased distributing its full-time Aahs World Radio programming format
effective January 30, 1998. The primary sources of the Company's revenue,
prior to the discontinuation of Aahs World Radio, were from the sale of local
advertising and air time and network revenue. The Company has also effected
certain reductions in its workforce related to the operation of the network.
It is the Company's intention to continue to operate the radio stations
formerly broadcasting Aahs World Radio, spending the minimum required to
preserve the value of the RBLs, until the sales of such stations are
consummated as described below. The Company does not anticipate any
significant revenue from continued operation of such stations.
PROPOSED SALE OF ASSETS
In April 1998, the Company signed a purchase agreement with Catholic Radio
Network, LLC for the sale of ten of the Company's RBLs for $57.0 million. The
Company has also signed purchase agreements with Salem Communications
Corporation and 1090 Investments, L.L.C. for the sale of its three remaining
RBLs for an aggregate of $4.7 million. The sale of assets is part of
management's strategy to reposition the Company by selling substantially all of
its broadcasting assets and, using the net cash realized, to make one or more
acquisitions in the media, entertainment or advertising-related areas. As of
this date, the Company has not identified any acquisition targets. Pending any
such acquisition, the proceeds from the sale of assets will be invested in
investment-grade, short-term, interest-bearing securities. The sale of assets
described above is subject to customary closing conditions and shareholder and
regulatory approvals.
ONGOING CORPORATE OPERATIONS
The Company believes that opportunities exist to profitably utilize the
expertise gained in the development of radio programming. The Company plans to
retain members of the Aahs World Radio creative staff and intends to develop
other programming products, including syndicated radio programs. The Company
may reexamine this strategy regarding the continued production of radio
programming and may decide to discontinue such strategy depending upon its
assessment of the prospects for growth and profitability of such products.
- ---------------------------
* The Company has filed for registration of its Aahs World Radio service
mark.
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4
<PAGE>
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In addition to utilizing network intangibles, the Company has begun to
diversify into other media, entertainment and advertising-related businesses.
During 1997, the Company acquired a minority ownership interest in Harmony
Holdings, Inc. ("Harmony"), which produces television commercials and music
videos. Although the Company has no current plans to do so, it may determine to
increase its 42.4% beneficial ownership position in Harmony should an
opportunity exist at a price favorable to the Company. The Company intends to
seek to further diversify through acquisition of media, entertainment or
advertising-related businesses. As of the date of this Prospectus, the Company
does not have any understandings, commitments or agreements with respect to any
such acquisitions. No assurance can be given that the Company will consummate
future acquisitions or that any acquisitions, if consummated, will ultimately be
advantageous or profitable for the Company. Further, the Company has not
foreclosed the possibility of buying other radio stations in the future.
THE ABC/DISNEY LITIGATION
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, Inc. ("ABC Radio") was to
use the resources and reputation of ABC Radio to market Aahs World Radio,
attract national advertising and further build the Company's network through
affiliations. The Company sought out and developed strategic relationships in
order to enhance and reinforce its brand, and to allow the Company to explore
business opportunities at minimal cost to it and without detracting from
management's focus upon the Company's core business. In 1995, the Company
developed such a relationship with ABC Radio, pursuant to which ABC Radio
agreed, through representations and agreements, that ABC Radio would commit its
affiliate development and national advertising sales staffs and other resources
to assist and augment the Company's efforts to market the Aahs World Radio
format to broadcasters and advertisers. Throughout the course of its
relationship with ABC Radio, the Company disclosed significant confidential
proprietary business information to ABC Radio and The Walt Disney Company
("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 1998. The Company intends to pursue to
its conclusion the ABC/Disney litigation. This litigation has consumed, and
will continue to consume, resources of the Company, including personnel costs
and litigation costs.
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5
<PAGE>
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FOOTHILL FINANCING
From its inception in 1995 until its termination by ABC/Disney in July
1996, the ABC/Disney relationship did not result in any significant national
advertising sales or increase in the Company's network affiliate base. As a
result, the Company's financial position deteriorated. To meet its working
capital requirements and to facilitate acquisitions pursuant to its growth
strategy, the Company entered into a credit agreement with Foothill Capital
Corporation ("Foothill") in November 1996. The credit agreement, as amended,
has provided the Company with working capital and funding for the acquisition of
both RBLs and shares of common stock of Harmony, through loan facilities
aggregating $24.0 million. Upon consummation of the sale of assets, the Company
intends to repay the Foothill indebtedness in full. If the sale of assets is
not consummated, the Company's highly-leveraged position and the requirements
for payments under the Foothill loan facilities may require it to liquidate all
or a portion of its assets.
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 $2.0 million, of which the Company will
receive proceeds totaling $1.0 million, 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 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.
The Company was incorporated under the Minnesota Business Corporation Act
on February 7, 1990. All references to the Company herein include its
subsidiaries, unless otherwise noted. The Company's executive office is located
at 724 First Street North, Minneapolis, Minnesota 55401, and its telephone
number is (612) 338-3300.
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6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING
RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS,
IN CONNECTION WITH AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY.
WHEN USED BELOW AND ELSEWHERE IN THIS PROSPECTUS, INCLUDING DOCUMENTS
INCORPORATED HEREIN BY REFERENCE, THE WORDS "BELIEVES," "ANTICIPATES" AND
"INTENDS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY "FORWARD-LOOKING
STATEMENTS," AS DEFINED IN THE LITIGATION REFORM ACT. SUCH STATEMENTS ARE
SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE PROJECTED. POTENTIAL PURCHASERS OF THE COMPANY'S
COMMON STOCK ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF.
STRATEGY TO SELL RADIO STATIONS; CESSATION OF AAHS WORLD RADIO-SM-; LIMITED
REVENUES. On April 17, 1998, the Company signed a purchase agreement with
Catholic Radio Network, LLC for the sale of ten of the Company's RBLs for $57.0
million. The Company has also signed purchase agreements with Salem
Communications Corporation and 1090 Investments, L.L.C. for the sale of its
three remaining RBLs for an aggregate of $4.7 million. The Board of Directors
has unanimously approved the sale of assets, subject to shareholder approval.
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. Any sale of stations will
be subject to various contingencies, including regulatory approvals, shareholder
approval and customary closing conditions. There can be no assurance that
shareholder approval for the sale of substantially all of the Company's assets
will be obtained. If the Company is unable to consummate the sale of any of its
stations and additional financing is not available, it will be forced to
liquidate some or all of its assets.
LIQUIDITY; SUBSTANTIAL LEVERAGE. As of March 31, 1998, the Company's
consolidated indebtedness approximated 95% of the sum of its shareholders'
equity and consolidated indebtedness. The Company had working capital deficits
of $28.4 million, $25.7 million and $5.5 million at March 31, 1998, December 31,
1997 and December 31, 1996, respectively. The Company entered into a credit
agreement with Foothill in November 1996, most recently amended in March 1998,
which has provided the Company with working capital and funding for the
acquisition of both RBLs and shares of common stock of Harmony, through loan
facilities aggregating $24.0 million. Such facilities mature on September 30,
2000. The Company's indebtedness to Foothill is secured by a first priority
lien on substantially all of the assets of the Company and its subsidiaries.
Interest under the facilities is payable at the prime rate plus 4.75%. The
credit agreement with Foothill contains a number of financial covenants which,
among other things, require the Company to maintain specified financial ratios.
Based on current interest rates, the debt service obligations associated with
the credit agreement with Foothill necessitate payments of principal and
interest of approximately $13.9 million in 1998. In the event that the Company
should default on its obligations under the credit agreement with Foothill, all
or substantially all of its assets would be at risk. There can be no assurance
that the Company will be able to repay or refinance such indebtedness when due,
or that the Company would be able to sell all or any portion of its assets or
raise additional capital to make required payments on maturing indebtedness. An
inability to make payments when due or to comply with covenants and restrictions
associated with such indebtedness could give Foothill the right to foreclose on
properties securing payment obligations, which would have a material adverse
effect upon the Company.
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 $2.0 million, of which the Company
will receive proceeds totaling $1.0 million, 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 a forbearance of all principal payments,
aggregating $11.5 million in 1998, and certain covenant requirements through
September
7
<PAGE>
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.
ADDITIONAL FINANCING REQUIREMENTS. The Company will be unable to meet its
debt service obligations with Foothill and unable to fund current operations
without the proceeds from the sale of one or more of its radio stations. There
can be no assurance that such proceeds will be available to the Company when
required, or if available, that the amount of such proceeds would be acceptable
or favorable to the Company. Additional financing could require the sale of
equity securities, which could result in significant dilution to the Company's
shareholders.
POTENTIAL INABILITY TO REPAY EXISTING INDEBTEDNESS. The Company's ability
to repay its outstanding indebtedness at maturity may be adversely affected
without the proceeds from the sale of one or more of its radio stations or if
the Company does not have access to capital markets for the sale of additional
equity or debt through public offerings or private placements on terms
reasonably satisfactory to the Company. Substantially all of the Company's
assets have been pledged to secure the Company's indebtedness to Foothill. The
failure of the Company to repay such indebtedness on a timely basis, or a
default under its credit agreement with Foothill, could give rise to an
acceleration of such indebtedness and, potentially, could result in the loss of
the Company's assets.
HISTORY OF OPERATING LOSSES. Since inception, the Company experienced
substantial net losses as a result of its efforts to develop a national
children's radio network. The Company has not generated positive cash flow
sufficient to fund its ongoing operations and has had frequent working capital
shortages. For the quarter ended March 31, 1998 and the two years ended
December 31, 1997 and 1996, the Company incurred net losses of $3.7 million,
$14.6 million and $9.9 million, respectively. Despite the discontinuation of
Aahs World Radio, the Company expects to continue to incur operating losses
throughout 1998. In connection with their audit reports on the Company's
financial statements as of and for the years ended December 31, 1997 and 1996,
BDO Seidman, LLP, the Company's independent auditors, expressed substantial
doubt about the Company's ability to continue as a going concern because of its
recurring losses, negative working capital and negative cash flow from
operations. As of March 31, 1998, the Company had an accumulated deficit of
$44.5 million and had used approximately $27.1 million of cash to fund its
losses.
ABC/DISNEY LITIGATION. 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, was
to use the resources and reputation of ABC Radio to market Aahs World Radio,
attract national advertising and further build the Company's network through
affiliations. The Company sought out and developed strategic relationships in
order to enhance and reinforce its brand, and to allow the Company to explore
business opportunities at minimal cost to it and without detracting from
management's focus upon the Company's core business. In 1995, the Company
developed such a relationship with ABC Radio, pursuant to which ABC Radio
agreed, through representations and agreements, that ABC Radio would commit its
affiliate development and national advertising sales staffs and other resources
to assist and augment the Company's efforts to market the Aahs World Radio
format to broadcasters and advertisers. Throughout the course of its
relationship with ABC Radio, the Company disclosed significant confidential
proprietary business information to ABC/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 denies ABC Radio's counterclaim in all respects, and
has moved to have the
8
<PAGE>
counterclaim dismissed as untimely. The ABC/Disney suit is likely to proceed
to trial in 1998. The Company intends to pursue to its conclusion the
ABC/Disney litigation. Certain resources will be used to this end, including
personnel costs and litigation costs.
In May 1998, the Company paid 150,000 shares of its Common Stock as a
retainer to Hessian & McKasy, P.A. for legal fees incurred and to be incurred
in connection with the ABC/Disney litigation. The resale of such shares may
result in dilution to the Company's shareholders. See "Selling Shareholders."
VOLATILITY OF MARKET PRICE OF COMMON STOCK. The market price of the
Company's Common Stock has been subject to significant fluctuations in response
to numerous factors, including variations in the annual or quarterly financial
results of the Company, changes by financial research analysts in their
estimates of the earnings of the Company, conditions in the economy in general
or in the radio industry in particular, unfavorable publicity or changes in
applicable laws and regulations (or judicial or administrative interpretations
thereof) affecting the Company or the radio industry. During 1997, the market
price of the Company's Common Stock ranged from a high of $6.63 on January 13
and 14, 1997 to a low of $3.19 on April 7, 1997. During the first four months
of 1998, the market price of the Company's Common Stock ranged from a high of
$4.31 on January 7, 1998 to a low of $2.81 on January 28, 1998. There can be no
assurance that purchasers of the Company's Common Stock can sell such stock at
or above the prices at which it was purchased.
IMPACT OF SALE OF SHARES; SHARES ELIGIBLE FOR FUTURE SALE. As of April 30,
1998, the Company had approximately 6,673,516 shares of Common Stock outstanding
and had warrants and options outstanding to purchase additional Common Stock
totaling approximately 3,335,758 common shares exercisable at prices ranging
from $2.00 to $13.80 per share. In February 1997, the Commission declared
effective the Company's Registration Statement on Form S-3, as amended, which
registered approximately 500,000 common shares and the Company's Registration
Statement on Form S-4, as amended, which registered 5,000,000 common shares and
$5.0 million of debt securities. In June 1997, the Commission declared
effective the Company's Registration Statement on Form S-3, which registered
approximately 320,000 common shares. The sale of such shares and the sale of
additional Common Stock which may become eligible for sale in the public market
from time to time upon exercise of warrants and stock options could have the
effect of depressing the market prices for the Company's Common Stock.
CONFLICTS OF INTEREST. The Company leases certain broadcast and office
facilities from the Chairman of the Board, President and Chief Executive
Officer, Christopher T. Dahl, and another director of the Company, Richard W.
Perkins. The Company also leases the WWTC(AM) and KYCR(AM) radio transmission
tower site from Mr. Dahl. The Company also shares with Community Airwaves
Corporation ("CAC"), a corporation owned by Messrs. Dahl, Perkins and a former
director-elect of the Company, Russell Cowles II, certain management services
which are provided by another entity, Radio Management Corporation, which is
owned by Messrs. Dahl, Perkins and Cowles. The management services consist of
administrative, legal and accounting services. Such arrangements present
conflicts of interest in connection with the pricing of services provided.
FCC REGULATION. Although the RBLs owned by the Company are already
granted, the continuation of any RBL acquired by the Company depends upon its
compliance with the laws, rules and regulations of the Federal Communications
Commission ("FCC"). The FCC can revoke licenses for serious misconduct, subject
to the right to an evidentiary hearing, or it may fail to renew a license or
impose monetary fines for breach of its rules. Neither the Company nor CAC has
ever been denied any FCC license or renewal, or had a fine imposed by the FCC.
In recent years, a number of competing applications and formal and informal
objections have been filed with respect to broadcast renewal applications. Even
though the vast majority of all license renewal applications are granted, and
under the Telecommunications Act of 1996 (the "1996 Act") competing applications
in license renewal proceedings are no longer allowed, there can be no assurance
that renewal of the Company's licenses will be granted. Furthermore, approvals
are required for the transfer of ownership. Three directors and attributable
shareholders of the Company have interests in AM and FM radio stations unrelated
to the Company. Under current FCC regulations, these interests are attributed
to the Company. The 1996 Act eliminated the limit upon the number of stations
that
9
<PAGE>
can be under common ownership or control nationally. Local ownership was
substantially relaxed according to market size.
ANTI-TAKEOVER PROVISIONS. The Board of Directors, without any action by
the Company's shareholders, has the authority to issue the remaining
undesignated and unissued authorized shares and to fix the powers, preferences,
rights and limitations of such shares or any class or series thereof, without
shareholder approval. Persons acquiring such shares could have preferential
rights with respect to voting, liquidation, dissolution or dividends over
existing shareholders. The Company is subject to certain provisions of the
Minnesota Business Corporation Act which limit the voting rights of shares
acquired in "control share acquisitions" and restrict certain "business
combinations." Such provisions, as well as the ability to issue undesignated
shares, could have the effect of deterring or delaying a takeover or other
change in control of the Company, deny shareholders the receipt of a premium on
their Common Stock and depress the market price of the Company's Common Stock.
On February 14, 1998, the Board of Directors declared a dividend of one
common share purchase right (a "Right") for each share of the Company's Common
Stock outstanding as of the close of business on February 27, 1998. Each Right
will entitle the registered holder to purchase from the Company, after the
Distribution Date (as defined in the Rights Agreement), common shares at an
initial price of $18.00. The Rights have certain anti-takeover effects. The
Rights will cause substantial dilution to a person or group that attempts to
acquire the Company without conditioning the offer on a substantial number of
Rights being acquired or redeemed. The Rights should not interfere with any
merger or other business combination approved by the Board of Directors of the
Company since the Board of Directors may, at its option and in its sole and
absolute discretion, redeem the Rights as provided in the Rights Agreement.
CONTROL BY MANAGEMENT. As of April 30, 1998, approximately 22.9% of the
Company's outstanding Common Stock was beneficially owned by the Company's
current officers and directors. Accordingly, such persons may be able to
significantly influence the Company's business and affairs. This concentration
of ownership may have the effect of delaying, deferring or preventing a change
in control of the Company.
NO ASSURANCE AS TO LIQUIDITY ON THE NASDAQ NATIONAL MARKET. The Common
Stock is currently listed on the Nasdaq National Market. There can be no
assurance that the Common Stock will be actively traded on such market or
that, if active trading does develop, it will be sustained. On May 19, 1998,
the Company received notice from The Nasdaq Stock Market that the Company
does not meet the net tangible asset requirements for continued listing on
the Nasdaq National Market. The Company is in the process of formulating a
response to such notice which will include the Company's plans to achieve
eligibility for continued listing. Although the Company believes it will be
able to comply with the net tangible asset requirements, it is possible that
The Nasdaq Stock Market may disagree with the Company's position. As a
result, it is possible that the Common Stock may be delisted or that the
Company may seek to relist the Common Stock on the Nasdaq SmallCap Market or
on an exchange. In the event that the Common Stock becomes delisted or
relisted on another market, the market price of the Common Stock may decline.
ABSENCE OF DIVIDENDS. The Company has never declared or paid any cash
dividends on its Common Stock and does not intend to declare or pay cash
dividends on its Common Stock in the foreseeable future. The Company presently
expects to retain its earnings to finance its business. The declaration or
payment by the Company of dividends, if any, on its Common Stock in the future
is subject to the discretion of the Board of Directors and will depend on the
Company's earnings, financial condition, capital requirements and other relevant
factors. The declaration or payment by the Company of dividends is also subject
to the Company's credit agreement with Foothill. Without Foothill's prior
written consent, the Company cannot declare or pay any cash dividends.
10
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth, as of the date of this Prospectus, the name
of each Selling Shareholder, certain beneficial ownership information with
respect to the Selling Shareholders, and the number of Shares that may be sold
from time to time by each pursuant to this Prospectus. There can be no
assurance that the shares offered hereby will be sold.
<TABLE>
<CAPTION>
Percentage of
Outstanding
Shares Shares Shares
Beneficially Beneficially Beneficially
Owned Shares Owned Upon Owned Upon
Prior to Offered Completion of Completion of
Selling Shareholder Offering Hereby the Offering the Offering
- -------------------------- ------------ ------- ------------- -------------
<S> <C> <C> <C> <C>
Hessian & McKasy, P.A. 150,000 150,000 0 0
Nelson Broadcasting, Inc. 161,528 86,528 75,000 1.1
Harvey Bibicoff 82,500 57,000 25,500 *
Rodney P. Burwell 201,250(1) 50,000 151,250 2.2
Pyramid Partners, L.P.(2) 62,500 50,000 12,500 *
William M. Toles 62,500 25,000 37,500 *
Richard Alan Incorporated 3,000 3,000 0 0
- --------------
*Less than one percent.
</TABLE>
(1) Includes (i) 111,250 shares owned directly by Mr. Burwell and (ii) 90,000
shares purchasable upon exercise of options and warrants.
(2) Pyramid Partners, L.P. is an entity controlled by Perkins Capital
Management, Inc., of which Richard W. Perkins, a director of the Company,
is President.
Up to 150,000 shares of Common Stock may be sold from time to time for the
account of Hessian & McKasy, P.A. ("HMPA") pursuant to a retainer agreement with
the Company. In May 1998, the Company paid 150,000 shares as a retainer to HMPA
for legal fees incurred and to be incurred in connection with the ABC/Disney
litigation. Under the retainer agreement, HMPA will periodically invoice the
Company for legal fees and costs incurred in connection with the litigation.
The Company will determine at such time whether it desires to pay the billing in
cash with the Company's funds or whether it will authorize HMPA to sell shares
in satisfaction of the invoice. The number of shares which may be sold will be
equal to the amount of the particular billing divided by the bid price of the
Company's stock on the Nasdaq National Market as of the date the Company
notifies HMPA of its authorization to pay a particular legal fee billing in
shares. In the event of the sale of shares by HMPA to satisfy billings, any
shortfall in proceeds received from such sale shall be added to the Company's
obligation to such firm and carried forward to a future billing. In the event
the proceeds from the sale of shares by HMPA exceed the amount of the billing
for which such shares are to be sold, such excess shall be credited to future
legal fees due such firm. In lieu of selling shares following the submission of
a billing to the Company, HMPA may elect to retain shares in satisfaction of a
billing, in which case the market risk from the sale of such shares would be
borne by the firm. Lance W. Riley, the Company's Secretary and General Counsel,
has an of counsel relationship with HMPA.
11
<PAGE>
This Prospectus includes 86,528 shares owned by Nelson Broadcasting, Inc.
Such shares are issuable or were issued in connection with its sale to the
Company of an RBL and certain other broadcasting equipment in the Chicago
metropolitan area. This Prospectus also includes 57,000 shares owned by Harvey
Bibicoff. Such shares were issued in connection with Mr. Bibicoff's sale to the
Company of 600,000 shares of common stock of Harmony and options to purchase
550,000 shares of common stock of Harmony at an exercise price of $1.50 per
share (collectively the "Harmony Transaction"). This Prospectus includes shares
underlying warrants issued to (i) Pyramid Partners, L.P., an entity controlled
by Perkins Capital Management, Inc., of which Richard W. Perkins, a director of
the Company, is President, (ii) Rodney P. Burwell, a former director of the
Company, and (iii) William M. Toles, a shareholder of the Company. Such
warrants were issued in consideration of loans aggregating $1.25 million from
such persons to the Company which partially financed the Harmony Transaction.
This Prospectus also includes 3,000 shares, originally issued to Mr. Bibicoff in
connection with the Harmony Transaction, which Mr. Bibicoff transferred to
Richard Alan Incorporated.
The Company has agreed to bear all expenses (other than selling commissions
and fees) in connection with the registration and sale of the Shares being
offered by the Selling Shareholders in over-the-counter market transactions or
in negotiated transactions. See "Plan of Distribution." The Company has filed
with the Commission a Registration Statement on Form S-3 under the Securities
Act with respect to the resale of the Shares from time to time in
over-the-counter market transactions or in negotiated transactions. This
Prospectus forms a part of such Registration Statement.
USE OF PROCEEDS
The Shares offered hereby will be sold by the Selling Shareholders. The
Company will not receive any of the proceeds from the sale of the Shares by the
Selling Shareholders. See "Selling Shareholders."
PLAN OF DISTRIBUTION
The Shares offered hereby may be offered by the Selling Shareholders from
time to time. The Company will receive no proceeds from the sale of the Shares.
Sales may be effected by the Selling Shareholders in transactions on The Nasdaq
Stock Market, in negotiated transactions, or in a combination of such methods of
sale, at prices relating to prevailing market prices or at negotiated prices.
The Selling Shareholders may effect such transactions by selling the Shares to
or through broker-dealers, and such broker-dealers may receive compensation in
the form of discounts or commissions from the Selling Shareholders and/or the
purchasers of the Shares for whom such broker-dealers may act as agents or to
whom they sell as principal, or both (which compensation as to a particular
broker-dealer may be in excess of customary commissions).
The Selling Shareholders and any persons who participate in the sale of the
Shares from time to time, may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act. Any commissions paid or discounts or
concessions allowed to any such persons and any profits received on resale of
the Shares, may be deemed to be underwriting compensation under the Securities
Act.
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available.
The Company has agreed to indemnify the Selling Shareholders and their
control persons with respect to certain liabilities in connection with the sale
of the Shares pursuant to this Prospectus, including liabilities under the
Securities Act and the Exchange Act. In addition, the Selling Shareholders have
agreed to indemnify the Company, its directors, officers, agents and control
persons against certain liabilities incurred as a result of information provided
by the Selling Shareholders for use in this Prospectus. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted pursuant to the foregoing provisions, the Company has been informed
that, in the opinion of the Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
12
<PAGE>
LEGAL MATTERS
The validity of the Shares offered hereby and certain legal matters
pertaining to the Company, including matters incorporated herein by reference
relating to the regulation of the Company by the FCC and related matters, were
passed upon on behalf of the Company by Lance W. Riley, Esq., Secretary and
General Counsel to the Company.
EXPERTS
The consolidated financial statements as of December 31, 1996 and December
31, 1997 of Children's Broadcasting Corporation, incorporated by reference in
this Prospectus, have been audited by BDO Seidman, LLP, independent certified
public accountants, as set forth in their reports thereon (which contain an
explanatory paragraph with respect to substantial doubt about the Company's
ability to continue as a going concern and management's plans described in Note
2 to the consolidated financial statements). Such consolidated financial
statements are incorporated by reference herein in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
13
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER DESCRIBED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE SELLING SHAREHOLDERS. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE UNDER THIS PROSPECTUS SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR SINCE THE DATE OF ANY DOCUMENTS
INCORPORATED HEREIN BY REFERENCE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES, OR AN OFFER OR SOLICITATION IN ANY STATE TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH STATE.
---------------------
TABLE OF CONTENTS
---------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents
by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Selling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
421,528 SHARES
CHILDREN'S BROADCASTING
CORPORATION
COMMON STOCK
---------------------
PROSPECTUS
---------------------
_________________, 1998
<PAGE>
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses payable by the Company
in connection with the sale and distribution of the Shares being registered.
All amounts shown are estimates, except the registration fee.
<TABLE>
<S> <C>
SEC registration fee. . . . . . . . . . . . . . . . . . . . . . . $ 416
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . 7,500
Accounting fees and expenses. . . . . . . . . . . . . . . . . . . 3,000
Blue sky and related fees and expenses. . . . . . . . . . . . . . 0
Miscellaneous (including listing fees, if applicable) . . . . . . 0
-------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,916
-------
-------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant is a Minnesota corporation. Reference is made to Minnesota
Statutes Section 302A.521 which provides that a Minnesota business corporation
shall indemnify any director, officer, employee or agent of the corporation made
or threatened to be made a party to a proceeding, by reason of the former or
present official capacity (as defined) of the person, against judgments,
penalties, fines, settlements and reasonable expenses incurred by the person in
connection with the proceeding if certain statutory standards are met.
"Proceeding" means a threatened, pending or completed civil, criminal,
administrative, arbitration or investigative proceeding, including one by or in
the right of the corporation. Section 302A.521 contains detailed terms
regarding such right of indemnification and reference is made thereto for a
complete statement of such indemnification rights.
Article 6.2 of the Company's Amended and Restated Bylaws, as amended,
provides that directors, officers, employees and agents, past or present, of the
Company, and persons serving as such of another corporation or entity at the
request of the Company, shall be indemnified by the Company for such expenses
and liabilities, in such manner, under such circumstances, and to such extent as
permitted under Minnesota Statutes 302A.521.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
5.1 Opinion of Lance W. Riley, Esq.
10.1 Asset Purchase Agreement re WAUR(AM), Sandwich, Illinois (incorporated
by reference from the Registrant's Registration Statement on Form S-3
(Registration No. 333-14483)).
10.2 Stock Purchase Agreement among Children's Broadcasting Corporation,
Harvey Bibicoff and Harmony Holdings, Inc., dated July 21, 1997
(incorporated by reference from the Registrant's Current Report on
Form 8-K, filed on August 1, 1997, relating to the Company acquiring a
27.4% beneficial interest in Harmony Holdings, Inc.).
10.3 Promissory Note with Pyramid Partners, L.P. (incorporated by reference
from the Registrant's Current Report on Form 8-K, filed on August 1,
1997, relating to the Company acquiring a 27.4% beneficial interest in
Harmony Holdings, Inc.).
10.4 Promissory Note with Rodney P. Burwell (incorporated by reference from
the Registrant's Current Report on Form 8-K, filed on August 1, 1997,
relating to the Company acquiring a 27.4% beneficial interest in
Harmony Holdings, Inc.).
10.5 Promissory Note with William M. Toles (incorporated by reference from
the Registrant's Current Report on Form 8-K, filed on August 1, 1997,
relating to the Company acquiring a 27.4% beneficial interest in
Harmony Holdings, Inc.).
23.1 Consent of Lance W. Riley, Esq. (included in Exhibit 5.1).
23.2 Consent of BDO Seidman, LLP.
24.1 Power of Attorney (included on signature page to the Registration
Statement).
II-1
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
provided, however, that the undertakings set forth in paragraphs (i) and (ii)
above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions summarized in Item 15 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel, the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that (1) for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this Registration Statement
in reliance on Rule 430A and contained in the form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the time it was
declared effective and (2) for the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new
II-2
<PAGE>
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis and State of Minnesota, on May 21, 1998.
CHILDREN'S BROADCASTING CORPORATION
By /s/ Christopher T. Dahl
-------------------------------------
Christopher T. Dahl, President
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENT, that each person whose signature appears below
constitutes and appoints Lance W. Riley and Patrick D. Grinde as his or her true
and lawful attorney-in-fact and agent, with full powers of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on the dates and
in the capacities indicated.
Signature Title Date
--------- ----- ----
/s/ Christopher T. Dahl President, Chief Executive May 21, 1998
- ------------------------- Officer and Director (Principal
Christopher T. Dahl Executive Officer)
/s/ Patrick D. Grinde Chief Financial Officer May 21, 1998
- ------------------------- (Principal Accounting Officer
Patrick D. Grinde and Principal Financial Officer)
/s/ Richard W. Perkins Director May 21, 1998
- -------------------------
Richard W. Perkins
/s/ Michael R. Wigley Director May 21, 1998
- -------------------------
Michael R. Wigley
/s/ William E. Cameron Director May 21, 1998
- -------------------------
William E. Cameron
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
5.1 Opinion of Lance W. Riley, Esq.
10.1 Asset Purchase Agreement re WAUR(AM), Sandwich, Illinois (incorporated
by reference from the Registrant's Registration Statement on Form S-3
(Registration No. 333-14483)).
10.2 Stock Purchase Agreement among Children's Broadcasting Corporation,
Harvey Bibicoff and Harmony Holdings, Inc., dated July 21, 1997
(incorporated by reference from the Registrant's Current Report on
Form 8-K, filed on August 1, 1997, relating to the Company acquiring a
27.4% beneficial interest in Harmony Holdings, Inc.).
10.3 Promissory Note with Pyramid Partners, L.P. (incorporated by reference
from the Registrant's Current Report on Form 8-K, filed on August 1,
1997, relating to the Company acquiring a 27.4% beneficial interest in
Harmony Holdings, Inc.).
10.4 Promissory Note with Rodney P. Burwell (incorporated by reference from
the Registrant's Current Report on Form 8-K, filed on August 1, 1997,
relating to the Company acquiring a 27.4% beneficial interest in
Harmony Holdings, Inc.).
10.5 Promissory Note with William M. Toles (incorporated by reference from
the Registrant's Current Report on Form 8-K, filed on August 1, 1997,
relating to the Company acquiring a 27.4% beneficial interest in
Harmony Holdings, Inc.).
23.1 Consent of Lance W. Riley, Esq. (included in Exhibit 5.1).
23.2 Consent of BDO Seidman, LLP.
24.1 Power of Attorney (included on signature page to Registration
Statement).
</TABLE>
<PAGE>
EXHIBIT 5.1
May 21, 1998
Children's Broadcasting Corporation
724 First Street North
Minneapolis, Minnesota 55401
Gentlemen:
I am General Counsel to Children's Broadcasting Corporation, a Minnesota
corporation (the "Company"), in connection with its filing of a registration
statement on Form S-3 (the "Registration Statement"), under the Securities Act
of 1933, as amended, in connection with the proposed sale by Selling
Shareholders of 421,528 shares of common stock, $.02 par value, of the Company
(the "Shares"). Certain of the Shares are issuable upon the exercise of
warrants held by the Selling Shareholders.
I have examined the Registration Statement and those documents, corporate
records, and other instruments I deemed relevant as a basis for the opinion
herein expressed.
Based on the foregoing, it is my opinion that when the Registration
Statement shall have been declared effective by order of the Securities and
Exchange Commission, and the Shares have been sold as contemplated by the
Registration Statement, the Shares will be legally and validly issued,
fully-paid and nonassessable.
I hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to myself under the caption "Legal
Matters" in the Prospectus included in such Registration Statement.
/s/ Lance W. Riley
--------------------------------------
Lance W. Riley
General Counsel
Children's Broadcasting Corporation
<PAGE>
<PAGE>
EXHIBIT 23.2
Consent of BDO Seidman, LLP
We consent to the reference to our firm under the captions "Risk Factors -
History of Operating Losses" and "Experts" in the Registration Statement on Form
S-3 of Children's Broadcasting Corporation for the registration of 421,528
shares of common stock and to the incorporation by reference therein of our
report dated February 24, 1998, except for Notes 2, 9, 13 and 16 which are
dated March 13, 1998, with respect to the consolidated financial statements of
Children's Broadcasting Corporation included in the Annual Reports (Forms
10-KSB) for the years ended December 31, 1996 and December 31, 1997.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Milwaukee, Wisconsin
May 21, 1998
