<PAGE>
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Confidential, For Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
COMMISSION FILE NO. 0-21534
CHILDREN'S BROADCASTING CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
Not applicable
-----------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
Not applicable
-----------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
Not applicable
-----------------------------------------------------------------
4) Proposed maximum aggregate value of transaction: $61,700,000
----------------
5) Total fee paid: $12,340
-------------------------------------------------
/ / Fee paid previously with preliminary materials:
------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount Previously Paid:
-----------------------------------------
2) Form, Schedule or Registration Statement No.:
-------------------
3) Filing Party:
---------------------------------------------------
4) Date Filed:
----------------------------------------------------
<PAGE>
CHILDREN'S BROADCASTING CORPORATION
724 FIRST STREET NORTH
Minneapolis, MN 55401
(612) 338-3300
Dear Shareholder: July 9, 1998
I am pleased to invite you to attend the Annual Meeting of
Shareholders (the "Annual Meeting") of Children's Broadcasting Corporation
(the "Company"), to be held at the Minneapolis Hilton and Towers, 1001
Marquette Avenue, Minneapolis, Minnesota, on August 18, 1998, at 9:30 a.m.
local time.
At the Annual Meeting you will be asked (i) to vote for the election
of directors, (ii) to approve the plan for the sale of all of the Company's
owned and operated radio stations (the "Plan") pursuant to which (a) ten
stations will be sold to Catholic Radio Network, LLC ("CRN") for $57.0
million (subject to adjustment), (b) two stations will be sold to Salem
Communications Corporation ("Salem") for $2.7 million (subject to adjustment)
and (c) one station will be sold to 1090 Investments, L.L.C. ("1090") for
$2.0 million (subject to adjustment), (iii) to approve an amendment to the
Company's 1994 Stock Option Plan the "1994 Plan" which would permit the
committee administering the 1994 Plan to suspend or discontinue it at any
time and to revise or amend it in any respect, provided, however, that no
revision or amendment may be made without shareholder approval that: (a)
absent such shareholder approval, would cause Rule 16b-3 under the Securities
Exchange Act of 1934 to become unavailable with respect to the 1994 Plan or
(b) requires shareholder approval under any rules or regulations of the
National Association of Securities Dealers, Inc. or any exchange that are
applicable to the Company and (iv) to ratify the appointment of BDO Seidman,
LLP as the Company's independent public accountants for the fiscal year
ending December 31, 1998. Copies of the purchase agreements with CRN, Salem
and 1090 are set forth in Appendices I, II and III to the Proxy Statement.
If any sale to Salem, 1090 or both such entities is not completed, approval
of the Plan will authorize the Board of Directors to sell such station or
stations on such terms as the Board of Directors may approve.
The Plan is part of management's strategy to reposition the Company by
selling 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. While the Company
has ceased producing and distributing its full-time Aahs World Radio-SM-
programming format, and has effected certain reductions in its workforce related
to the operation of the network, the Company has retained select members of the
Aahs World Radio creative and marketing staffs and is developing other
programming products, including syndicated general market radio programs. In
addition to utilizing its network intangibles, the Company has begun to
diversify by acquiring a major interest in Harmony Holdings, Inc., which
produces television commercials, music videos and related media.
THE BOARD OF DIRECTORS HAS DETERMINED THAT THE PLAN IS IN THE BEST
INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND HAS UNANIMOUSLY APPROVED, AND
ACCORDINGLY RECOMMENDS, THAT YOU VOTE FOR THE PLAN.
<PAGE>
The accompanying material contains the Notice of Annual Meeting, the
Proxy Statement, which includes information about the matters to be acted upon
at the Annual Meeting, and the related proxy card. I sincerely hope you will be
able to attend the Company's Annual Meeting. Whether or not you are able to
attend the Annual Meeting in person, I urge you to sign and date the enclosed
proxy and return it promptly in the enclosed envelope. If you do attend the
Annual Meeting in person, you may withdraw your proxy and vote personally on any
matters brought properly before the Annual Meeting.
Very truly yours,
CHILDREN'S BROADCASTING CORPORATION
/s/ Christopher T. Dahl
Christopher T. Dahl
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
CHILDREN'S BROADCASTING CORPORATION
724 FIRST STREET NORTH
Minneapolis, MN 55401
(612) 338-3300
---------------------
NOTICE OF 1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 18, 1998
---------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
"Annual Meeting") of Children's Broadcasting Corporation (the "Company") will
be held at the Minneapolis Hilton and Towers, 1001 Marquette Avenue,
Minneapolis, Minnesota, on August 18, 1998, at 9:30 a.m. local time, for the
following purposes, as more fully described in the accompanying Proxy
Statement:
1. To elect four directors for the ensuing year and until their
successors shall be elected and duly qualified.
2. To approve the plan for the sale of all of the Company's owned
and operated radio stations (the "Plan") pursuant to which (a)
ten stations will be sold to Catholic Radio Network, LLC ("CRN")
for $57.0 million (subject to adjustment), (b) two stations will
be sold to Salem Communications Corporation ("Salem") for $2.7
million (subject to adjustment) and (c) one station will be sold
to 1090 Investments, L.L.C. ("1090") for $2.0 million (subject to
adjustment). Copies of the purchase agreements with CRN, Salem
and 1090 are set forth in Appendices I, II and III to the Proxy
Statement. If any sale to Salem, 1090 or both such entities is
not completed, approval of the Plan will authorize the Board of
Directors to sell such station or stations on such terms as the
Board of Directors may approve.
3. To approve an amendment to the Company's 1994 Stock Option
Plan (the "1994 Plan" which would permit the committee
administering it to suspend or discontinue the 1994 Plan at
any time and to revise or amend it in any respect, provided,
however, that no revision or amendment may be made without
shareholder approval that: (a) absent such shareholder
approval, would cause Rule 16b-3 under the Securities Exchange
Act of 1934 to become unavailable with respect to the 1994
Plan or (b) requires shareholder approval under any rules or
regulations of the National Association of Securities Dealers,
Inc. or any exchange that are applicable to the Company.
4. To ratify the appointment of BDO Seidman, LLP as the Company's
independent public accountants for the fiscal year ending
December 31, 1998.
5. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the Annual Meeting or
any adjournment or postponement thereof.
<PAGE>
Only shareholders of record at the close of business on June 22, 1998
are entitled to notice of and to vote at the Annual Meeting. Whether or not you
expect to attend the Annual Meeting in person, please mark, date and sign the
enclosed proxy exactly as your name appears thereon and promptly return it in
the envelope provided, which requires no postage if mailed in the United States.
Proxies may be revoked at any time before they are exercised and, if you attend
the Annual Meeting in person, you may withdraw your proxy and vote personally on
any matter brought properly before the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Lance W. Riley
Lance W. Riley
SECRETARY AND GENERAL COUNSEL
Minneapolis, Minnesota
July 9, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
INFORMATION CONCERNING SOLICITATION AND VOTING . . . . . . . . . . . . . . . .1
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Record Date and Outstanding Common Stock. . . . . . . . . . . . . . . .2
Revocability of Proxies . . . . . . . . . . . . . . . . . . . . . . . .2
Voting and Solicitation . . . . . . . . . . . . . . . . . . . . . . . .2
Quorum; Abstentions; Broker Non-Votes . . . . . . . . . . . . . . . . .2
Rights of Dissenting Shareholders . . . . . . . . . . . . . . . . . . .3
ELECTION OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Nominees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Business Experience . . . . . . . . . . . . . . . . . . . . . . . . . .3
The Board of Directors and Committees . . . . . . . . . . . . . . . . .4
Directors' Compensation . . . . . . . . . . . . . . . . . . . . . . . .4
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
PROPOSAL TO APPROVE THE PLAN FOR THE SALE OF ALL OF THE
COMPANY'S OWNED AND OPERATED RADIO STATIONS. . . . . . . . . . . . . . . . . .7
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Background and Reasons for the Proposed Sale of Assets. . . . . . . . .7
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Description of the Purchase Agreements. . . . . . . . . . . . . . . . .9
CRN Agreement . . . . . . . . . . . . . . . . . . . . . . . . .9
Salem Agreement . . . . . . . . . . . . . . . . . . . . . . . 12
1090 Agreement. . . . . . . . . . . . . . . . . . . . . . . . 15
Sales to Other Parties. . . . . . . . . . . . . . . . . . . . . . . . 17
Estimated Net Proceeds from the Proposed Sale of Assets . . . . . . . 17
Ongoing Corporate Operations. . . . . . . . . . . . . . . . . . . . . 17
Interests of Certain Persons in the Proposed Sale of Assets . . . . . 18
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . 19
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . 19
Opinion of Financial Advisor. . . . . . . . . . . . . . . . . . . . . 20
Rights of Dissenting Shareholders . . . . . . . . . . . . . . . . . . 23
PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S 1994 STOCK OPTION PLANS. . 25
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Description of the 1994 Plan. . . . . . . . . . . . . . . . . . . . . 26
Proposed Plan Amendment . . . . . . . . . . . . . . . . . . . . . . . 28
Tax Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
New Plan Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
PROPOSAL TO RATIFY THE APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS . . . . 30
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS. . . . . . . . . . . . . . . . . 31
SELECTED CONSOLIDATED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . 33
PRO FORMA FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 35
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Statements of Operations. . . . . . . . . . . . . . . . . . . . . . . 36
Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE. . . . . . . . . . . . . . . 38
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . 38
Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Management Services From an Affiliate . . . . . . . . . . . . . . . . 39
Harmony-Related Transactions. . . . . . . . . . . . . . . . . . . . . 39
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 . . . . 40
SHAREHOLDER PROPOSALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ANNUAL REPORT TO SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . 40
FORM 10-KSB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
APPENDIX I - PURCHASE AGREEMENT WITH CATHOLIC RADIO NETWORK, LLC . . . . . .I-1
APPENDIX II - ASSET PURCHASE AGREEMENT WITH SALEM COMMUNICATIONS
CORPORATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II - 1
APPENDIX III - ASSET PURCHASE AGREEMENT WITH 1090 INVESTMENTS, L.L.C.. .III - 1
APPENDIX IV - APPRAISALS FOR CHILDREN'S BROADCASTING CORPORATION'S
STATIONS DBA RADIO AAHS. . . . . . . . . . . . . . . . . . . . . . . . . IV - 1
APPENDIX V - OPINION OF FINANCIAL ADVISOR . . . . . . . . . . . . . . . .V - 1
APPENDIX VI - DISSENTERS RIGHTS. . . . . . . . . . . . . . . . . . . . . VI - 1
APPENDIX VII - CONSENT OF INDEPENDENT PUBLIC AUDITORS. . . . . . . . . .VII - 1
APPENDIX VIII - CHILDREN'S BROADCASTING CORPORATION AMENDED AND
RESTATED 1994 STOCK OPTION PLAN. . . . . . . . . . . . . . . . . . . . VIII - 1
</TABLE>
ii
<PAGE>
CHILDREN'S BROADCASTING CORPORATION
724 FIRST STREET NORTH
Minneapolis, MN 55401
(612) 338-3300
---------------------
PROXY STATEMENT FOR 1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 18, 1998
---------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors (hereinafter sometimes referred to as
the "Board") of Children's Broadcasting Corporation (the "Company") for use
at the Annual Meeting of Shareholders (the "Annual Meeting") to be held at
the Minneapolis Hilton and Towers, 1001 Marquette Avenue, Minneapolis,
Minnesota, on August 18, 1998, at 9:30 a.m. local time, or at any adjournment
or postponement thereof. All shares of Common Stock represented by properly
executed and returned proxies, unless such proxies have previously been
revoked, will be voted at the Annual Meeting and, where the manner of voting
is specified on the proxy, will be voted in accordance with such
specifications. Shares represented by properly executed and returned proxies
on which no specification has been made will be voted FOR the election of the
nominees for director named herein, FOR approval of the plan for the sale of
all of the Company's owned and operated radio stations (the "Plan") pursuant
to which (a) ten stations will be sold to Catholic Radio Network, LLC ("CRN")
for $57.0 million (subject to adjustment), (b) two stations will be sold to
Salem Communications Corporation ("Salem") for $2.7 million (subject to
adjustment) and (c) one station will be sold to 1090 Investments, L.L.C.
("1090") for $2.0 million (subject to adjustment), FOR approval of the
amendment to the Company's 1994 Plan, 1994 Stock Option Plan the "1994 Plan"
which would permit the committee administering to suspend or discontinue THE
Option Plans at any time and to revise or amend it in any respect, provided,
however, that no revision or amendment may be made without shareholder
approval that: (a) absent such shareholder approval, would cause Rule 16b-3
under the Securities Exchange Act of 1934 to become unavailable with respect
to the 1994 Plan or (b) requires shareholder approval under any rules or
regulations of the National Association of Securities Dealers, Inc. or any
exchange that are applicable to the Company and FOR ratification of the
appointment of BDO Seidman, LLP as the Company's independent public
accountants for the fiscal year ending December 31, 1998. Copies of the
purchase agreements with CRN, Salem and 1090 are set forth in Appendices I,
II and III to the Proxy Statement. If any sale to Salem, 1090 or both such
entities is not completed, approval of the Plan will authorize the Board to
sell such station or stations on such terms as the Board may approve. If any
other matters are properly presented at the Annual Meeting for action,
including a question of adjourning or postponing the Annual Meeting from time
to time, the persons named in the proxies and acting thereunder will have
discretion to vote on such matters in accordance with their best judgment.
The Notice of Annual Meeting, this Proxy Statement and the related proxy
card are first being mailed to shareholders of the Company on or about July 9,
1998.
<PAGE>
RECORD DATE AND OUTSTANDING COMMON STOCK
The Board has fixed the close of business on June 22, 1998, as the
Record Date for determining the holders of the Company's outstanding voting
shares entitled to notice of, and to vote at, the Annual Meeting. On that date,
there were ____________ shares of Common Stock issued, outstanding and entitled
to vote. As of the business day immediately preceding public announcement of
the proposed sale to CRN, the high and low sale prices of the Company's Common
Stock were $4.06 and $3.56, respectively.
REVOCABILITY OF PROXIES
Any shareholder who executes and returns a proxy may revoke it at any
time before it is voted. Any shareholder who wishes to revoke a proxy can do so
by (i) executing a later-dated proxy relating to the same shares and delivering
it to the Secretary of the Company prior to the vote at the Annual Meeting, (ii)
filing a written notice of revocation bearing a later date than the proxy with
the Secretary of the Company prior to the vote at the Annual Meeting, or (iii)
appearing in person at the Annual Meeting, filing a written notice of revocation
and voting in person the shares to which the proxy relates. Any written notice
or subsequent proxy should be delivered to Children's Broadcasting Corporation,
724 First Street North, Minneapolis, Minnesota 55401, Attention: Secretary of
the Company, or hand-delivered to the Secretary of the Company prior to the vote
at the Annual Meeting.
VOTING AND SOLICITATION
Each shareholder is entitled to one vote, exercisable in person or by
proxy, for each share of Common Stock held of record as of the Record Date.
Shareholders do not have the right to cumulate votes in the election of
directors.
Expenses incurred in connection with the solicitation of proxies will be
paid by the Company. The proxies are being solicited principally by mail. In
addition, directors, officers and regular employees of the Company may solicit
proxies personally or by telephone, for which they will receive no consideration
other than their regular compensation. Further, the Company has retained
Georgeson & Company, Inc. to assist it in connection with the solicitation of
proxies, which may be by mail, telephone or personal solicitation. In
connection therewith, the Company will pay fees and expenses estimated at
$11,000. The Company will also request brokerage houses, nominees, custodians
and fiduciaries to forward soliciting material to the beneficial owners of
shares of Common Stock held as of the Record Date and will reimburse such
persons for their reasonable expenses so incurred.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The presence, in person or by proxy, of the holders of at least a
majority of the shares of Common Stock outstanding and entitled to vote is
necessary to constitute a quorum for the transaction of business at the Annual
Meeting. All votes will be tabulated by the inspector of election for the
Annual Meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes.
If a properly executed proxy is returned and the shareholder has
abstained from voting on any matter, the shares represented by such proxy will
be considered present at the Annual Meeting for purposes of determining a quorum
and for purposes of calculating the vote, but will not be considered to have
been voted in favor of such matter.
If an executed proxy is returned by a broker holding shares in street
name which indicates that the broker does not have discretionary authority as to
certain shares to vote on one or more matters, such shares will be considered
present at the Annual Meeting for purposes of determining a quorum, but will not
be considered to be represented at the Annual Meeting for purposes of
calculating the vote with respect to such matter.
2
<PAGE>
RIGHTS OF DISSENTING SHAREHOLDERS
Shareholders who object to the Plan may exercise their dissenters'
rights and obtain payment for the "fair value" of their shares. See "Proposal
to Approve the Plan for the Sale of All of the Company's Owned and Operated
Radio Stations - Rights of Dissenting Shareholders."
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES
Four persons have been nominated for election as directors at the Annual
Meeting, all of whom currently serve as directors of the Company. Directors of
the Company are elected annually to serve until the next Annual Meeting of
Shareholders and until their successors are elected and duly qualified. There
are no family relationships between any director or officer.
It is intended that votes will be cast pursuant to the enclosed proxy
for the election of the nominees listed in the table below, except for those
proxies which withhold such authority. Shareholders do not have cumulative
voting rights with respect to the election of directors, and proxies cannot be
voted for a greater number of directors than the number of nominees. In the
event that any of the nominees shall be unable or unwilling to serve as a
director, it is intended that the proxy will be voted for the election of such
other person or persons as the management may recommend in the place of such
nominee. The Company has no reason to believe that any of the nominees will not
be candidates or will be unable to serve.
VOTE REQUIRED
The four nominees receiving the highest number of affirmative votes of
the shares entitled to vote at the Annual Meeting shall be elected to the Board
of Directors. An abstention will have the same effect as a vote withheld for
the election of directors and a broker non-vote will not be treated as voting in
person or by proxy on the proposal. Set forth below is certain information
concerning the nominees for the Board of Directors. THE BOARD OF DIRECTORS
RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE NOMINEES LISTED BELOW.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
- -------------------- --- -------------------------------------- --------------
<S> <C> <C> <C>
Christopher T. Dahl 54 Chairman of the Board, President and 1990
Chief Executive Officer of the Company
Richard W. Perkins 67 President, Chief Executive Officer and 1990
Director of Perkins Capital
Management, Inc.
Michael R. Wigley 44 President and Chief Executive Officer 1998
of Great Plains Companies, Inc.
William E. Cameron 54 Television Distribution Executive 1998
</TABLE>
BUSINESS EXPERIENCE
CHRISTOPHER T. DAHL has been President, Chief Executive Officer and
Chairman of the Company since its inception in February 1990. Mr. Dahl is also
Chairman and Chief Executive Officer of Community Airwaves Corporation ("CAC"),
a company that owns and operates radio stations in Hawaii. Prior to founding
CAC in 1986, Mr. Dahl managed his private investments. Mr. Dahl also serves as
a director of Radio Management Corporation ("RMC"), a company that provides
corporate, legal, accounting and financial services to the Company, CAC and
Harmony Holdings, Inc. ("Harmony"). From
3
<PAGE>
1969 to 1979, he was the founder and President of a group of companies involved
in photo finishing, retail photo sales, home sewing notions, toy distribution
and retail craft stores. He was employed by Campbell-Mithun and Knox Reeves
Advertising from 1965 through 1969. Mr. Dahl serves as President, Chief
Executive Officer and Chairman of Harmony, of which the Company is the largest
shareholder. Harmony produces television commercials, music videos and related
media.
RICHARD W. PERKINS has been a director of the Company since its
inception. For more than five years, Mr. Perkins has been President and Chief
Executive Officer of Perkins Capital Management, Inc. ("PCM"), a registered
investment advisor. Mr. Perkins is also a director of CAC and RMC as well as
the following publicly held companies: Bio-Vascular, Inc., a medical products
manufacturer; CNS, Inc., a consumer products manufacturer; Eagle Pacific
Industries, Inc., a manufacturer of plastic pipe; Harmony; LifeCore Biomedical,
Inc., a medical device manufacturer; Nortech Systems, Inc., an electronic
sub-systems manufacturer; Quantech LTD., a developer of immunological tests; and
Vital Images, Inc., a medical visualization software company.
MICHAEL R. WIGLEY was elected to the Company's Board of Directors in
February 1998 to fill a vacancy and to serve until the next Annual Meeting of
Shareholders. Mr. Wigley is President and Chief Executive Officer of Great
Plains Companies, Inc. ("Great Plains"), a construction-related company based
in Roseville, Minnesota. He has served as its President since 1989. Mr.
Wigley is Chairman and Chief Executive Officer of four subsidiaries of Great
Plains, as well as Chairman and Chief Executive Officer of Great Plains
Properties, Inc. and TerraDek Lighting, Inc., two independent privately-held
companies. Mr. Wigley is also a director of Choicetel Communications, Inc.,
the largest independent payphone service provider in Minnesota. He
co-founded the Minnesota branch of McKinsey & Company, where he managed
various teams of consultants from 1986 to 1989. Mr. Wigley holds a M.B.A.
from Harvard University and a M.S. in Civil Engineering from Stanford
University.
WILLIAM E. CAMERON was elected to the Company's Board of Directors in
April 1998 to fill a vacancy and to serve until the next Annual Meeting of
Shareholders. Since 1993, Mr. Cameron has been the head of International
Business Development for Universal Health Communications, the largest
medical-health-wellness video library in the world. After spending ten years
in London, England, Mr. Cameron relocated this year to Los Angeles,
California, to take over International Telemedicine Marketing for KZT
Corporation, the creators of the video phone. Mr. Cameron also serves as a
director of Harmony and RME Entertainment.
THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors held nine meetings during the fiscal year ended
December 31, 1997. Each of the incumbent directors attended at least 75% of
the meetings of the Board held while he was a member during the last fiscal
year. The Compensation Committee of the Board of Directors, which consisted
during the last fiscal year of Messrs. Perkins and Rodney P. Burwell, did not
meet during the last fiscal year. The Audit Committee of the Board of
Directors, consisting of Messrs. Dahl and Perkins, did not meet during the
last fiscal year. The Related Party Transaction Committee of the Board of
Directors, which consisted during the last fiscal year of Messrs. Burwell and
Mark A. Cohn, met once during the last fiscal year.
DIRECTORS' COMPENSATION
The Company has not paid any cash compensation to a director in his
capacity as a director but may pay directors' fees in the future. Certain
non-qualified stock options have been granted to directors. In addition, the
Company's 1994 Director Stock Option Plan provides stock options to its outside
directors.
4
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash compensation paid to
or accrued by each of the Company's executive officers receiving in excess of
$100,000 (the "Named Executive Officers") for services rendered to the Company
and its subsidiaries during the fiscal years ended December 31, 1997, 1996 and
1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------
ANNUAL COMPENSATION(1) AWARDS
------------------------------- ---------------------------
NAME AND SECURITIES UNDERLYING
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS
---------------------- ---------- ------------- ------------ ---------------------------
<S> <C> <C> <C> <C>
Christopher T. Dahl 1997 241,250(2) 15,000(2) 37,500(3)
President and Chief 1996 210,000 56,500 150,000(4)(5)
Executive Officer 1995 210,000 12,500 41,250(6)
Rick E. Smith 1997 151,154 -- 27,000(7)
Executive Vice President of 1996 79,849 1,000 38,000(8)
National Sales 1995 48,170 -- 7,500(9)
James G. Gilbertson 1997 123,500 7,500 25,000(3)
Chief Operating Officer 1996 123,500 55,875 100,000(5)(10)
1995 97,500 17,500 25,000(11)(12)
Denny J. Manrique (13) 1997 122,655 6,000 9,000(3)
Executive Vice President of 1996 117,023 1,000 43,000(14)
Sales Development 1995 101,082 -- --
Lance W. Riley 1997 118,750 7,500 12,500(3)
General Counsel and Secretary 1996 110,833 42,500 75,000(5)(15)
1995 95,000 15,000 40,000(16)
</TABLE>
- ---------------
(1) Includes, in the case of Messrs. Gilbertson and Riley, compensation paid
by RMC and Harmony for administrative management and professional
services rendered to the Company and Harmony.
(2) Includes compensation paid by Harmony for services rendered to Harmony
from July 1997 through December 1997.
(3) Option grants at $3.50 per share pursuant to the Company's 1994 Stock
Option Plan.
(4) Option grant of 50,000 shares at $5.88 per share and 75,000 shares at
$3.50 per share pursuant to the Company's 1994 Stock Option Plan.
(5) Non-qualified grant of options for 25,000 shares at $5.88 per share.
(6) Non-qualified grant of options for 41,250 shares at $7.70 per share.
(7) Option grant of 18,000 shares at $3.50 per share pursuant to the
Company's 1991 Stock Option Plan and 9,000 shares at $3.50 per share
pursuant to the Company's 1994 Stock Option Plan.
(8) Option grant of 20,000 shares at $8.38 per share and 18,000 shares at
$3.50 per share pursuant to the Company's 1994 Stock Option Plan.
(9) Option grant of 7,500 shares at $12.00 per share pursuant to the
Company's 1994 Stock Option Plan.
(10) Option grant of 25,000 shares at $5.88 per share and 50,000 shares at
$3.50 per share pursuant to the Company's 1994 Stock Option Plan.
(11) Option grant of 12,500 shares at $7.26 per share pursuant to the
Company's 1991 Stock Option Plan.
(12) Option grant of 12,500 shares at $7.26 per share pursuant to the
Company's 1994 Stock Option Plan.
(13) Mr. Manrique's employment with the Company terminated on February 1,
1998.
(14) Option grant of 25,000 shares at $8.38 per share and 18,000 shares at
$3.50 per share pursuant to the Company's 1994 Stock Option Plan.
(15) Option grant of 25,000 shares at $5.88 per share and 25,000 shares at
$3.50 per share pursuant to the Company's 1994 Stock Option Plan.
(16) Option grant of 25,000 shares at $7.25 per share pursuant to the
Company's 1991 Stock Option Plan and non-qualified options of 15,000
shares at $9.50 per share.
5
<PAGE>
The following table sets forth the number of securities underlying
options granted in 1997, the percent the grant represents of the total options
granted to employees during such fiscal year, the per-share exercise price of
the options granted, and the expiration date of the options for the Named
Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED TO EXERCISE
UNDERLYING OPTIONS EMPLOYEES IN FISCAL PRICE EXPIRATION
NAME GRANTED (#) YEAR (%) ($/SHARE(1)) DATE
---------------------------- ---------------------- ----------------------- ----------- ------------
<S> <C> <C> <C> <C>
Christopher T. Dahl.......... 37,500 18.8 3.50 6/2/02
Rick E. Smith................ 9,000 4.5 3.50 6/2/02
18,000 9.0 3.50 9/22/02
James G. Gilbertson.......... 25,000 12.5 3.50 6/2/02
Denny J. Manrique............ 9,000 4.5 3.50 6/2/02
Lance W. Riley............... 12,500 6.3 3.50 6/2/02
</TABLE>
- --------------
(1) Fair market value on the date of grant, in accordance with the Company's
1994 Stock Option Plan.
The following table sets forth certain information regarding options
exercised by the Named Executive Officers during 1997 and the number and value
of unexercised in-the-money options for the Named Executive Officers at
December 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT THE-MONEY OPTIONS AT
SHARES VALUE FISCAL YEAR END FISCAL YEAR END(1)($)
ACQUIRED ON REALIZED ----------------------------- -----------------------------
NAME EXERCISE ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
----------------------- ------------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Christopher T. Dahl. . . 25,000 45,313 80,625/198,125 17,150/45,850
Rick E. Smith. . . . . . - - 34,100/38,650 5,796/19,404
James G. Gilbertson. . . 10,750 18,141 57,917/129,583 11,433/30,567
Denny J. Manrique. . . . - - 25,406/26,594 4,116/11,004
Lance W. Riley . . . . . - - 45,208/107,292 5,717/15,283
</TABLE>
----------------
(1) Market value of underlying securities at fiscal year end minus the exercise
price.
6
<PAGE>
PROPOSAL NO. 2
PROPOSAL TO APPROVE THE PLAN FOR THE SALE OF ALL OF
THE COMPANY'S OWNED AND OPERATED RADIO STATIONS
GENERAL
At the Annual Meeting, the shareholders of the Company will be asked to
approve the plan for the sale of all of the Company's owned and operated radio
stations (the "Plan") pursuant to which (a) ten stations will be sold to
Catholic Radio Network, LLC ("CRN") for $57.0 million (subject to adjustment),
(b) two stations will be sold to Salem Communications Corporation ("Salem") for
$2.7 million (subject to adjustment) and (c) one station will be sold to 1090
Investments, L.L.C. ("1090") for $2.0 million (subject to adjustment). If any
sale to Salem, 1090 or both such entities is not completed, approval of the Plan
will authorize the Board to sell such station or stations on such terms as the
Board may approve. The terms of the purchase agreements and additional
information regarding the stations to be sold are presented below under the
caption "Description of the Purchase Agreements." Copies of the purchase
agreements are set forth in Appendices I, II and III to the Proxy Statement.
The total consideration to be received by the Company for the sale of
assets pursuant to these purchase agreements will be $61.7 million,
consisting of cash payments of $56.7 million and a promissory note in the
amount of $5.0 million (subject to adjustment). Of this amount, the Company
had received cash deposits totaling $3.2 million as of July 1, 1998. The
purchase agreement with CRN includes a stock purchase by CRN of Children's
Radio of New York, Inc. ("CRNY"), which the Company anticipates will result
in a tax savings of approximately $4.5 million (versus the sale of CRNY's
assets).
BACKGROUND AND REASONS FOR THE PROPOSED SALE OF ASSETS
HISTORICAL PERFORMANCE. Children's Broadcasting Corporation formerly
broadcast children's radio programming known as Aahs World Radio-SM- via
satellite to markets representing approximately 40% of the United States
population. The Company ceased broadcasting its Aahs World Radio programming
format in January 1998 in anticipation of the sale of its radio stations to
Global Broadcasting Company, Inc. ("Global") in a transaction approved by the
Company's shareholders in January 1998. Global failed to complete the purchase
of the Company's radio stations. The Company subsequently pursued other
transactions for the sale of the stations, resulting in the purchase agreements
with CRN, Salem and 1090.
Prior to the discontinuation of broadcasting of Aahs World Radio, the
primary sources of the Company's revenue had been from the sale of local
advertising and air time and network revenue. The Company's growth strategy
included the acquisition of AM radio broadcast licenses in the top 15 United
States markets. Pursuant to that strategy, the Company acquired AM radio
broadcast licenses which serve the New York City, Los Angeles, Chicago,
Philadelphia, Detroit and Dallas/Fort Worth markets, including licenses in the
top four markets and seven of the top ten markets in the United States.
THE ABC/DISNEY RELATIONSHIP. Prior to the cessation of broadcasting
Aahs World Radio, the Company's core 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 the operations agreement with ABC Radio Networks,
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 also 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
- ------------------------
(*) The Company has applied for a service mark for Aahs World Radio.
7
<PAGE>
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 PENDING ABC/DISNEY SUIT. The Company filed a lawsuit in the fall of
1996 in 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. Motions by both
parties for summary judgment are currently pending, but the Company believes
that the ABC/Disney suit is likely to proceed to trial in late 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.
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 AM radio broadcast licenses and shares of common stock of
Harmony, through loan facilities aggregating $26.0 million. 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. 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 the Company to liquidate all or a portion of its assets.
DECISION TO SELL STATIONS. In 1997, the Board determined that the
Company must either (i) seek a strategic partner which would enable the Company
to maintain a competitive position in the children's radio market, but with the
existing shareholders potentially owning a smaller percentage of the business;
(ii) seek a purchaser for the Company and exit the children's radio market;
(iii) seek a purchaser of its Aahs World Radio intangible assets and explore
other business opportunities in radio broadcasting; or (iv) seek a purchaser of
its radio stations and explore other business ventures aimed at the media,
entertainment or advertising-related markets. Such determination was based
primarily upon the Company's inability to pursue effectively its network
business plan because of ABC/Disney's method of entering the children's radio
market, and the lack of access to equity capital, due in part to the Company's
lack of positive financial performance subsequent to the Company's entry into
the operations agreement with ABC Radio. While considering these alternatives,
the Company received an unsolicited offer from Global to purchase all of the
Company's owned and operated radio stations for an aggregate purchase price of
$72.5 million. The Board unanimously approved the sale of assets subject to
shareholder approval, which was obtained in January 1998. 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.
In deciding to pursue the Plan, the Board determined that the
Company's ability to remain viable and competitive in the broadcasting
business was doubtful due to (i) the business momentum lost as the result of
ABC/Disney's failure to perform its obligations under the parties' operations
agreement; (ii) the Company's lack of significant network advertising
revenue; (iii) the inability of the Company, without significant additional
equity financing, to significantly increase its network market coverage and
affiliate base; (iv) the Company's continued losses from operations; (v)
ABC/Disney's method of
8
<PAGE>
entry into the children's radio market as a direct competitor of the Company;
and (vi) the difficulty which the Company expects to encounter in obtaining
additional capital due to its lack of profitable operations and cash flow and
its highly-leveraged debt position.
The Company believes that opportunities exist to profitably utilize the
experience gained in development of radio programming. The Company has retained
select members of the Aahs World Radio creative and marketing staffs and is
developing other programming products, including syndicated general market radio
programs. The Company may reexamine its 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.
In addition to utilizing the Aahs World Radio intellectual property and
the Company's creative talent, the Company has begun to diversify into other
media, entertainment and advertising-related businesses. The Company has
acquired a major ownership interest in Harmony. Harmony produces television
commercials, music videos and related media. The Company may determine to
increase its 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 business. Further, the Company has
not foreclosed the possibility of buying other radio stations in the future.
The Board also recognizes that a more favorable offer for its broadcasting
assets might be obtained if the Company or its assets were marketed to potential
buyers over a longer period of time; however, considering the length of time
during which the Company attempted to solicit a strategic partner or purchaser,
delaying further, assuming that it was financially feasible, was not deemed
likely to result in a more favorable offer. Having found an acceptable
purchaser, and absent alternative offers, the Board has further considered
whether to (i) liquidate the Company and distribute the remaining cash to the
shareholders after payment of liabilities or (ii) seek one or more new
investment opportunities and/or businesses. The Board determined that the
latter strategy is in the best interests of the Company and its shareholders.
While the Company believes that significant acquisition opportunities exist in
the media, entertainment and advertising-related industries, no specific
acquisitions have been identified and there can be no assurance that any new
business can be acquired, or if acquired, that the same will be profitable or
enable shareholders to realize a greater return on their investment.
On the other hand, if the sales are not consummated, the Company will be
unable to continue business operations without additional funding. The
Company's highly leveraged position and the requirements for payments under the
Foothill loan facilities may require the Company to liquidate. If the Company
were forced to liquidate, there can be no assurance that the amount realized
from the sale of its radio stations would be equal to, or exceed, the amount
offered by CRN, Salem and 1090; nor can there be assurance that the proceeds
from a liquidation would be sufficient in amount and timely to discharge the
Company's indebtedness to Foothill. In light of the foregoing, the Board firmly
believes that the approval of the Plan is essential and is in the best interests
of the Company and its shareholders.
VOTE REQUIRED
Approval of the Plan requires the affirmative vote of holders of a
majority of the Company's Common Shares entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE PLAN AND
RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PLAN.
DESCRIPTION OF THE PURCHASE AGREEMENTS
CRN AGREEMENT
GENERAL. The following is a brief summary of certain provisions of the
purchase agreement with CRN (the "CRN Agreement"). This description is
qualified in its entirety by reference to the CRN Agreement, a copy of which is
attached to this Proxy Statement as Appendix I. Shareholders are urged to read
the CRN Agreement in its entirety.
9
<PAGE>
ASSETS. The assets to be purchased by CRN from the Company generally
include all of the assets used in connection with, or in the operation of, radio
stations KAHZ(AM) licensed to Fort Worth, Texas; KCNW(AM) licensed to Fairway,
Kansas; KIDR(AM) licensed to Phoenix, Arizona; KKYD(AM) licensed to Denver,
Colorado; KPLS(AM) licensed to Orange, California; WAUR(AM) licensed to
Sandwich, Illinois; WPWA(AM) licensed to Chester, Pennsylvania; WWTC(AM)
licensed to Minneapolis, Minnesota; and WZER(AM) licensed to Jackson, Wisconsin,
including without limitation: (i) the Federal Communications Commission ("FCC")
licenses; (ii) the real property; (iii) the tangible personal property; (iv) the
contracts; (v) the permits; (vi) the call letters and general intangibles; (vii)
the subsidiaries' magnetic media, electronic data processing files, systems and
computer programs, logs, public files, records required by the FCC, vendor
contracts, supplies, maintenance records or similar business records relating to
or used in connection with the operation of the stations; and (viii) all right
and claims of Company against third parties related to the acquired assets
(subject to adjustment).
The assets to be sold specifically exclude certain assets, including:
(i) the Company's intangible property rights held or used in connection with its
Radio AAHS-Registered Trademark-/Aahs World Radio-SM- children's radio format;
(ii) the Company's intangible property rights related to its claims made in its
pending action against ABC/Disney; (iii) the Company's accounts receivable; (iv)
the Company's cash on hand at closing; (v) all program products in development
for future syndication; and (vi) those assets specifically labeled on the
schedules to the CRN Agreement as excluded assets.
THE STOCK. The stock to be purchased by CRN from the Company includes
all of the stock of CRNY, the owner and holder of 100% of the issued and
outstanding stock of WJDM-AM, Inc. CRNY is the owner of the assets used in
connection with, or in the operation of radio stations WJDM(AM)/1530 and
WBAH(AM)/1660 licensed to Elizabeth, New Jersey.
THE PURCHASER. CRN, a California limited liability corporation, was
formed in March 1998 for the purpose of developing and promoting by broadcast
media the teachings of the Roman Catholic Church. CRN intends to acquire radio
broadcast stations and the right to broadcast on non-owned stations primarily
throughout the United States and other areas of North America.
PURCHASE PRICE; ADJUSTMENTS. Upon the terms and subject to the
conditions set forth in the CRN Agreement, the purchase price shall be
payable as follows: (1) $3.0 million in immediately available funds
previously disbursed to the Company; (2) a cash payment in the amount of
$49.0 million to be paid at closing; and (3) $5.0 million payable pursuant to
a promissory note which matures in two years and carries an interest rate of
10% per annum. The purchase price may be subject to adjustments or
allocations as follows: (i) in the event, either the purchase agreement with
Salem or the purchase agreement with 1090 are not consummated in the ordinary
course and/or either or both of such agreements is terminated, CRN shall have
the option, but not the obligation, to purchase any or all of such stations
and in such event, the purchase price would be adjusted accordingly; (ii)
certain expenses (i.e. power and utility charges, lease rents, property
taxes, frequency discounts, annual license fees, wages, commissions, payroll
taxes, and other fringe benefits of employees) shall be prorated with final
settlement within 90 days after closing; (iii) in the event environmental
contamination is discovered and CRN elects to terminate the agreement with
respect to the affected station, the purchase price shall be adjusted by
reducing it by an amount equal to 110% of the station aggregate value of the
affected station; (iv) in the event of any risk of loss, damage or
destruction of any station assets which Company has not repaired, replaced or
restored and CRN elects to terminate the affected station, the purchase price
shall be adjusted by reducing it by an amount equal to 110% of the station
aggregate value of the affected station; (v) in the event any station incurs
any unusual operating problems and CRN elects to terminate the agreement with
respect to the affected station, the purchase price shall be adjusted by
reducing it by an amount equal to 110% of the station aggregate value of the
affected station; or (vi) in the event any application for an assignment or
transfer of control is designated for hearing prior to grant and CRN elects
to terminate the agreement with respect to the affected station, the purchase
price shall be adjusted by reducing it by an amount equal to 110% of the
station aggregate value of the affected station.
REORGANIZATION OF SUBSIDIARIES. In addition, under the CRN Agreement,
the Company may merge its license subsidiaries into its asset subsidiaries or
similarly reorganize such entities to take full advantage of its net operating
losses for tax purposes.
10
<PAGE>
ESCROW. The CRN Agreement calls for CRN to pay $3.0 million in earnest
money, which has been paid to the Company.
CLOSING; CONDITIONS TO CLOSING. It is anticipated that if the Plan is
approved by the shareholders at the Annual Meeting, the closing will take place
in September 1998. Pursuant to the CRN Agreement, the obligations of the
Company to consummate the sale to CRN are subject to and conditioned upon, among
other things, (i) approval by the Company's shareholders of the Plan at the
Annual Meeting; (ii) the final approval of the FCC to the assignment and
transfer of control of the licenses to CRN; (iii) the satisfaction at or before
closing of all agreements, obligations and conditions of CRN, as described in
the CRN Agreement, required to be performed, or complied with by it, at or
before closing; and (iv) the material accuracy of the representations and
warranties made by CRN as described in the CRN Agreement.
REGULATORY MATTERS. The CRN transaction is contingent upon the FCC
giving its written approval to the proposed assignments of licenses to CRN and
those grants maturing into final approval 40 days after the grants appear on
public notice. The Company and CRN jointly filed ten applications with the FCC
on April 27, 1998 to approve the assignment or transfer of control of the
station's licenses to CRN, all of which were accepted for filing by the FCC on
May 5, 1998, and placed on public notice on May 5, 1998. The FCC issued grants
to the applications on ____________, 1998. If there are no petitions to deny
filed with the FCC, the grants will automatically mature into final approvals on
or about _____________, 1998. The CRN transaction is further conditioned upon
the FCC giving its written approvals to WJDM(AM) and WPWA(AM) license renewal
applications and those grants maturing into final approvals. The Company does
not expect that any petitions will be filed in opposition to the proposed
assignments or applications for renewal of licenses.
CONDITIONS PRECEDENT TO CRN'S OBLIGATIONS. Pursuant to the CRN
Agreement, the obligations of CRN to consummate the CRN transaction at closing
are subject to and conditioned upon, among other things (i) the FCC final
approvals; (ii) the satisfaction at or before closing in all material respects
of all agreements, obligations and conditions of the Company required to be
performed, or complied with, on or before closing; (iii) the material accuracy
of the representations and warranties made by the Company; (iv) written third
party consents to all material contracts where required by the terms of the
contract or substitution by the Company of equivalent rights without materially
adverse impact upon CRN's enjoyment of the acquired assets; (v) that the Company
is not subject to any judgment, order, injunction or decree of any court of
competent jurisdiction enjoining the consummation of the contemplated
transaction; (vi) delivery of appropriate documentation evidencing release of
all security interests; (vii) the completion of any environmental remediation
required to be performed by the Company; (viii) CRN's inspection of the real
property; (ix) the compliance with all obligations as set forth in the CRN
Agreement; and (x) that there shall not be any material adverse change in the
acquired assets.
INDEMNIFICATION. The CRN Agreement provides that the indemnified party
agrees to give written notice within a reasonable time to the indemnifying party
of any claim.
REPRESENTATIONS, WARRANTIES AND COVENANTS. In the CRN Agreement, each
of the parties made certain representations and warranties to the other. The
CRN Agreement, attached hereto as Appendix I, sets forth all of the
representations and covenants of the parties thereto.
ALTERNATIVE TRANSACTION. As described in the CRN Agreement, the Company
may enter into discussions or negotiations with, any person or entity in
connection with any unsolicited acquisition proposal by such person or entity
and the Company may recommend such an unsolicited bona fide written acquisition
proposal to the shareholders of the Company, if and only to the extent that (i)
the Board determines in good faith that such acquisition proposal would, if
consummated, result in a transaction more favorable to the shareholders of the
Company 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; (ii) the Board determines in good faith that the failure to
take such action would be inconsistent with the fiduciary duties of such Board
to its shareholders; and (iii) prior to furnishing any non-public information
to, or entering into discussions or negotiations with, such person or entity,
the Board receives an executed confidentiality agreement from such person or
entity. If a triggering event occurs, the Company shall pay CRN a fee of $5.0
million, together with $3.0
11
<PAGE>
million of earnest money paid to the Company by CRN. Triggering events include
the following: (i) the Board withdraws or modifies its recommendation of the
CRN Agreement or resolves or publicly announces its intention to do so; (ii) an
alternative transaction takes place or the Board recommends such an alternative
transaction to shareholders or resolves or publicly announces its intention to
recommend or engage in an alternative transaction; (iii) a representative of the
Company negotiates with any other person other than CRN regarding superior
proposal; (iv) a representative of the Company enters into a letter of intent or
any agreement with any other person other than CRN regarding a superior
proposal; or (v) the shareholders do not approve the transaction contemplated
hereby after an acquisition proposal shall have been publicly announced. If a
closing occurs with CRN following a triggering event, such fee will be
reimbursed to the Company at closing provided that the closing occurs in the
ordinary course.
TERMINATION. Pursuant to the CRN Agreement, the CRN transaction may be
terminated at any time on or prior to closing upon any of the following: (i) by
the mutual consent of Company and CRN; (ii) by any party if the FCC has denied
the approvals contemplated by the CRN Agreement in an order which has become
final or granted a hearing on an objection; (iii) by written notice by one party
that the other party has breached in any material respect any of its
representations, warranties, covenants or agreements contained in the agreement
and such breach has not been cured within 30 days of the date of notice of
breach is received by breaching party; provided such party is not itself in
material breach of the agreement at time of such notice; (iv) by CRN regarding
environmental matters; (v) by Company or CRN regarding a superior proposal or
triggering event, as described above; (vi) by CRN regarding casualty losses;
(vii) by CRN regarding broadcast transmission; (viii) by CRN regarding FCC
designation for hearing; (ix) by any non-defaulting party if the closing has not
taken place by the outside closing date; or (x) by either party, if not then in
material default, if the other party has failed to satisfy the conditions set
forth in the CRN Agreement. If an event as described in (ii), (iv), (vi), (vii)
and (viii) arises which could give rise to the right to terminate by CRN and it
relates to radio stations WZER(AM) or KCNW(AM), CRN may terminate agreement only
with respect to such affected station and the purchase price will be reduced by
an amount equal to 110% of the station aggregate value for that affected
station. If an event arises which gives rise to the right of CRN to terminate
this agreement and it affects any of the other eight radio stations, CRN may
elect at its option to terminate the entire agreement or terminate the agreement
only with respect to the affected station and the purchase price would be
reduced accordingly. In addition to the above, the CRN Agreement sets forth
other events which may bring about termination of the transaction prior to
closing.
CONSULTING AND NON-CIRCUMVENTION AGREEMENT. In connection with the CRN
Agreement, Christopher T. Dahl, Chairman of the Board of Directors, President
and Chief Executive Officer of the Company, has entered into a three-year
Consulting and Non-Circumvention Agreement with CRN, pursuant to which Mr.
Dahl will be paid the sum of $1.2 million in consideration of (i) his
provision of certain consulting services to CRN subsequent to the CRN
transaction and (ii) his agreement not to circumvent CRN with respect to any
business opportunities of CRN of which he becomes aware through such
relationship. The fees provided for in this agreement are payable whether or
not CRN requests Mr. Dahl to perform any services thereunder.
SALEM AGREEMENT
GENERAL. The following is a brief summary of certain provisions of the
purchase agreement with Salem (the "Salem Agreement"). This description is
qualified in its entirety by reference to the Salem Agreement, a copy of which
is attached to this Proxy Statement as Appendix II. Shareholders are urged to
read the Salem Agreement in its entirety.
ASSETS. The assets to be purchased by Salem from the Company generally
include all of the tangible and intangible assets used and/or useful in the
operation of radio stations KTEK(AM) licensed to Alvin, Texas and KYCR(AM)
licensed to Golden Valley, Minnesota, including without limitation: (i) the FCC
licenses; (ii) the real property; (iii) the tangible personal property; (iv) the
station agreements; (v) the books, records, accounts, files, logs, ledgers,
reports of engineers and other consultants pertaining to KTEK(AM) and KYCR(AM);
and (vi) any other tangible or intangible assets, properties or rights,
including but not limited to all intellectual property and any goodwill of
KTEK(AM) and KYCR(AM).
The assets to be sold specifically exclude certain assets, including:
(i) the Company's intangible property rights held or used in connection with its
Radio AAHS-Registered Trademark-/Aahs World Radio-SM- children's radio format;
(ii) the Company's accounts receivable; (iii) the Company's cash on hand at
closing; (iv) any and all claims of the Company with respect to transactions
prior to the closing; (v) all prepaid expenses by the Company; (vi) all of the
Company's contracts of insurance and claims against insurers; (vii) the
Company's employee benefit plans; (viii) the Company's contracts that are
terminated in accordance with the terms of the Salem Agreement or have expired
prior to closing including all loans and loan agreements; (ix) the Company's
corporate records except to extent such records pertain to or are used in
operation of KYCR(AM) or KTEK(AM); and (x) the Company's commitments, contracts
and agreements not specifically assumed by Salem.
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THE PURCHASER. Salem is the leading radio broadcasting company in the
United States, measured by number of stations owned and audience coverage, that
focuses on serving the religious/conservative listening audience. Salem's two
primary businesses include the ownership and operation of religious format radio
stations and development and expansion of a national radio network offering talk
programming, news and music to affiliated stations. Salem owns and/or operates
45 radio stations concentrated in 28 geographically diverse markets across the
United States.
PURCHASE PRICE; ADJUSTMENTS. Upon the terms and subject to the
conditions set forth in the Salem Agreement, Salem will deliver to the
Company on the closing date, a cash payment in the amount of $2.7 million.
The purchase price may be subject to adjustments or allocations as follows:
(i) all operating income and operating expenses of KYCR(AM) and KTEK(AM)
shall be adjusted and allocated between Salem and the Company with an
adjustment list provided to the Company by Salem within 30 days following the
closing; (ii) an amount not to exceed $50,000 to remove, correct or remedy
any violation of the Company's environmental representations as a result of
an environmental assessment conducted by Salem; (iii) in the event any cost
of removal, correction or remedy of the environmental conditions exceeds
$50,000, Salem may elect to proceed with the closing but shall not be
obligated to close under any circumstances which would require Salem to
assume ownership of KTEK(AM) or KYCR(AM) under conditions where there exist
any uncured violations of Company's environmental representations, warranties
or covenants.
LOCAL PROGRAMMING AND MARKETING AGREEMENTS ("LMAS"). Concurrently with
the execution of the Salem Agreement, the Company and Salem entered into LMAs
for KTEK(AM) and KYCR(AM). Under the KTEK(AM) LMA, the Company receives from
Salem a monthly fee of $12,690 plus a facility fee for certain costs and
expenses associated with or arising out of the operation of KTEK(AM). Under the
KYCR(AM) LMA, the Company receives from Salem a monthly facility fee for certain
costs and expenses associated with or arising out of the operation of KYCR(AM).
ESCROW. Pursuant to the Salem Agreement, $135,000 has been placed in
escrow by Salem to secure performance of its obligations.
CLOSING; CONDITIONS TO CLOSING. It is anticipated that the closing will
take place in September 1998; however, Salem may elect to delay closing until
October 31, 1998 by providing written notice to the Company. Pursuant to the
Salem Agreement, the obligations of the Company to consummate the sale to Salem
are subject to and conditioned upon, among other things, (i) approval by the
Company's shareholders of the Plan at the Annual Meeting; (ii) the final
approval of the FCC to the renewals of the licenses and their assignment to
Salem; (iii) the satisfaction at or before closing of all agreements,
obligations and conditions of Salem, as described in the Salem Agreement,
required to be performed, or complied with by it, at or before closing; and (iv)
the material accuracy of the representations and warranties made by Salem as
described in the Salem Agreement.
REGULATORY MATTERS. The Salem transaction is contingent upon the FCC
giving its written approval to the proposed assignments of licenses to Salem and
those grants maturing into final approvals 40 days after the grants appear on
public notice. The Company and Salem jointly filed assignment applications with
the FCC for KTEK(AM) and KYCR(AM) on May 13, 1998, all of which were accepted
for filing by the FCC on May 14, 1998, and placed on public notice. The
FCC issued grants to the applications on ______________, 1998. If there are no
petitions to deny filed with the FCC, the grants will automatically mature into
final approvals on or about _____________, 1998. The Company does not expect
that any petitions will be filed in opposition to the proposed assignments.
CONDITIONS PRECEDENT TO SALEM'S OBLIGATIONS. Pursuant to the Salem
Agreement, the obligations of Salem to consummate the transaction at closing are
subject to and conditioned upon, among other things (i) the FCC final approvals;
(ii) the satisfaction at or before closing in all material respects of all
agreements, obligations and conditions of the Company required to be performed,
or complied with, on or before closing; (iii) the material accuracy of the
representations and warranties made by the Company; (iv) that the Company shall
not be subject to any ruling, decree, order or injunction restraining, imposing
material limitations on or prohibiting the consummation of the transaction; (v)
delivery of closing documents; (vi) the Company's receipt of payment; and (vi)
approval by the Company's shareholders.
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INDEMNIFICATION. The Salem Agreement provides that the Company, upon
notice by Salem, shall indemnify and hold harmless Salem and any officer,
director, agent, employee and affiliate with respect to any and all demands,
claims, actions, suits, proceedings, assessments, judgments, costs, losses,
damages, liabilities and expenses, including reasonable attorney's fees,
relating to or arising out of any breach or non-performance by the Company of
any of its representations, warranties, covenants or agreements; the
ownership or operation by Company of KTEK(AM) or KYCR(AM) or its assets on or
prior to closing; all other liabilities and obligations of Company other than
assumed obligations; or noncompliance by Company with the Bulk Sales Act, if
applicable. The Salem Agreement provides that Salem, upon notice by the
Company, shall indemnify and hold harmless the Company and any officer,
director, agent, employee and affiliate with respect to any and all demands,
claims, actions, suits, proceedings, assessments, judgments, costs, losses,
damages, liabilities and expenses, including reasonable attorney's fees,
relating to or arising out of any breach or non-performance by Salem; the
ownership or operation of KTEK(AM) or KYCR(AM) after the date of closing; or
the assumed obligations and all other liabilities or obligations of Salem.
Notwithstanding the foregoing, if the closing occurs, the parties shall not
be obligated to indemnify the other unless and until the aggregate amount
involved exceeds $5,000.
REPRESENTATIONS, WARRANTIES AND COVENANTS. In the Salem Agreement, each
of the parties made certain representations and warranties to the other. The
Salem Agreement, attached hereto as Appendix II, sets forth all of the
representations and covenants of the parties thereto.
ALTERNATIVE TRANSACTION. As described in the Salem Agreement, the
Company may enter into discussions or negotiations with, any person or entity in
connection with any unsolicited acquisition proposal by such person or entity
and the Company may recommend such an unsolicited bona fide written acquisition
proposal to the shareholders of the Company, if and only to the extent that (i)
the Board determines in good faith that such acquisition proposal would, if
consummated, result in a transaction materially more favorable to the
shareholders of the Company than the Salem 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; (ii) the Board
determines in good faith that the failure to take such action would be
inconsistent with the fiduciary duties of such Board to its shareholders; (iii)
prior to furnishing any non-public information to, or entering into discussion
or negotiations with, such person or entity, the Board receives an executed
confidentiality agreement from such person or entity; (iv) prior to furnishing
any such non-public information to, or entering into discussions or negotiations
with, such person or entity, the Company shall notify Salem of the identity such
person or entity; (v) the Company shall provide Salem with a true and correct
copy of any superior proposal within five days of its receipt, and in any event,
prior to any recommendation by the Board to the shareholders of said proposal;
and (vi) prior to any recommendation by the Board, Salem shall be afforded the
opportunity to match its material terms, in which event the Board shall
recommend to the shareholders that they accept Salem's offer. If a triggering
event occurs, the Company shall return the escrow deposit and pay Salem a
non-refundable fee of $135,000 together with Salem's option, either (a) an
amount equal to any amounts previously expended by Salem under the LMAs or (b) a
five-year extension of the LMAs, as and for liquidated damages. Such triggering
events include the following: (i) the Board of Directors of the Company shall
have withdrawn or modified its recommendation of the Salem Agreement or shall
have resolved publicly to do so; (ii) the Company shall have negotiated with,
entered into any agreement with, or consummated or recommend any transaction
with, any person other than Salem or its affiliates, based on a determination
regarding a superior proposal; or (iii) the shareholders of the Company do not
approve the agreement contemplated hereby after an acquisition proposal shall
have been publicly announced.
TERMINATION. Pursuant to the Salem Agreement, the transaction may be
terminated prior to closing upon written notice by either party provided that
such party is not at that time in material default and either: (i) any of the
representations or warranties of such party are inaccurate in any respect and
materially adverse to the party giving such termination notice unless the
inaccuracy is a result of party giving such termination notice or such
representation or warranty is not a condition to closing; (ii) any material
obligation to be performed is not timely performed unless the lack of timely
performance has been induced by or is the result of party giving such
termination notice; (iii) any material condition, unless otherwise described in
the Salem Agreement, to the obligation to close the transaction has not been
timely satisfied unless the failure of said condition was induced by the party
giving such termination notice; and any such inaccuracy, failure to perform or
non-satisfaction of a condition neither has been cured nor satisfied within 20
days after written notice; (iv) written notice by either party at any time after
April 24, 1999, provided party giving termination notice is not then in material
default; (v)
14
<PAGE>
written notice by either party upon determination by the FCC that the
application for consent to assignment of the FCC licenses has been designated
for hearing; (vi) written election of Salem upon the occurrence of casualty or
loss; (vii) written notice of either party that the other is in material default
under the terms of the LMA; or (viii) written notice by Company to Salem that
the shareholders of the Company have accepted a superior proposal. In addition
to the above, the Salem Agreement sets forth customary events which may bring
about termination of the transaction prior to closing.
1090 AGREEMENT
GENERAL. The following is a brief summary of certain provisions of the
purchase agreement with 1090 (the "1090 Agreement"). This description is
qualified in its entirety by reference to the 1090 Agreement, a copy of which is
attached to this Proxy Statement as Appendix III. Shareholders are urged to
read the 1090 Agreement in its entirety.
ASSETS. The assets to be purchased by 1090 from the Company generally
include all of the assets used in connection with, or in the operation of
WCAR(AM) licensed to Livonia, Michigan, including without limitation: (i) the
FCC licenses; (ii) the real property; (iii) the tangible personal property; (iv)
the leases and agreements; (v) the permits; (vi) the call letters and general
intangibles; (vii) the subsidiaries' magnetic media, electronic data processing
files, systems and computer programs, logs, public files, records required by
the FCC, vendor contracts, supplies, maintenance records or similar business
records relating to or used in connection with the operation of the stations;
and (viii) all rights and claims of the Company against third parties relating
to the acquired assets.
The assets to be sold specifically exclude certain assets, including:
(i) the Company's intangible property rights held or used in connection with its
Radio AAHS-Registered Trademark-/Aahs World Radio-SM- children's radio format;
(ii) the Company's accounts receivable; (iii) the Company's cash on hand at
closing; (iv) the Company's employee benefit plans; and (v) those assets
specifically labeled and described on the schedules to the 1090 Agreement as
excluded.
THE PURCHASER. 1090, a Michigan limited liability corporation, was
formed in 1998 for the sole purpose of purchasing WCAR(AM) and operating it as a
Catholic radio station. The corporation consists of Catholic business people
who wish to bring Catholic programming to the Detroit area.
PURCHASE PRICE; ADJUSTMENTS. Upon the terms and subject to the
conditions set forth in the 1090 Agreement, 1090 will deliver to the Company
on the closing date, a cash payment in the amount of $2.0 million. The
purchase price may be subject to adjustments or allocations as follows: (i)
certain expenses (i.e., power and utility charges, lease rents, property
taxes, frequency discounts, annual license fees, wages, commissions, payroll
taxes, and other fringe benefits of employees) shall be prorated with final
settlement within 90 days after closing; (ii) the cost to remedy the result
of any environmental contamination of the real property owned by the Company;
and (iii) the occurrence of any material loss or damage to acquired assets.
ESCROW. Pursuant to the 1090 Agreement, $100,000 has been placed in
escrow by 1090 to secure performance of its obligations.
TIME BROKERAGE AGREEMENT ("TBA"). Concurrently with the execution of
the 1090 Agreement, the Company and 1090 entered into a TBA. Under the TBA,
1090 shall pay the Company a monthly fee of $12,000.
CLOSING; CONDITIONS TO CLOSING. It is anticipated that the closing will
take place in October 1998. Pursuant to the 1090 Agreement, the obligations of
the Company to consummate the sale to 1090 are subject to and conditioned upon,
among other things, (i) the final approval of the FCC to assignment of license
to 1090; (ii) the satisfaction at or before closing of all agreements,
obligations and conditions of 1090, as described in the 1090 Agreement, required
to be performed, or complied with by it, at or before closing; (iii) the
material accuracy of the representations and warranties made by 1090 as
described in the 1090 Agreement; (iv) that the closing will not effect any
judgment, order, injunction or decree of any court of competent jurisdiction
enjoining the consummation of the transaction; (v) that the TBA shall have
become effective and not terminated due to 1090's breach thereof; and (vi) that
1090 shall have complied with each and every one of its obligations as set forth
in the 1090 Agreement.
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<PAGE>
REGULATORY MATTERS. The1090 transaction is contingent upon the FCC
giving its written approval to the proposed assignment of license to 1090 and
those grants maturing into final approvals 40 days after the grants appear on
public notice. The Company and 1090 jointly filed the assignment application
with the FCC on May 15, 1998, all of which were accepted for filing by the FCC
on _________, 1998, and placed on public notice. The FCC issued the grant to
its application on __________, 1998. If there are no petitions to deny filed
with the FCC, the grants will automatically mature into final approvals on or
about ____________, 1998. The Company does not expect that any petitions will
be filed in opposition to the proposed assignment.
CONDITIONS PRECEDENT TO 1090'S OBLIGATIONS. Pursuant to the 1090
Agreement, the obligations of 1090 to consummate the 1090 transaction at closing
are subject to and conditioned upon, among other things (i) the FCC final
approvals; (ii) the satisfaction at or before closing in all material respects
of all agreements, obligations and conditions of the Company required to be
performed, or complied with, on or before closing; (iii) the material accuracy
of the representations and warranties made by the Company; (iv) written third
party consents to all material leases and agreements where required by the terms
of the lease or agreement or substitution by the Company of equivalent rights
without materially adverse impact upon 1090's enjoyment of the acquired assets;
(v) that there shall not be in effect any judgment, order, injunction or decree
of any court of competent jurisdiction enjoining the consummation of
transaction; (vi) the TBA shall have become effective and shall not have been
terminated due to the Company's breach thereof; and (vii) Company shall have
complied with each and every one of its obligations as set forth in the 1090
Agreement.
REPRESENTATIONS, WARRANTIES AND COVENANTS. In the 1090 Agreement, each
of the parties made certain representations and warranties to the other. The
1090 Agreement, attached hereto as Appendix III, sets forth all of the
representations and covenants of the parties thereto.
ALTERNATIVE TRANSACTION. As described in the 1090 Agreement, the
Company may enter into discussions or negotiations with, any person or entity
in connection with any unsolicited acquisition proposal by such person or
entity and the Company may recommend such an unsolicited bona fide written
acquisition proposal to the shareholders of the Company, if and only to the
extent that (i) the Board determines in good faith that such acquisition
proposal would, if consummated, result in a transaction more favorable to the
shareholders of the Company 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; (ii) the Board determines
in good faith that the failure to take such action would be inconsistent with
the fiduciary duties of such Board to its shareholders; and (iii) prior to
furnishing any non-public information to, or entering into discussion or
negotiations with, such person or entity, the Board receives an executed
confidentiality agreement from such person or entity. If a triggering event
occurs, the Company shall pay 1090 a non-refundable fee of $100,000 together
with an amount equal to any amounts previously paid to Company or incurred by
1090 under the TBA. Such triggering events include the following: (i) the
Board of Directors of the Company shall have withdrawn or modified its
recommendation of the 1090 Agreement or shall have resolved publicly to do
so; (ii) an alternative transaction shall have taken place or the Board of
Directors of the Company 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; (iii) the
Company shall have negotiated with, entered into any agreement with, or
consummated or recommend any transaction with, any person other than 1090,
based on a determination regarding a superior proposal; or (iv) the
shareholders of the Company do not approve the agreement contemplated hereby
after an acquisition proposal shall have been publicly announced.
TERMINATION. Pursuant to the 1090 Agreement, the 1090 transaction may
be terminated (i) by either party prior to closing by mutual agreement of
both parties at any time; (ii) by 1090 by written notice to the Company that
the Company has not satisfied its conditions in all material respects as set
forth in the 1090 Agreement at time of closing, or if satisfaction becomes
impossible, 1090 shall first give the Company written notice and the Company
has failed to cure, or if 1090 terminates the TBA upon an event of default by
the Company, or (iii) by the Company by written notice to 1090 that 1090 has
not satisfied its conditions in all material respects as set forth in the
1090 Agreement at the time of closing, or if satisfaction becomes impossible,
the Company shall first give 1090 written notice and 1090 has failed to cure,
or if the Company terminates the TBA upon event of default by 1090. In
addition to the above, the 1090 Agreement sets forth customary events which
may bring about termination of the transaction prior to closing.
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<PAGE>
SALES TO OTHER PARTIES
If any sale to Salem, 1090 or both such entities is not completed,
approval of the Plan will authorize the Board to sell such station or
stations on such terms as the Board may approve. Because the market value of
AM radio stations changes from time to time, it is not possible to predict
with certainty the price or prices that would be obtained for any unsold
stations. Accordingly, the prices could be less than, or could exceed, the
prices under the Salem Agreement and the 1090 Agreement. Based upon current
market values of which the Company is aware, however, the Company believes
that should the stations be sold sold to other parties, the Company would be
able to obtain terms substantially similar to those contained in the Salem
Agreement and the 1090 Agreement.
ESTIMATED NET PROCEEDS FROM THE PROPOSED SALE OF ASSETS
Assuming all of the transactions close, the Company estimates that after
deducting expenses, taxes and repayment of all outstanding indebtedness, it will
have approximately $34.3 million of net assets, of which approximately $21.9
million will be cash proceeds from the transactions. From the gross proceeds of
the transactions, the Company will pay outstanding indebtedness totaling
approximately $32.3 million and federal and state income taxes resulting from
the transactions estimated to be $1.6 million. The remainder of the cash
proceeds from the transactions will be used by the Company for further
development of intangible assets and other programming products, for continued
legal costs associated with the Company's lawsuit against ABC/Disney and for
general corporate purposes including future acquisitions and joint ventures in
the media, entertainment and advertising-related industries.
ONGOING CORPORATE OPERATIONS
The Company believes that opportunities exist to profitably utilize the
expertise gained in the development of radio programming. The Company has
retained select members of the Aahs World Radio creative and marketing staffs
and is developing other programming products, including syndicated general
market radio programs. To that end, the Company recently established a new
division, CBC Media, which has entered into a sales and equity partnership
agreement with MediaAmerica, the nation's largest independent advertising sales
organization. CBC Media currently has four projects in development and, during
the third quarter of 1998, expects to announce the launch of its first
syndicated program hosted by a rock music industry star. The program will air
for four hours every Monday through Friday.
In addition to utilizing the Aahs World Radio intellectual property, the
Company has begun to diversify into other media, entertainment and
advertising-related businesses. The Company has acquired a major ownership
interest in Harmony, a company which produces television commercials, music
videos and related media. Harmony operates through its three main operating
subsidiaries: Harmony Pictures, Inc., Curious Pictures Corporation and The End,
Inc. Harmony reported over $64.0 million in revenues for its 1997 fiscal year.
Although the Company has no current plans to do so, it may determine to increase
its 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. Further, the
Company has not foreclosed the possibility of buying other radio stations in
the future. Pending any such acquisitions, the proceeds from the transactions
will be invested in investment-grade, short-term, interest-bearing securities
and the Company will rely on the interest income generated thereby.
The Company intends to pursue to its conclusion the ABC/Disney
litigation. Company resources will continue to be expended to this end,
including personnel costs and litigation costs.
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<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE PROPOSED SALE OF ASSETS
The Company's 1994 Stock Option Plan contains a provision which
accelerates vesting of issued stock options in the event of a change of control
or sale of all or substantially all of the Company's assets. The Company's 1991
Incentive Stock Option Plan was amended to conform to the 1994 Stock Option Plan
at the time the 1994 Stock Option Plan was adopted. All non-qualified stock
options contain acceleration terms conforming to such plans. Consequently,
options to purchase 604,940 shares of Common Stock of the Company held by
officers will vest upon consummation of the transactions. See "Proposal to
Approve Amendments to the Company's Stock Option Plans." As of May 15, 1998,
all options listed represent in-the-money options. Assuming the exercise of
such options, the Company would receive $1,929,759 and the optionees would
experience an aggregate gain of $111,914 representing the product of the number
of option shares multiplied by the difference between the market value of the
Company's Common Stock on May 15, 1998 and the exercise price of each such
option.
Options held by the following executive officers will fully vest upon
consummation of the transactions. The table below contains detailed information
regarding such options.
<TABLE>
<CAPTION>
Value of
Number of Securities Unexercised
Underlying Exercise In-the-Money
Name and Principal Position Unexercised Options Price Options
- -------------------------------------------------------------------- ---------------------- ----------- --------------
<S> <C> <C> <C>
Christopher T. Dahl . . . . . . . . . . . . . . . . . . . . . . . . 274,370 $3.19 $50,758
President and Chief Executive Officer
James G. Gilbertson . . . . . . . . . . . . . . . . . . . . . . . . 107,935 3.19 19,968
Chief Operating Officer
Lance W. Riley . . . . . . . . . . . . . . . . . . . . . . . . . . 87,216 3.19 16,135
General Counsel and Secretary
Gary W. Landis . . . . . . . . . . . . . . . . . . . . . . . . . . 60,305 3.19 11,156
Executive Vice President of Programming
Barbara A. McMahon . . . . . . . . . . . . . . . . . . . . . . . . 30,921 3.19 5,720
Executive Vice President of Affiliate Relations
Rick E. Smith . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,193 3.19 5,401
Executive Vice President of National Sales
Patrick D. Grinde . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 3.19 2,775
Chief Financial Officer
</TABLE>
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<PAGE>
Further, in considering the recommendation of the Board with respect to
the Plan, shareholders should be aware that, in connection with the CRN
Agreement, Christopher T. Dahl, Chairman of the Board of Directors, President
and Chief Executive Officer of the Company, has entered into a three-year
Consulting and Non-Circumvention Agreement with CRN, pursuant to which Mr. Dahl
will be paid the sum of $1.2 million in consideration of (i) his provision of
certain consulting services to CRN subsequent to the CRN transaction and (ii)
his agreement not to circumvent CRN with respect to any business opportunities
of CRN of which he becomes aware through such relationship. The fees provided
for in this agreement are payable whether or not CRN requests Mr. Dahl to
perform any services thereunder.
Finally, if the transactions are completed, the efforts of certain
employees in connection with the transactions will be a factor considered by the
Board should it consider awarding bonuses in 1998 and 1999. If approved by the
Board, such bonuses could be cash or non-cash awards, or a combination thereof.
ACCOUNTING TREATMENT
Under generally accepted accounting principles, upon consummation of the
transactions, the Company will remove the net assets sold from its consolidated
balance sheet, and record the gain on the sale net of transaction, severance and
other related costs, including applicable state and federal income taxes, in its
consolidated statement of income. See "Pro Forma Financial Information."
FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated federal income tax consequences
to the Company of the transactions is not intended as tax advice and is not
intended to be a complete description of the federal income tax consequences of
such transactions. This summary is based upon the Internal Revenue Code of 1986
(the "Code"), as presently in effect, the rules and regulations promulgated
thereunder, current administrative interpretations and court decisions. No
assurance can be given that future legislation, regulations, administrative
interpretations or court decisions will not significantly change these
authorities (possibly with retroactive effect).
No rulings have been requested or received from the Internal Revenue
Service ("IRS") as to the matters discussed and there is no intent to seek any
such ruling. Accordingly, no assurance can be given that the IRS will not
challenge the tax treatment of certain matters discussed or, if it does
challenge the tax treatment, that it will not be successful.
The discussion of federal income tax consequences set forth below is
directed primarily toward individual taxpayers who are citizens of the United
States. However, because of the complexities of federal, state and local income
tax laws, it is recommended that the Company's shareholders consult their own
tax advisors concerning the federal, state and local tax consequences of the
transactions to them. Further, persons who are trusts, tax-exempt entities,
corporations subject to specialized federal income tax rules (for example,
insurance companies) or non-U.S. citizens or residents are particularly
cautioned to consult their tax advisors in considering the tax consequences of
the transactions.
The transactions will be taxable sales by the Company upon which gain or
loss will be recognized by the Company. The amount of gain or loss recognized
by the Company with respect to the sale of a particular asset will be measured
by the difference between the amount realized by the Company on the sale of that
asset and the Company's tax basis in that asset. The amount realized by the
Company on the transactions will include the amount of cash received and the
fair market value of any other property received. For purposes of determining
the amount realized by the Company with respect to specific assets, the total
amount realized by the Company will generally be allocated among the assets
according to the rules prescribed under Section 1060(a) of the Code. The
Company's bases in its assets are generally equal to their cost, as adjusted for
certain items, such as depreciation. However, the bases of assets of stations
acquired in a stock purchase are equal to the subsidiary's historical cost
adjusted for certain items, such as depreciation.
The determination of whether gain or loss is recognized by the Company
will be made with respect to each of the assets to be sold. Accordingly, the
Company may recognize gain on the sale of certain assets and loss on the sale of
certain others, depending on the amount of consideration allocated to an asset
as compared with the basis of that asset. The Company will recognize a net gain
as a result of the sale of its assets, but believes its net operating loss and
tax credit
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carryovers will offset a substantial portion of the projected gain on the sale
of the assets. The Company believes that the use of carryovers will not be
limited by Code Sections 382 and 383.
The proposed sale of substantially all of the assets of the Company by
itself will not produce any separate and independent federal income tax
consequences to the Company's shareholders.
OPINION OF FINANCIAL ADVISOR
Piper Jaffray, Inc. ("Piper Jaffray") was retained by the Company by
letter dated May 1, 1998 to render an opinion regarding the fairness to the
Company from a financial point of view of the consideration to be paid by CRN,
Salem and 1090, respectively, to the Company in the proposed acquisition of
certain assets related to 13 Company-owned and operated radio stations and the
transfer of stock for WBAH(AM) pursuant to three separate purchase agreements.
On May 21, 1998, Piper Jaffray rendered its written opinion dated May 21, 1998
(the "Piper Jaffray Opinion") to the Company's Board of Directors, to the effect
that, as of the date thereof and based on and subject to the assumptions,
factors and limitations set forth in such opinion and described below, the
aggregate $61.7 million proposed to be paid by CRN, Salem and 1090 to the
Company for the owned and operated radio stations in the transactions is fair,
from a financial point of view, to the Company.
Piper Jaffray, as a customary part of its investment banking business,
is engaged in the valuation of businesses and their securities in connection
with mergers and acquisitions, underwritings and secondary distributions of
securities, private placements and valuations for estate, corporate and other
purposes. The Company selected Piper Jaffray because of its investment banking
expertise and reputation, its familiarity with the Company and its familiarity
with the media industry generally.
THE FULL TEXT OF THE PIPER JAFFRAY OPINION IS ATTACHED AS APPENDIX V TO
THIS PROXY STATEMENT. THE FOLLOWING SUMMARY OF THE PIPER JAFFRAY OPINION IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE PIPER JAFFRAY
OPINION. THE COMPANY'S SHAREHOLDERS ARE URGED TO READ THE PIPER JAFFRAY OPINION
IN ITS ENTIRETY FOR A COMPLETE DESCRIPTION OF THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITS OF THE REVIEW UNDERTAKEN.
In arriving at its opinion, Piper Jaffray reviewed, analyzed and relied
upon material bearing upon the financial and operating condition and prospects
of the Company and material prepared in connection with the transaction, and
considered such financial and other factors as it deemed appropriate under the
circumstances, including, among other things, the following: (i) an agreement
by and between the Company and CRN dated April 17, 1998, providing for the sale
by the Company to CRN for 10 of the Company's 13 owned and operated radio
stations for $52.0 million cash and a note for $5.0 million which includes a
stock purchase of CRNY(AM); (ii) an agreement by and between the Company and
Salem dated April 24, 1998, providing for the sale by the Company to Salem for
two of the Company's owned and operated radio stations for $2.7 million cash;
(iii) an agreement by and between the Company and 1090 dated May 1, 1998,
providing for the sale by the Company to 1090 for one of the Company's owned and
operated radio stations for $2 million cash; (iv) the Annual Reports, Reports on
Form 10-KSB, audited financial statements and Proxy Statements for the Company
for the three years ended December 31, 1997; (v) the Report on Form 10-QSB for
the Company for the quarter ended March 31, 1998; (vi) annual unaudited
financial results for each of the Company's radio stations prepared by
management for the three years ended December 31, 1997 and for the three-month
period ended March 31, 1998; and (vii) an independently conducted appraisal by
Force Communications & Consultants ("Force"), a radio station broker, of the
assets dated October 8, 1996 (the "1996 Appraisal").
It is customary in the radio broadcasting industry to use brokers to
provide appraisals for radio station assets. The Company selected Force based
upon its experience and expertise in appraising major and middle-market AM radio
stations. In appraising the Company's radio station assets, Force based their
valuations on comparable sales of AM radio stations in the same markets, rather
than on the financial projections of the stations appraised. Because the 1996
Appraisal was conducted in October 1996, updates were necessary to reflect
recent radio station transaction activity in these markets. Force estimated
that the aggregate value of the 12 stations they appraised increased by 10%
between October 1996 and
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October 1997. The 1996 Appraisal excludes radio station WAUR(AM) (Chicago) for
which the actual purchase price was used.
Piper Jaffray visited the headquarters of the Company and conducted
discussions with members of senior management of the Company, including the
Chief Executive Officer, Chief Operating Officer, Executive Vice President of
Programming and General Counsel. Topics discussed included, but were not
limited to, the background and rationale of the proposed transactions, the
financial condition, operating performance and the balance sheet characteristics
of the Company and the assets and stock and the future prospects for the
Company. Piper Jaffray conducted a conference call with Force to discuss the
appraisal methodology used in the 1996 Appraisal. Piper Jaffray also reviewed
the historical prices and trading activity for the Company's Common Stock,
reviewed the publicly available financial terms of certain comparable merger and
acquisition transactions Piper Jaffray deemed relevant, compared certain
financial and securities data of the Company to financial and securities data of
companies Piper Jaffray deemed similar to the business represented by the
acquired assets, and reviewed such other financial data, performed such other
analyses and considered such other information as Piper Jaffray deemed necessary
and appropriate.
The Piper Jaffray Opinion, which was delivered for use and considered by
the Company's Board, is directed only to the fairness to the Company, from a
financial point of view, of the consideration to be received by the Company for
the assets and stock in the transactions, does not in any manner address the
Company's underlying business decision to proceed with or effect the
transactions or the structure thereof and does not constitute a recommendation
to any Company shareholder as to how such shareholder should vote with respect
to the transaction. The total consideration was determined pursuant to
negotiations between the Company and CRN, Salem and 1090, respectively, and not
pursuant to a recommendation of Piper Jaffray. Piper Jaffray does not admit
that it is an expert within the meaning of the term "expert" as used in the
Securities Act and the rules and regulations promulgated thereunder, or that its
opinions constitute a report or valuation within the meaning of Section 11 of
the Securities Act and the rules and regulations promulgated thereunder.
For purposes of the Piper Jaffray Opinion, Piper Jaffray relied upon and
assumed the accuracy, completeness and fairness of the financial and other
information made available to it and did not assume responsibility independently
to verify such information. Piper Jaffray relied upon the assurances of the
Company's management that the information provided by the Company had a
reasonable basis and, with respect to financial planning and other business
outlook information (including the inability to prepare meaningful forward
looking projections, as discussed below), reflected the best available
information and judgment of the Company's management as to the expected future
financial performance of the Company, and that they were not aware of any
information or fact that would make the information provided to Piper Jaffray
incomplete or misleading. Furthermore, Piper Jaffray, for purposes of the Piper
Jaffray Opinion, assumed that the Company was not a party to any pending
transaction, including external financing, recapitalizations, acquisitions or
merger discussions, other than the transactions or in the ordinary course of
business.
In arriving at the Piper Jaffray Opinion, Piper Jaffray did not perform
a discounted cash flow analysis of the Company or the business represented by
the assets or stock since the Company did not have available and did not prepare
any forward-looking projections. The Company's senior management advised Piper
Jaffray that they had determined that they could not make reliable projections
because the industry's competitive environment and its economics, as well as the
Company's current financial situation, had so radically changed that senior
management questioned the ability to accurately project the Company's business
going forward. Consequently, senior management advised Piper Jaffray that they
believed that any projections reflective of historical operations would not be
meaningful.
Piper Jaffray did not perform any appraisals or valuations of specific
assets or liabilities of the Company and expressed no opinion regarding the
liquidation value of the Company. The Piper Jaffray Opinion relates only to the
acquisition of the assets and stock by CRN, Salem and 1090, respectively, in the
transactions and is not an assessment of the fairness of the transactions
relative to other potential transactions. Piper Jaffray was not authorized by
the Company to solicit, and did not solicit, other purchasers for the assets or
stock or alternative transactions to the transaction. No limitations were
imposed by the Company on the scope of Piper Jaffray's investigation or the
procedures to be followed in rendering its opinion, except with respect to Piper
Jaffray's inability to perform a discounted cash flow analysis as discussed
above. The Piper Jaffray Opinion was based upon the information available to
Piper Jaffray and the facts and
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circumstances as they existed and were subject to evaluation on the date of the
Piper Jaffray Opinion. Events occurring after such date could materially affect
the assumptions used in preparing the Piper Jaffray Opinion.
Based on this information, Piper Jaffray performed a variety of
financial and comparative analyses, including those summarized below.
ASSET APPRAISAL ANALYSIS. Piper Jaffray conducted an asset appraisal
analysis by comparing the purchase price of the assets and stock in the
transactions with the results of the 1996 Appraisal of 12 of the 13
owned and operated radio stations included in the assets and stock.
Piper Jaffray determined that for the 12 radio stations included in the
1996 Appraisal, the Company's aggregate purchase price was $25,035,000;
the low appraisal value was $57,550,000; and the high appraisal value
was $61,400,000. The Company's WAUR(AM) radio station included in the
assets were not included in the 1996 Appraisal. WAUR(AM) was purchased
by the Company in January 1997 for $3,900,000. Piper Jaffray used the
actual purchase price of this radio station for the benefit of the asset
appraisal analysis, which resulted in an aggregate low appraisal value
of $61,450,000 and a high appraisal value of $65,300,000 for all 13
radio stations included in the acquired assets.
Piper Jaffray also orally discussed the appraisal methodology with the
appraiser and was informed that the aggregate value of the 12 radio
stations may have increased approximately 10% during the last year. A
10% appreciation in value for the 12 radio stations resulted in an
aggregate low appraisal value of $67,595,000 and a high appraisal value
of $71,830,000 for all 13 radio stations included in the acquired
assets. Piper Jaffray reduced the appraisal value range by $4.0 million
for improvements which are required for KPLS(AM) (Los Angeles). The
adjusted valuation range is $63.6 million to $67.8 million.
COMPARABLE TRANSACTION ANALYSIS. Piper Jaffray conducted a comparable
transaction analysis through a review of selected radio industry
transactions deemed comparable to the transaction. The analysis was
based upon information obtained from Securities and Exchange Commission
("Commission") filings, public company disclosures, press releases,
industry and popular press reports, databases and other sources. Piper
Jaffray identified all acquisitions of radio corporations or assets that
were pending or completed from January 1, 1996 through May 20, 1998,
where the primary business was the ownership and operation of radio
stations. This search yielded seven transactions that Piper Jaffray
deemed comparable, including (in acquired/acquiror format) American
Radio Systems Corporation/Westinghouse Electric Corporation; SFX
Broadcasting Inc./Hicks, Muse, Tate & Furst; Chancellor Broadcasting
Co./Evergreen Media Corp.; Heftel Broadcasting Corporation/Clear Channel
Communications, Inc.; Infinity Broadcasting Corporation/Westinghouse
Electric Corporation; Osborn Communications Corporation/Capstar
Broadcasting Partners, Inc.; and EZ Communications, Inc./American Radio
Systems Corporation.
Piper Jaffray then determined certain mean and median operating ratios
based upon information for the comparable transactions. Among other
things, Piper Jaffray determined that for the comparable transactions
the mean company value (market capitalization plus debt less cash) to
latest twelve month ("LTM") revenues ratio was 8.0x, the median such
ratio was 8.0x and the acquired assets' ratio (based on the
consideration for the acquired assets rather than on the Company's value
as a whole) was 15.8x; and the mean company value to LTM broadcast cash
flow (earnings before interest, taxes, depreciation and amortization
plus corporate overhead) ratio was 23.9x, the median such ratio was
24.1x and the acquired assets' ratio (based on the consideration for the
acquired assets rather than on the Company's value as a whole) was not
meaningful.
COMPARABLE COMPANY ANALYSIS. Piper Jaffray conducted a comparable
company analysis by comparing certain financial information relating to
the acquired assets to corresponding data and rates for a group of six
comparable publicly traded companies. The group of comparable companies
consisted of: Cox Radio, Inc., Emmis Broadcasting Corporation, Jacor
Communications, Inc., Saga Communications, Inc., SFX Broadcasting, Inc.
and Triathlon Broadcasting Company. These comparable companies were
selected based on a search using the following criteria: companies with
an SIC code of 4832 (Radio Broadcasting Stations) and companies whose
primary business is the ownership and operation of radio stations in the
United States. Among other things, Piper
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Jaffray determined that for the comparable companies the mean ratio of
company value to LTM revenue for the comparable companies was 5.0x, the
median such ratio was 5.8x and the acquired assets' ratio (based on the
consideration for the acquired assets rather than on the Company's value
as a whole) was 15.8x; and the mean company value to LTM broadcast cash
flow ratio for the comparable companies was 15.1x, the median such ratio
was 16.6x, and the acquired assets' ratio (based on the consideration
for the acquired assets rather than on the Company's value as a whole)
was not meaningful.
The foregoing is a summary of the financial analyses used by Piper
Jaffray in connection with rendering its opinion. The preparation of a fairness
opinion is a complex process and not necessarily susceptible to partial analyses
or summary description. Piper Jaffray believes that its analyses must be
considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all factors and analyses, would
create a misleading view of the processes underlying the Piper Jaffray Opinion.
These analyses of Piper Jaffray are not necessarily indicative of actual values,
which may be significantly more or less favorable than the values used herein.
Analyses relating to the value of companies do not purport to be appraisals or
valuations or necessarily reflect the price at which companies may actually be
purchased or sold. No company or transaction used in any comparable analysis as
a comparison is identical to the Company or to the transaction. Accordingly, an
analysis of the results is not mathematical and involves complex considerations
and judgments concerning differences in financial and operating characteristics
of the comparable companies and comparable transactions. In reaching its
conclusion as to the fairness of the consideration proposed to be paid for the
acquired assets and in its presentation to the Company's Board of Directors,
Piper Jaffray did not rely on any single analysis or factor described above,
assign relative weights to the analyses or factors considered by it, or make any
conclusions as to how the results of any given analysis, taken alone, supported
its fairness opinion.
The Company has agreed to pay Piper Jaffray $17,500 in fees in
connection with its engagement and for rendering its fairness opinion. These
fees are not contingent upon consummation of the transactions. The Company has
agreed to indemnify Piper Jaffray against certain liabilities incurred
(including liabilities under the federal securities laws) and reimburse
reasonable out-of-pocket expenses, including the fees and disbursements of its
counsel, in connection with the engagement of Piper Jaffray by the Company.
RIGHTS OF DISSENTING SHAREHOLDERS
Section 302A.471 of the Minnesota Business Corporation Act ("MBCA")
entitles any holder of the Common Stock of the Company who objects to the Plan
to dissent from the approval of the Plan and obtain payment for the "fair value"
(as defined in Section 302A.473, Subd. 1 of the MBCA) of his or her shares of
the Common Stock of the Company ("Dissenters' Rights"). Any shareholder
contemplating the exercise of these Dissenters' Rights should review carefully
the provisions of Sections 302A.471 and 302A.473 of the MBCA (copies of which
are attached as Appendix VI to this Proxy Statement), particularly the
procedural steps required to perfect such rights. SUCH RIGHTS WILL BE LOST IF
THE PROCEDURAL REQUIREMENTS OF SECTION 302A.473 ARE NOT FULLY AND PRECISELY
SATISFIED.
The Company intends to proceed with the transactions even if
shareholders exercise Dissenters' Rights.
SHAREHOLDERS WHO PREVIOUSLY SENT NOTICE TO THE COMPANY OF THEIR INTENT
TO DISSENT IN CONNECTION WITH THE ABORTED SALE OF ASSETS TO GLOBAL SHOULD
FOLLOW THE PROCEDURAL REQUIREMENTS OF SECTION 302A.473 IF THEY WISH TO
DISSENT FROM THE APPROVAL OF THE PLAN AND SHOULD NOT RELY UPON ANY NOTICE
PREVIOUSLY SUBMITTED TO THE COMPANY.
Set forth below (to be read in conjunction with the full text of Section
302A.473 appearing in Appendix VI to this Proxy Statement) is a brief
description of the procedures relating to the exercise of Dissenters' Rights.
The following description does not purport to be a complete statement of the
provisions of Section 302A.473 and is qualified in its entirety by reference
thereto.
Under Section 302A.473, Subd. 3, a shareholder who wishes to exercise
Dissenters' Rights (a "dissenter") must file with the Company (at the Company's
address set forth in this Proxy Statement, Attention: Lance W. Riley, Esq.,
Secretary and General Counsel, before the vote on the Plan at the Annual
Meeting, a written notice of intent to demand the fair value of the Common Stock
of the Company owned by the shareholder. IN ADDITION, THE SHAREHOLDER MUST NOT
VOTE HIS OR HER SHARES FOR THE APPROVAL AND ADOPTION OF THE PLAN. A VOTE
AGAINST THE PLAN WILL NOT IN ITSELF CONSTITUTE SUCH A WRITTEN NOTICE AND A
FAILURE TO VOTE WILL NOT AFFECT THE VALIDITY OF A TIMELY WRITTEN NOTICE.
HOWEVER, THE SUBMISSION
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OF A PROPERLY-EXECUTED BLANK PROXY, UNLESS WITHDRAWN, WILL CONSTITUTE A VOTE FOR
THE APPROVAL AND ADOPTION OF THE PLAN AND A WAIVER OF DISSENTERS' RIGHTS.
If the Plan is approved by the holders of the Common Stock of the
Company, the Company will send a notice containing the information required by
Section 302A.473, Subd. 4, to all dissenters who filed in a timely manner the
necessary notice of intent to demand the fair value of their shares and who did
not vote their shares in favor of the Plan. The notice will include the address
to which a dissenter must send a demand for payment and deposit certificates
representing shares in order to obtain payment for such shares and the date by
which they must be received. In order to receive the fair value of the shares
under Section 302A.473, a dissenter must demand payment and deposit certificates
representing shares within 30 days after such notice from the Company is given.
Under Minnesota law, notice by mail is given by the Company when deposited in
the United States mail. A SHAREHOLDER WHO FAILS TO MAKE DEMAND FOR PAYMENT AND
TO DEPOSIT CERTIFICATES AS REQUIRED BY SECTION 302A.473, SUBD. 4, WILL LOSE THE
RIGHT TO RECEIVE THE FAIR VALUE OF HIS OR HER SHARES UNDER SUCH SECTION
NOTWITHSTANDING THE TIMELY FILING OF NOTICE OF INTENT TO DEMAND PAYMENT UNDER
SECTION 302A.473, SUBD. 3.
After the date of final effectiveness, or after the Company receives a
valid demand for payment, whichever is later, the Company will remit to each
dissenter who has complied with Section 302A.473, Subds. 3 and 4, the amount the
Company estimates to be the fair value of the shares, with interest from five
days after the date of final effectiveness until the date of payment, calculated
at the rate of interest for verdicts and judgments in Minnesota. Such
remittance will be accompanied by certain financial statements, an estimate of
fair value, a description of the method used by the Company to reach such
estimate, a copy of Sections 302A.471 and 302A.473, and a brief description of
the procedure to be followed in demanding supplemental payment. The Company may
withhold the remittance described above from a person who was not a shareholder
on the date the CRN transaction was first announced to the public or who is
dissenting on behalf of a person who was not a beneficial owner on that date.
If such a dissenter has complied with Section 302A.473, Subds. 3 and 4, the
Company will forward to the dissenter the same materials sent to dissenters
receiving a remittance, plus a statement of the reason for withholding the
remittance, and an offer to pay the dissenter the amount listed in the materials
if the dissenter agrees to accept that amount in full satisfaction.
If a dissenter believes that the amount remitted or offered by the
Company is less than the fair value of the shares, with interest, the dissenter
may give written notice to the Company of the dissenter's estimate of fair
value, with interest, within 30 days after the Company mails such remittance or
offer, and demand payment of the difference. UNLESS A DISSENTER MAKES SUCH A
DEMAND WITHIN SUCH 30-DAY PERIOD, THE DISSENTER WILL BE ENTITLED ONLY TO THE
AMOUNT REMITTED OR OFFERED BY THE COMPANY.
Within 60 days after the Company receives such a demand from a
dissenter, it will be required to either pay the dissenter the amount demanded
or agreed to after discussion between the dissenter and the Company or file in
court a petition requesting that the court determine the fair value of the
shares, with interest. All dissenters who have demanded payment for their
shares, but have not reached agreement with the Company, will be made parties to
the proceeding. The court will then determine whether the dissenters in
question have fully complied with the provisions of Section 302A.473, and will
determine the fair value of the shares, taking into account any and all factors
the court finds relevant (including, without limitation, the recommendation of
any appraisers which may have been appointed by the court), computed by any
method or combination of methods that the court, in its discretion, sees fit to
use, whether or not used by the Company or a dissenter. The fair value of the
shares as determined by the court is binding on all shareholders, but the
dissenters will not be liable to the Company for the amount, if any, by which
the payment remitted to the dissenters exceeds the fair value of the shares
determined by the court, with interest. The costs and expenses of the court
proceeding will be assessed against the Company, except that the court may
assess part or all of those costs and expenses against a dissenter whose action
in demanding payment is found to be arbitrary, vexatious or not in good faith.
Under Section 302A.471, Subd. 2, a shareholder of the Company may not
assert Dissenters' Rights with respect to less than all of the shares of the
Common Stock of the Company registered in the shareholder's name, unless the
shareholder dissents with respect to all of the shares beneficially owned by
another person but registered in the name of
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the shareholder and discloses the name and address of each beneficial owner on
whose behalf the shareholder dissents. A beneficial owner of shares of the
Common Stock of the Company who is not the registered shareholder may assert
Dissenters' Rights with respect to such shares by following the procedures
described in Sections 302A.471 and 302A.473, IF THE BENEFICIAL OWNER SUBMITS TO
THE COMPANY AT THE TIME OF OR BEFORE THE ASSERTION OF DISSENTERS' RIGHTS A
WRITTEN CONSENT OF THE SHAREHOLDER IN WHOSE NAME THE SHARES ARE REGISTERED.
PROPOSAL NO. 3
PROPOSAL TO APPROVE AN AMENDMENT TO THE
COMPANY'S 1994 STOCK OPTION PLAN
GENERAL
The Board of Directors previously adopted the Company's 1994 Stock
Option Plan (the "1994 Plan") and reserved 1,000,000 shares of Common Stock
for issuance thereunder. A general description of the 1994 Plan is set forth
below, but such description is qualified in its entirety by reference to the
full text of the 1994 Plan, a copy of which is appended to this Proxy
Statement as Appendix VIII.
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DESCRIPTION OF THE 1994 PLAN
PURPOSE. The purpose of the 1994 Plan is to promote the interests of
the Company by providing employees of the Company and certain independent
contractors with an opportunity to acquire a proprietary interest in the Company
and thereby develop a stronger incentive to contribute to the Company's
continued success and growth. In addition, the granting of stock options will
assist the Company in attracting and retaining key personnel of outstanding
ability.
TERM. The term of the 1994 Plan is indefinite; however, the Board may
terminate the 1994 Plan at any time, provided that such termination will not
affect options then outstanding and provided further that no incentive stock
options may be granted under the 1994 Plan on or after March 18, 2004.
ADMINISTRATION. The 1994 Plan is administered by the Committee. The
1994 Plan gives broad powers to the Committee to administer and interpret the
1994 Plan, including the authority to select the individuals to be granted stock
options and to prescribe the particular form and conditions of each option
(which may vary from optionee to optionee).
ELIGIBILITY. All employees of the Company or any subsidiary are
eligible to receive incentive stock options pursuant to the 1994 Plan. All
employees of, including any officer or director who is also an employee,
consultants to and independent contractors of the Company or any subsidiary are
eligible to receive nonqualified stock options. As of May 15, 1998, the Company
had approximately 81 employees, including officers and directors who are also
employees.
OPTIONS. When a stock option is granted under the 1994 Plan, the
Committee, in its discretion, specifies the option price, the type of option
(either "incentive" or "nonqualified") to be granted, and the number of shares
of Common Stock which may be purchased upon exercise of the option. The
exercise price of a stock option may not be less than 100% of the fair market
value of the Company's Common Stock on the date of grant. On May 15, 1998, the
closing price of the Company's Common Stock as reported on the Nasdaq National
Market was $3.38. The term during which an option may be exercised and whether
an option will be exercisable immediately, in stages or otherwise are set by the
Committee, but the term of any option may not exceed ten years from the date of
grant. Optionees may pay for shares upon exercise of options with cash,
certified check or Common Stock of the Company valued at the stock's then fair
market value. Each option granted under the 1994 Plan is nontransferable during
the lifetime of the optionee.
The Committee determines the form of stock option agreements which will
be used for stock options granted under the 1994 Plan. Such agreements govern
the right of an optionee to exercise an option upon termination of employment or
affiliation with the Company during the life of an optionee and following an
optionee's death. The Board or the Committee may impose additional or
alternative conditions and restrictions on the incentive or nonqualified stock
options granted under the 1994 Plan; however, each incentive option must contain
such limitations and restrictions upon its exercise as are necessary to ensure
that the option will be an incentive stock option as defined under the Code.
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AMENDMENT. The Board of Directors may from time to time suspend or
discontinue the 1994 Plan or amend it in any respect; provided, however, that no
such revision or amendment shall be made without the approval of the
shareholders if it would: (a) materially modify the eligibility requirements
for participants; (b) increase the maximum aggregate number of shares of stock
which may be issued pursuant to options; (c) reduce the minimum option price per
share, except in accordance with the 1994 Plan's antidilution provisions; (d)
extend the period of granting options; or (e) materially increase in any other
way the benefits accruing to optionees.
ANTIDILUTION PROVISIONS. The Board of Directors shall equitably adjust
the maximum number of shares of Common Stock reserved for issuance under the
1994 Plan, the number of shares covered by each outstanding option and the
option price per share in the event of stock splits or consolidations, stock
dividends or other transactions in which the Company receives no consideration.
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PROPOSED PLAN AMENDMENT
The Board has approved, subject to shareholder approval, an amendment
to the 1994 Plan which would permit the committee administering the 1994
Plan to suspend or discontinue it at any time and to revise or amend it in
any respect, provided, however, that no revision or amendment may be made
without shareholder approval that: (i) absent such shareholder approval,
would cause Rule 16b-3 under the Securities Exchange Act of 1934 (the
"Exchange Act") to become unavailable with respect to the 1994 Plan or (ii)
requires shareholder approval under any rules or regulations of the National
Association of Securities Dealers, Inc. or any exchange that are applicable
to the Company. A copy of the amended and restated plan is attached to this
Proxy Statement as Appendix VIII, with the amended language underlined for
ease of reference. The Board has also approved, subject to shareholder
approval of the above-described amendment, an amendment to the 1994 Plan
which would prevent stock options issued thereunder from terminating upon the
sale of substantially all of the Company's assets in the event that the
Company were to continue to operate following such sale of assets. The Board
believes that the amendment subject to shareholder approval will advance the
interests of the Company and its shareholders by more closely aligning the
language of the plans to the revised text of Section 16 of the Exchange Act.
The additional amendment contemplated by the Board is designed to adjust
previously granted stock options to reflect the Company's plans to have
on-going operations following the sale of substantially all of its assets.
On May 15, 1998, there were outstanding options under the 1994 Plan to
purchase 844,445 shares.
TAX INFORMATION
Under present law, no tax results upon the grant of nonqualified
options pursuant to the 1994 Plan. However, in the year that a nonqualified
stock option is exercised, the optionee must recognize compensation, taxable
as ordinary income, equal to the difference between the option price and the
fair market value of the shares on the date of exercise. The Company
normally will receive a deduction equal to the amount of compensation the
optionee is required to recognize as ordinary income if the Company complies
with any applicable federal income tax withholding requirements.
Incentive stock options granted under the 1994 Plan are intended to
qualify for favorable tax treatment under Section 422 of the Code. Under
Section 422, an optionee recognizes no taxable income when the option is
granted. Further, the optionee generally will not recognize any taxable
income when the option is exercised if he or she has at all times from the
date of the option's grant until three months before the date of exercise
been an employee of the Company. The Company ordinarily is not entitled to
any income tax deduction upon the grant or exercise of an incentive stock
option. Certain other favorable tax consequences may be available to the
optionee if he or she does not dispose of the shares acquired upon the
exercise of an incentive stock option for a period of two years from the
granting of the option and one year from the receipt of the shares.
The foregoing is only a summary of the general effect of United States
federal income taxation upon the optionee and the Company with respect to the
grant and exercise of options under the 1994 Plan and the subsequent sale of
shares. This summary does not discuss the income tax laws of any state or
foreign country in which an optionee may reside.
28
<PAGE>
NEW PLAN BENEFITS
There are no option grants currently contemplated under the 1994 Plan,
although the amount of awards granted to date are not necessarily indicative
of the amounts that will be awarded in the future.
VOTE REQUIRED
The affirmative vote of holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting is
required to approve the amendment. Abstentions will be considered shares
entitled to vote in the tabulation of votes cast on the proposal and will have
the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether this matter
has been approved. THE BOARD OF DIRECTORS CONSIDERS THE AMENDMENT TO BE IN THE
BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS THAT YOU VOTE
FOR THE AMENDMENT.
29
<PAGE>
PROPOSAL NO. 4
PROPOSAL TO RATIFY THE APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed BDO Seidman, LLP as independent
public accountants for the Company for the fiscal year ending December 31, 1998.
A proposal to ratify such appointment will be presented to the shareholders at
the Annual Meeting. Representatives of BDO Seidman, LLP are expected to be
present at the Annual Meeting, will have an opportunity to make a statement if
they desire to do so, and will be available to respond to appropriate questions
from shareholders in attendance.
On June 27, 1996, the Board of Directors engaged BDO Seidman, LLP as the
Company's new independent accountant for the fiscal year ending December 31,
1996. During the years ended December 31, 1994 and 1995, and through June 27,
1996, the Company did not consult with BDO Seidman, LLP on items which (1)
involved the application of accounting principles to a specified transaction,
either completed or proposed, or involved the type of audit opinion that might
be rendered on the Company's financial statements, or (2) concerned the subject
matter of a disagreement or reportable event with the former auditor (as defined
in Regulation S-K Item 304(a)(2)).
On June 27, 1996, the Company dismissed Ernst & Young LLP as its
independent accountant. Except for 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 Company's consolidated financial
statements as of and for the years ended December 31, 1994 and 1995, the reports
of Ernst & Young LLP on the financial statements for the years ended
December 31, 1994 and 1995, contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles. The Company's Audit Committee and Board of Directors
participated in and approved the decision to change independent accountants. In
connection with its audits for the years ended December 31, 1994 and 1995, and
through June 27, 1996, there were no disagreements with Ernst & Young LLP on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements if not resolved to the
satisfaction of Ernst & Young LLP would have caused them to make reference
thereto in their report on the financial statements for such years. During the
years ended December 31, 1994 and 1995, and through June 27, 1996, there were no
reportable events (as defined in Regulation S-K Item 304(a)(1)(v)).
Representatives of Ernst & Young LLP are not expected to be present at the
Annual Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS A VOTE FOR
THE RATIFICATION OF THE APPOINTMENT OF BDO SEIDMAN, LLP AS INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1998.
30
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS
The following table contains certain information as of May 15, 1998,
regarding the beneficial ownership of the Company's Common Stock by (i) each
person known by the Company to own beneficially more than 5% of the Company's
Common Stock, (ii) each director, nominee for director and executive officer of
the Company and (iii) the executive officers of the Company and directors as a
group, and as to the percentage of the outstanding shares held by them on such
date. Any shares which are subject to an option or a warrant exercisable within
60 days are reflected in the following table and are deemed to be outstanding
for the purpose of computing the percentage of Common Stock owned by the option
or warrant holder but are not deemed to be outstanding for the purpose of
computing the percentage of Common Stock owned by any other person. Unless
otherwise noted, each person identified below possesses sole voting and
investment power with respect to such shares. The business address of Messrs.
Dahl, Gilbertson, Riley, Landis, Smith, Grinde and Ms. McMahon is 724 First
Street North, Minneapolis, Minnesota 55401.
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned (1) Class
------------------ ---------
<S> <C> <C>
Perkins Capital Management, Inc.. . . . 1,609,771(2) 24.1%
730 East Lake Street
Wayzata, Minnesota 55391
Heartland Advisors, Inc.. . . . . . . . 1,395,100(3) 20.9%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
Christopher T. Dahl . . . . . . . . . . 556,416(4) 8.2%
Richard W. Perkins. . . . . . . . . . . 480,359(5) 7.0%
730 East Lake Street
Wayzata, Minnesota 55391
Foothill Capital Corporation. . . . . . 450,000(6) 6.3%
11111 Santa Monica Boulevard
Los Angeles, California 90025
James G. Gilbertson . . . . . . . . . . 59,929(7) *
Gary W. Landis. . . . . . . . . . . . . 27,244(8) *
Lance W. Riley. . . . . . . . . . . . . 28,799(8) *
Barbara A. McMahon. . . . . . . . . . . 24,404(8) *
Rick E. Smith . . . . . . . . . . . . . 24,670(8) *
Michael R. Wigley . . . . . . . . . . . 6,250(8) *
William E. Cameron. . . . . . . . . . . 0 0
Patrick D. Grinde . . . . . . . . . . . 0 0
All Directors and Executive Officers
as a Group (10 persons). . . . . . 1,208,071(9) 16.9%
</TABLE>
- ---------------
* Less than 1%.
(1) Securities "beneficially owned" by a person are determined in accordance
with the definition of "beneficial ownership" set forth in the
regulations of the Commission and, accordingly, may include securities
owned by or for, among others, the spouse, children or certain other
relatives of such person as well as other securities as to which the
person has or shares voting or investment power or has the option or
right to acquire Common Stock within 60 days.
(2) Based upon statements filed with the Commission, PCM is a registered
investment adviser of which Richard W. Perkins, a director of the
Company, is President. As set forth in Schedule 13G filed with the
Commission on February 11, 1998, PCM has the sole right to sell such
shares and has sole voting power over 70,286 of such shares. Mr.
Perkins and PCM disclaim any beneficial interest in such shares.
Excludes shares beneficially owned by Mr. Perkins.
(3) Based upon statements filed with the Commission, such shares are held in
investment advisory accounts. As a result, various persons have the
right to receive or the power to direct the receipt of dividends from,
or the proceeds from the sale of, such shares. Includes 590,000 shares
held by Heartland Value Fund, a series of Heartland Group, Inc., a
registered investment company. Includes 1,197,100 shares over which
Heartland Advisors, Inc. claims sole voting power, and 1,395,100 shares
over which sole dispositive power is claimed.
31
<PAGE>
(4) Includes 95,930 shares purchasable upon the exercise of options and
warrants.
(5) Includes (i) 239,690 shares owned directly by Mr. Perkins, (ii) 6,769
shares beneficially owned by Mr. Perkins through Perkins Capital
Management, Inc. Profit Sharing Plan and Trust and Perkins Foundation,
(iii) 228,275 shares purchasable upon the exercise of options and
warrants by Mr. Perkins and (iv) 5,625 shares purchasable upon the
exercise of warrants by Perkins Capital Management, Inc. Profit Sharing
Plan and Trust and Perkins Foundation. Mr. Perkins has the sole right
to sell such shares and has sole voting power over 239,690 of such
shares. Mr. Perkins' beneficial ownership excludes shares held for the
accounts of clients of PCM.
(6) Represents shares purchasable upon the exercise of warrants.
(7) Includes 44,679 shares purchasable upon the exercise of options.
(8) Represents shares purchasable upon the exercise of options or warrants.
(9) Includes 485,876 shares purchasable upon exercise of options and
warrants.
32
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain selected historical consolidated
financial information for the Company. The income statement and balance sheet
data for the Company included in the selected consolidated financial data for
each of the five years in the period ended December 31, 1997 are derived from
the audited consolidated financial statements of the Company for such five-year
period. The selected financial data for the three-month periods ended March
31, 1997 and 1998 are derived from the unaudited consolidated financial
statements of the Company for such periods. All financial data derived from
unaudited financial statements reflect, in the opinion of the Company's
management, all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation of such data. Results for the three-month
period ended March 31, 1998 are not necessarily indicative of the results that
may be expected for any other interim period or for the year as a whole. The
data set forth in the table should be read in conjunction with the consolidated
financial statements of the Company, and the related notes thereto, incorporated
herein by reference. See "Incorporation of Certain Documents by Reference."
33
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
Years Ended December 31 March 31
----------------------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA)
STATEMENT OF OPERATIONS
DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net Revenue:
Owned, operated and
LMA stations(1) $2,263 $3,799 $4,047 $4,061 $4,142 $944 $745
Network 253 589 1,059 1,594 1,712 207 91
------ ------ ------ ------ ------ ----- -----
Total net revenue 2,516 4,388 5,106 5,655 5,854 1,151 836
Operating Expenses:
Owned, operated and
LMA stations(1) 3,175 5,070 4,955 5,036 5,726 1,339 891
Network 1,413 1,541 2,490 3,525 3,385 932 394
Corporate 1,007 1,692 1,521 2,774 6,012 887 1,208
Depreciation and
amortization 192 516 937 1,501 2,137 459 547
Write off of
deferred warrant
expense -- -- 103 2,288 -- -- --
------ ------ ------ ------ ------ ----- -----
Total operating
expenses 5,787 8,819 10,006 15,124 17,260 3,617 3,040
------ ------ ------ ------ ------ ----- -----
Loss from operations (3,271) (4,431) (4,900) (9,469) (11,406) (2,466) (2,204)
Interest expense, net
of interest income (24) 88 1,208 399 2,612 314 1,002
Equity income/(loss)
in Harmony -- -- -- -- (541) -- (473)
------ ------ ------ ------ ------ ----- -----
Net loss $(3,247) $(4,519) $(6,108) $(9,868) $(14,559) $(2,780) $(3,679)
------ ------ ------ ------ ------ ----- -----
------ ------ ------ ------ ------ ----- -----
Net loss per share $(1.39) $(1.69) $(2.22) $(1.99) $(2.33) $(.47) $(.55)
------ ------ ------ ------ ------ ----- -----
------ ------ ------ ------ ------ ----- -----
Weighted average
number of shares 2,330,500 2,703,500 2,815,500 5,149,000 6,246,000 5,905,000 6,656,000
BALANCE SHEET DATA:
Working capital (deficit) $1,366 $(3,472) $(4,421) $(5,489) $(25,706) $(9,492) $(28,430)
Total assets $8,603 $10,485 $13,327 $28,607 $35,414 $30,563 $34,122
Total debt and capital
leases (including
current portion) $225 $3,835 $5,809 $9,669 $27,068 $13,724 $28,610
Shareholders' equity
(deficit) $7,540 $3,070 $3,487 $16,587 $5,129 $14,483 $1,806
</TABLE>
- -----------------
(1) Includes stations owned and operated by the Company as well as stations
owned by third parties but operated under a LMA.
34
<PAGE>
PRO FORMA FINANCIAL INFORMATION
GENERAL
This unaudited pro forma financial information sets forth the impact of
the transactions and the Company's termination of its network affiliation
agreements and cessation of distribution of its 24-hour Aahs World Radio format
on January 31, 1998. The transactions are not expected to close until September
1998 and are subject to shareholder approval and customary closing conditions
including, but not limited to, approval by the FCC. The unaudited pro forma
statements of operations and balance sheets do not purport to present the
Company's consolidated results of operations and financial position as they
might have been, or as they may be in the future, had the transactions and
affiliation agreement termination occurred on the assumed dates.
The Company's remaining assets, including AAHS trademarks and network
production equipment, will be utilized to develop and create other business
opportunities related to short form network syndicated programming. The Company
has not developed a revenue stream associated with these business opportunities.
While the Company has no current intention to do so, it may determine to
increase its ownership position in Harmony. The Company initially expects to
utilize its core management expertise to improve and enhance the performance of
Harmony. Upon completion of the transactions, the Company will invest the cash
proceeds into investment grade, short-term interest bearing securities which are
expected to provide an interest income stream of approximately $1.0 million per
year. In addition to the potential investment in the business opportunities
described above, the Company may further seek to diversify through acquisitions
of media, entertainment or advertising-related businesses.
The pro forma adjustments are based upon information currently available
and on certain assumptions, described within the footnotes to the pro forma
financial statements, that management of the Company believes are necessary and
reasonable for a fair presentation of the pro forma financial information. The
pro forma financial information and accompanying notes should be read in
conjunction with the historical consolidated financial statements of the Company
for the fiscal year ended December 31, 1997 and for the quarterly period ended
March 31, 1998.
The objective of the unaudited pro forma financial information is to
show what the significant effects on the historical financial statements might
have been had the sale of the stations occurred, for balance sheet purposes, on
March 31, 1998, and, for statement of operations purposes, on January 1, 1997.
However, the pro forma balance sheets are not necessarily indicative
of the effects of the Company's financial position that would have been
attained had the transaction occurred earlier.
35
<PAGE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Pro Forma After Sale
Pro Forma Adjustments for of Assets and
Children's Sale of Assets and Termination of
Broadcasting Termination of Affiliation Affiliation
Corporation Agreements Agreements
------------ -------------------------- ----------------
<S> <C> <C> <C>
Three months ended
March 31, 1998
Revenues $835,995 $(835,995)(1) $ -
Operating expenses 3,039,598 (1,807,747)(1) 1,231,851
------------ ---------- ------------
Income (loss) from operations (2,203,603) 971,752 (1,231,851)
Interest (expense), net of interest income (1,002,405) 1,014,416(2) 12,011
Equity income (loss) of Harmony (472,841) - (472,841)
------------ ---------- ------------
Net income (loss) $(3,678,849) $1,986,168 $(1,692,681)
------------ ---------- ------------
------------ ---------- ------------
Net loss per share $(0.55) $(0.25)
------------ ------------
------------ ------------
Weighted average number of
shares outstanding 6,656,000 6,656,000
------------ ------------
------------ ------------
</TABLE>
- ---------------
(1) To eliminate the revenue and operating expenses related to the network
and owned and operated station operations as well as depreciation and
amortization directly attributable to the owned and operated stations.
(2) To eliminate the interest expense related to the debt expected to be
paid utilizing proceeds from the sales of the stations.
<TABLE>
<CAPTION>
Pro Forma After Sale
Pro Forma Adjustments for of Assets and
Children's Sale of Assets and Termination of
Broadcasting Termination of Affiliation Affiliation
Corporation Agreements Agreements
----------- -------------------------- --------------------
<S> <C> <C> <C>
Year ended
December 31, 1997
Revenues $ 5,854,441 $ (5,854,441)(1) $ -
Operating expenses 17,260,112 (11,134,524)(1) 6,125,588
------------ ------------ -----------
Income (loss) from operations (11,405,671) 5,280,083 (6,125,588)
Interest (expense), net of interest income (2,611,688) 2,702,287 (2) 90,599
Equity income (loss) of Harmony (540,994) - (540,994)
------------ ------------ -----------
Net income (loss) $(14,558,353) $ 7,982,370 $(6,575,983)
------------ ------------ -----------
------------ ------------ -----------
Net loss per share $ (2.33) $ (1.05)
------------ -----------
------------ -----------
Weighted average number of
shares outstanding 6,246,000 6,246,000
------------ -----------
------------ -----------
</TABLE>
- ---------------
(1) To eliminate the revenue and operating expenses related to the network
and owned and operated station operations as well as depreciation and
amortization directly attributable to the owned and operated stations.
(2) To eliminate the interest expense related to the debt expected to be
paid utilizing proceeds from the sales of the stations.
36
<PAGE>
BALANCE SHEETS
<TABLE>
<CAPTION>
Pro Forma After Sale
Pro Forma Adjustments for of Assets and
Children's Sale of Assets and Termination of
Broadcasting Termination of Affiliation Affiliation
Corporation Agreements Agreements
----------- -------------------------- --------------------
<S> <C> <C> <C>
March 31, 1998
Current Assets $ 1,361,661 $ 21,884,209 (1) $23,245,870
Property and equipment 4,541,922 (4,275,930)(2) 265,992
Broadcast licenses 19,365,869 (19,365,869)(2) -
Investment in Harmony 5,808,887 - 5,808,887
Note Receivable - 5,000,000 (1) 5,000,000
Other assets 3,043,786 (3,023,086)(2) 20,700
----------- ------------- -----------
Total assets $34,122,125 $ 219,324 $34,341,449
----------- ------------- -----------
----------- ------------- -----------
Current liabilities $29,791,277 $ (29,791,277)(3) $ -
Long-term debt 2,524,514 (2,524,514)(3) -
Shareholders' equity (deficit) 1,806,334 32,535,115 34,341,449
----------- ------------- -----------
Total liabilities and shareholders'
equity $34,122,125 $219,324 $34,341,449
----------- ------------- -----------
----------- ------------- -----------
</TABLE>
- ---------------
(1) To reflect the gross proceeds from the transactions of $61.7 million
(consisting of cash payments totaling $56.7 million and a note
receivable from the buyer of $5.0 million) net of estimated taxes of
approximately $1.6 million, estimated debt payments aggregating $32.3
million, and approximately $0.9 million of transaction costs.
(2) To eliminate the assets of the owned and operated stations and
capitalized debt issue costs related to the debt to be repaid utilizing
the proceeds from the sale of the stations.
(3) To reflect the payment of debt utilizing the proceeds from the sale of
the stations.
37
<PAGE>
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 Proxy Statement 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
radio stations 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 radio
stations 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, as amended by Amendment Nos. 1, 2, 3 and 4, filed on
February 1, February 20, February 27 and February 28, 1996,
respectively.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LEASES
The studios and tower site of WWTC(AM) and KYCR(AM) are located in
St. Louis Park, Minnesota. The studio facility consists of approximately 12,000
square feet. The tower site includes four 200-foot towers, a transmitter
building and a storage garage on approximately 16 acres. The tower site is
leased from Mr. Dahl at a total annual rent of approximately $114,000, and the
studio site is leased from a partnership consisting of Messrs. Dahl and Perkins
at an annual rent of approximately $132,000.
In January 1996, the Company entered into a five-year lease with 724
Associates, a partnership consisting of Messrs. Dahl, Perkins and Stephen L.
Wallack, a shareholder of the Company, for 6,000 square feet of office space
at 724 First Street North, Minneapolis, Minnesota. These facilities are
leased at annual rental of $54,000 and house the Company's executive offices.
The executive offices are adjacent to the offices of CAC and RMC. CAC is
owned and controlled by Messrs. Dahl, Perkins and Russell Cowles II, either
directly or through trusts. RMC is owned by Messrs. Dahl, Perkins and
Cowles. Mr. Cowles, a former director-elect of the Company, is a beneficiary
and trustee of the John Cowles Family Trust, a shareholder of the Company.
38
<PAGE>
Under the terms of each of the leases, the Company is obligated to pay its
proportionate share of repairs and maintenance. These arrangements were
approved by the Related Party Transaction Committee of the Company's Board of
Directors, which is comprised of disinterested directors, and the Company
believes such arrangements were on terms at least as favorable as could have
been obtained from unaffiliated third parties.
MANAGEMENT SERVICES FROM AN AFFILIATE
Since July 1993, the Company has received administrative, legal and
accounting services from RMC. RMC is a company owned by the Company's
President, another director and a shareholder. RMC provides corporate, legal,
accounting and financial services to the Company, CAC and Harmony. CAC is a
separate private company also owned by the individuals described above. The
Company pays a set monthly fee of $75,000 for the services listed above. All
outside services directly attributable to the Company are billed directly to the
Company. The Company paid RMC an aggregate of $750,000 for such services during
the fiscal year ended December 31, 1996 and an aggregate of $900,000 for such
services during the fiscal year ended December 31, 1997. The salaries of two
officers of the Company, Messrs. Riley and Gilbertson, are paid by RMC. These
arrangements were approved by the Related Party Transaction Committee of the
Company and Board of Directors, which is comprised of disinterested directors,
and the Company believes such arrangements were on terms at least as favorable
as could have been obtained from unaffiliated third parties.
HARMONY-RELATED TRANSACTIONS
In connection with the July 1997 acquisition by the Company of shares
of common stock of Harmony, the Company borrowed an aggregate of $1.25
million from three parties: Rodney P. Burwell, a former director of the
Company, Pyramid Partners, L.P., an entity of which PCM is the managing
partner, and William M. Toles, a shareholder of the Company. Mr. Perkins, a
director of the Company, is President and Chief Executive Officer of PCM.
Messrs. Perkins and Toles are members of the Board of Directors of Harmony.
Their loans are evidenced by notes bearing interest at 10% per year, payable
on July 25, 1998. Additionally, warrants to purchase an aggregate of 125,000
shares of Common Stock at $4.00 per share were issued to those lenders.
Messrs. Dahl and Perkins are shareholders of Harmony, an entity of
which the Company is the largest shareholder. In January 1998, the Company
received proceeds of $611,000 and paid debt issuance costs of $39,000 through
the issuance of a note payable to Harmony with a face amount of $650,000.
The note payable bears interest at 15%, is unsecured and is due upon demand.
In May 1998, the Company repaid $322,863 of principal on the note and $36,062
of interest which had accrued through May 21, 1998.
In April 1998, the Company assigned to Pyramid Partners, L.P.; Perkins
& Partners, Inc., Profit Sharing Plan & Trust; and Christopher T. Dahl &
State of New Prague Joint Account of all of its right to purchase 225,000
shares of common stock of Harmony at $2.50 per share from Glenn B. Laken, a
shareholder of Harmony.
OTHER
Lance W. Riley, Secretary and General Counsel of the Company, has an
of counsel relationship with Hessian & McKasy, P.A. ("HMPA"). HMPA is one of
the law firms which represents the Company in connection with the ABC/Disney
litigation. During 1997, the Company paid HMPA legal fees of $883,749 and
disbursements of $106,480.
39
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's officers,
directors and persons who own more than 10% of a registered class of the
Company's equity securities to file reports of ownership and changes in
ownership with the Commission. Such officers, directors and shareholders are
required by the Commission to furnish the Company with copies of all such
reports. To the Company's knowledge, based solely on a review of copies of
reports filed with the Commission during 1997, all applicable Section 16(a)
filing requirements were satisfied.
SHAREHOLDER PROPOSALS
Proposals intended to be presented at the 1999 Annual Meeting of
Shareholders must be received by the Company by March 11, 1999 to be considered
for inclusion in the Company's proxy materials relating to that meeting. Due to
the complexity of the respective rights of the shareholders and the Company in
this area, any shareholder desiring to propose such an action is advised to
consult with his or her legal counsel with respect to such rights. It is
suggested that any such proposals be submitted by certified mail, return receipt
requested.
ANNUAL REPORT TO SHAREHOLDERS
A copy of the Company's Annual Report to Shareholders for the fiscal
year ended December 31, 1997, accompanies this Notice of Annual Meeting, Proxy
Statement and related proxy card. No part of the Annual Report to Shareholders
is incorporated herein and no part thereof is to be considered proxy soliciting
material.
FORM 10-KSB
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS
BEING SOLICITED, UPON WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31,
1997, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE
FINANCIAL STATEMENTS AND THE FINANCIAL STATEMENT SCHEDULES THERETO. THE COMPANY
WILL FURNISH TO ANY SUCH PERSON ANY EXHIBIT DESCRIBED IN THE LIST ACCOMPANYING
THE FORM 10-KSB, UPON THE PAYMENT, IN ADVANCE, OF FEES BASED ON THE COMPANY'S
REASONABLE EXPENSES IN FURNISHING SUCH EXHIBIT(S). REQUESTS FOR COPIES OF SUCH
REPORT AND/OR EXHIBIT(S) SHOULD BE DIRECTED TO LANCE W. RILEY, SECRETARY AND
GENERAL COUNSEL, AT THE COMPANY'S PRINCIPAL ADDRESS.
BY ORDER OF THE BOARD OF
DIRECTORS
/s/ Christopher T. Dahl
Christopher T. Dahl
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Minneapolis, Minnesota
July 9, 1998
40
<PAGE>
APPENDIX I
PURCHASE AGREEMENT
THIS AGREEMENT, dated as of April 17, 1998, is made between and among
CHILDREN'S BROADCASTING CORPORATION, a Minnesota corporation (referred to herein
as "CBC"); CHILDREN'S RADIO OF CHICAGO, INC., a Minnesota corporation ("CRC"),
CHILDREN'S RADIO OF DALLAS, INC., a Minnesota corporation ("CR Dallas"),
CHILDREN'S RADIO OF DENVER, INC., a Minnesota corporation ("CR Denver"),
CHILDREN'S RADIO OF KANSAS CITY, INC., a Minnesota corporation ("CRKC"),
CHILDREN'S RADIO OF MINNEAPOLIS, INC. ("CR Minneapolis), CHILDREN'S RADIO OF LOS
ANGELES, INC., a Minnesota corporation ("CRLA"), CHILDREN'S RADIO OF MILWAUKEE,
INC., a Minnesota corporation ("CRM"), CHILDREN'S RADIO OF PHILADELPHIA, INC., a
Minnesota corporation ("CR Philadelphia"), and CHILDREN'S RADIO OF PHOENIX,
INC., a Minnesota corporation ("CR Phoenix") (CRC, CR Dallas, CR Denver, CRKC,
CRLA, CRM, CR Minneapolis, CR Philadelphia and CR Phoenix are collectively
referred to herein as the "Asset Subsidiaries"); KAHZ-AM, INC. ("KAHZ-AM"),
KCNW-AM, INC. ("KCNW-AM"), KIDR-AM, INC. ("KIDR-AM"), KKYD-AM, INC. ("KKYD-AM"),
KPLS-AM, INC. ("KPLS-AM"), WAUR-AM, INC. ("WAUR-AM"), WPWA-AM, INC. ("WPWA-AM"),
WWTC-AM, INC. ("WWTC-AM"), and WZER-AM, INC. ("WZER-AM"), all Minnesota
corporations (KAHZ-AM, KCNW-AM, KIDR-AM, KKYD-AM, KPLS-AM, WAUR-AM, WPWA-AM,
WWTC-AM and WZER-AM are collectively referred to herein as the "License
Subsidiaries"); the Asset Subsidiaries and the License Subsidiaries are
collectively referred to herein as the "Subsidiaries"; and CBC and the
Subsidiaries are collectively referred to herein as the "Sellers"); CHILDREN'S
RADIO OF NEW YORK, INC., a New Jersey corporation ("CRNY"); and CATHOLIC RADIO
NETWORK, LLC, a California 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 the Asset Subsidiaries and of CRNY; and
WHEREAS, each of the Asset Subsidiaries is the owner of the assets
described herein relating to the operation of the radio station indicated below
licensed to the community listed below (collectively referred to herein as the
"Stations"), except for the Federal Communications Commission (the "FCC" or the
"Commission") licenses, permits or authorizations issued with respect to the
Stations, and each is the owner and holder of 100% of the issued and outstanding
stock of the License Subsidiary designated by the respective Station's call
letters:
CR Dallas KAHZ(AM) Fort Worth, Texas
CRKC KCNW(AM) Fairway, Kansas
CR Phoenix KIDR(AM) Phoenix, Arizona
CR Denver KKYD(AM) Denver, Colorado
CRLA KPLS(AM) Orange, California
CRC WAUR(AM) Sandwich, Illinois
CR Philadelphia WPWA(AM) Chester, Pennsylvania
CR Minneapolis WWTC(AM) Minneapolis, Minnesota
CRM WZER(AM) Jackson, Wisconsin; and
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WHEREAS, the License Subsidiaries are the FCC licensees and/or
permittees of the Stations indicated above; and
WHEREAS, CRNY is the owner of the assets described herein relating to
the operation of radio station WJDM(AM), licensed to Elizabeth, New Jersey
("WJDM") except the FCC licenses, permits and authorizations issued with respect
to WJDM, and is the owner and holder of 100% of the issued and outstanding stock
of WJDM-AM, Inc. ("WJDM Co."), which is the FCC licensee and/or permittee of
WJDM; and
WHEREAS, subject to and conditioned upon the consent of the FCC, the
Sellers desire to sell and transfer and Buyer desires to purchase and acquire
substantially all of the tangible and intangible assets of the Sellers used or
held for use in connection with the operation of the Stations, and all of the
issued and outstanding stock of CRNY (the "CRNY Stock"), 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 transactions 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 properties and assets, real and personal, tangible and
intangible, of every type and description owned by the Sellers and used or held
for use in connection with the operation of the Stations (except for "Excluded
Assets" as described in Section 1.9 below), including the business and goodwill
(collectively, the "Acquired Assets"). Without limiting the foregoing, the
Acquired Assets shall include the following, except to the extent that any of
the following are Excluded Assets:
1.1. All licenses, permits and authorizations issued by the Commission for
the operation of, or used in connection with, the operation of the
Stations, including but not limited to those listed on SCHEDULE A
attached hereto, and all applications therefor, together with any
renewals, extensions or modifications thereof and additions thereto, or
applications filed between the date hereof and the Closing Date
(collectively, the "Licenses");
1.2. All of the Sellers' owned or leased real property interests of every
kind or description, or options or agreements to acquire real property
interests relating to the operation of the Stations, including but not
limited to that which is described in SCHEDULE B attached
hereto(collectively, the "Real Property");
1.3. All tangible personal property of every kind and description owned by
the Sellers used or held for use in the operation of the Stations,
including but not limited to the property listed on SCHEDULE C attached
hereto, and any additions, replacements therefor or improvements thereof
acquired or constructed prior to Closing (collectively, the "Personal
Property");
1.4. All of the Sellers' rights and benefits under the business agreements,
programming agreements, time sales agreements, real and personal
property leases, real property licenses and contracts in connection with
the operation of the Stations which, by their terms, will survive
Closing, including without limitation, those 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, as defined in Section 6.5 hereof, approved in writing by
Buyer, between the date hereof and the Closing which, by their terms,
will survive Closing, (collectively, the "Contracts");
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1.5. All other licenses, permits or authorizations issued by any government
or regulatory agency other than the FCC, which are used or held for use
in connection with the operation of the Stations, all of which are
listed on SCHEDULE A and pending applications therefor (collectively,
the "Permits");
1.6. All right, title and interest of the Sellers in and to the use of the
call letters for the Stations (referred to herein as the "Call
Letters"), together with all common law property rights, goodwill,
copyrights, trademarks, service marks, trade names, patents, jingles,
logotypes, slogans and other similar rights used or held for use in
connection with the operation of the Stations, including all accretions
thereto, including without limitation, those listed on SCHEDULE E
attached hereto, and including all right, title and interest in and to
the marks "KAHZ," "KIDR," "KKYD," "KPLS," "WAUR," "WJDM," "WPWA," "WWTC"
and "WZER" (and the goodwill appurtenant thereto) and all those
acquired by Sellers between the date hereof and Closing, and including
all rights of Sellers in the programming broadcast over the Stations, or
used or held for use by the Stations, whether recorded on tape or any
other substance or intended for live performances and whether completed
or in production, by the Stations (collectively, the "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 Stations, corporate records and tax records of CRNY but not
including records pertaining to corporate affairs of Sellers (including
tax records), 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;
1.8. All rights and claims of Sellers whether mature, contingent or
otherwise, against third parties relating to the Acquired Assets
including pre-paid items and deposits (subject to proration under
Section 4.3 hereof), whether in tort, contract, or otherwise, including
those 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 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 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
SALE AND TRANSFER OF CRNY STOCK
At Closing, CBC 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, the CRNY
Stock. The assets of CRNY and of WJDM Co. are labeled and described on the
appropriate Schedules described in Article 1 hereto (the "CRNY Assets"), all
representations and warranties contained herein relating to the Acquired Assets
are also being made by CBC with respect to the CRNY Assets, and the Acquired
Assets and the CRNY Assets are collectively referred to herein as the "Station
Assets." At Closing CRNY shall assign its accounts receivable to CBC and pay to
CBC an amount equal to the CRNY cash on hand.
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ARTICLE 3
AGREEMENT REGARDING ADDITIONAL STATIONS
3.1. CBC has entered into letters of intent with third parties regarding the
purchase and sale of substantially all the assets of CBC or its
subsidiaries used or held for use in connection with the operation of
radio stations KTEK(AM), licensed to Alvin, Texas, KYCR(AM), licensed to
Golden Valley, Minnesota and WCAR(AM), licensed to Livonia, Michigan
(collectively, the "Additional Assets"). The Additional Assets are
described and separately identified on the appropriate Schedules hereto.
It is CBC's intent to negotiate and enter into definitive purchase
agreements with such third parties in accordance with the terms of such
letters of intent prior to April 25, 1998, and to close upon the sales
of the Additional Assets to such third parties. In the event, however,
that definitive purchase agreements are not entered into with such third
parties before April 25, 1998, then the parties agree that this
Agreement shall be amended to include the Additional Assets with the
Acquired Assets. In such event, Article 4 shall be amended to increase
the purchase price by an amount equal to the Station Aggregate Value (as
defined in Section 4.6 hereof) of the Stations being added to the
Acquired Assets; CBC shall cause its subsidiaries which hold the
Additional Assets to join in this Agreement; the parties shall join in
preparing, submitting and prosecuting appropriate applications or
amendments to the applications to the FCC for its consent to the
assignment of the Additional Assets; and both parties shall execute and
deliver such other documents and instruments necessary to effectuate the
intent expressed in this Article 3.
3.2. In the event such definitive agreements are entered into with the third
parties prior to April 25, 1998, Buyer shall have no further obligations
under this Article 3 with respect to the Additional Assets, PROVIDED,
HOWEVER, that if the transactions to purchase the Additional Assets are
not consummated with the third parties in the ordinary course and/or
either or both of such agreements is terminated, Buyer shall have the
option, but not the obligation, to purchase any or all of the Stations
comprising the Additional Assets for the Station Aggregate Value of such
Stations. Buyer shall have fifteen (15) business days following notice
of termination of an agreement to purchase Additional Assets to notify
Sellers of its exercise of such option. If notice is not given within
such time, the option shall expire. If Sellers exercise any option to
purchase Additional Assets pursuant to this Section 3.2, the parties
shall execute a definitive purchase agreement containing terms
consistent with the terms set forth herein within ten (10) business days
of receipt of the notice of exercise.
ARTICLE 4
PURCHASE PRICE AND PAYMENTS
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
and no/100 Dollars ($57,000,000.00), subject to adjustment as provided
herein (the "Purchase Price").
4.2. METHOD OF PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid
as follows:
4.2.1. Three Million and no/100 Dollars ($3,000,000.00) shall be wire
transferred to Miller, Simon, McGinn & Clark, SC ("Escrow
Agent") upon the execution of this Agreement pursuant to a
Deposit Escrow Account Agreement in the form attached hereto
as EXHIBIT A (the "Deposit"). The Deposit shall serve to
secure Buyer's obligations under this Agreement and shall not
constitute payment of the Purchase Price unless so applied by
Buyer. Escrow Agent shall hold the Deposit and disburse it to
CBC as follows:
(i) One Million and no/100 Dollars ($1,000,000.00) on the
date of execution hereof;
(ii) One Million and no/100 Dollars ($1,000,000.00) thirty
(30) days from the date hereof; and
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(iii) One Million and no/100 Dollars ($1,000,000.00) sixty
(60) days from the date hereof.
In the event of a termination of this Agreement by Sellers
pursuant to Section 9.3(d) hereof, Sellers shall be entitled
to retain the Deposit as liquidated damages in full and
complete satisfaction of any and all claims hereunder;
4.2.2. Forty-nine Million and no/100 Dollars ($49,000,000.00) 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;
4.2.3. Five Million and no/100 Dollars ($5,000,000.00) of the
Purchase Price payable hereunder shall be payable pursuant to
the terms of a promissory note in substantially the form
attached hereto as EXHIBIT B (the "Note"). The Note will be
secured by a lien upon the Acquired Assets and the CRNY Assets
pursuant to the terms of a Security Agreement in the form
reasonably acceptable to counsel for Sellers, Buyer and
counsel for Buyer's principal lenders (the "Security
Agreement"). The Security Agreement shall be executed by
Buyer and delivered to Sellers at Closing, and the lien in
favor of Sellers will be subordinated to the liens of Buyer's
lenders which finance the purchase of the Acquired Assets or
the CRNY Stock; and
4.2.4. At Closing, Buyer shall enter into and deliver an escrow
agreement substantially in the form attached hereto as EXHIBIT
C (the "Indemnity Escrow Agreement"), for the purposes of
securing Sellers' indemnification obligations under Article 8
hereof (the "Indemnity Escrow Account"). The Indemnity Escrow
Agreement shall be funded by CBC according to its terms in the
event that Buyer either elects to deliver cash at Closing
instead of the Note and Security Agreement, or, in the event
that Buyer exercises its right after Closing to prepay the
Note, such prepayment shall be paid into the Indemnity Escrow
Account until fully funded before prepayments are paid
directly to Sellers.
4.3. ADJUSTMENTS AND PRORATIONS.
4.3.1. The operations of the Stations and WJDM 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 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),
FCC regulatory fees, and similar deferred items shall be
prorated between the Sellers and the Buyer. Prepaid deposits
shall also be prorated between the Sellers and the Buyer. The
employment of all the Stations' employees by the Sellers shall
be terminated as of the Closing Date, and Buyer may employ
employees of its choice and in its sole discretion from and
after said date upon terms acceptable to Buyer and such
employees. Any prorations shall be made and paid insofar as
feasible at the Closing, with a final settlement within ninety
(90) days after the Closing. Any excess of $10,000 in
aggregate trade balances for the Stations and CRNY as of the
Closing shall be paid by Sellers to Buyer at Closing as a
proration, and positive trade balances shall inure to the
benefit of Buyer.
4.3.2. For purposes of the Closing, the adjustments and prorations
described in Section 4.3.1 (the "Proration Amounts"), shall be
estimated based on the most current available data and made at
Closing based upon such estimates.
4.3.3. Sellers and Buyer shall attempt to agree on a final
determination of the Proration Amounts within 90 days
following the Closing Date. Immediately upon such agreement,
Sellers shall pay Buyer, or Buyer shall pay Sellers, as the
case may be, any amount owing by reason of the difference
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between (A) the payment made at Closing based on the estimated
Proration Amounts and (B) the Proration Amounts as finally
determined. If Sellers and Buyer shall not have reached an
agreement within 90 days following the Closing Date, any
dispute shall be referred to a "Big Six" accounting firm that
is not currently performing services for either Buyer or
Sellers (the "Accountant"). The determination of the
Accountant shall be conclusive and binding upon Sellers and
Buyer, and a payment shall be made by Buyer to Sellers or by
Sellers to Buyer, as the case may be, promptly upon such
determination by the Accountant to adjust the Proration
Amounts. The fees and expenses of the Accountant shall be
allocated by the Accountant to one or both of the parties
based on the principle that the party who does not
substantially prevail should bear the costs of the Accountant.
4.4. PARTIAL AND ADDITIONAL CLOSING ADJUSTMENTS. Further adjustments to the
purchase price payable hereunder may be made pursuant to the provisions
of Sections 3, 6.9.5(c), 9.1, 9.2 and 10.3 below.
4.5. ASSUMED LIABILITIES. At Closing Buyer will assume the obligations of
Sellers under the Contracts subject to the provisions of Section 4.3.
Except as expressly assumed by Buyer hereunder as provided for in this
Agreement, at the Closing Buyer shall not assume, incur or be charged
with, in connection with the transactions herein contemplated, any
liabilities or obligations of any nature whatsoever, contingent or
otherwise, in particular those arising on or before the Closing Date.
Without limitation of the foregoing, Buyer shall not assume any
obligations to the Stations' employees under any employee benefit plans
or employment contracts. Sellers shall retain and discharge all such
obligations and liabilities not expressly assumed by Buyer hereunder.
4.6. ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated
among the Acquired Assets and the CRNY Stock as set forth in the
attached SCHEDULE F. The values of the Acquired Assets and the CRNY
Stock with respect to each of the Stations and WJDM are set forth with
an aggregate allocation value as to all Acquired Assets and Additional
Assets associated with the operation of each of the Stations and CRNY
set out thereon as the station aggregate value (the "Station Aggregate
Value") for each of the Stations and WJDM. 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.
ARTICLE 5
NON-COMPETITION AGREEMENT
At Closing, the parties shall enter into a Consulting and
Non-Competition Agreement (the "Non-Competition Agreement") in the form attached
hereto as EXHIBIT D pursuant to which Buyer shall pay to Christopher T. Dahl the
sum of One Million Two Hundred Thousand and no/100 Dollars ($1,200,000.00)
according to the terms and conditions set forth therein.
ARTICLE 6
THE SELLERS' AND CRNY'S REPRESENTATIONS,
WARRANTIES AND AGREEMENTS
The Sellers, jointly and severally, with respect to all representations,
warranties and agreements contained in this Article 6, and CRNY, with respect to
all representations, warranties and agreements made by it in this Article 6,
hereby represent, warrant and agree as follows, which representations and
warranties shall be deemed to have been made again at Closing and which
agreements shall remain in effect from the date hereof until such time as
specified herein:
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6.1. 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 to enter
into and complete the transactions contemplated herein and therein;
CRNY is a corporation organized and existing in good standing under the
laws of the State of New Jersey, with full power and authority to enter
into this Agreement and to enter into and complete the transactions
contemplated herein; CRC is, and will be at the time of Closing,
qualified to do business in the State of Illinois; CR Dallas is, and
will be at the time of Closing, qualified to do business in the State of
Texas; CR Denver is, and will be at the time of Closing, qualified to
do business in the State of Colorado; CRKC is, and will be at the time
of Closing, qualified to do business in the State of Kansas; CRLA is,
and will be at the time of Closing, qualified to do business in the
State of California; CRM is, and will be at the time of Closing,
qualified to do business in the State of Wisconsin; CRNY is, and will be
at the time of Closing, qualified to do business in the State of New
York; CR Philadelphia is, and will be at the time of Closing, qualified
to do business in the State of Pennsylvania; and CR Phoenix is, and
will be at the time of Closing, qualified to do business in the State of
Arizona; all required corporate actions have been duly and validly
taken by the Sellers and CRNY to make and carry out this Agreement,
which is a valid and binding obligation of Sellers and CRNY and which is
enforceable against them in accordance with its terms; the execution of
this Agreement and the completion of the transactions contemplated
herein will not result in the violation of any of the charter documents
of Sellers or CRNY or any order, license, permit, rule, judgment or
decree to which any of the Sellers or CRNY is subject or the breach of
any Contract or cause the acceleration of any obligations under any
Contract; and, except for receipt of the Commission's Final Approval (as
defined herein) with respect to the assignment of the Licenses and
transfer of control to Buyer, no other consents of any kind are required
that have not been obtained for the Sellers or CRNY to make or carry out
the terms of this Agreement, except with respect to those consents
required of parties to Contracts listed on SCHEDULE D, 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 to assignment with respect to all
of the Contracts to the extent required by such documents. Buyer shall
reasonably cooperate with the Sellers in obtaining all such required
consents, but in no event shall Buyer be required to make any payment to
obtain such consents.
6.2. COMPLIANCE WITH LAWS; LICENSES AND PERMITS. Sellers and CRNY are not
subject to any notice asserting any noncompliance by Sellers or CRNY,
with any applicable statute, law, rule or regulation, whether federal,
state, local or otherwise, in connection with the ownership of the
Acquired Assets or the CRNY Assets or the operation of the Stations or
WJDM. Sellers and CRNY have complied and are in compliance in all
material respects with all statute, laws, rules, regulations and
governmental orders, federal, state, local or otherwise applicable to
Sellers' operation of the Stations and CRNY's operation of WJDM and
ownership of the Acquired Assets and the CRNY Assets, except as
disclosed on SCHEDULE A. With the exception of the Licenses which are
addressed below in this Section 6.2, Sellers and CRNY have obtained and
validly hold all permits, licenses and approvals, none of which has been
rescinded and all of which are in full force and effect, from all
Governmental Authorities (as defined herein) necessary in order to
conduct the operations of the Stations and WJDM in accordance with
applicable law, as presently conducted and to own, use and maintain the
Acquired Assets and the CRNY 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 CRNY or the performance by any Seller or CRNY
of its obligations hereunder or thereunder except compliance with any
applicable requirements of the Communications Act of 1934 or as noted on
SCHEDULE A. Each of the License Subsidiaries and WJDM Co. 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
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by the FCC and required for and/or used in the operation of the Stations
and WJDM as they are currently being operated. Each License Subsidiary
and WJDM Co. is fully qualified to hold its Licenses. All ownership and
employment reports, renewal applications, and other reports and
documents required to be filed for the Stations and WJDM have been
properly and timely filed, except as noted on SCHEDULE A. The Stations
and WJDM are operating in all material respects in accordance with the
Licenses, and in compliance with the Communications Act of 1934, as
amended, and the rules and regulations of the Commission, including,
without limitation, those regulations governing the Stations' and WJDM's
equal employment opportunity practices and public files, and any other
applicable laws, ordinances, rules and regulations, except as disclosed
on SCHEDULE A. Sellers, CRNY and WJDM Co. have complied in all material
respects with all requirements of the FCC and the Federal Aviation
Administration with respect to the registration, construction and/or
alteration of Sellers' and CRNY'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 CRNY or
their officers, directors, employees and agents and Sellers, CRNY and
WJDM Co. 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, nor to the best of Sellers' and CRNY's 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, CRNY or WJDM Co. shown on SCHEDULE A) or refuse to renew in the
ordinary course any of the Licenses, or any investigation, order to show
cause, notice of violation, notice of inquiry, notice of apparent
liability or of forfeiture or complaint against the Stations, WJDM,
Sellers, CRNY or WJDM Co., and Sellers, CRNY and WJDM Co. have no
knowledge of any basis for the commencement of any such proceeding in
the future, except as disclosed on SCHEDULE G. Should any such action
or investigation be commenced, order or notice be released, or complaint
be filed, Sellers or CRNY will promptly notify Buyer and take all
actions necessary to protect the Stations and WJDM and the Licenses from
any material adverse impact. All reports, statements and other
documents relating to the Stations or WJDM filed by the Sellers, CRNY,
WJDM Co. or the Stations with the FCC or any other Governmental
Authority were true, correct and complete in all material respects when
filed.
6.3. FINANCIAL STATEMENTS. CBC has delivered to the Buyer its unaudited
balance sheets dated December 31, 1996, and December 31, 1997 (the
latter of which are referred to herein as the "1997 Balance Sheet") and
unaudited statements of operations for the twelve months ended December
31, 1996, and December 31, 1997 for each of the Stations and WJDM and
CRNY, other than KIDR(AM), as to which no 1996 financial statements have
been delivered, and CBC's Form 10-KSB for the year ended December 31,
1997, containing CBC's audited consolidated financial statements for
such period. The Sellers and CRNY will deliver unaudited statements of
operations for each of the Stations and WJDM within fifteen (15)
calendar days after their preparation. Such financial statements and
balance sheets and the notes thereto are true, complete and accurate in
all material respects and fairly present the consolidated assets,
liabilities and financial condition of the Stations and WJDM as at the
respective dates thereof, and such statements of operations and the
notes thereto are true, complete and accurate in all material respects
and fairly present the results of operations for the periods indicated,
and all such financial statements, balance sheets and statements of
operations have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods
involved, and properly reflect all intercompany transfers.
6.4. NO UNDISCLOSED LIABILITIES. None of the Stations, nor CRNY nor WJDM has
any liabilities or obligations of any nature (absolute, accrued,
contingent or otherwise) which were not fully reflected or reserved
against in the 1997 Balance Sheet, 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 all of which together are not material in the
aggregate); and the reserves reflected in the 1997 Balance Sheets are
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adequate, appropriate and reasonable under generally accepted accounting
standards for a business of the same type and nature as the Stations and
WJDM.
6.5. ACQUIRED ASSETS AND THE CRNY ASSETS. The Acquired Assets and the CRNY
Assets to be transferred to Buyer at Closing represent all the assets
necessary for the Stations' and WJDM's current and continuing
operations; prior to Closing, none of the Acquired Assets or the CRNY
Assets will be sold, leased or otherwise disposed of unless replaced by
a substantially similar asset of equal or greater value; Sellers have
good, valid and marketable title to all of the Acquired Assets and the
Owned Real Property, CRNY has good, valid and marketable title to all of
the CRNY Assets, and CBC has good, valid and marketable title to the
CRNY Stock, which, in each case, will at Closing be free and clear of
all security interests of every kind or character (other than Permitted
Encumbrances); Sellers and CRNY are the owners of all items of Personal
Property which are used in the operation of the Stations and WJDM,
respectively, and, at Closing, all of the Acquired Assets and the CRNY
Stock shall be owned by and transferred by the Sellers to Buyer free and
clear of all liens, encumbrances, interests, restrictions or preemptive
rights of any kind whatsoever excepting only Permitted Encumbrances, and
the CRNY Assets shall be owned by CRNY and free and clear of all liens,
encumbrances, interests or restrictions of any kind whatsoever excepting
only the Permitted Encumbrances; the Acquired Assets and the CRNY Assets
have been maintained in good condition, subject to normal wear and tear;
the Sellers and CRNY have conducted the business of the Stations and
WJDM in the Ordinary Course of Business as defined herein; and the
Sellers and CRNY have not taken any action that would be prohibited by
Section 6.16. As used herein, the term "Ordinary Course of Business"
means, with respect to Sellers and CRNY, the ordinary course of business
of the Stations and WJDM consistent with the past practices of Sellers
and CRNY subject to the disclosures set forth in SCHEDULE K hereof
regarding material adverse changes since December 31, 1997. During this
period and for the period from the date hereof to Closing, Sellers and
CRNY 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. The term
Ordinary Course of Business shall also include the contemplated move of
WJDM's studio from the Liberty Science Center, where most of the studio
equipment currently being utilized for WJDM's broadcasting (all of which
is separately identified on SCHEDULE C), will be left with and assigned
to the lessor pursuant to the lease agreement for such real property set
forth on SCHEDULE D. Prior to Closing, CBC will replace any studio
equipment necessary to assure continued operation of WJDM in the new
studio location.
6.6. REAL ESTATE.
6.6.1. OWNED PROPERTIES. SCHEDULE B sets forth a list of all real
property owned by the Sellers or CRNY ("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 parcels except as
disclosed on SCHEDULE B and there are no outstanding actions
or rights of first refusal to purchase such parcels or any
portion thereof or interest therein.
6.6.2. LEASED PROPERTIES. SCHEDULE B sets forth a list of all real
property leased or licensed by the Sellers or CRNY (the
"Leased Real Property") and all of the leases or licenses (the
"Leases") of the Leased Real Property. True and correct
copies of all the Leases have been provided to Buyer and have
not been modified or amended from such forms. With respect to
the Leased Real Property, except as set forth on SCHEDULE B,
(a) all obligations of the landlord or lessor under the Leases
that have accrued have been performed, and no landlord or
lessor is in default under or in arrears in the payment of any
sum or in the performance of any obligation required of it
under any Lease, and no circumstance presently exists, and
Sellers and CRNY have no knowledge of any circumstance likely
to occur, 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) Sellers and CRNY are not in
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default under or in the performance of any obligation required
of it under any Lease, and no circumstance presently exists,
and Sellers and CRNY have no knowledge of any circumstance
likely to occur, which, with notice or the passage of time, or
both, would give rise to a default by Sellers under any Lease;
and (c) there are no consents of any landlord or lessor
required to transfer the Leased Real Property to Buyer.
6.6.3. TITLE AND DESCRIPTION. Sellers or CRNY hold, and will convey
to Buyer at Closing free and clear of any liens or
encumbrances of any kind or nature excepting only Permitted
Encumbrances, a valid and enforceable freehold interest in the
Owned Real Property and valid and enforceable leasehold
interests (or interest as a licensee, as the case may be) in
the Leased Real Property pursuant to the Leases as shown on
SCHEDULE B, subject only to the right of reversion of the
landlord or lessor under the Leases and the terms thereof.
6.6.4. PHYSICAL CONDITION. There is no material defect in the
physical condition of any improvements located on or
constituting a part of the Owned Real Property, or to the best
of Sellers' and CRNY's knowledge, the Leased Real Property.
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,
except as disclosed on SCHEDULE B, is not in need of
maintenance or repairs except for ordinary, routine
maintenance and repairs which are not material in nature or
cost. The soil condition of the Owned 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, and the same is true with
respect to the Leased Real Property to the best of Sellers'
and CRNY's knowledge.
6.6.5. UTILITIES. All water, sewer, gas, electric, telephone,
drainage and other utility equipment, facilities and services
required by law or necessary for the operation of the Owned
Real Property as it is now improved and operated are installed
and connected pursuant to valid permits, are sufficient to
service the Owned Real Property and are in good operating
condition except in such case as will not materially detract
from the marketability or value of the Owned Real Property and
do not impair the operations of the lessee thereof, and the
same is true with respect to the Leased Real Property, to the
best of Sellers' and CRNY's knowledge.
6.6.6. COMPLIANCE WITH LAW; GOVERNMENTAL APPROVALS. The Owned Real
Property is not in 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 Owned Real Property, and the same is true with respect to
the Leased Real Property, to the best of the Sellers' and
CRNY's knowledge, and Sellers and CRNY 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. Improvements located on or
constituting a part of the Owned 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 material compliance with all applicable municipal,
state, federal or other governmental laws, ordinances, codes,
regulations, licenses, permits and authorizations, including,
without limitation, applicable zoning, building, fire, water,
use, or health laws, ordinances, codes, regulations, licenses,
permits and authorizations, and there are presently in effect
all certificates of occupancy, licenses, permits and
authorizations required by law, ordinance, code or regulation
or by any governmental or private authority having
jurisdiction over the ownership or operation of the Sellers'
or CRNY's businesses or any of the Acquired Assets and CRNY
Assets, including the Stations and WJDM and the Owned 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
Owned Real Property and do not impair the occupant thereof
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or the operations of the Stations in any respect, and the same
is true with respect to the Leased Real Property, to the best
of Sellers' and CRNY's knowledge. 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. There is legally enforceable pedestrian,
vehicular and handicapped access to the Owned Real Property,
and to the best of Sellers' knowledge, to the Lease Real
Property to the extent, with respect to handicapped access to
any Real Property, that it legally required.
6.6.7. REAL PROPERTY TAXES. There are no pending or, to the best of
Sellers' and CRNY's knowledge, threatened special assessment
or reassessment of all or any portion of any of the Owned Real
Property, and there are no pending or threatened special
assessment or reassessment of all or any portion of the Leased
Real Property, to the best of Sellers' and CRNY's knowledge,
except as disclosed on SCHEDULE B.
6.6.8. CONDEMNATION. There is no pending or, to the best of Sellers'
knowledge, threatened condemnation of all or any part of the
Real Property.
6.6.9. INSURABILITY. Sellers and CRNY have not received any notice
from any insurance company of any defects or inadequacies in
the Real Property or any part thereof.
6.7. CONTRACTS, LEASES, AGREEMENTS, ETC. Each of the Contracts 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 D. The Contracts listed on SCHEDULE D are all the contracts
and agreements to which Sellers or CRNY are a party in connection with
the operations of the Stations and WJDM which will survive Closing and
are all that are necessary for the operation of the Stations and WJDM as
presently conducted. Sellers and CRNY are not in breach or default in
connection with any of the Contracts, except as noted on SCHEDULE D.
Sellers and CRNY have made available to Buyer true and correct copies of
all Contracts listed on SCHEDULE D, and will make available to Buyer
true and correct copies of any additional Contracts and any additional
agreements, leases and contracts relating to the operation of the
Stations entered into by the Sellers or CRNY in the Ordinary Course of
Business, or as approved by Buyer as provided in Section 1.4 hereof. On
the Closing Date there will be no Contracts relating to the Stations and
WJDM (not including this Agreement) which will be binding on the Buyer
other than those specifically identified herein in SCHEDULE D attached
hereto, or as otherwise approved in writing by Buyer.
6.8. LITIGATION AND TAXES.
6.8.1. 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' and CRNY's knowledge,
threatened against the Sellers or CRNY relating to the
Stations or WJDM, their employees or any of the Acquired
Assets or the CRNY Assets or the CRNY Stock, and Sellers and
CRNY know of no basis for any such possible action. Sellers
and CRNY have filed all applicable federal, state, local and
foreign tax returns required to be filed to date, in
accordance with provisions of law pertaining thereto, and,
except as set forth on SCHEDULE G have paid all FCC regulatory
fees, taxes, interest, penalties and assessments (including
without limitation income, withholding, excise unemployment,
Social Security, occupation, transfer, franchise, property,
sales and use taxes, import duties or charges, and all
penalties and interest in respect thereof) required to have
been paid to date with respect to or involving the Stations,
WJDM, the Acquired Assets, the CRNY Assets or the CRNY Stock.
Sellers and CRNY have not been advised that any of their
returns, federal, state, local or foreign, have been or are
being audited as of the date hereof.
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6.9. ENVIRONMENTAL MATTERS.
6.9.1. ENVIRONMENTAL REPRESENTATION. Each Seller and CRNY is in
compliance in all material respects with all applicable
federal, state and local laws and regulations relating to
pollution or protection of human health or the environment
("Environmental Laws") (which compliance includes, but is not
limited to, the possession by such Sellers and CRNY of any and
all permits and other governmental authorizations required
under applicable Environmental Laws and compliance with the
terms and conditions thereof) with respect to the Real
Property and the business of the Stations and WJDM. No Seller
or CRNY has received any communication (written or oral),
whether from a Governmental Authority, citizens' group,
employee or otherwise, alleging that any Seller or CRNY is not
in such compliance, and to the Sellers' and CRNY's knowledge,
there are no past or present actions, activities,
circumstances, conditions, covenants or incidents that may
prevent or interfere with such compliance in the future.
Except as disclosed on SCHEDULE B, Sellers and CRNY have not
participated in nor approved, nor has there occurred, to the
best of their knowledge, any production, disposal or storage
on the Real Property of any hazardous waste or toxic
substance, nor does such waste or substance exist on the Owned
Real Property (above or beneath the surface), nor on Leased
Real Property, to the best of Sellers' and CRNY's knowledge,
nor is there any proceeding or inquiry, by any governmental
authority (federal or state) with respect to the presence of
such waste or substance on the Owned Real Property or, to the
best of the Sellers' and CRNY's knowledge, on the Leased Real
Property, nor are there any underground storage tanks on the
Owned Real Property or, to the best of Sellers' and CRNY's
knowledge, on the Leased Real Property. There is no
Environmental Claim (as defined below) pending, or to the
knowledge of Sellers and CRNY, threatened against any Seller
or CRNY with respect to the Real Property or the business of
the Stations or WJDM or, to the best of the Sellers' and
CRNY's knowledge, against any person whose liability for any
Environmental Claim any Seller or CRNY has or may have
retained or assumed either contractually or by operation of
law. There are no past or present actions, activities,
circumstances, conditions, events or incidents with respect to
the Owned Real Property, or to the best of Sellers' and CRNY's
knowledge with respect to the Leased Real Property, any Seller
or CRNY or the business of the Stations or WJDM that could
form the basis of any Environmental Claim against any Seller
or CRNY or against any person whose liability for any
Environmental Claim any Seller or CRNY has or may have
retained or assumed either contractually or by operation of
law. As used herein, "Environmental Claim" means any claim,
action, cause of action, investigation or notice (written or
oral) by any person alleging potential liability arising out
of, based on or resulting from (a) the presence or release of
any hazardous waste at any location, whether or not owned or
operated by any Seller or CRNY, (b) circumstances forming the
basis of any violation of any Environmental Law or (c)
circumstances requiring the removal, abatement, investigation
or remediation of Hazardous Waste. "Hazardous Waste" shall
consist of the substances defined as "hazardous substances,"
"hazardous materials," or "toxic substances" in the
Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended, 42 USC Section 9601, et
seq., or in the Hazardous Materials Transportation Act, 49 USC
Section 1801, et seq., or in the Resources Conservation and
Recovery Act, 42 USC Section 6901, et seq., and all substances
defined as "hazardous waste" under the Statutes of the States
of Arizona, California, Colorado, Illinois, Kansas, Michigan,
Minnesota, New Jersey, Pennsylvania, Texas and Wisconsin (with
respect to Real Property located in such states) or any
regulations adopted pursuant to those statutes, including, but
not limited to, asbestos and asbestos containing materials.
6.9.2. ENVIRONMENTAL COVENANTS. Sellers and CRNY have provided Buyer
with all information, surveys and reports in each Seller's and
CRNY's or each Station's or WJDM's possession or control
concerning the existence or possible existence of any
underground storage tanks, polychlorinated biphenyls, asbestos
or asbestos-containing materials, radon gas, radioactive
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materials, liquid petroleum or liquid petroleum products, or
other hazardous wastes, and any other reports, studies or
documents in each Seller's or CRNY's or each Station's or
WJDM's possession relating to each Seller's or CRNY's or each
Station's or WJDM's potential violation or liability under
applicable Environmental Laws ("Environmental Contamination").
6.9.3. BUYER'S RIGHT TO CONDUCT DUE DILIGENCE. By May 15, 1998,
Buyer may, at its expense, conduct Phase I environmental
assessment activities of the Real Property (subject to any
requirement, condition and limitation set forth in the Leases
with respect to Leased Real Property), including inspecting
individual sites, submitting environmental questionnaires to
Sellers and CRNY and the employees of the Stations and WJDM
and reviewing existing environmental reports, correspondence,
permits and related materials regarding the Real Property.
Phase I environmental assessment activities shall not include
any sampling or intrusive testing other than hand auger soil
testing and testing for asbestos or asbestos-containing
materials. Buyer may retain one or more outside environmental
consultants to assist in its environmental due diligence
concerning the Real Property.
6.9.4. RESULTS OF ENVIRONMENTAL DUE DILIGENCE. In the event that
Sellers' or CRNY's disclosure pursuant to Section 6.9.2 herein
or the Phase I reports obtained by Buyer pursuant to
Section 6.9.3 herein or any other information regarding the
Real Property obtained by Buyer produces evidence that
Environmental Contamination exists or may exist on any of the
Real Property, Buyer shall, within ten (10) business days
after receiving the applicable Phase I report or information,
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 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, but subject to any requirement,
condition or limitation set forth in the Leases with respect
to Leased Real Property). The Phase II environmental
activities shall also 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.
6.9.5. EFFECT OF ENVIRONMENTAL DUE DILIGENCE RESULTS.
(a) Subject to Section 6.9.5(b) below, either party hereto
may terminate this Agreement insofar as it relates to the
affected Station or Buyer may at its option terminate
this Agreement in its entirety (unless the affected
Station is WZER(AM), KCNW(AM), KYCR(AM), WCAR(AM) or
KTEK(AM) [the "Severable Stations"], in which event Buyer
may only terminate this Agreement under this Section
6.9.5 with respect to the affected Severable Station), 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 investigations indicate the
existence of Environmental Contamination of
any of the parcels of Real Property; and
(ii) Both parties reasonably determine (on the
basis of Buyer's environmental due diligence)
that responding to and remediating the
foregoing Environmental Contamination in
accordance with applicable environmental laws
will exceed One Hundred Thousand and no/100
Dollars ($100,000.00) (the "Remediation
Ceiling Amount") with respect to the
facilities used in the operations of any
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one of the Stations. In the event the
parties disagree regarding this
determination, each party shall name a
qualified environmental consultant, they
shall in turn name a third whose
determination shall be final.
(b) If the results of Buyer's environmental due diligence
conducted in accordance with this Section 6.9 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 for the facilities used in the
operations of any Station, 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. The
completion of such remediation to the reasonable
satisfaction of Buyer shall be a condition to the Closing
of this Agreement pursuant to Section 11.4(g) hereof.
(c) In the event that a termination as to a Station becomes
effective under this Section 6.9.5, the Purchase Price
shall be adjusted by reducing it by an amount equal to
110% of the Station Aggregate Value of the affected
Station.
6.9.6. RADIO FREQUENCY RADIATION. Other than in compliance with the
Communications Act, the operation of the Stations and WJDM
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 set forth in OST/OET
Bulletin Number 65, "Evaluating Compliance with FCC-Specified
Guidelines for Human Exposure to Radio-Frequency Radiation."
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.
6.10. INSURANCE. The Sellers and CRNY shall maintain in full force and effect
all of their existing casualty, liability, and other insurance covering
any or all of the Acquired Assets and the CRNY Assets through the day
following the Closing Date in amounts not less than those in effect on
the date hereof; Sellers have set forth on SCHEDULE H an abstract of
such casualty insurance coverage. Such coverage is for full replacement
value against risks commonly insured against in the radio broadcast
industry and neither Sellers nor CRNY are in default under any such
policies. Neither Sellers nor CRNY have received any notice from any
issuer of such policies of its intention to cancel, terminate or refuse
to renew any policy issued by it.
6.11. ACCESS TO INFORMATION. The Sellers and CRNY 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 business and operations of the Stations and WJDM;
provided, however, such access shall not unreasonably disrupt the
Sellers' or CRNY's normal operation. The Sellers and CRNY shall furnish
to Buyer all information concerning CBC's, the Sellers', the Stations'
and WJDM's affairs as Buyer may reasonably request, including, but not
limited to, information regarding the status of Sellers' loan agreement
with Foothill, and Buyer shall provide CBC with such information
regarding Buyer's affairs as CBC reasonably requests. Each party will
maintain the confidentiality of all the information and materials
delivered to it or made available for its inspection by the other
hereunder. Nothing shall be deemed to be confidential information that:
(a) is known to the party to whom it was disclosed at the time of its
disclosure; (b) becomes publicly known or available other than through
disclosure by the disclosing party; (c) is received by the party to
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whom it was disclosed from a third party not actually known by the
disclosing party to be bound by a confidentiality agreement with or
obligation to the disclosing party; or (d) is independently developed
by the party to whom it was disclosed as clearly evidenced by its
records. Notwithstanding the foregoing provisions of this Section 6.11,
a party may disclose such confidential information (x) to the extent
required (in the opinion of the disclosing parties independent legal
counsel) 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, each party will return to the
other all confidential information disclosed pursuant hereto relating to
the transactions contemplated hereunder, whether obtained before or
after the execution of this Agreement.
6.12. CONDUCT OF THE STATIONS' AND WJDM'S BUSINESS. Until Closing, without
the prior written consent of Buyer, the Sellers and CRNY shall not enter
into any transaction, agreement or understanding other than in the
Ordinary Course of Business which will not survive Closing, or, if any
such agreement survives Closing, such agreement shall have a value less
than $5,000 and be terminable without penalty no later than sixty (60)
days after Closing (whether or not in writing), or modify any of the
Contracts; no employment contract shall be entered into by the Sellers
or CRNY relating to the Stations or WJDM unless the same is terminable
at will and without penalty at any time; no material increase in
compensation payable or to become payable, to any of the employees
employed at the Stations or WJDM shall be made; no material change in
personnel policies, insurance benefits or other compensation
arrangements shall be made; and the Sellers and CRNY will cause the
Stations and WJDM to be operated in all material respects 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 and CRNY shall
not take any action which will prevent or impede Buyer from
obtaining at the Closing the actual and immediate occupancy and
possession of the Stations and WJDM and all of the Acquired
Assets and the CRNY Assets, including the Real Property, except
that Sellers, notwithstanding anything to the contrary contained
herein, shall have no obligation to close upon the Vander Eyk
property under the purchase agreement disclosed on SCHEDULES B
AND D (the "Vander Eyk Agreement"). Sellers will exercise their
best efforts to perform all their obligations under the Vander
Eyk Agreement and to preserve the rights to close thereunder.
Sellers will also exercise their best efforts to perform all
their obligations under the WONZ option agreement disclosed on
SCHEDULE D and to preserve their rights to exercise said option
pursuant to its terms.
(b) Between the date hereof and Closing, Sellers shall complete
repairs to the WJDM tower site to Buyer's reasonable satisfaction
and shall complete the move of the WJDM studio to the 9 Caldwell
Street, Elizabeth, New Jersey location and replace all tangible
personal property left at the Liberty Science Center location.
(c) On the Closing date, the Sellers will be the owner of the
Acquired Assets and CRNY will be the owner of the CRNY Assets
with good and marketable title thereto, free and clear of all
liens and encumbrances, except for Permitted Encumbrances; and
that between the date of this Agreement and the Closing, there
will be no more than the ordinary normal wear and tear and
expendability of the Acquired Assets and the CRNY Assets, and the
Acquired Assets and the CRNY Assets will be in good working
condition.
(d) Except as disclosed on SCHEDULE G, the Sellers and CRNY do not
know of any facts relating to them or the Stations or WJDM which
would cause (i) the applications for assignment of the Licenses
and transfer of control to Buyer to be challenged, (ii) the
Commission to deny its consent to the assignments of the Licenses
and transfer of control to Buyer, or (iii) the
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Commission to grant such applications for assignment and transfer
of control subject to material adverse conditions to Buyer.
(e) The Sellers and CRNY will have duly filed all tax returns
required to be filed by such Seller or CRNY on or before the
Closing Date and will have paid and discharged all taxes,
assessments, excises, levies, or other similar charges of every
kind, character or description imposed by any Governmental
Authority, and any interest, penalties or additions to tax
imposed thereon or in connection therewith (collectively,
"Taxes") which are due and payable and have not been paid. There
is no action, suit, proceeding, audit, investigation or claim
pending or, to the Sellers' and CRNY's knowledge, threatened in
respect of any Taxes.
(f) The Sellers and CRNY shall (i) upon receiving notice or otherwise
becoming aware of any violation relating to the Licenses, any
violation by any of the Stations or WJDM of any of the rules and
regulations of the FCC, or any violations under any other
applicable laws and regulations, promptly notify Buyer and, at
Sellers' expense, use its best efforts to cure all such
violations prior to the Closing Date, (ii) promptly notify Buyer
in writing if a Station or WJDM ceases to broadcast at the power
levels it is broadcasting at as of the date hereof 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 variances from the representations and warranties
contained in this Article 6 that become known to the Sellers and
CRNY or any breach of any covenant or agreement hereunder by
Sellers or CRNY.
6.13. COPYRIGHTS, TRADEMARKS AND SIMILAR RIGHTS. The call letters listed on
SCHEDULE E are the call letters used by Sellers or CRNY during the radio
broadcast operations of the Stations and WJDM to identify each of the
respective Stations and WJDM to its audience. Sellers and CRNY have
full right and authority from the FCC to use such call letters. Sellers
have not licensed or consented to, and have no knowledge of, any other
entity's or individual's use of such call letters. There is no other
name, trademark, service mark, copyright, or other trade, or service
right or mark currently being used in the business and operations of the
Stations or WJDM other than those listed in SCHEDULE E, except those of
CBC in connection with its Radio AAHS-Registered Trademark-/Aahs World
Radio-SM- children's radio format. Sellers and CRNY pay no royalty to
anyone for use of the General Intangibles and have the right to bring
action for the infringement thereof by third parties. Sellers and CRNY
represent and warrant that the operations of the Stations and WJDM do
not infringe on any trademark, service mark, copyright or other
intellectual property or similar right owned by others.
6.14. EMPLOYEES. Sellers shall be solely responsible for any and all
liabilities and obligations Sellers or CRNY may have to the employees of
the Stations and WJDM, including, without limitation, compensation,
severance pay, incentive bonuses, health expenses, and accrued vacation
time, sick leave and obligations under any of Sellers' or CRNY's
employee benefit plans. Sellers acknowledge that Buyer has no
obligation hereunder to offer employment to any employee of Sellers or
CRNY; however, Buyer shall have the right to hire such of the employees
of the Stations and WJDM as Buyer may select in its sole discretion.
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, "accrued vacation" or
other accrued leave time of said employees as a consequence of their
being hired by Buyer, and Buyer shall have no liability for any such
compensation due any employee for service prior to the Closing Date.
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 for employment by Sellers, CRNY, the Stations
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or WJDM, or any liability under any employee benefit plans of Sellers or
CRNY, including, without limitation, any liability under the Internal
Revenue Code of 1986, as amended, or the Employee Retirement Income
Security Act of 1974, as amended. Sellers shall comply with the
provisions of the Worker Adjustment and Retraining and Notification Act
and similar laws and regulations, if applicable, and shall be solely
responsible for any and all liabilities, penalties, fines, or other
sanctions that may be assessed or otherwise due under such applicable
laws and regulations on account of the dismissal or termination of the
employees of the Stations and WJDM by Sellers and CRNY.
6.15. LABOR RELATIONS. SCHEDULE I lists the names, dates of hire and current
annual salaries of all persons employed by the Sellers or CRNY directly
and principally in connection with the operation of the Stations and
WJDM. None of the Sellers nor CRNY is a party to or subject to any
collective bargaining agreements with respect to any of the Stations or
WJDM. Sellers and CRNY have no written or oral contracts of employment
with any employee of the Stations or WJDM, other than (i) oral
employment agreements terminable at will without penalty, or (ii) those
listed in SCHEDULE D. The Sellers and CRNY, in the operations of the
Stations and WJDM, have 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, except, with respect to the payment of taxes by CRNY, as
disclosed on SCHEDULE J. To the best of Sellers' and CRNY's knowledge,
there is no representation or organizing effort pending or threatened
against or involving or affecting the Sellers or CRNY with respect to
employees employed at any of the Stations or WJDM.
6.16. PRE-CLOSING COVENANTS. Between the date hereof and the Closing, the
Sellers, CRNY and WJDM Co. covenant that:
6.16.1. FCC COMPLIANCE. The Sellers and CRNY shall continue to
operate the Stations and WJDM in material conformity with the
terms of the Stations' and WJDM'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, CRNY
and WJDM Co. shall file all reports, applications and other
filings required by the FCC in a timely and accurate manner.
Sellers, CRNY and WJDM Co. 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, CRNY and WJDM Co. will not
take any action that would jeopardize the License
Subsidiaries' or WJDM Co.'s rightful possession of the
Licenses, the potential for assignment or transfer of control
of the Licenses to Buyer, or the unconditional renewal of the
Licenses for full license terms. The Sellers and CRNY shall
continue to prosecute any pending applications before the FCC
and shall pay any regulatory fees as they become due.
6.16.2. CONDUCT OF BUSINESS. The Sellers and CRNY shall conduct the
business and technical operations of the Stations in the
Ordinary Course of Business, and shall continue all practices,
policies, procedures and technical operations relating to the
Stations in substantially the same manner as heretofore.
6.16.3. MAINTENANCE OF ASSETS. The Sellers shall maintain all of the
Acquired Assets and the CRNY 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, CRNY, the Stations and WJDM. The
Sellers and CRNY shall not sell, convey, assign, transfer or
encumber any of the Acquired Assets or the CRNY Assets, except
for the retirement of tangible Acquired Assets or CRNY Assets
consistent with the normal and customary practices of the
Sellers, CRNY, the Stations and WJDM, which will be replaced
prior to Closing.
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6.16.4. 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 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 any of the Sellers, CRNY, or any of the
Stations or WJDM, 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 concerning, 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, solely to the extent required
in the exercise of the fiduciary duties of the Board of
Directors of CBC under applicable law as advised by
independent counsel in connection with an unsolicited
Acquisition Proposal, 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
(x) 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
this Agreement as a "Superior Proposal"), (y) 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 (z) 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. At such time as a Triggering
Event occurs (as defined below), or at such time as CBC
shall materially breach or fail to perform its
obligations under this Section 6.16.4., then Sellers
shall pay Buyer a fee of Five Million and no/100 Dollars
($5,000,000.00) (the "Fee"), together with an amount
equal to the Deposit, which amounts shall be payable by
wire transfer of same day funds on the date of such
Triggering Event or material breach as and for liquidated
damages. The Fee shall be non-refundable, except that in
the event that this Agreement is not terminated by
Sellers or Buyer, the applications before the FCC seeking
its grant to the proposed assignments and transfer of
control are not withdrawn by Sellers or Buyer, and
Closing occurs in the ordinary course, the Fee will be
reimbursed to Sellers at Closing and the entire Purchase
Price shall be paid
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by Buyer without giving credit to the payment of the
Deposit which had been returned to Buyer.
(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 or the Deposit 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) An executive officer or director of CBC, or any
other person at their direction, shall have
negotiated with any person other than Buyer or its
affiliates, based on a determination regarding a
"Superior Proposal" made as described herein;
(iv) An executive officer or director of CBC, or any
other person at their direction, shall have, or
CBC or any other Seller or CRNY shall have entered
into a letter of intent or any agreement with, or
consummated or recommended any transaction with,
any person other than Buyer or its affiliates,
based on a determination regarding a "Superior
Proposal" made as described herein; or
(v) the shareholders of CBC do not approve this
Agreement or the transactions contemplated hereby
after an Acquisition Proposal shall have been
publicly announced.
6.16.5. 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 Proposal (as defined above), 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. CBC shall provide a copy of
the proposed Proxy Statement to Buyer prior to filing.
6.16.6. OTHER SELLER COVENANTS. None of the Sellers nor CRNY shall
without the Buyer's prior written consent (a) merge or
consolidate with or into any other entity, except as permitted
under Section 12.10 hereof; (b) do or omit to do any act (or
permit such action or omission)
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which will cause a material breach of any of the Contracts
identified as material on SCHEDULE D; (c) waive any claims or
rights of material value with respect to the Station Assets,
or with respect to the operations of the Stations or WJDM
without the prior written consent of Buyer; or (d) agree,
whether in writing or otherwise, to do any of the foregoing.
6.16.7. TERMINATION. This Agreement may be terminated in its entirety
by Buyer or Sellers, subject to the provisions hereof, in the
event of the occurrence of a Triggering Event described in
Sections 6.16.4(c)(i), (ii), (iv) or (v) herein.
6.17. NO MISLEADING STATEMENTS. No statement, representation or warranty made
by Sellers or CRNY herein and no information provided or to be provided
by Sellers or CRNY to Buyer pursuant to this Agreement or any other
documents delivered hereunder 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 or
CRNY 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 CRNY Assets or the condition of the
Stations or WJDM.
6.18. CONSENTS. The Sellers shall use their best efforts to obtain any third
party consents required to assign to Buyer all Contracts. If, on the
Closing Date, Sellers have not obtained any required consent for the
assignment of any Contract (other than the material Contracts referred
to in Section 11.4(d) hereof) to Buyer and the Closing occurs, then
after the Closing Date, Sellers will continue to use their best 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
Contract. From and after the Closing, until the valid assignment of all
such Contracts, 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
Contracts 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 Contracts)).
6.19. CBC'S ADDITIONAL REPRESENTATIONS REGARDING CRNY.
6.19.1. ORGANIZATION, OWNERSHIP AND CAPITALIZATION OF CRNY. CRNY is a
New Jersey corporation duly organized, validly existing and in
good standing under the laws of the State of New Jersey with
all requisite power, authority, charters, licenses and
franchises necessary or required by law to carry on the
business activity in which it is presently engaged. Other
than as set forth on SCHEDULE J, CRNY is not in default under
any such charter, license or franchise, the effect of which
might materially adversely affect its right to conduct the
business and there are no pending proceedings or actions to
limit or impair any of CRNY's powers, rights and privileges or
to dissolve CRNY. CBC has provided Buyer with true and
correct copies of the Articles of Incorporation, as amended to
the date hereof, and Bylaws of CRNY, as amended to the date
hereof. CRNY has no subsidiaries other than WJDM Co. nor is
it a partner in any partnership or a party to any joint
venture. The authorized capital stock of CRNY consists of 425
shares of Common Stock, no par value per share, 250 of which
are issued and outstanding. All outstanding shares of CRNY
Stock are validly issued, fully paid and nonassessable, and
all of such shares are owned, beneficially and of record, by
CBC, and there are no other classes of stock, options,
warrants or conversion privileges outstanding. CBC has good
and marketable title to the CRNY Stock, and CBC will transfer
the CRNY Stock to the Buyer on the Closing Date, free and
clear of any claim, lien, pledge, security, interest, charge,
or other encumbrance whatsoever. The CRNY Stock is not
subject to any option or right to purchase other than pursuant
to this Agreement, and no preemptive rights exist with respect
to the
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CRNY Stock. Other than as specified in SCHEDULE J, all which
tax Sellers will pay prior to Closing, there are no stock
transfer taxes applicable with respect to the transfer of the
CRNY Stock to Buyer.
6.19.2. RECORD BOOKS. The minute book and stock record book of CRNY
as delivered to Buyer is complete and correct in all material
respects, except as disclosed on SCHEDULE J.
6.19.3. TAXES. Except as disclosed on SCHEDULE J:
(i) CRNY is a corporation for purposes of federal and
state income tax laws and has had the tax status of a
corporation constantly and without interruption since
June 1, 1996, and, to the best of Sellers' and CRNY's
knowledge, from its formation to such date;
(ii) all returns have been or will be timely filed when
due in accordance with all applicable laws;
(iii) all taxes shown on the returns have been or will be
timely paid when due;
(iv) the returns completely, accurately and correctly
reflected or will reflect the facts regarding the
income, properties, operations and status of CRNY
since June 1, 1996, and, to the best of Sellers and
CRNY's knowledge, for prior periods;
(v) there are no agreements or consents currently in
effect for the extension or waiver of the time:
(a) to file any return; and
(b) for assessment or collection of any taxes
relating to CRNY for any pre-Closing period,
and no person has been requested to enter into
any such agreement or consent;
(vi) all returns with respect to taxable years ending on
or prior to December 31, 1996, have been examined and
closed, or are returns with respect to which the
applicable statute of limitations, after giving
effect to any extensions and waivers, has expired;
(vii) all taxes which CRNY is required by law to withhold
or collect have been duly withheld or collected, and
have been timely paid over to the appropriate
governmental authorities to the extent due and
payable;
(viii) there is no action, suit, proceeding, investigation,
audit or claim currently pending, or to the best of
Sellers' or CRNY's knowledge, threatened, regarding
any taxes relating to CRNY for any pre-Closing
period;
(ix) all tax deficiencies which have been claimed,
proposed or asserted against CRNY have been fully
paid or finally settled and no issue has been raised
by any IRS examination that might result in a
proposed deficiency for any other period not so
examined;
(x) no material deficiencies with respect to taxes,
additions to tax, interest, or penalties have been
proposed or asserted against and communicated to CRNY
or Sellers except those that have been paid in full
and for those matters that would not result in
liability being imposed against CRNY;
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(xi) no person has executed or entered into a closing
agreement pursuant to IRS Code Section 7121 (or any
comparable provision or state, local or foreign law)
that is currently in force and determines the tax
liabilities of CRNY;
(xii) there is no, and will not be any, agreement or
consent made under IRS Code Section 341(f) (or any
comparable provision or state, local or foreign law)
affecting CRNY;
(xiii) there are no liens for any tax, other than statutory
liens for taxes not yet due and payable and the taxes
due but not yet paid as disclosed on SCHEDULE J, on
the assets of CRNY;
(xiv) none of the assets of CRNY directly or indirectly
secures any debt the interest on which is tax exempt
under IRS Code Section 103(a);
(xv) CRNY has not engaged in any transaction that could
give rise to an understatement of tax liability of
CRNY within the meaning of IRS Code Section
6662(d)(2);
(xvi) there are no tax sharing agreements to which CRNY is
now or ever has been a party;
(xvii) as of and after the Closing, CRNY shall not be
required to:
(a) treat any asset of CRNY as owned by another
person pursuant to the "safe harbor" leasing
provisions of the IRS Code or as "tax-exempt
use property" within the meaning of IRS Code
Section 168(h); and
(b) apply any of the foregoing rules under any
comparable foreign, state or local tax
provision;
(xviii) CRNY is not a party to any agreement, contract,
arrangement or plan that would result, separately or
in the aggregate, in the payment of any "excess
parachute payments" within the meaning of IRS Code
Section 280G (or any comparable provision of state,
local, or foreign law);
(xix) CRNY has not agreed, and is not required, to make any
adjustment under IRS Code Section 482(a) ( or any
comparable provision of state, local or foreign law)
by reason of a change in accounting method or
otherwise;
(xx) no property of CRNY is subject to a tax benefit
transfer lease subject to the provisions of former
Section 168(f)(8) of the Internal Revenue Code of
1954;
(xxi) CRNY has complied fully with all applicable laws
relating to information reporting and withholding or
collection and payment over of taxes with respect to
payments made to or received from third parties;
(xxii) CRNY is not a party to a "disqualified leaseback or
long-term agreement" described in Section 467(b)(4)
of the Code;
(xxiii) no power of attorney is currently in effect, and no
tax ruling has been requested of any governmental
authority, with respect to any tax matter relating to
CRNY;
(xxiv) the charges, accruals, and reserves for taxes, other
than income taxes, due or accrued but not yet due,
relating to the properties and operations of CRNY for
the period prior
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to Closing as reflected on its books are reflected as
accrued liabilities and will be adequate in all
material respect to cover such taxes; and
(xxv) New Jersey is the only state in which CRNY has filed
tax returns during the past three years, and New
Jersey and New York are the only states in which CRNY
expects to file tax returns during the current
calendar year.
6.19.3. After the Closing Date, Buyer shall have the exclusive
authority and obligation to prepare and file, or cause to be
prepared and filed, all returns for, or with respect to, taxes
for all taxable years and other taxable years and other
taxable periods; PROVIDED, HOWEVER, that returns with respect
to the income, properties or operation of CRNY that relate to
the taxable year or other taxable period which includes the
Closing Date shall, to the extent permitted by applicable law,
be prepared by treating all items on such returns in a manner
consistent with the past practices of CRNY with respect to
such items. Sellers and CRNY expressly consent to the use of
the so-called "closing of the books method" as to the taxable
period before and after the Closing Date. Prior to the
Closing, neither Sellers nor CRNY nor any person acting on
their behalf shall file or cause to be filed any amended
return without the prior written consent of Buyer, which
consent shall not be unreasonably withheld.
6.19.4. CREDIT AGREEMENTS. At Closing, CRNY will not be a party to or
bound by any written or oral debt agreement, credit agreement,
sale-lease back agreement, revolving credit agreement,
financing agreement or mortgage on real property, except as
set forth on SCHEDULE D.
6.19.5. EMPLOYEE PLANS. CRNY has not established any oral or written
Employee Plan for the employees thereof except as set forth on
SCHEDULE J to this Agreement. For purposes of this Agreement,
Employee Plan means any pension, retirement, disability,
medical, dental or other health insurance plan, life insurance
or other death benefit plan, profit sharing, deferred
compensation, stock option, bonus or other incentive plan,
vacation benefit plan, severance plan, or other employee
benefit plan or arrangement, including, without limitation,
any "pension plan" or "welfare plan" as defined by the
Employee Retirement Income Security Act of 1974 ("ERISA").
Each Employee Plan set forth on SCHEDULE J to this Agreement
has been administered to date or terminated, as the case may
be, in compliance with the requirements of the Internal
Revenue Code and ERISA, where applicable each Employee Plan is
fully funded on a termination basis, and all reports required
by any government agency with respect to such plans have been
timely filed, and notwithstanding anything to the contrary
contained in such plan and except as disclosed on SCHEDULE J,
all benefits, liabilities and obligations of CRNY to date
under such plan have been fully accrued and reflected on the
Financial Statements. A complete and accurate copy of each
Employee Plan set forth on SCHEDULE J to this Agreement has
been delivered to Buyer along with all related determination
letters and filings for the most recent plan year.
6.20. SUPPLEMENTAL DISCLOSURE. From time to time prior to the Closing, the
Sellers and CRNY 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 amend,
modify or update any representation or warranty of Sellers or CRNY made
in this Agreement or cure any breach thereof unless Buyer specifically
agrees thereto in writing.
6.21. MATERIAL ADVERSE CHANGE. Since December 31, 1997, there has not been
any material adverse change in the operation of the Stations or WJDM or
condition of the Station Assets except as disclosed on SCHEDULE K. As
used in this Agreement, a "material adverse change" shall expressly
include any event which would prevent Buyer from consummating the
purchase of Real Property contemplated under the
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Vander Eyk Agreement on the terms and conditions as reflected therein as
of the date hereof or from constructing its KPLS tower array thereon in
the ordinary course without a material increase in the costs of
acquisition and construction understood by Buyer as of the date hereof.
Buyer understands that the current budget for land acquisition and
construction of the project is approximately Four Million and no/100
Dollars ($4,000,000.00).
ARTICLE 7
BUYER'S REPRESENTATIONS AND WARRANTIES
The Buyer represents and warrants as follows, which representations and
warranties shall be deemed to have been made again at Closing.
7.1. CORPORATE EXISTENCE AND POWERS. Buyer is a limited liability company
organized and existing in good standing under the laws of the State of
California with full power and authority to enter into this Agreement to
which it is a party and enter into and complete the transactions
contemplated herein and therein; Buyer is, or will be at the time of
Closing, qualified to do business in the States of Arizona, California,
Colorado, Illinois, Kansas, Minnesota, New York, New Jersey,
Pennsylvania, Texas and Wisconsin; all required corporate action has
been duly and validly taken by Buyer to make and carry out this
Agreement and the transactions contemplated herein; this Agreement
constitutes the valid and binding obligation of Buyer enforceable in
accordance with its terms; the execution of the Agreement and, once the
consents of the FCC required for the assignment and transfer of control
of the Licenses are 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 or its properties is bound or conflict with or violate any
provision of Buyer's Articles of Organization, Operating Agreement, or
other organizational documents; and except for the consents of the
Commission to the assignments of the Licenses and the transfer of
control to Buyer and the consents identified by the Sellers on SCHEDULE
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.
7.2. BUYER'S QUALIFICATIONS. At Closing, Buyer will be legally and
financially qualified to become the licensee of the Commission. Buyer
does not know of any facts relating to it which would cause the
Commission to deny its consents, or which would materially hinder or
delay receipt of such consents, to the assignments of the Licenses and
transfer of control to Buyer.
7.3. INVESTMENT REPRESENTATION. Buyer is purchasing the CRNY Stock for
investment purposes and not with a view to distribution. The CRNY Stock
has not been registered under Federal or State securities laws and Buyer
understands that no redistribution, sale or other disposition of the
CRNY Stock may occur unless the CRNY Stock is registered under
applicable Federal and State securities laws or exempt therefrom.
ARTICLE 8
BREACH OF AGREEMENTS,
REPRESENTATIONS AND WARRANTIES
8.1. 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,
managers, stockholders, officers, partners, employees, agents,
consultants, representatives, transferees and assignees (collectively,
the "Buyer Indemnities") from and against any loss, damage, liability,
claim, demand, judgment or expense, including claims of third parties,
and including without
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being limited to, reasonable counsel fees and reasonable accounting
fees, sustained by the Buyer Indemnities by reason of, or arising out of
or relating to, (i) any material breach of any warranty, representation,
covenant or agreement of the Sellers or CRNY contained herein or in any
other document delivered pursuant to the terms hereof or in the
Schedules attached hereto, (ii) any error contained in any statement,
report, certificate or other instrument delivered to the Buyer
Indemnities by Sellers or CRNY pursuant to this Agreement, (iii) any
failure by Sellers or CRNY to pay or discharge any liability relating to
the Stations, CRNY and WJDM that is not expressly assumed by Buyer
hereunder, (iv) any facts or circumstances described in SCHEDULE G, (v)
the failure to comply with any applicable bulk sales or tax notice
statutes, or (vi) any obligations for unpaid taxes, penalties and
interest with respect to CRNY noted on SCHEDULE J. Each Seller hereby
expressly waives all rights of equitable indemnity, subrogation and
contribution, whether by contract, statute or common law with respect to
CRNY for the indemnification obligations of Sellers to the Buyer
Indemnities contained herein.
8.2. 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 (collectively, the "Seller Indemnities") from and against
any loss, damage, liability, claim, demand, judgment or expense,
including claims of third parties, and including without being limited
to, reasonable counsel fees and reasonable accounting fees, sustained by
the Seller Indemnities by reason of, or arising out of or relating to,
(i) any material breach of any warranty, representation, covenant or
agreement of Buyer contained herein or any other document delivered
pursuant to the terms hereof, (ii) any error contained in any statement,
report, certificate or other instrument delivered to the Seller
Indemnities by Buyer pursuant to this Agreement, or (iii) any failure by
Buyer to pay or discharge any liability relating to the Stations, CRNY
and WJDM that is expressly assumed by Buyer hereunder.
8.3. THRESHOLD. Neither Buyer nor Seller shall be liable to the other for
indemnification under this Article 8 until the aggregate of all
indemnification claims of the party seeking indemnification exceeds
$25,000.00, but after such threshold is exceeded, the applicable party
shall be entitled to full indemnification for all claims.
8.4. SPECIFIC PERFORMANCE. Sellers acknowledge that the Acquired Assets and
the CRNY Stock to be transferred and assigned under this Agreement are
unique and not readily bought or sold on the open market and, for that
reason, among others, Buyer would be irreparably harmed by any breach or
failure of the other party to consummate this Agreement, and monetary
damages therefor will be highly difficult, if not wholly impossible, to
ascertain, except as provided under Section 6.16.4 hereof. 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, the CRNY Stock or the CRNY Assets contrary to the provisions of
this Agreement pending the determination of such controversy. Sellers
and CRNY, for themselves and their successors and assigns, hereby waive
the claim or defense that an adequate remedy at law exists. In the
event of a suit by Buyer to obtain specific performance and Buyer's
prevailing in such action, Buyer shall be entitled to reimbursement by
Sellers of all reasonable attorneys' fees and other out-of-pocket
expenses incurred by Buyer with respect thereto.
8.5. PROCEDURES. The indemnified party agrees to give written notice within
a reasonable time to the indemnifying party of any claim or other
assertion of liability 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 by such failure to give such notice. The obligations and
liabilities of the parties hereto with
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respect to their respective indemnities pursuant to this Article 8
resulting from any Claim, shall be subject to the following additional
terms and conditions:
(a) Provided the indemnifying party acknowledges in writing its
obligation to indemnify the indemnified party with respect to the Claim
and further satisfies the indemnified party as to its financial ability
to satisfy such indemnification obligation, the indemnifying party shall
have the right to undertake, by counsel or other representatives of its
own choosing, the defense or opposition to such Claim.
(b) In the event that the indemnifying party shall either (i)
elect not to undertake, or shall fail to satisfy any requirements to
undertake, such defense or opposition, or (ii) fail to properly elect
within thirty (30) days after notice of any such Claim from the
indemnified party or thereafter fail to defend or oppose such Claim,
then, in either such event, the indemnified party shall have the right
to undertake the defense, opposition, compromise or settlement of such
Claim, by counsel or other representatives of its own choosing, on
behalf of and for the account and risk of the indemnifying party.
(c) Notwithstanding anything in this Section 8.5 to the contrary,
(i) the indemnifying party shall not, without the indemnified party's
written consent, settle or compromise any Claim or consent to entry of
any judgment which includes any admission of liability or does not
include as a term thereof the giving by the claimant or the plaintiff to
the indemnified party of an unconditional release from all liability in
respect of such Claim, and (ii) in the event that the indemnifying party
undertakes defense of or opposition to any Claim, the indemnified party,
by counsel or other representative of its own choosing and at its sole
cost and expense, shall have the right to consult with the indemnifying
party and its counsel or other representatives concerning such Claim and
the indemnifying party and the indemnified party and their respective
counsel or other representatives shall cooperate in good faith with
respect to such Claim.
(d) The indemnifying party hereby agrees to pay the amount of any
established Claim within fifteen (15) days after the establishment
thereof. The amount of established Claims shall be paid in cash. Any
amounts for such Claims not paid when due under this Article shall bear
interest at a rate equal to 15% per annum until paid. Buyer shall have
the right to offset any unpaid amounts with respect to a Claim against
the amounts due Sellers under the Note.
ARTICLE 9
RISK OF LOSS; TERMINATION
9.1. BUYER'S OPTIONS. The risk of any loss, damage or destruction to any of
the Station Assets from fire or other casualty or loss shall be borne by
the Sellers and CRNY at all times prior to the Closing. Upon the
occurrence of any material loss or damage to any of the Station Assets
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 Station 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 Station Assets to Buyer's
reasonable satisfaction by the Closing, and if the Buyer is not then in
material breach of this Agreement, Buyer shall have the option (but not
the obligation) exercisable at the Closing to:
(i) terminate this Agreement in its entirety in which case none of
the parties shall have any further liability to the other parties
with respect thereto, or terminate this Agreement solely as to
the affected Station, in which case the Purchase Price shall be
reduced by an amount equal to 110% of the Station Aggregate Value
of the affected Station so excluded, except that the Sellers
shall have a reasonable period of time, not to exceed sixty (60)
days, to effect repairs of the damaged Station Assets before
Buyer may exercise its option under this
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subparagraph 9.1(i), PROVIDED, HOWEVER, that in the event the
affected Station is a Severable Station, Buyer shall not have the
option to terminate the entire Agreement under this Section
9.l(i), but shall only have the option to terminate this
Agreement with respect to the affected Station;
(ii) postpone the Closing of the affected Station for up to sixty (60)
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 damaged Station
Asset in its "then" condition, in which event the Sellers or CRNY
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 and
CRNY with respect thereto, provided further that Buyer's election
to proceed with the Closing under this Section 9.1(iii) shall not
relieve Sellers of any of the indemnification obligations under
Article 8 hereof with respect to damaged Station Assets.
9.2. BROADCAST TRANSMISSION OF THE STATIONS PRIOR TO CLOSING. If, prior to
the Closing Date, any Station incurs any unusual operating problems
(including any event described below), Sellers shall provide Buyer with
prompt written notice of such problem and the measures being taken, at
Sellers' sole expense, to correct same. If, after the date hereof and
prior to the Closing Date, any event occurs which prevents the broadcast
transmission of any Station or WJDM for (i) a period of 72 consecutive
hours or more, or (ii) six (6) separate periods of four (4) hours or
more, Buyer shall have the right, by giving written notice to the
Sellers of its election to do so, to terminate this Agreement in its
entirety or solely with respect to the affected Station, PROVIDED,
HOWEVER, in the event the affected Station is a Severable Station, Buyer
shall not have the option to terminate the entire Agreement under this
Section 9.2, but shall only have the option to terminate the Agreement
with respect to the affected Station. In the event Buyer decides to
terminate this Agreement with respect to the affected Station, the
Purchase Price shall be reduced by an amount equal to 110% of the
Station Aggregate Value of the affected Station so excluded, except that
the Sellers shall have a reasonable period of time, not to exceed sixty
(60) days, to effect repairs of the damaged Station Assets before Buyer
may exercise its option under this subparagraph 9.2.
9.3. TERMINATION OF AGREEMENT. This Agreement may be terminated at any time
on or prior to the Closing Date: (a) by the mutual consent of Sellers
and Buyer; (b) by any non-defaulting party hereto if within ten (10)
calendar days after the date hereof, applications for FCC consent to the
assignment and transfer of control of the Licenses to Buyer that are
acceptable for filing, subject to reasonable supplementation and
modification, has not been tendered for filing with the FCC (provided
that the non-defaulting party shall have used all reasonable efforts to
cooperate in the preparation of such application); (c) by any party
hereto if the FCC has denied the approvals contemplated by this
Agreement in an order which has become Final or granted a hearing on an
objection; (d) by written notice of either Buyer or Sellers/CRNY if the
other party breaches in any material respect any of its representations,
warranties, covenants or agreements contained herein and such breach has
not been cured within thirty (30) days of the date of notice of breach
is received by the breaching party, PROVIDED, HOWEVER, that no notice
of intention to terminate this Agreement pursuant to this Section 9.3(d)
may be served by a party that is itself in material breach of the
Agreement at the time of such notice; (e) by Buyer as provided under
Section 6.9.5 (regarding Environmental Matters); (f) by Sellers or Buyer
as provided under Section 6.16.7 (regarding a Superior Offer or certain
Triggering Event); (g) by Buyer as provided in Section 9.1 (regarding
casualty losses); (h) by Buyer as provided under Section 9.2 (regarding
broadcast transmission); (i) by Buyer as provided under Section 10.3
(regarding FCC designation for hearing); (j) by any non-defaulting party
hereto if the Closing has not taken place by the Outside Closing Date
(as defined in Section 10.4), (k) by Buyer if not then in material
default if Sellers have failed to satisfy the conditions set forth in
Section
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11.4, or (l) by Sellers if not then in material default if Buyer has
failed to satisfy the conditions set forth in Section 11.5.
9.4. EFFECT OF TERMINATION. In the event this Agreement is terminated as
provided in Section 9.3, 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; provided that the provisions of
Sections 9.4, 10.2, 12.3, and 12.12 shall survive such termination, and
provided further that the termination of this Agreement shall not
relieve any party of liability for its material breach of this
Agreement, provided however, that, if this Agreement is terminated by
Sellers pursuant to Section 9.3(d) due to material breach or default by
the Buyer of this Agreement, and provided the Sellers are not then in
material breach or default of this Agreement, the Sellers shall retain
the Deposit as liquidated damages, it being agreed that such payment
shall constitute full payment for any and all damages suffered by
Sellers and CRNY by reason thereof and that Sellers and CRNY shall have
no rights to or claims for damages from Buyer other than the Deposit.
Sellers hereby acknowledge that Sellers shall not be entitled to the
Deposit if this Agreement is terminated for any reason other than by
Sellers pursuant to Section 9.3(d) above, and if this Agreement is
terminated other than by Sellers pursuant to Section 9.3(d), the Deposit
shall be returned to Buyer.
ARTICLE 10
APPLICATION FOR COMMISSION APPROVAL
10.1. 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 ten (10) calendar days after the date hereof, join in
applications to be filed with the Commission requesting its written
consents to the assignments of the Licenses of the Stations from the
License Subsidiaries to Buyer and the transfer of control of WJDM from
WJDM Co. to Buyer. The parties shall prepare their own portions of the
applications. Buyer, Sellers and CRNY shall take all steps necessary to
the expeditious prosecution of such applications to a favorable
conclusion, using their best efforts throughout.
10.2. EXPENSES. The parties shall bear their own legal, accounting and other
expenses in connection with the consummation of the contemplated
transaction except as otherwise specifically provided herein. The
parties shall cooperate with the preparation of the Commission
applications and in connection with the prosecution of such
applications. The filing fees shall be shared equally between the
Sellers on the one hand and the Buyer on the other.
10.3. DESIGNATION FOR HEARING. If, for any reason, any application for an
assignment or transfer of control of any of the Licenses is designated
for hearing by the Commission prior to grant thereof, the Buyer, if not
then in material breach hereunder, shall have the right, but not the
obligation, by written notice within thirty (30) days of such
designation for hearing, to terminate this Agreement, in which case none
of the parties shall have any further liability to the other parties
with respect thereto, or terminate this Agreement solely as to the
Station that is the subject of the hearing, in which case the Purchase
Price shall be reduced by an amount equal to 110% of the Station
Aggregate Value of the affected Station so excluded, PROVIDED, HOWEVER,
in the event the affected Station is a Severable Station, Buyer shall
not have the right to terminate the entire Agreement under this Section
10.3, but shall only have the option to terminate this Agreement with
respect to the affected Station.
10.4. OUTSIDE CLOSING DATE. Subject to the provisions of Section 10.3 above,
if within twelve (12) months from the date hereof (the "Outside Closing
Date") (i) the Commission has not given its written consents to the
assignments and transfer of control of the Licenses set forth herein or
(ii) the other conditions to the obligations of Buyer or Sellers have
not been fulfilled then any of the parties, if not then in default, may
terminate this Agreement in its entirety. Upon such termination, if not
otherwise in material breach
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or default of this Agreement, none of the parties shall have any right
or liability hereunder, and the Deposit shall be returned to Buyer.
10.5. CONTROL OF STATIONS. Until Closing, Buyer shall not directly or
indirectly, control, supervise, direct or attempt to control, supervise
or direct the operations of the Stations or WJDM, but such operations
shall be the sole responsibility of the Sellers and CRNY, subject to and
consistent with all rules, regulations and policies of the FCC. On and
after the Closing Date, the Sellers shall not directly or indirectly,
control, supervise, direct or attempt to control, supervise or direct
the operations of the Stations or WJDM.
10.6. 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
ARTICLE 11
CLOSING
Subject to the terms and conditions herein stated, the parties agree as
follows:
11.1. CLOSING DATE. The Closings of the transactions contemplated under this
Agreement shall be held at such time and date or dates as shall be
mutually agreed by the Sellers and Buyer; provided, however, that absent
such agreement, the Closing shall occur no later than ten (10) calendar
days after final Commission approvals of the assignments and transfer
of control of all of the Stations' and WJDM's Licenses have become final
with any conditions with respect to renewal imposed by such approval
having been satisfied, the finality subject to waiver by Buyer ("Final
Approval") and all other conditions to Closing shall have been satisfied
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 approvals of the FCC to the
assignment or transfer of control 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 actions are 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 the offices of
Gray, Cary, Ware & Freidenrich in San Diego, California.
11.2. THE SELLERS' OBLIGATIONS AT CLOSING. At Closing, the Sellers shall
deliver to Buyer the following:
(a) An Assignment of the Licenses described in SCHEDULE A, Warranty
Deeds as to the Owned Real Property and an Assignment and Bill of
Sale, or similar instruments, including third party consents to
all "material" Contracts requiring such consent for assignment,
transferring to Buyer all other Acquired Assets to be transferred
hereunder, free and clear of all liens, encumbrances and
restrictions of any kind whatsoever, except for Permitted
Encumbrances;
(b) An Assignment of the CRNY Stock together with the CRNY Stock
certificates and resignations of the officers and directors of
CRNY;
(c) The business records described in Section 1.7;
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(d) An opinion of the Sellers' counsel, addressed to Buyer in
substantially the form attached hereto as EXHIBIT E;
(e) Certificates of the CEO of each of Sellers and CRNY verifying
that the Sellers' and CRNY's representations, warranties and
covenants as provided herein remain materially true and correct
up to and through the Closing Date;
(f) Certificates of Sellers' Secretary certifying as to Sellers',
CRNY's and WJDM Co.'s Articles of Incorporation, By-Laws, and
Board of Directors and shareholder approvals (all of which shall
be attached thereto);
(g) The Non-Competition Agreement executed by the President of CBC;
(h) The Indemnity Escrow Agreement;
(i) UCC reports dated not more than fifteen (15) days prior to the
Closing Date of the appropriate filing officers in all
jurisdictions in which Station Assets are located evidencing no
judgments, financing statements, or liens are on file with
respect to the Acquired Assets and the CRNY Assets, or, if such
report evidences that judgments, financing statements, or liens
on file with respect to any Station 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, other than Permitted Encumbrances;
(j) Good and valid ALTA title insurance commitments dated as of the
Closing Date insuring the Buyer's title as fee owner in each
parcel of Owned Real Property 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;
(k) Internal Revenue Service Form 8594 completed by the Sellers in
connection with the acquisition of the Acquired Assets by the
Buyer; and
(j) Such other documents and instruments as might reasonably be
requested by Buyer to consummate the transaction contemplated
hereunder consistent with the intent expressed herein.
11.3. BUYER'S OBLIGATIONS AT CLOSING. At Closing, Buyer shall deliver to CBC
the following:
(a) The Purchase Price in the manner set forth in Article 4;
(b) The Non-Competition Agreement and delivery of the initial payment
called for thereunder;
(c) The Note;
(d) The Security Agreement;
(e) Certified copies of resolutions of the members and managers of
Buyer authorizing the transaction contemplated hereby;
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(f) An Agreement to assume the obligations of Sellers under the
Contracts with respect to periods of time from and after Closing;
(g) Internal Revenue Service Form 8594 completed by the Buyer in
connection with the acquisition of the Acquired Assets from the
Sellers; and
(h) Such other documents and instruments as might reasonably be
requested by Sellers to consummate the transactions contemplated
hereunder consistent with the intent expressed herein.
11.4. CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of Buyer to
consummate the transaction herein contemplated at Closing are subject to
and conditioned upon:
(a) The written consents of the Commission evidencing its Final
Approvals to the assignments and transfer of control of the
Licenses to Buyer with any condition with respect to the grant of
a pending renewal application having been satisfied, provided
that any such approvals are without any condition that is
materially adverse to Buyer;
(b) The satisfaction at or before Closing of all agreements,
obligations, covenants and conditions of the Sellers and CRNY
hereunder required to be performed or complied with by them on or
before Closing;
(c) The accuracy of the representations and warranties made by the
Sellers and CRNY;
(d) Written third party consents to all Contracts identified as
material on SCHEDULE D where required by the terms of the
Contract or substitution by Sellers of equivalent rights without
materially adverse impact upon Buyer's enjoyment of the Acquired
Assets or the CRNY Assets;
(e) No Seller, CRNY or Buyer shall be subject to any judgment, order,
injunction or decree of any court of competent jurisdiction
enjoining the consummation of the transactions contemplated
hereby;
(f) Delivery of the termination statements, pay-off letters or other
appropriate documentation called for to be delivered by Buyer
pursuant to Section 11.2(i) so as to result in the release of all
security interests in the Station Assets and the CRNY Stock other
than Permitted Encumbrances;
(g) Sellers shall have executed and delivered the Indemnity Escrow
Agreement and funded the Indemnity Escrow Account if required
pursuant to the terms of Section 4.2.4 hereof;
(h) Buyer shall have completed its environmental due diligence in
accordance with the provisions of Section 6.9, and any
remediation required to be performed by Sellers pursuant thereto
shall have been completed to Buyer's reasonable satisfaction;
(i) Buyer shall have received the title insurance commitments
required to be delivered by Sellers pursuant to Section 11.2(j),
and Buyer shall have completed an inspection of the Real Estate
and determined to its reasonable satisfaction that the utility
services are adequate to the continued and proper operation of
the Stations and WJDM (except with respect to the current tower
site of KPLS which is powered by generators) and that the
buildings, structures, improvements and fixtures comprising the
Real Property are in good and technically sound operating
condition in all material respects, have no latent defects of
material significance and
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are reasonably suitable for the purposes for which they are being
used, provided, however, that Buyer shall have provided Sellers
with notice of any claimed deficiency at least 30 days prior to
Closing so as to afford Sellers the opportunity to cure such
deficiency, or if such deficiency is discovered by Buyer within
thirty (30) days of the Closing, Buyer shall promptly notify
Sellers thereof and Sellers shall have up to thirty (30) days to
cure such deficiency and Closing will be postponed for such
thirty (30) day cure period;
(j) Sellers shall have complied with each and every one of its
obligations set forth in Section 11.2;
(k) No material adverse change in the condition or status of the
Stations, WJDM, the Acquired Assets or the CRNY Assets shall have
occurred; and
(l) The transaction shall have been approved by CBC's shareholders.
11.5. CONDITIONS TO OBLIGATIONS OF THE SELLERS. The obligations of the
Sellers and CRNY to consummate the transaction herein contemplated at
Closing are subject to and conditioned upon:
(a) The written consents of the Commission evidencing its Final
Approvals to the assignments and transfer of control of the
Licenses to Buyer with any condition with respect to the grant of
a pending renewal application having been satisfied, 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 respects of all
agreements, obligations and conditions of Buyer hereunder
required to be performed or complied with by it at or before the
Closing;
(c) The accuracy of the representations and warranties made by Buyer;
(d) No Seller, CRNY or Buyer shall be subject to any judgment, order,
injunction or decree of any court of competent jurisdiction
enjoining the consummation of the transactions contemplated
hereby;
(e) Buyer shall have complied with each and every one of its
obligations under Section 11.3; and
(f) The transaction contemplated hereby shall have been approved by
CBC's shareholders.
ARTICLE 12
MISCELLANEOUS PROVISIONS
12.1. SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES. All
representations, warranties and covenants of Sellers and CRNY contained
in this Agreement shall survive for a period of twenty-four (24) months
after the Closing Date, except that all representations, warranties and
covenants of Sellers and CRNY contained herein with respect to title to
the Station Assets and the CRNY Stock contained in Sections 6.5, 6.6.3,
6.12(c) and 6.19.1 and with respect to payment of taxes contained in
Sections 6.8, 6.12(e) and 6.19.3 shall survive indefinitely, and, with
respect to representations, warranties and covenants subject to Claims
for indemnification under Article 8 hereof, provided that notice of such
Claim is properly made within twenty-four (24) months of the Closing,
such representations, warranties and covenants shall survive until final
settlement or adjudication of such Claim.
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12.2. EXECUTION OF DOCUMENTS. The parties agree to execute all
applications, documents and instruments which may be reasonably
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.
12.3. NOTICES. All notices, requests, elections, demands and other
communications given pursuant to this Agreement shall be in writing
and shall be duly given when delivered personally or by facsimile
transmission (upon receipt of confirmation) or when deposited in the
mail, certified or registered mail, postage prepaid, return receipt
requested, and shall be addressed as follows:
If to the Sellers, CRNY
or WJDM Co. (or any
of them): Children's Broadcasting Corporation
724 First Street North, Fourth Floor
Minneapolis, Minnesota 55401
Attention: Mr. Christopher T. Dahl, President
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., General Counsel
Facsimile Number: (612) 330-9558
If to Buyer: Catholic Radio Network, LLC
8910 University Lane, Suite 130
San Diego, California 92122
Attention: Mr. John T. Lynch, President
Facsimile Number: (619) 784-6910
with copies to: Gray, Cary, Ware & Freidenrich
4365 Executive Drive, Suite 1600
San Diego, California 92121
Attention: Jeffrey T. Baglio, Esq.
Facsimile Number: (619) 677-1477
and
Haley, Bader & Potts, P.L.C.
4350 North Fairfax Drive, Suite 900
Arlington, Virginia 22203-1633
Attention: John M. Pelkey, Esq.
Facsimile Number: (703) 841-2345
12.4. EXHIBITS AND SCHEDULES. All Exhibits and Schedules referred to herein
are incorporated into this Agreement by reference for all purposes and
shall be deemed part of this Agreement.
12.5. ENTIRE AGREEMENT. This Agreement together with all Exhibits and
Schedules referred to herein and all other documents executed and
delivered by Sellers and Buyer on the date hereof contain all of the
terms and conditions agreed upon by the parties hereto with respect to
the transactions contemplated hereunder.
12.6. ASSIGNABILITY. None of the parties may assign their rights or
obligations under this Agreement without the prior written consent of
the other parties, except that the Buyer may make an assignment to an
entity
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under essentially common control as the assigning entity, and Sellers
and/or CRNY may make assignments as contemplated under Section 12.10
hereof.
12.7. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the representatives, heirs, estates, successors, and
assigns of the parties hereto.
12.8. HEADING. The headings contained in this Agreement are for reference
only and shall not effect in any way the meaning or interpretation of
this Agreement.
12.9. MODIFICATION. No modification of any provision of this Agreement
shall be effective unless made in writing and signed by the parties
hereto.
12.10 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.
12.11. 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.
12.12. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California. The parties
hereto hereby irrevocably and unconditionally consent to submit to the
exclusive jurisdiction of the courts of the State of California and of
the United States of America located in the Southern District of
California 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 California or the United States of America
located in the State of California, 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.
12.13. 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 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.
12.14. SALES TAX AND EXPENSES. 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
Sellers. Sellers shall bear all costs, including all policy premiums
and surveys associated with obtaining the title insurance commitments
and policies required to be delivered pursuant to Section 11.2(j) and
all real estate transfer taxes. Sellers agree to indemnify and hold
Buyer harmless against any such claims in connection with the
transactions
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contemplated hereunder. Each party shall bear its own legal and
accounting fees incurred in connection herewith, except as otherwise
expressly provided hereunder.
12.15. PUBLIC ANNOUNCEMENTS. Sellers and Buyer shall consult with each other
before making any public statements with respect to this Agreement or
the transactions contemplated herein 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.
12.16. MAIL. Sellers hereby authorize and empower Buyer from and after the
Closing Date (a) to receive and open mail addressed to the Stations
and (b) to deal with the contents thereof in any manner Buyer sees
fit, provided such mail and the contents thereof relate to the
Stations and WJDM or the Acquired Assets and the CRNY Assets. Sellers
agree to deliver to Buyer any mail, checks or other documents received
by them pertaining to the Stations, WJDM, the Acquired Assets or the
CRNY Assets. Buyer agrees to deliver to Sellers any mail which it
receives to which it is not entitled by reason of this Agreement or
otherwise and/or to which Sellers are entitled to receive.
12.17. 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.
IN WITNESS WHEREOF, the parties hereto, by their properly authorized
representatives, have caused this Agreement to be executed as of the day and
date first above written.
CHILDREN'S BROADCASTING CORPORATION CATHOLIC RADIO NETWORK, LLC
By: /S/ CHRISTOPHER T. DAHL By: /S/ JOHN T. LYNCH
------------------------- ------------------------------
Its: PRESIDENT AND CEO Its: PRESIDENT AND CEO
------------------------- ------------------------------
CHILDREN'S RADIO OF CHICAGO, INC. WAUR-AM, INC.
By: /S/ CHRISTOPHER T. DAHL By: /S/ JOHN T. LYNCH
------------------------- ------------------------------
Its: PRESIDENT AND CEO Its: PRESIDENT AND CEO
------------------------- ------------------------------
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CHILDREN'S RADIO OF DALLAS, INC. KAHZ-AM, INC.
By: /S/ CHRISTOPHER T. DAHL By: /S/ JOHN T. LYNCH
------------------------- ------------------------------
Its: PRESIDENT AND CEO Its: PRESIDENT AND CEO
------------------------- ------------------------------
CHILDREN'S RADIO OF DENVER, INC. KKYD-AM, INC.
By: /S/ CHRISTOPHER T. DAHL By: /S/ JOHN T. LYNCH
------------------------- ------------------------------
Its: PRESIDENT AND CEO Its: PRESIDENT AND CEO
------------------------- ------------------------------
CHILDREN'S RADIO OF KANSAS CITY, INC. KCNW-AM, INC.
By: /S/ CHRISTOPHER T. DAHL By: /S/ JOHN T. LYNCH
------------------------- ------------------------------
Its: PRESIDENT AND CEO Its: PRESIDENT AND CEO
------------------------- ------------------------------
CHILDREN'S RADIO OF LOS ANGELES, INC. KPLS-AM, INC.
By: /S/ CHRISTOPHER T. DAHL By: /S/ JOHN T. LYNCH
------------------------- ------------------------------
Its: PRESIDENT AND CEO Its: PRESIDENT AND CEO
------------------------- ------------------------------
CHILDREN'S RADIO OF MILWAUKEE, INC. WZER-AM, INC.
By: /S/ CHRISTOPHER T. DAHL By: /S/ JOHN T. LYNCH
------------------------- ------------------------------
Its: PRESIDENT AND CEO Its: PRESIDENT AND CEO
------------------------- ------------------------------
CHILDREN'S RADIO OF MINNEAPOLIS, INC. WWTC-AM, INC.
By: /S/ CHRISTOPHER T. DAHL By: /S/ JOHN T. LYNCH
------------------------- ------------------------------
Its: PRESIDENT AND CEO Its: PRESIDENT AND CEO
------------------------- ------------------------------
CHILDREN'S RADIO OF NEW YORK, INC. WJDM-AM, INC.
By: /S/ CHRISTOPHER T. DAHL By: /S/ JOHN T. LYNCH
------------------------- ------------------------------
Its: PRESIDENT AND CEO Its: PRESIDENT AND CEO
------------------------- ------------------------------
CHILDREN'S RADIO OF PHILADELPHIA, INC. WPWA-AM, INC.
By: /S/ CHRISTOPHER T. DAHL By: /S/ JOHN T. LYNCH
------------------------- ------------------------------
Its: PRESIDENT AND CEO Its: PRESIDENT AND CEO
------------------------- ------------------------------
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<PAGE>
CHILDREN'S RADIO OF PHOENIX, INC. KIDR-AM, INC.
By: /S/ CHRISTOPHER T. DAHL By: /S/ JOHN T. LYNCH
------------------------- ------------------------------
Its: PRESIDENT AND CEO Its: PRESIDENT AND CEO
------------------------- ------------------------------
I-37
<PAGE>
SCHEDULE K
MATERIAL ADVERSE CHANGE
SEE SECTION 6.21
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<PAGE>
APPENDIX II
ASSET PURCHASE AGREEMENT
KYCR-AM, GOLDEN VALLEY, MINNESOTA
KTEK-AM, HOUSTON, TEXAS
This AGREEMENT (the "Agreement") is dated as of April 24, 1998, by and
between CHILDREN'S BROADCASTING CORPORATION ("Children's"), CHILDREN'S RADIO OF
GOLDEN VALLEY, INC. ("Asset Corporation - Golden Valley"), KYCR-AM, INC.
("License Corporation - Golden Valley"), CHILDREN'S RADIO OF HOUSTON, INC.
("Asset Corporation - Houston"), and KTEK-AM, INC. ("License Corporation -
Houston") (Children's, Asset Corporation -Golden Valley, License Corporation -
Golden Valley, Asset Corporation Houston, License Corporation -Houston shall
collectively be referred to herein as "Seller") and SALEM COMMUNICATIONS
CORPORATION ("Buyer").
RECITALS:
1. Seller owns and operates radio stations KYCR(AM) ("KYCR") licensed
to Golden Valley, Minnesota and KTEK(AM) ("KTEK") licensed to Houston, Texas
(collectively the "Stations"), and holds the licenses and authorizations issued
by the FCC for the operation of the Stations.
2. Buyer desires to acquire substantially all the assets of the
Stations, and Seller is willing to convey such assets to Buyer.
3. The acquisition of the Stations is subject to prior approval of the
FCC.
4. Simultaneous herewith the parties hereto have entered into Local
Programming and Marketing Agreements (individually and collectively referred to
herein as the "LMAs") providing for the operation of the Stations by Buyer until
such time as the transactions contemplated hereby can be consummated.
NOW THEREFORE, in consideration of the mutual covenants contained
herein, Seller and Buyer hereby agree as follows:
ARTICLE 1
TERMINOLOGY
1.1 ACT. The Communications Act of 1934, as amended.
1.2 ADJUSTMENT AMOUNT. As provided in SECTION 2.7(b), the amount by
which Buyer's account is to be credited or charged, as reflected on the
Adjustment List.
1.3 ADJUSTMENT LIST. As provided in SECTION 2.7(b), an itemized list
of all sums to be credited or charged against the account of Buyer, with a brief
explanation in reasonable detail of the credits or charges.
1.4 ASSUMED OBLIGATIONS. Such term shall have the meaning defined in
SECTION 2.3.
1.5 BUSINESS DAY. Any calendar day, excluding Saturdays and Sundays,
on which federally chartered banks in the city of Camarillo, California, are
regularly open for business.
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1.6 BUYER'S THRESHOLD LIMITATION. As provided in SECTION 9.3(b), the
threshold dollar amount for the aggregate of claims, liabilities, damages,
losses, costs and expenses that must be incurred by Buyer before Seller shall be
obligated to indemnify Buyer. The Buyer's Threshold Limitation shall be Five
Thousand Dollars ($5,000).
1.7 CLOSING. The closing with respect to the transactions contemplated
by this Agreement.
1.8 CLOSING DATE. The date determined as the Closing Date as provided
in SECTION 8.1.
1.9 DOCUMENTS. The LMAs, this Agreement and all Exhibits and Schedules
hereto, and each other agreement, certificate, or instrument delivered pursuant
to or in connection with this Agreement, including amendments thereto that are
expressly permitted under the terms of this Agreement.
1.10 EARNEST MONEY. The amount of One Hundred Thirty-Five Thousand
Dollars ($135,000).
1.11 ENVIRONMENTAL ASSESSMENT. Such term shall have the meaning defined
in SECTION 5.10.
1.12 ENVIRONMENTAL LAWS. The Comprehensive Environmental Response
Compensation and Liability Act, the Resource Conservation and Recovery Act, the
Clean Water Act, the Clean Air Act and the Toxic Substances Control Act, each as
amended, and any other applicable federal, state and local laws, statutes, rules
or regulations concerning the treating, producing, handling, storing, releasing,
spilling, leaking, pumping, pouring, emitting or dumping of Hazardous Materials
(as defined below).
1.13 ESCROW AGENT. Questcom Media Brokerage, Inc.
1.14 ESCROW AGREEMENT. The Escrow Agreement in the form attached as
EXHIBIT A which Seller, Buyer and the Escrow Agent have entered into
concurrently with the execution of this Agreement relating to the deposit,
holding, investment and disbursement of the Earnest Money.
1.15 EXCLUDED ASSETS. Such term shall have the meaning defined in
SECTION 2.2.
1.16 FCC. Federal Communications Commission.
1.17 FCC LICENSES. The licenses, permits and authorizations of the FCC
for the operation of the Stations as listed on SCHEDULE 3.8.
1.18 FCC ORDER. An order or decisions of the FCC granting its consent
to the assignments of the FCC Licenses to Buyer.
1.19 FINAL ACTION. An action of the FCC that has not been reversed,
stayed, enjoined, set aside, annulled or suspended; with respect to which no
timely petition for reconsideration or administrative or judicial appeal or SUA
SPONTE action of the FCC with comparable effect is pending and as to which the
time for filing any such petition or appeal (administrative or judicial) or for
the taking of any such SUA SPONTE action of the FCC has expired.
1.20 HAZARDOUS MATERIALS. Toxic materials, hazardous wastes, hazardous
substances, pollutants or contaminants, asbestos or asbestos-related products,
PCB's, petroleum, crude oil or any fraction or distillate thereof (as such terms
are defined in any applicable federal, state or local laws, ordinances, rules
and regulations, and including any other terms which are or maybe used in any
applicable environmental laws to define prohibited or regulated substances).
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1.21 INDEMNIFIED PARTY. Any party described in SECTION 9.3(a) or 9.4(a)
against which any claim or liability may be asserted by a third party which
would give rise to a claim for indemnification under the provisions of this
Agreement by such party.
1.22 INDEMNIFYING PARTY. The party to the Agreement (not the
Indemnified Party) that, in the event of a claim or liability asserted by a
third party against the Indemnified Party which would give rise to a claim for
indemnification under the provisions of this Agreement, may at its own expense,
and upon written notice to the Indemnified Party, compromise or defend such
claim.
1.23 LIEN. Any mortgage, deed of trust, pledge, hypothecation, security
interest, encumbrance, lien, lease or charge of any kind, whether voluntarily
incurred or arising by operation of law or otherwise, affecting any assets or
property, including any written or oral agreement to give or grant any of the
foregoing, any conditional sale or other title retention agreement, and the
filing of or agreement to give any financing statement with respect to any
assets or property under the Uniform Commercial Code or comparable law of any
jurisdiction.
1.24 MATERIAL ADVERSE CONDITION. A condition which would materially
restrict, limit, increase the cost or burden of or otherwise adversely affect or
impair the right of Buyer to the ownership, use, control, enjoyment or operation
of the Stations or the proceeds therefrom; provided, however, that any condition
which requires that the Stations be operated in accordance with a condition
similar to those contained in the present FCC licenses issued for operation of
the Stations shall not be deemed a Material Adverse Condition.
1.25 OSHA LAWS. The Occupational Safety and Health Act of 1970, as
amended, and all other federal, state or local laws or ordinances, including
orders, rules and regulations thereunder, regulating or otherwise affecting
health and safety of the workplace.
1.26 PERMITTED LIEN. Any statutory lien which secures a payment not yet
due that arises, and is customarily discharged, in the ordinary course of
Seller's business; any easement, right-of-way, encroachment or similar
imperfection in the Seller's title to its assets or properties that,
individually and in the aggregate, are not material in character or amount and
do not and are not reasonably expected to materially impair the value or
materially interfere with the use of any asset or property of the Seller
material to the operation of its business as it has been and is now conducted;
provided said term shall not include any such lien which is discharged at or
before closing.
1.27 PURCHASE PRICE. The consideration to be paid by Buyer to Seller
for purchase of the Sale Assets in an amount equal to Two Million Seven Hundred
Thousand Dollars ($2,700,000).
1.28 REAL PROPERTY. Such term shall have the meaning defined in SECTION
3.7.
1.29 RULES AND REGULATIONS. The rules of the FCC as set forth in Volume
47 of the Code of Federal Regulations, as well as such other written policies of
the Commission, whether contained in the Code of Federal Regulations, or not,
that apply to the Stations.
1.30 SALE ASSETS. All of the tangible and intangible assets to be
transferred by Seller to Buyer as set forth in SECTION 2.1.
1.31 STATION AGREEMENTS. The agreements, commitments, contracts,
leases and other items described in SECTION 2.1(d) which relate to the operation
of the Stations.
1.32 SELLER'S THRESHOLD LIMITATION. As provided in SECTION 9.4(b), the
threshold dollar amount for the aggregate of claims, liabilities, damages,
losses, costs and expenses that must be incurred by Seller before
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Buyer shall be obligated to indemnify Seller. The Seller's Threshold Limitation
shall be Five Thousand Dollars ($5,000).
1.33 SURVIVAL PERIOD. The term following the Closing Date during which
all representations, warranties, covenants and agreements of the parties under
this Agreement shall survive. The term shall be twelve (12) months.
1.34 TANGIBLE PERSONAL PROPERTY. The personal property described in
SECTION 2.1(a).
ARTICLE II
PURCHASE AND SALE
2.1 SALE ASSETS. On the Closing Date, Seller will sell, transfer,
assign and convey to Buyer, and Buyer will purchase from Seller, free and clear
of all Liens, except Permitted Liens and other Liens expressly accepted by
Buyer, all of Seller's right, title and interest, legal and equitable, in and to
all tangible and intangible assets (except Excluded Assets) used and/or useful
in the operation of the Stations as they have been and are now operated,
including the following:
(a) TANGIBLE PERSONAL PROPERTY. All equipment, parts, supplies,
furniture, fixtures and other tangible personal property used and/or useful in
the operation of the Stations as they have been and are now operated, including
but not limited to the items listed on SCHEDULE 3.6, together with such
modifications, replacements, improvements and additional items, and subject to
such deletions therefrom, made or acquired between the date hereof and the
Closing Date in accordance with the terms and provisions of this Agreement.
(b) REAL PROPERTY. All right, title and interest in and to the
Real Property and any other real estate or interests therein acquired by Seller
solely in connection with the Stations between the date hereof and the Closing
Date in accordance with the terms and provisions of this Agreement.
(c) LICENSES AND PERMITS. The FCC Licenses and all other
assignable or transferable governmental permits, licenses and authorizations
(and any renewals, extensions, amendments or modifications thereof) now held by
Seller or hereafter obtained by Seller between the date hereof and the Closing
Date, to the extent such other permits, licenses and authorizations pertain to
or are used in the operation of the Stations.
(d) STATION AGREEMENTS. All agreements which Seller is a party to
or bound by which are listed on SCHEDULE 3.9 as agreements which Buyer is
electing to assume; any renewals, extensions, amendments or modifications of
those agreements being assumed which are made in the ordinary course of Seller's
operation of the Stations and in accordance with the terms and provisions of
this Agreement; and any additional such agreements, contracts, leases,
commitments or orders (and any renewals, extensions, amendments or modifications
thereof) made or entered into between the date hereof and the Closing Date in
accordance with the terms and provisions of this Agreement and which Buyer
elects to assume in writing.
(e) RECORDS. True and complete copies of all of the books,
records, accounts, files, logs, ledgers, reports of engineers and other
consultants or independent contractors, pertaining to or used in the operation
of the Stations (other than corporate records), including, without limitation,
the public inspection files of the Stations.
(f) MISCELLANEOUS ASSETS. Any other tangible or intangible
assets, properties or rights of any kind or nature not otherwise described above
in this SECTION 2.1 and now or hereafter owned or used by Seller in the
operation of the Stations, including but not limited to all intellectual
property of the Stations and any goodwill of the Stations.
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<PAGE>
2.2 EXCLUDED ASSETS. Notwithstanding any provision of this Agreement
to the contrary, Seller shall not transfer, convey or assign to Buyer, but shall
retain all of its right, title and interest in and to, the following assets
owned or held by it on the Closing Date ("Excluded Assets"):
(a) Any and all cash, cash equivalents, cash deposits to secure
contract obligations (except to the extent Seller receives a credit therefor
under SECTION 2.7, in which event the deposit shall be included as part of the
Sale Assets), all inter-company receivables from any affiliate of Seller and all
other accounts receivable, bank deposits and securities held by Seller in
respect of the Stations at the Closing Date.
(b) Any and all claims of Seller with respect to transactions
prior to the Closing including, without limitation, claims for tax refunds and
refunds of fees paid to the FCC.
(c) All prepaid expenses (except to the extent Seller receives a
credit therefor under SECTION 2.7, in which event the prepaid expense shall be
included as part of the Sale Assets).
(d) All contracts of insurance and claims against insurers.
(e) All employee benefit plans and the assets thereof and all
employment contracts.
(f) All contracts that are terminated in accordance with the terms
and provisions of this Agreement or have expired prior to the Closing Date in
the ordinary course of business; and all loans and loan agreements.
(g) All tangible personal property disposed of or consumed between
the date hereof and the Closing Date in accordance with the terms and provisions
of this Agreement.
(h) Seller's corporate records except to the extent such records
pertain to or are used in the operation of the Stations, in which case Seller
shall deliver accurate copies thereof to Buyer.
(i) All commitments, contracts and agreements not specifically
assumed by Buyer pursuant to SECTION 2.1(d), above.
(j) Any intangible intellectual property rights of Seller in and
related to its Radio AAHS-Registered Trademark-/Aahs World Radio-SM- children's
radio format.
2.3 ASSUMPTION OF LIABILITIES.
(a) At the Closing, Buyer shall assume and agree to perform the
following liabilities and obligations of Seller (the "Assumed Obligations"):
(i) Current liabilities of Seller for which Buyer receives a
credit pursuant to SECTION 2.7, but not in excess of the amount of such credit.
(ii) Liabilities and obligations arising under the Station
Agreements, if any, assumed by and transferred to Buyer in accordance with this
Agreement, but only to the extent such liabilities and obligations relate to any
period of time after the Closing Date.
(b) Except for the Assumed Obligations, Buyer shall not assume or
in any manner be liable for any duties, responsibilities, obligations or
liabilities of Seller of any kind or nature, whether express or implied, known
or unknown, contingent or absolute, including, without limitation, any
liabilities to or in connection with Seller's employees whether arising in
connection with the transaction contemplated hereunder or otherwise.
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2.4 EARNEST MONEY.
(a) Concurrently with the execution of this Agreement, Buyer has
deposited with Escrow Agent under the Escrow Agreement, in immediately available
funds, the Earnest Money. The Escrow Agent shall hold the Earnest Money under
the terms of the Escrow Agreement in trust for the benefit of the parties
hereto. Interest and other earnings on the Earnest Money shall be distributed
by the Escrow Agent to Buyer from time to time upon the request of Buyer.
(b) If Closing does not occur, the Earnest Money shall be
delivered to Seller or returned to Buyer in accordance with SECTION 10.2, and if
Closing does occur, the Earnest Money shall be applied to payment of the
Purchase Price at Closing as provided in SECTION 2.5.
2.5 PAYMENT OF PURCHASE PRICE.
(a) The Purchase Price shall be paid by Buyer as follows:
(i) At the Closing, the Earnest Money shall, subject to
execution and delivery by Seller of the closing documents described in SECTION
8.2, become the property of Seller and shall, pursuant to the Escrow Agreement,
be disbursed to Seller by cashier's check or wire transfer of immediately
available funds.
(ii) The Purchase Price, less the amount of the Earnest Money
disbursed to Seller, shall be paid to Seller, at Closing by wire transfer of
immediately available funds.
(b) Buyer shall pay to Seller, or Seller shall pay to Buyer, the
Adjustment Amount in accordance with SECTION 2.7.
2.6 ALLOCATION OF THE PURCHASE PRICE. Prior to Closing, Buyer and
Seller shall agree to an allocation of the Purchase Price. Buyer and Seller
shall use such allocation for all reporting purposes in connection with federal,
state and local income and, to the extent permitted under applicable law,
franchise taxes. Buyer and Seller agree to report such allocation to the
Internal Revenue Service in the form required by Treasury Regulation Section
1.1060-1T.
2.7 ADJUSTMENT OF PURCHASE PRICE.
(a) All operating income and operating expenses of the Stations shall
be adjusted and allocated between Seller and Buyer, and an adjustment in the
Purchase Price shall be made as provided in this Section, to the extent
necessary to reflect the principle that all such income and expenses
attributable to the operation of the Stations on or before the Closing Date
shall be for the account of Seller, and all income and expenses attributable to
the operation of the Stations after the closing Date shall be for the account of
Buyer.
(b) To the extent not inconsistent with the express provisions of this
Agreement, the allocations made pursuant to this SECTION 2.7 shall be made in
accordance with generally accepted accounting principles.
(c) For purposes of making the adjustments pursuant to this Section,
Buyer shall prepare and deliver the Adjustment List to Seller within thirty (30)
days following the Closing Date, or such earlier or later date as shall be
mutually agreed to by Seller and Buyer. The Adjustment List shall set forth the
Adjustment Amount. If the Adjustment Amount is a credit to the account of
Buyer, unless disputed, Seller shall pay such amount to Buyer, and if the
Adjustment Amount is a charge to the account of Buyer, Buyer shall pay such
amount to Seller. In the event Seller disagrees with the Adjustment Amount
determined by Buyer or with any other matter arising out of this subsection, and
Buyer and Seller cannot within sixty (60) days resolve the disagreement
themselves, the parties will refer the disagreement to a firm of independent
certified public accountants, mutually acceptable to
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Seller and Buyer, whose decision shall be final and whose fees and expenses
shall be allocated between and paid by Seller and Buyer, respectively, to the
extent that such party does not prevail on the disputed matters decided by the
accountants.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING. Each Seller is a corporation duly
organized and validly existing under the laws of the State of Minnesota and
authorized and in good standing in each and every jurisdiction where Seller
operates, owns property or conducts business. Seller has all requisite power to
own, convey, operate and lease its properties and carry on its business as it is
now being conducted and as the same will be conducted until the Closing.
3.2 AUTHORIZATION AND BINDING EFFECT OF DOCUMENTS. The execution and
delivery of, and the performance of its obligations under, this Agreement and
each of the other Documents by Seller, and the consummation by Seller of the
transactions contemplated hereby and thereby, have been duly authorized and
approved by all necessary action on the part of Seller. Seller has the power
and authority to execute, deliver and perform its obligations under this
Agreement and each of the other Documents and to consummate the transactions
hereby and thereby contemplated. This Agreement and each of the other Documents
have been, or at or prior to the Closing will be, duly executed by Seller. This
Agreement constitutes (and each of the other Documents, when so executed and
delivered, will constitute) legal and valid obligations of Seller enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights or remedies generally, and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law).
3.3 ABSENCE OF CONFLICTS. Assuming all the consents described in
SECTION 3.4 are obtained, the execution and delivery of, and the performance of
its obligations under, this Agreement and each of the other Documents by Seller,
and the consummation by Seller of the transactions contemplated hereby and
thereby:
(a) do not in any material respect (with or without the giving of
notice or the passage of time or both) violate (or result in the creation of any
Lien other than a Permitted Lien on any of the Sale Assets under), any provision
of law, rule or regulation or any order, judgment, injunction, decree or ruling
applicable to Seller;
(b) do not (with or without the giving of notice or the passage of
time or both) conflict with or result in a breach or termination of, or
constitute a default or give rise to a right of termination or acceleration,
where such conflict, breach, termination, default or right would have a material
adverse effect on the Sale Assets or the operation of the Stations, under
charter documents of Seller or pursuant to any lease, agreement, commitment or
other instrument which Seller is a party to, or bound by, or by which any of the
Sale Assets may be bound, or result in the creation of any Lien, other than a
Permitted Lien, upon any of the Sale Assets.
3.4 GOVERNMENTAL CONSENTS AND CONSENTS OF THIRD PARTIES. Except as set
forth on SCHEDULE 3.4, SCHEDULE 3.8 and SCHEDULE 3.9, the execution and delivery
of, and the performance of its obligations under, this Agreement and each of the
other Documents by Seller, and the consummation by Seller of the transactions
contemplated hereby and thereby, do not require the consent, waiver, approval,
permit, license, clearance or authorization of, or any declaration of filing
with, any court or public agency or other authority, or the consent of any
person under any agreement, arrangement or commitment of a nature which Seller
is a party to or bound or by which the Sale Assets are bound by or subject to,
the failure of which to obtain would have a material adverse effect on the Sale
Assets or the operation of the Stations.
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3.5 SALE ASSETS. The Sale Assets include all of the assets, properties
and rights of every type and description, real, personal and mixed, tangible and
intangible, that are used and/or useful in the conduct of the business of owning
and operating the Stations in the manner in which they have been and are now
conducted, with the exception of the Excluded Assets.
3.6 TANGIBLE PERSONAL PROPERTY. Except for supplies and other
incidental items which in the aggregate are not of material value, the list of
Tangible Personal Property set forth on SCHEDULE 3.6 is a complete and correct
list of all of the items of tangible personal property (other than Excluded
Assets) used to a material extent in the operation of the Stations in the manner
in which they have been and are now operated. Except as set forth on SCHEDULE
3.6:
(a) Seller has good, marketable and valid title to all of the
items of Tangible Personal Property free and clear of all Liens except Permitted
Liens, and including the right to transfer same.
(b) The Tangible Personal Property has in all material respects
been maintained in accordance with industry practices and is in good condition
subject to ordinary wear and tear.
(c) The Tangible Personal Property complies in all material
respects with all applicable rules and regulations of the FCC and the terms of
the FCC Licenses.
(d) Seller has no knowledge of any defect or defects in the
condition or operation of any item of Tangible Personal Property which is
reasonably likely to have a material adverse effect on the operation of the
Stations.
3.7 REAL PROPERTY.
(a) The real property described on SCHEDULE 3.7 constitutes a
complete and correct summary description in all material respects of all of the
interests in real estate (other than any real property leased by Seller pursuant
to a lease described in SCHEDULE 3.9) used to any extent in the operation of the
Stations in the manner in which they have been and are now operated. Said real
property, together with all improvements affixed thereto, is herein defined as
the "Real Property."
(b) Seller, to the best of its knowledge, does not owe any money
to any architect, contractor, subcontractor or material man for labor or
materials performed, rendered or supplied to or in connection with the Real
Property within the past four (4) months which shall not be paid in full on or
before Closing. Except as set forth on SCHEDULE 3.7, there is no work being
done at or materials being supplied to the Real Property as of the date hereof
other than routine maintenance projects having an aggregate cost through
completion thereof of no more than Five Thousand Dollars ($5,000).
(c) The present use of the Real Property is in compliance in all
material respects with all applicable zoning codes in effect as of the date
hereof, and Seller has not received any notices of uncorrected violations of the
applicable housing, building, safety or fire ordinances. The Real Property has
adequate legal access to public roadways and is served by electricity and water
in capacities adequate for the present use of the Real Property and improvements
thereon. Except as set forth on SECTION 3.7, Seller has not made any other
agreement for the sale or lease of, or given any other person an option to
purchase or lease or a right of first refusal to purchase or lease, all or any
part of the Real Property, and except as set forth on SCHEDULE 3.7, Seller has
not subjected the Real Property to any Liens (other than Permitted Liens),
easements, rights, duties, obligations, covenants, conditions, restrictions,
limitations or agreements.
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(d) To Seller's actual knowledge no portion of the Real Property
or improvements thereon is the subject of any condemnation or eminent domain
proceeding presently instituted or, to Seller's actual knowledge, pending, and
Seller has not received notice from any condemning authority that such
proceedings are threatened.
3.8 FCC LICENSES. Seller is the holder of the FCC Licenses listed on
SCHEDULE 3.8, and except as set forth on such Schedule, the FCC Licenses (i) are
valid, in good standing and in full force and effect and constitute all of the
licenses, permits and authorizations required by the Act, the Rules and
Regulations or the FCC for, or used in, the operation of the Stations as now
operated, and (ii) constitute all the licenses and authorizations issued by the
FCC to Seller for or in connection with the current operation of the Stations.
Seller has no knowledge of any condition imposed by the FCC as part of any FCC
License which is neither set forth on the face thereof as issued by the FCC nor
contained in the Rules and Regulations applicable generally to stations of the
type, nature, class or location of the Stations. Except as disclosed on
SCHEDULE 3.8, the Stations are being operated at full authorized power, in
accordance with the terms and conditions of the FCC Licenses applicable to it
and in accordance with the Rules and Regulations. Except as set forth on
SCHEDULE 3.8, no proceedings are pending or, to the knowledge of the Seller, are
threatened which may result in the revocation, modification, non-renewal or
suspension of any of the FCC Licenses, the denial of any pending applications,
the issuance of any cease and desist order or the imposition of any fines,
forfeitures or other administrative actions by the FCC with respect to the
Stations or their operation, other than proceedings affecting the radio
broadcasting industry in general. Seller has complied in all material respects
with all requirements to file reports, applications and other documents with the
FCC with respect to the Stations, and all such reports, applications and
documents are complete and correct in all material respects. Seller has no
knowledge of any matters (i) which could reasonably be expected to result in the
suspension or revocation of or the refusal to renew any of the FCC Licenses or
the imposition of any fines or forfeitures by the FCC, or (ii) against Seller
which could reasonably be expected to result in the FCC's refusal to grant
approval of the assignment to Buyer of the FCC Licenses or the imposition of any
Material Adverse Condition in connection with approval of such assignment.
There are not any unsatisfied or otherwise outstanding citations issued by the
FCC with respect to the Stations or their operation. Complete and accurate
copies of all FCC Licenses are attached as a part of SCHEDULE 3.8. The "Public
Inspection Files" of the Stations are in substantial and material compliance
with Section 73.3526 of the Rules and Regulations.
3.9 STATION AGREEMENTS.
(a) SCHEDULE 3.9 sets forth an accurate and complete list of all
material agreements, contracts, arrangements or commitments in effect as of the
date hereof, including all amendments, modifications and supplements thereto
which the Stations or their assets or properties are bound by, except (A)
employee benefit plans and employment contracts, (B) contracts for the sale of
time on the Stations, and (C) contracts which are cancelable by Seller or its
assignee without breach or penalty on not more than thirty (30) days' notice.
Complete and correct copies of all such agreements, contracts, arrangements or
commitments that are in writing, including all amendments, modifications and
supplements thereto, have been delivered to Buyer.
(b) Except as set forth in the Schedules, and with respect to all
Station Agreements being assumed by Buyer, (i) all Station Agreements are legal,
valid and enforceable in accordance with their terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors' rights generally, and subject, as to enforceability, to general
principles of equity regardless of whether enforcement is sought in any
proceeding at law or in equity; (ii) neither Seller nor, to the knowledge of
Seller, any other party thereto, is in material breach of or in material default
under any material Station Agreements; (iii) to the knowledge of Seller, there
has not occurred any event which, after the giving of notice or the lapse of
time or both, would constitute a material default under, or result in the
material breach of, any Station Agreements which are, individually or in the
aggregate, material to the operation of the Stations; and (iv) Seller holds the
right to enforce and receive the benefits under all of the Station Agreements,
free and clear of all Liens (other than Permitted Liens) but subject to the
terms and provision of each such agreement.
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(c) SCHEDULE 3.9 indicates, for each Station Agreement listed
thereon which is being assumed by Buyer, whether consent or approval by any
party thereto is required thereunder for consummation of the transactions
contemplated hereby.
3.10 LITIGATION. There are no claims, investigations or administrative,
arbitration or other proceedings (collectively referred to herein as
"Litigation") pending or, to the actual knowledge of Seller, threatened against
Seller which would, individually or in the aggregate if adversely determined,
have a material adverse effect on the Sale Assets or the operation of the
Stations, or which would give any third party the right to enjoin the
transactions contemplated by this Agreement. To the actual knowledge of Seller,
there is no basis for any such claim, investigation, action, suit or proceeding
which would, individually or in the aggregate if adversely determined, have a
material adverse effect on the Sale Assets or operation of the Stations. There
are no existing or, to the actual knowledge of Seller, pending orders, judgments
or decrees of any court or governmental agency affecting Seller, the Stations or
any of the Sale Assets. Notwithstanding the disclosure of any Litigation of
Seller to Buyer pursuant to this Section, Buyer shall not assume any liability,
damages, cost or expense of Seller relating to or arising out of any Litigation.
3.11 LABOR MATTERS.
(a) Seller is not a party to any collective bargaining agreement,
and there is no collective bargaining agreement that determines the terms and
conditions of employment of any employees of Seller.
(b) With respect to Seller and the Stations:
(i) There is no labor strike, dispute, slow-down or stoppage
pending or, to the knowledge of Seller, threatened against the Stations;
(ii) There are neither pending nor, to the actual knowledge
of Seller threatened, any suits, actions, administrative proceedings, union
organizing activities, arbitrations, grievances or other proceedings between
Seller and any employees of the Stations or any union representing such
employees; and there are no existing labor or employment or other controversies
or grievances involving employees of the Stations which have had or are
reasonably likely to have a material adverse effect on the operation of the
Stations;
(iii) (A) Seller is in compliance in all material respects
with all laws, rules and regulations relating to the employment of labor and all
employment contractual obligations, including those relating to wages, hours,
collective bargaining, affirmative action, discrimination, sexual harassment,
wrongful discharge and the withholding and payment of taxes and contributions;
(B) Seller has withheld all amounts required by law or agreement to be withheld
from the wages or salaries of its employees; and (C) Seller is not liable to any
present or former employees or any governmental authority for damages, arrears
of wages or any tax or penalty for failure to comply with the foregoing;
(iv) Buyer's consummation of the transactions contemplated by
this Agreement in accordance with the terms hereof shall not, as a result of or
in connection with the transactions contemplated hereby, impose upon Buyer the
obligation to pay any severance or termination pay under any agreement, plan or
arrangement binding upon Seller.
3.12 EMPLOYEE BENEFIT PLANS. Buyer's consummation of the transactions
contemplated by this Agreement in accordance with the terms hereof shall not, as
a result of or in connection with the transactions contemplated hereby, impose
upon Buyer any obligation under any benefit plan, contract or arrangement
(regardless of whether they are written or unwritten and funded or unfunded)
covering employees or former employees of Seller in connection with their
employment by Seller. For purposes of the Agreement, "benefit plans" shall
include without limitation employee benefit plans within the meaning of Section
3(3) of the Employee
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Retirement Income Security Act of 1974, as amended, vacation benefits,
employment and severance contracts, stock option plans, bonus programs and plans
of deferred compensation.
3.13 COMPLIANCE WITH LAW. The operation of the Stations complies in all
material respects with the applicable rules and regulations of the FCC.
3.14 ENVIRONMENTAL MATTERS; OSHA.
(a) Seller has obtained all environmental, health and safety
permits, the failure of which to obtain would have a material adverse effect on
either the operation of the Stations or the ownership of the Sale Assets and all
such permits are in full force and effect and Seller is in material compliance
with all terms and conditions of such permits.
(b) There is no proceeding pending or threatened which may result
in the reversal, rescission, termination, modification or suspension of any
environmental or health or safety permits necessary for the operation of the
Stations or the ownership of the Sale Assets.
(c) With respect to the Stations and the Sale Assets, Seller is in
compliance in all material respects with the provisions of all Environmental
Laws.
(d) With respect to the Sale Assets, Seller has not, and to
Seller's actual knowledge no other person or entity has, caused or permitted
materials to be generated, released, stored, treated, recycled, disposed of on,
under or at the Stations or the Real Property, which materials, if known to be
present, would require clean up, removal or other remedial or responsive action
under Environmental Laws (other than normal office, cleaning and maintenance
supplies in reasonable quantities used and /or stored appropriately in buildings
or improvements). Seller has not caused the migration of any materials from the
Real Property onto or under any property adjacent to the Real Property which
materials, if known to be present, would require cleanup, removal or other
remedial or responsive action under Environmental Laws. There are no underground
storage tanks and no polychlorinated biphenyls ("PCB") or friable asbestos on,
in or under the Sale Assets.
(e) Seller is not subject to any judgment, decree, order or
citation with respect to the Stations or the Sale Assets related to or arising
out of Environmental Laws, and Seller has not received notice that it has been
named or listed as a potentially responsible party by any person or governmental
body or agency in any matter arising under Environmental Laws.
(f) Seller has not discharged or disposed of any petroleum product
or solid waste on the Real Property or on the property adjacent to the Real
Property owned by third parties, which may form the basis for any present or
future claim based upon the Environmental Laws or any demand or action seeking
clean-up of any site, location, body of water, surface or subsurface, under any
Environmental Laws or otherwise, or which may subject the owner of the Sale
Assets to claims by third parties (except to the extent third party liability
can be established) for damages.
(g) No portion of the Sale Assets has ever been used by Seller, nor
any previous occupant of the Real Property, in material violation of
Environmental Laws or as a landfill, dump site or any other use which involves
the disposal or storage of Hazardous Materials on-site or in any manner which
may adversely affect the value of the Sale Assets.
(h) With respect to the Sale Assets, no pesticides, herbicides,
fertilizers or other materials have been used, applied or disposed of by Seller
in violation of any Environmental Laws (other than normal office, cleaning and
maintenance supplies in reasonable quantities used and/or stored appropriately
in the buildings or improvements).
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(i) With respect to the Stations or the Sale Assets, Seller has
disposed of all waste in material compliance with all Environmental Laws and
there is no existing condition that may form the basis of any present or future
material claim, demand or action seeking clean up of any facility, site,
location or body of water, surface or subsurface, for which the Buyer could be
liable or responsible solely as a result of the disposal of waste at such site
by a prior owner of the Sale Assets.
(j) Seller and the Sale Assets are in material compliance with all
OSHA Laws.
3.15 FILING OF TAX RETURNS. To the extent the failure to file or pay
would result in a Lien on the Sale Assets or have a material adverse effect on
Buyer or the Sale Assets, Seller has filed all Federal, State and local tax
returns which are required to be filed and has paid all taxes and all
assessments to the extent that such taxes and assessments have become due.
3.16 ABSENCE OF INSOLVENCY. No insolvency proceedings of any character
including without limitation, bankruptcy, receivership, reorganization,
composition or arrangement with creditors, voluntary or involuntary, affecting
the Seller or any of the Sale Assets, are pending or, to the best knowledge of
Seller, threatened, and Seller has made no assignment for the benefit of
creditors, nor taken any action with a view to, or which would constitute the
basis for the institution of, any such insolvency proceedings.
3.17 BROKER'S OR FINDER'S FEES. Except as set forth in SCHEDULE 3.17,
no agent, broker, investment banker or other person or firm acting on behalf
of or under the authority of Seller or any affiliate of Seller is or will be
entitled to any broker's or finder's fee or any other commission or similar
fee, directly or indirectly, in connection with the transactions contemplated
by this Agreement.
3.18 INSURANCE. There is now in full force and effect with reputable
insurance companies fire and extended coverage insurance with respect to all
material tangible Sale Assets and public liability insurance, all in
commercially reasonable amounts.
3.19 TOWER COORDINATES. The current vertical elevation and geographical
coordinates of the Stations' towers ("the Tower Coordinates") are as set forth
on SCHEDULE 3.19 hereto. Seller further represents and warrants that (i) the
Tower Coordinates are accurate within one (1) foot vertically and one (1) second
geographically; and (ii) the Tower Coordinates comply with and correspond to the
current vertical elevation an geographical coordinates authorized by the FAA,
FCC and any other governmental authority, including any federal, state or local
authority having jurisdiction over the Stations or said towers.
3.20 FINANCIAL STATEMENTS.
(a) Seller has delivered to Buyer copies of the following financial
statements (hereinafter collectively called the "Financial Statements"),
certified by an officer of Seller to be the Financial Statements referred to in
this SECTION 3.20, all of which are complete and correct, have been prepared in
accordance with generally accepted accounting principles consistently applied
and maintained throughout the periods indicated and fairly present the financial
condition of Seller as at their respective dates and the results of its
operations for the periods covered thereby:
(i) unaudited statement of Asset Corporation - Golden Valley
as at December 31, for the years 1995, 1996 and 1997, and Asset Corporation -
Golden Valley's unaudited statements of earnings and source and application of
funds for each of the three fiscal years then ended; and
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(ii) unaudited statement of Asset Corporation - Houston as at
December 31, for the years 1995, 1996 and 1997, and Asset Corporation -
Houston's unaudited statements of earnings and source and application of funds
for each of the three fiscal years then ended.
(b) Since December 31, 1997, and through the date of this
Agreement, there has been no material adverse change in the Stations' results of
operation from that shown on the Financial Statements, and the operations and
businesses of the Stations have been conducted, in all material respects, in the
ordinary course. The balance sheets included in the Financial Statements do not
include any material assets or liabilities not intended to constitute a part of
the Stations (other than the Excluded Assets) after giving effect to the
transactions contemplated hereby, and present fairly the financial condition of
the Stations as at their respective dates. The statements of income and
retained earnings and statements of cash flows included in the Financial
Statements do not reflect the operations of any entity or business not intended
to constitute a part of the Stations after giving effect to all such
transactions, reflect all costs that historically have been incurred by the
Stations (other than the Excluded Assets) and present fairly the results of
operations and cash flows of the Stations for the periods indicated.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Buyer has all requisite corporate power to own, operate and lease
its properties and carry on its business as it is now being conducted and as the
same will be conducted following the Closing.
4.2 AUTHORIZATION AND BINDING EFFECT OF DOCUMENTS. Buyer's execution
and delivery of, and the performance of its obligations under, this Agreement
and each of the other Documents, and the consummation by Buyer of the
transactions contemplated hereby and thereby, have been duly authorized and
approved by all necessary corporate action on the part of Buyer. This Agreement
and each of the other Documents to be executed by Buyer have been, or at or
prior to the Closing will be, duly executed by Buyer. The Documents, when
executed and delivered by the parties hereto, will constitute the valid and
legally binding agreement of Buyer, enforceable against Buyer in accordance with
their terms, except as may be limited by bankruptcy, insolvency, or other
similar laws affecting the enforcement of creditors' rights generally, and
except as may be limited by general principles of equity (regardless of whether
such enforceability is sought in a proceeding in equity or at law).
4.3 ABSENCE OF CONFLICTS. Buyer's execution and delivery of, and the
performance of its obligations under, this Agreement and each of the other
Documents and the consummation by Buyer of the transaction contemplated hereby
and thereby:
(a) Do not in any material respect (with or without the giving of
notice or the passage of time or both) violate (or result in the creation of any
claim, lien, charge or encumbrance on any of the assets or properties of Buyer
under) any provision of law, rule or regulation or any order, judgment,
injunction, decree or ruling applicable to Buyer in any manner which would have
a material adverse effect on the assets, business, operation or financial
condition or results of operations of Buyer;
(b) Do not (with or without the giving of notice or the passage of
time or both) conflict with or result in a breach or termination of, or
constitute a default or give rise to a right of termination or acceleration
under, the articles of incorporation or bylaws of Buyer or any lease, agreement,
commitment, or other instrument which Buyer is a party to, bound by, or by which
any of its assets or properties may be bound.
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4.4 GOVERNMENTAL CONSENTS AND CONSENTS OF THIRD PARTIES. Except for
the required consent of the FCC, Buyer's execution and delivery of, and the
performance of its obligations under, this Agreement and each of the other
Documents and the consummation by Buyer of the transaction contemplated hereby
and thereby, do not require the consent, waiver, approval, permit, license,
clearance or authorization of, or any declaration or filing with, any court or
public agency or other authority, or the consent of any person under any
agreement, arrangement or commitment of any nature which Buyer is a party to or
bound by, the failure of which to obtain would have a material adverse effect on
the assets, business, operation or financial condition or results of operations
of Buyer.
4.5 QUALIFICATION.
(a) Buyer has no knowledge after due inquiry of any facts
concerning Buyer or any other person with an attributable interest in Buyer (as
such term is defined under the Rules and Regulations) which, under present law
(including the Act) and the Rules and Regulations, would (i) disqualify Buyer
from being the holder of the FCC Licenses, the owner of the Sale Assets or the
operator of the Stations upon consummation of the transactions contemplated by
this Agreement, or (ii) raise a substantial and material question of fact
(within the meaning of Section 309(e) of the Act) respecting Buyer's
qualifications.
(b) Without limiting the foregoing SUBSECTION (a), Buyer shall
make the affirmative certifications provided in Section III of FCC Form 314 at
the time of filing of such form with the FCC as contemplated by SECTION 5.2.
4.6 BROKER'S OR FINDER'S FEES. Except as set forth in SCHEDULE 3.17,
no agent, broker, investment banker, or other person or firm acting on behalf of
or under the authority or Buyer or any affiliate of Buyer is or will be entitled
to any broker's or finder's fee or any other commission or similar fee, directly
or indirectly, in connection with transactions contemplated by this Agreement.
4.7 LITIGATION. There are no legal, administrative, arbitration or
other proceedings or governmental investigations pending or, to the knowledge of
Buyer, threatened against Buyer that would give any third party the right to
enjoin the transactions contemplated by this Agreement.
ARTICLE V
TRANSACTIONS PRIOR TO THE CLOSING DATE
5.1 CONDUCT OF THE STATIONS' BUSINESS PRIOR TO THE CLOSING DATE.
Subject to the terms and conditions of the LMAs, Seller covenants and agrees
with Buyer that between the date hereof and the Closing Date, unless the Buyer
otherwise agrees in writing (which agreement shall not be unreasonably
withheld), Seller shall:
(a) Use reasonable efforts to operate the Stations in
substantially the same manner in which they are currently being operated:
(b) Use reasonable commercial efforts to maintain insurance upon
all of the tangible Sale Assets in such amounts and of such kind comparable to
that in effect on the date hereof with respect to such Sale Assets and with
respect to the operation of the Stations, with insurers of substantially the
same or better financial condition;
(c) Operate the Stations and otherwise conduct their business in
accordance with the terms or conditions of their FCC Licenses, the Rules and
Regulations, the Act and use reasonable efforts to conduct their business in
accordance with all other rules and regulations, statutes, ordinances and orders
of all governmental authorities having jurisdiction over any aspect of the
operation of the Stations, except where the failure to so
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operate the Stations would not have a material adverse effect on the Sale Assets
or the operation of the Stations or on the ability of Seller to consummate the
transactions contemplated hereby;
(d) Maintain the books and records of the Stations in Seller's
customary manner on a basis consistent with prior years;
(e) Comply in all material respects with all Station Agreements
now or hereafter existing which are material, individually or in the aggregate,
to the operation of the Stations;
(f) Promptly notify Buyer of any material default by, or claim of
default against, any party under any Station Agreements which are material,
individually or in the aggregate, to the operation of the Stations, and any
event or condition which, with notice or lapse of time or both, would constitute
a material default under such Station Agreements;
(g) Not mortgage, pledge or subject to any Lien (except in the
ordinary course of business) any of the Sale Assets;
(h) Not sell, lease or otherwise dispose of, nor agree to sell,
lease or otherwise dispose of, any of the Sale Assets, except for dispositions
in the ordinary course of business;
(i) Not acquire or lease any goods or services or enter into,
amend or terminate any license, lease of real or personal property or any other
Station Agreement, other than in the ordinary course of business;
(j) Not introduce any material change with respect to the
operation of the Stations including, without limitation, any material changes in
the broadcast hours of the Stations or any other material change in the
Stations' programming policies, except such changes as in the sole discretion of
Seller, exercised in good faith after consultation with Buyer, are required by
the public interest;
(k) Notify Buyer of any material litigation pending or threatened
against Stations or Seller or any material damage to or destruction of any
assets included or to be included in the Sale Assets;
5.2 GOVERNMENTAL CONSENTS. Seller and Buyer shall file with the FCC,
within ten (10) business days after the execution of this Agreement, such
applications and other documents in the name of Seller or Buyer, as appropriate,
as may be necessary or advisable to obtain the FCC Order. Seller and Buyer
shall take all commercially reasonable steps necessary to prosecute such filings
with diligence and shall diligently oppose any objections to, appeals from or
petitions to reconsider such approval of the FCC, to the end that the FCC Order
and a Final Action with respect thereto may be obtained as soon as practicable.
Buyer shall not knowingly take, and Seller covenants that Seller shall not
knowingly take, any action that party knows or has reason to know would
materially and adversely affect or materially delay issuance of the FCC Order or
materially and adversely affect or materially delay its becoming a Final Action
without a Material Adverse Condition, unless such action is requested or
required by the FCC, its staff or the Rules and Regulations. Should Buyer or
Seller become aware of any facts which could reasonably be expected to
materially and adversely affect or materially delay issuance of the FCC Order
without a Material Adverse Condition (including but not limited to, in the case
of Buyer, any facts which would reasonably be expected to disqualify Buyer from
controlling the Stations), such party shall promptly notify the other party
thereof in writing and both parties shall cooperate to take all steps necessary
or desirable to resolve the matter expeditiously and to obtain the FCC's
approval of matters pending before it.
5.3 OTHER CONSENTS. Seller shall use commercially reasonable efforts
to obtain the consent or waivers to the transactions contemplated by this
Agreement required under any assumed Station Agreements; provided that Seller
shall not be required to pay or grant any material consideration in order to
obtain any such consent or waiver.
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5.4 TAX RETURNS AND PAYMENTS. To the extent the failure to file any
return, estimate, or report or pay any taxes would result in a Lien on the Sale
Assets or have a material adverse effect on Buyer or the Sale Assets:
(a) All tax returns, estimates, and reports required to be filed
by Seller prior to the Closing Date or relating to periods prior to the Closing
Date will be timely filed with the appropriate governmental agencies unless
valid extensions therefor shall have been obtained.
(b) All taxes pertaining to ownership of the Sale Assets or
operation of the Stations prior to the Closing Date will be timely paid;
provided that Seller shall not be required to pay any such tax so long as the
validity thereof shall be contested in good faith by appropriate proceedings and
Seller shall have set aside adequate reserves with respect to any such tax.
5.5 ACCESS PRIOR TO THE CLOSING DATE. Prior to the Closing, Buyer and
its representatives may make such reasonable investigation of the assets and
business of the Stations as it may desire; and Seller shall give to Buyer, its
engineers, counsel, accountants and other representatives reasonable access
during normal business hours throughout the period prior to the Closing to
personnel and all of the assets, books, records and files of or pertaining to
the Stations, provided that (i) Buyer shall give Seller reasonable advance
notice of each date on which Buyer or any such other person or entity desires
such access, (ii) each person (other than an officer of Buyer) shall, if
requested by Seller, be accompanied by an officer or their representative of
Buyer approved by Seller, which approval shall not be unreasonably withheld,
(iii) the investigations at the offices of Seller shall be reasonable in number
and frequency, and (iv) all investigations shall be conducted in such a manner
as not to physically damage any property or constitute a disruption of the
operation of the Stations or Seller. Seller shall furnish to Buyer during such
period all documents and copies of documents and information concerning the
business and affairs of the Stations as Buyer may reasonably request.
5.6 CONFIDENTIALITY; PRESS RELEASE. All information, data and
materials furnished or to be furnished to either party with respect to the other
party in connection with this transaction or pursuant to this Agreement are
confidential. Each party agrees that prior to Closing (a) it shall not disclose
or otherwise make available, at any time, any such information, data or material
to any person who does not have a confidential relationship with such party; (b)
it shall protect such information, data and material with a high degree of care
to prevent the disclosure thereof; and (c) if, for any reason, this transaction
is not consummated, all information, data or material concerning the other party
obtained by such party, and all copies thereof, will be returned to the other
party. After Closing, neither party will disclose or otherwise make available
to any person any of such information, data or material concerning the other
party, except as may be necessary or appropriate in connection with the
operation of the Stations by Buyer. Each party shall use its reasonable efforts
to prevent the violation of any of the foregoing confidentiality provisions by
its respective representatives. Notwithstanding the foregoing, nothing
contained herein shall prohibit Buyer or Seller from:
(i) using such information, data and materials in connection
with any action or proceeding brought or any claim asserted by Buyer or Seller
in respect of any breach by the other of any representation, warranty or
covenant made in or pursuant to this Agreement; or
(ii) supplying or filing such information, data or materials
to or with the FCC or any other valid governmental or court authority to the
extent reasonably necessary to obtain any consent, waiver, amendment,
modification, approval, authorization, permit or license which may be necessary
to effectuate this Agreement, and to consummate the transaction contemplated
herein.
In the event that either party determines in good faith that a press release or
other public announcement is desirable under any circumstances or required by
law, the parties shall consult with each other to determine the appropriate
timing, form and content of such release or announcement and thereafter may make
such release or announcement.
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5.7 REASONABLE BEST EFFORTS. Subject to the terms and conditions of
this Agreement, each of the parties hereto will use its reasonable best efforts
to take all action and to do all things necessary, proper or advisable to
satisfy any condition to the parties' obligations hereunder in its power to
satisfy and to consummate and make effective as soon as practicable the
transactions contemplated by this Agreement.
5.8 FCC REPORTS. Seller shall continue to file, on a current basis
until the Closing Date, all reports and documents required to be filed with the
FCC with respect to the Stations. Seller shall provide Buyer with copies of all
such filings within five business days of the filing with the FCC.
5.9 CONVEYANCE FREE AND CLEAR OF LIENS. At or prior to the Closing,
Seller shall obtain executed releases or payoff letters, in suitable form for
filing and otherwise in form and substance reasonably satisfactory to Buyer, of
any security interests granted in the Sale Assets and properties as security for
payment of loans and other obligations or judgments and of any other Liens on
the Sale Assets. At the closing, Seller shall transfer and convey to Buyer all
of the Sale Assets free and clear of all Liens except Permitted Liens.
5.10 ENVIRONMENTAL ASSESSMENT. Prior to Closing, Buyer shall obtain an
assessment of the Real Property by an environmental engineer selected by Buyer
(the "Environmental Assessment"). Buyer shall commission and pay the cost of
such Environmental Assessment and shall provide a copy to Seller within ten (10)
days of its receipt by Buyer. The Environmental Assessment shall be subject to
the confidentiality provisions of SECTION 5.6. If, after appropriate inquiry
into the previous ownership of and uses of the Real Property consistent with
good commercial or customary practice, the engineer concludes, as set forth in
the Environmental Assessment, that environmental conditions exist on, under or
affecting such properties that would constitute a violation or breach of
Seller's representations and warranties contained in SECTION 3.14 of this
Agreement or cause the condition contained in SECTION 6.9 to not be satisfied,
then notwithstanding any other provisions of this Agreement to the contrary, but
subject to the following sentence, Seller shall at its sole cost and expense (up
to a maximum amount of Fifty Thousand Dollars ($50,000)) remove, correct or
remedy any condition or conditions which constitute a violation or breach of
Seller's representations and warranties contained in SECTION 3.14 prior to the
Closing Date and provide to Buyer at Closing a certificate from an environmental
abatement firm reasonably acceptable to Buyer that such removal, correction or
remedy has been completed so that Seller's representations and warranties
contained in SECTION 3.14 will be true as of the Closing Date and the condition
contained in SECTION 6.9 will be satisfied as of the Closing Date. In the event
the cost of removal, correction or remedy of the environmental conditions
exceeds Fifty Thousand Dollars ($50,000), Buyer may elect to proceed with the
Closing but shall not be obligated to close under any circumstances which would
require Buyer to assume ownership of the Stations under conditions where there
exist any uncured violations of warranties, representations or covenants with
respect to environmental matters.
5.11 NO SOLICITATION.
(a) Seller 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 below). Seller 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 the Sale Assets (or any of them), 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
Seller, or any of them, other than the transactions contemplated by this
Agreement, or a Fundamental Transaction involving Seller 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
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in this SECTION 5.11 shall prevent Seller 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 Seller after the execution of this Agreement from a person or entity
whose initial contact with Seller may have been solicited by Seller prior to the
execution of this Agreement), and Seller may recommend such an unsolicited bona
fide written Acquisition Proposal to the shareholders of Seller, if and only to
the extent that (i) the Board of Directors of Seller 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 materially more favorable to the
shareholders of Seller 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 materially more
favorable Acquisition Proposal is being referred to in this Agreement as a
"Superior Proposal"); (ii) the Board of Directors of Seller 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; (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; (iv)
prior to furnishing any such non-public information to, or entering into
discussions or negotiations with, such person or entity, Seller shall notify
Buyer of the identity of such person or entity; (v) Seller shall provide Buyer
with a true and complete copy of any Superior Proposal within five (5) days of
its receipt and, in any event, prior to any recommendation by the Board of
Directors of Seller to its shareholders of said proposal; and (vi) prior to any
recommendation by the Board of Directors of Seller to its shareholders of any
Superior Proposal, Buyer shall be afforded the opportunity to match its material
terms, in which event the Board of Directors of Seller shall recommend to its
shareholders that they accept Buyer's offer. Notwithstanding anything in
ARTICLE X to the contrary, if this Agreement is terminated after the occurrence
of a Triggering Event (as defined below), or Seller shall materially breach or
fail to perform its obligations under this SECTION 5.11, then Seller shall, in
addition to any damages due Buyer as a result of the termination of this
Agreement as provided under ARTICLE X hereof including, without limitation, the
return of the Earnest Money to Buyer, pay Buyer a non-refundable fee (the "Fee")
of One Hundred Thirty-Five Thousand and no/100 Dollars ($135,000.00), together
with, at Buyer's option, either (a) an amount equal to any amounts previously
expended by Buyer under the LMAs or (b) a five (5) year extension of the LMAs,
as and for liquidated damages. BUYERS RECEIPT OF SAID AMOUNTS SHALL CONSTITUTE
LIQUIDATED DAMAGES HEREUNDER AND NOT A PENALTY AND EXCEPT AS PROVIDED IN ARTICLE
X HEREOF, SHALL BE BUYER'S SOLE REMEDY AT LAW OR IN EQUITY IN THE EVENT OF A
TRIGGERING EVENT. BUYER AND SELLER EACH AGREE THAT SAID AMOUNT IS REASONABLE AS
LIQUIDATED DAMAGES IN LIGHT OF THE ANTICIPATED HARM WHICH WILL BE CAUSED BUYER
IN THE EVENT OF A TRIGGERING EVENT, THE DIFFICULTY OF PROOF OF LOSS, THE
INCONVENIENCE AND NON-FEASIBILITY OF OTHERWISE OBTAINING AN ADEQUATE REMEDY AND
THE VALUE OF THE TRANSACTIONS TO BE CONSUMMATED HEREUNDER. Any payments called
for hereunder to be made shall be payable by wire transfer of same day funds on
the date of termination as and for liquidated damages.
(b) Seller 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 Seller.
(c) As used herein, a "Triggering Event" shall mean any of the
following:
(i) The Board of Directors of Seller shall have withdrawn
or modified its recommendation of this Agreement or shall have resolved or
publicly announced its intention to do so; or
(ii) Seller shall have negotiated with, entered into any
agreement with, or consummated or recommend any transaction with, any person
other than Buyer or its affiliates, based on a determination regarding a
Superior Proposal made as described herein; or
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(iii) The shareholders of Seller do not approve this
Agreement or the transactions contemplated hereby after an Acquisition
Proposal shall have been publicly announced.
5.12 SHAREHOLDER MEETING. Seller 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 on this Agreement and the
transactions contemplated hereby (the "Shareholders' Meeting"), to be held as
promptly as practicable and in any event not later than June 30, 1998. As
promptly as practicable, Seller 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 Seller's shareholders under applicable law, to shareholders of Seller in
accordance with the requirements of applicable law. Seller 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 Proposal, the Board of Directors
of Seller shall recommend in the Proxy Statement that the shareholders of Seller
approve this Agreement and the transactions contemplated hereby.
ARTICLE VI
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF BUYER TO CLOSE
Buyer's obligation to close the transaction contemplated by this
Agreement is subject to the satisfaction, on or prior to the Closing Date, of
each of the following conditions, unless waived by Buyer in writing:
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES; CLOSING CERTIFICATE.
(a) The representations and warranties of Seller contained in this
Agreement or in any other Document shall be complete and correct in all material
respects on the date hereof and at the Closing Date with same effect as though
made at such time except for changes that are not materially adverse,
individually or in the aggregate, to the Stations or the Sale Assets taken as a
whole.
(b) Seller shall have delivered to Buyer on the Closing Date a
certificate that (i) the condition specified in SECTION 6.1(A) is satisfied as
of the Closing Date, and (ii) except as set forth in such certificate (none of
which exceptions shall be materially adverse, individually or in the aggregate,
to the Stations, the Sale Assets or Seller's ability to consummate the
transaction contemplated hereby), the condition specified in SECTION 6.2 is
satisfied as of the Closing Date.
6.2 PERFORMANCE OF AGREEMENTS. Seller shall have performed in all
material respects all of its covenants, agreements and obligations required by
this Agreement and each of the other Documents to be performed or complied with
by it prior to or upon the Closing Date.
6.3 FCC AND OTHER CONSENTS.
(a) The FCC Order shall have been issued by the FCC and shall have
become a Final Action without any Material Adverse Condition.
(b) Conditions which the FCC Order or any order, ruling or decree
of any judicial or administrative body relating thereto or in connection
therewith specifies and requires to be satisfied prior to transfer of the FCC
Licenses to Buyer shall have been satisfied by Seller.
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(c) All other material authorizations, consents, approvals and
clearances of federal, state or local governmental agencies required to permit
the consummation by Buyer of the transactions contemplated by this Agreement
shall have been obtained; all statutory and regulatory requirements for such
consummation shall have been fulfilled; and no such authorizations, consents,
approvals or clearances shall contain any conditions that individually or in the
aggregate would have a material adverse effect on the operations of the
Stations.
6.4 ADVERSE PROCEEDINGS. Buyer shall not be subject to any ruling,
decree, order or injunction restraining, imposing material limitations on or
prohibiting (i) the consummation of the transactions contemplated hereby or (ii)
its participation in the operation, management, ownership or control of the
Stations; and no litigation, proceeding or other action seeking to obtain any
such ruling, decree, order or injunction shall be pending or shall have been
threatened in writing and have a reasonable likelihood of success. No
governmental authority having jurisdiction shall have notified any party to this
Agreement that consummation of the transaction contemplated hereby would
constitute a violation of the laws of the United States or of any state or
political subdivision or that it intends to commence proceedings to restrain
such consummation or to force divestiture, unless such governmental authority
shall have withdrawn such notice. No governmental authority having jurisdiction
shall have commenced any such proceeding.
6.5 OPINION OF SELLER'S FCC COUNSEL. Buyer shall have received from
Seller's FCC counsel an opinion, dated the Closing Date, in form and substance
reasonably satisfactory to Buyer's FCC counsel, to the effect that:
(a) The FCC Licenses listed on SCHEDULE 3.8 are valid, in good
standing and in full force and effect and include all licenses, permits and
authorizations which are necessary under the Rules and Regulations for Seller to
operate the Stations in the manner in which the Stations are currently being
operated.
(b) To counsel's knowledge, no condition has been imposed by the
FCC as part of any FCC License which is not set forth on the face thereof as
issued by the FCC or contained in the Rules and Regulations applicable generally
to stations of the type, nature, class or location of the Stations.
(c) No proceedings are pending or, to counsel's knowledge, are
threatened which may result in the revocation, modification, non-renewal of,
suspension of, or the imposition of a Material Adverse Condition upon, any of
the FCC Licenses, the denial of any pending applications, the issuance of any
cease and desist order or the imposition of any fines, forfeitures or other
administrative actions by the FCC with respect to the Stations or their
operation, other than proceedings affecting the radio broadcasting industry in
general.
In rendering such opinion, counsel shall be entitled to rely upon
Seller's representations and warranties in this Agreement and to limit its
inquiry to its files and such FCC files and records as are available to it as of
10:00 o'clock A.M. Eastern time the business day immediately preceding the
Closing Date. Counsel may state that, as to any factual matters embodied in, or
forming a basis for any legal opinion expressed in, such opinion, counsel's
knowledge is based solely on such inquiry.
6.6 OTHER CONSENTS. Seller shall have obtained in writing and
provided to Buyer on or before the Closing Date, without any condition
materially adverse to Buyer or the Stations, the consents or waivers to the
transactions contemplated by this Agreement required under those Station
Agreements which Buyer has elected to assume identified as material on SCHEDULE
3.9.
6.7 DELIVERY OF CLOSING DOCUMENTS. Seller shall have delivered or
caused to be delivered to Buyer on the Closing Date each of the Documents
required to be delivered pursuant to SECTION 8.2.
6.8 NO CESSATION OF BROADCASTING.
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(a) Between the date hereof and the Closing Date, no radio
station comprising the Stations shall have for a period of more than ten (10)
days in the aggregate (i) ceased broadcasting on their authorized frequencies,
(ii) lost substantially all of its normal broadcasting capability or (iii) have
broadcast at a power level of 50% or less of its FCC authorized level. Seller
shall promptly notify Buyer of the occurrence of any one or more of the
foregoing events or conditions, and the non-fulfillment of the condition
precedent set forth in this Subsection caused by the occurrence of the events
specified in Seller's notice shall be deemed waived by Buyer unless, within
fifteen (15) days after Buyer's receipt of Seller's written notice, Buyer
notifies Seller in writing to the contrary.
(b) In addition, during the five (5) days immediately preceding
the Closing Date, the Stations shall have been operating continuously with
substantially all of their normal broadcasting capability except for cessation
or reductions for insignificant periods of time resulting from occurrences (such
as lightning strikes) over which Seller has no control. Seller or Buyer shall
have the right to delay Closing for a period not to exceed thirty (30) days if
Seller or Buyer reasonably determines that any action to restore the Stations
substantially all of their normal broadcasting capability can be completed
during such delay period.
6.9 ENVIRONMENTAL CONDITIONS. The Environmental Assessment obtained
by Buyer pursuant to SECTION 5.10 hereof shall not have disclosed any material
violation of any Environmental Law at the Real Property which is not removed or
cured by Seller prior to Closing.
6.10 TITLE INSURANCE COMMITMENT. Title to the Real Property shall be
in fee simple, good and marketable and insurable at regular rates by a title
insurance company reasonably acceptable to Buyer and licensed in the state the
real property is located, pursuant to the standard stipulations and conditions
of an ALTA policy of owner's title insurance, or its reasonable equivalent,
prescribed by the applicable regulatory authorities for the state the real
property is located, free and clear of all liens and encumbrances except
Permitted Encumbrances, as hereinafter defined. For purposes hereof, "Permitted
Encumbrances" shall mean (i) easements, restrictions, and other similar matters
which will not adversely affect the use of the Real Property in the ordinary
course of business, including the business of operating the Stations; (ii) liens
for taxes not due and payable; (iii) mechanics, materialmen's, carriers',
warehousemen's, landlords' or other similar liens in the ordinary course of
business for sums not yet due; (iv) deposits or pledges to secure the
performance of bids, tenders, contracts (other than for borrowed money), leases,
statutory obligations, surety or appeal bonds or other deposits or pledges for
purposes of a like general nature made or given in the ordinary course of
business: and (v) liens or mortgages that will be released at Closing. All
costs associated with obtaining the standard ALTA policy of title insurance
shall be paid by Seller.
6.11 SURVEY. Within ten (10) business days after execution of this
Agreement, Seller shall provide Buyer with the originals or readable copies of
any surveys of the Real Property in Seller's possession. All costs associated
with updating such survey or preparing new surveys shall be paid by Buyer.
.
ARTICLE VII
CONDITIONS PRECEDENT OF THE
OBLIGATION OF SELLER TO CLOSE
The obligation of Seller to close the transaction contemplated by this
Agreement is subject to the satisfaction, on or prior to the closing Date, of
each of the following conditions, unless waived by Seller in writing:
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES.
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(a) The representations and warranties of Buyer contained in
this Agreement shall be complete and correct in all material respects on the
date hereof and at the Closing Date with the same effect as though made at such
time except for changes that are not materially adverse to Seller.
(b) Buyer shall have delivered to Seller on the Closing Date a
certificate that (i) the condition specified in SECTION 7.1(a) is satisfied as
of the Closing Date, and (ii) except as set forth in such certificate (none of
which exceptions shall be materially adverse to Buyer's ability to consummate
the transaction contemplated hereby), the conditions specified in SECTION 7.2
are satisfied as of the Closing Date.
7.2 PERFORMANCE OF AGREEMENTS. Buyer shall have performed in all
material respects all of its covenants, agreements and obligations required by
this Agreement and each of the other Documents to be performed or complied with
by it prior to or upon the Closing Date.
7.3. FCC AND OTHER CONSENTS.
(a) The FCC Order shall have been issued by the FCC and shall
have become effective under the rules of the FCC.
(b) Conditions which the FCC Order or any order, ruling or
decree of any judicial or administrative body relating thereto or in connection
therewith specifies and requires to be satisfied prior to transfer of the FCC
Licenses to Buyer shall have been satisfied by Buyer.
(c) All other material authorizations, consents, approvals and
clearances of all Federal, state and local governmental agencies required to
permit the consummation by Seller of the transactions contemplated by this
Agreement shall have been obtained; all statutory and regulatory requirements
for such consummation shall have been fulfilled; and no such authorizations,
consents, approvals or clearances shall contain any conditions that individually
or in the aggregate would have any material adverse effect on Seller.
7.4 ADVERSE PROCEEDINGS. Seller shall not be subject to any ruling,
decree, order or injunction restraining, imposing material limitations on or
prohibiting the consummation of the transactions contemplated hereby; and no
litigation, proceeding or other action seeking to obtain any such ruling,
decrees, order or injunction shall be pending or shall have been threatened in
writing and have a reasonable likelihood of success. No governmental authority
having jurisdiction shall have notified any party to this Agreement that
consummation of the transactions contemplated hereby would constitute a
violation of the laws of the United States or of any state or political
subdivision or that it intends to commence proceedings to restrain such
consummation or to force divestiture, unless such governmental authority shall
have withdrawn such notice. No governmental authority having jurisdiction shall
have commenced any such proceeding.
7.5 DELIVERY OF CLOSING DOCUMENTS AND PURCHASE PRICE. Buyer shall
have delivered or caused to be delivered to Seller on the Closing Date each of
the Documents required to be delivered pursuant to SECTION 8.3, and Seller shall
have received payment of the Purchase Price with the form of payment set forth
in SECTION 2.5.
7.6 SHAREHOLDER APPROVAL. Seller's shareholders shall have approved
the transactions contemplated hereby.
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ARTICLE VIII
CLOSING
8.1 TIME AND PLACE. The Closing shall take place at the offices of
Buyer's counsel in Camarillo, California, or at such other place as the parties
agree, at 10:00 A.M. Pacific Time on the fifth business day following the date
(the "Closing Date") on which issuance of the FCC Order without any Material
Adverse condition has become a Final Action; provided, however, that Buyer, at
its sole option, may elect to delay Closing until October 31, 1998 by written
notice to Seller.
8.2 DOCUMENTS TO BE DELIVERED TO BUYER BY SELLER. At the Closing,
Seller shall deliver or cause to be delivered to Buyer the following:
(a) Certified resolutions of the Shareholders and Board of
Directors of Seller approving the execution and delivery of this Agreement and
each of the other documents and authorizing the consummation of the transactions
contemplated hereby and thereby.
(b) The certificate required by SECTION 6.1(b).
(c) A bill of sale and other instruments of transfer and
conveyance transferring to Buyer the Tangible Personal Property.
(d) Executed releases, in suitable form for filing and otherwise
in form and substance reasonably satisfactory to Buyer, of any security
interests granted in the Sale Assets as security for payment of loans and other
obligations and of any other Liens (other than Permitted Liens).
(e) General warranty deeds and any other required instruments of
transfer and conveyance transferring to Buyer the Real Property.
(f) Executed mortgage satisfactions and any other documents
required by the title insurance company under SECTION 6.10 as a condition to
issuing the title insurance policy in the form required by SECTION 6.10.
(g) An instrument or instruments assigning to Buyer all right,
title and interest of Seller in and to all Station Agreements being assumed by
Buyer.
(h) An instrument assigning to Buyer all right, title and
interest of Seller in the FCC Licenses, all pending applications relating to the
Stations before the FCC, and any remaining Sale Assets not otherwise conveyed.
(i) The items set forth in SECTION 2.1(e)
(j) An instrument or instruments assigning to Buyer all right,
title and interest of Seller in and to the Station Assets described in
SECTION 2.1(f).
(k) The opinion of Seller's FCC counsel, dated the Closing Date,
to the effect set forth in SECTION 6.5.
(l) The Lease, properly executed by the Landlord, attached
hereto as Exhibit "B" .
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(m) Such additional information and materials as Buyer shall
have reasonably requested, including without limitation, evidence that all
material consents and approvals required as a condition to Buyer's obligation to
close hereunder have been obtained.
8.3 DOCUMENTS TO BE DELIVERED TO SELLER BY BUYER. At the Closing,
Buyer shall deliver or cause to be delivered to Seller the following:
(a) Certified resolutions of the Board of Directors of Buyer and
Salem Communications Corporation approving the execution and delivery of this
Agreement and each of the other Documents and authorizing the consummation of
the transaction contemplated hereby and thereby.
(b) The Purchase Price as set forth in SECTION 2.5.
(c) The agreement of Buyer assuming the obligations under any
Station Agreements being assumed by Buyer.
(d) The certificate required under SECTION 7.1(b).
Such additional information and materials as Seller shall have
reasonably requested.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION
9.1 SURVIVAL OF REPRESENTATION AND WARRANTIES. All representations,
warranties, covenants and agreements contained in this Agreement or in any other
Document shall survive the Closing for the Survival Period and the Closing shall
not be deemed a waiver by either party of the representations, warranties,
covenants or agreements of the other party contained herein or in any other
Document. No claim may be brought under this Agreement or any other Document
unless written notice describing in reasonable detail the nature and basis of
such claim is given on or prior to the last day of the Survival Period. In the
event such a notice is so given, the right to indemnification with respect
thereto under this Article shall survive the Survival Period until such claim is
finally resolved and any obligations with respect thereto are fully satisfied.
9.2 INDEMNIFICATION IN GENERAL. Buyer and Seller agree that the
rights to indemnification and to be held harmless set forth in this Agreement
shall, as between the parties hereto and their respective successors and
assigns, be exclusive of all rights to indemnification and to be held harmless
that such party (or its successors or assigns) would otherwise have by statute,
common law or otherwise.
9.3 INDEMNIFICATION BY SELLER.
(a) Subject to the provisions of SUBSECTION (b) below and SECTION
10.2 below, Seller shall indemnify and hold harmless Buyer and any officer,
director, agent, employee and affiliate thereof with respect to any and all
demands, claims, actions, suits, proceedings, assessments, judgments, costs,
losses, damages, liabilities and expenses, including reasonable attorneys' fees,
(collectively referred to herein or "Losses") relating to or arising out of:
(i) Any breach or non-performance by Seller of any of its
representations, warranties, covenants or agreements set forth in this Agreement
or any other Documents; or
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(ii) The ownership or operation by Seller of the Stations
or the Sale Assets on or prior to the Closing Date; or
(iii) All other liabilities and obligations of Seller
other than the Assumed Obligations; or
(iv) Noncompliance by Seller with the provisions of the
Bulk Sales Act, if applicable, in connection with the transaction contemplated
hereby.
(b) Notwithstanding anything contained herein to the contrary,
if Closing occurs, Seller shall not be obligated until the aggregate amount of
Losses exceeds Buyer's Threshold Limitation, in which case Buyer shall then be
entitled to indemnification of the entire amount in excess of Buyer's Threshold
Limitation, provided that any amounts owed by Seller to Buyer under SUBSECTION
(a) (iv) above and SECTION 2.7 shall not be counted in determining whether
Buyer's Threshold Limitation is satisfied, and Buyer shall have the right to
recover any such payment without regard to such limitation.
9.4 INDEMNIFICATION BY BUYER.
(a) Subject to the provisions of SUBSECTION (b) below and
SECTION 10.2 below, Buyer shall indemnify and hold harmless Seller and any
officer, director, agent, employee and affiliate thereof with respect to any and
all Losses relating to or arising out of:
(i) Any breach or non-performance by Buyer of any of its
representations, warranties, covenants or agreements set forth in this Agreement
or any other Document; or
(ii) The ownership or operation of the Stations after the
Closing Date; or
(iii) The Assumed Obligations and all other liabilities or
obligations of Buyer.
(b) Notwithstanding anything contained herein to the contrary,
if Closing occurs, Buyer shall not be obligated to indemnify Seller pursuant to
SUBSECTION (a) above unless and until the aggregate amount of such Losses
exceeds Seller's Threshold Limitation, in which case Seller shall then be
entitled to indemnification of the entire amount in excess of Seller's Threshold
Limitation, provided that any payment owed by Buyer to Seller under SECTION 2.7
shall not be counted in determining whether Seller's Threshold Limitation is
satisfied, and Seller shall have the right to recover any such payment without
regard to any such limitation.
9.5 INDEMNIFICATION PROCEDURES. In the event that an Indemnified
Party may be entitled to indemnification hereunder with respect to any asserted
claim of, or obligation or liability to, any third party, such party shall
notify the Indemnifying Party thereof, describing the matters involved in
reasonable detail, and the Indemnifying Party shall be entitled to assume the
defense thereof upon written notice to the Indemnified Party with counsel
reasonably satisfactory to the Indemnified Party; provided, that once the
defense thereof is assumed by the Indemnifying Party, the Indemnifying Party
shall keep the Indemnified Party advised of all developments in the defense
thereof and any related litigation, and the Indemnified Party shall be entitled
at all times to participate in the defense thereof at its own expense. If the
Indemnifying Party fails to notify the Indemnified Party of its election to
defend or contest its obligation to indemnify under this ARTICLE IX, the
Indemnified Party may pay, compromise, or defend such a claim without prejudice
to any right it may have hereunder.
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ARTICLE X
TERMINATION; LIQUIDATED DAMAGES
10.1 TERMINATION. If Closing shall not have previously occurred, this
Agreement shall terminate upon the earliest of:
(a) the giving of written notice from Seller to Buyer, or from
Buyer to Seller, if:
(i) Seller gives such termination notice and is not at
such time in material default hereunder, or Buyer gives such termination notice
and Buyer is not at such time in material default hereunder; and
(ii) Either:
(A) any of the representations or warranties
contained herein of Buyer (if such termination notice is given by Seller), or of
Seller (if such termination notice is given by Buyer), are inaccurate in any
respect and, individually or in the aggregate, materially adverse to the party
giving such termination notice unless the inaccuracy has been induced by or is
the result of actions or omissions of the party giving such termination notice
or unless the accuracy of such representation or warranty is not a condition to
closing; or
(B) Any material obligation to be performed by
Buyer (if such termination notice is given by Seller) or by Seller (if such
termination notice is given by Buyer) is not timely performed unless the lack of
timely performance has been induced by or is the result of actions or omissions
of the party giving such termination notice; or
(C) Any material condition (other than those
referred to in foregoing CLAUSES (A) and (B)) to the obligation to close the
transaction contemplated herein of the party giving such termination notice has
not been timely satisfied, unless the failure of said condition to be satisfied
was induced by the party giving such termination notice with the intended result
of terminating the Agreement pursuant to this CLAUSE (C); and
(iii) any such inaccuracy, failure to perform or
non-satisfaction of a condition neither has been cured nor satisfied within
twenty (20) days after written notice thereof from the party giving such
termination notice nor waived in writing by the party giving such termination
notice.
(b) Written notice from Seller to Buyer, or from Buyer to
Seller, at any time after twelve (12) months following the date first written
above, provided that termination shall not occur upon the giving of such
termination notice by Seller if Seller is at such time in material default
hereunder or upon the giving of such termination notice by Buyer if Buyer is at
such time in material default hereunder.
(c) Written notice from Seller to Buyer, or from Buyer to
Seller, at any time following a determination by the FCC that the application
for consent to assignment of the FCC Licenses has been designated for hearing
even with diligent efforts; provided, however, only the party whose
qualifications are not in issue may terminate this Agreement under this
provision and only if such party has given the other sixty (60) days' prior
written notice and the requirement for such hearing has not been set aside
within that period.
(d) The written election by Buyer under ARTICLE XI.
(e) The giving of written notice from Seller to Buyer, or from
Buyer to Seller, that the other is in material default under the terms of the
LMAs, or any of them, provided the party giving such notice shall not be in
material default under the terms of the LMAs, or any of them, at the time such
notice is delivered.
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(f) Written notice by Seller to Buyer that the shareholders of
Seller have accepted a Superior Proposal pursuant to the procedures set forth in
SECTION 5.20 and SECTION 5.21 hereof.
10.2 OBLIGATIONS UPON TERMINATION.
(a) In addition to any amounts which may be due to Buyer
pursuant to SECTION 5.11 hereof in the event this Agreement is terminated
pursuant to SECTION 10.1(a)(ii)(a), SECTION 10.1(a)(ii)(B) or SECTION 10.1(e),
the aggregate liability of Buyer for breach hereunder shall be limited as
provided in SUBSECTIONS (c) AND (e), below and the aggregate liability for
Seller for breach hereunder shall be limited as provided in SUBSECTIONS (d) AND
(e), below. Except as provided in SECTION 5.11 hereof, in the event this
Agreement is terminated for any other reason, neither party shall have any
liability hereunder.
(b) Upon termination of this Agreement, Buyer shall be entitled
to the return of the Earnest Money from the Escrow Agent under the Escrow
Agreement (i) if such termination is effected by Buyer's giving of valid written
notice to Seller pursuant to SUBSECTIONS 10.1(a), (b), (c) OR (d) , or (ii) if
such termination is effected by Seller's giving of valid written notice to Buyer
pursuant to SUBSECTIONS 10.1(a)(ii)(C), 10.1(b) OR 10.1(c). If Buyer is
entitled to the return of the Earnest Money, Seller shall cooperate with Buyer
in taking such action as is required under the Escrow Agreement in order to
effect such return from the Escrow Agent.
(c) If this Agreement is terminated by Seller's giving of valid
written notice to Buyer pursuant to SECTION 10.1(a)(ii)(A), SECTION
10.1(a)(ii)(B) or SECTION 10.1(e), Buyer agrees that (i) Buyer shall pay Seller
upon such termination, as liquidated damages and not as penalty, the Earnest
Money ("Liquidated Damage Amount"); (ii) Seller shall be entitled to collect
the Liquidated Damage Amount by receiving a disbursement from the Escrow Agent
under the Escrow Agreement equal to the Earnest Money; and (iii) Seller shall
be entitled to pursue any other remedy available to Seller at law or in equity
to recover the full amount of the Liquidated Damage Amount from Buyer provided
that the total monetary damages (including any amount received from the Escrow
Agent under the Escrow Agreement) to which Seller shall be entitled shall not
exceed the Liquidated Damage Amount. SELLER'S RECEIPT OF THE LIQUIDATED DAMAGE
AMOUNT SHALL CONSTITUTE PAYMENT OF LIQUIDATED DAMAGES HEREUNDER AND NOT A
PENALTY, AND SHALL BE SELLER'S SOLE REMEDY AT LAW OR IN EQUITY FOR BUYER'S
BREACH HEREUNDER IF CLOSING DOES NOT OCCUR. EXCEPT AS PROVIDED IN SECTION 13.4,
BUYER AND SELLER EACH ACKNOWLEDGE AND AGREE THAT THE LIQUIDATED DAMAGE AMOUNT IS
REASONABLE IN LIGHT OF THE ANTICIPATED HARM WHICH WILL BE CAUSED BY BUYER'S
BREACH OF THIS AGREEMENT, THE DIFFICULTY OF PROOF OF LOSS, THE INCONVENIENCE AND
NON-FEASIBILITY OF OTHERWISE OBTAINING AN ADEQUATE REMEDY, AND THE VALUE OF THE
TRANSACTION TO BE CONSUMMATED HEREUNDER.
(d) Notwithstanding any provision of this Agreement to the
contrary, but subject to the provisions of the following sentence, if Seller
attempts to terminate this Agreement under circumstances where it is not
entitled to do so, or if Seller, by its own action, causes a breach of warranty
or fails to satisfy a condition (including without limitation a refusal to
consummate the transaction after Buyer has satisfied all conditions to Seller's
obligation to close and Buyer has demonstrated its willingness and ability to
close on the terms set forth in this Agreement and Buyer is not in default
hereunder) with the intent of creating a situation whereby Buyer elects to
terminate under SECTION 10.1(a) and Buyer does so elect to terminate, the
monetary damages, if any, to which Buyer shall be entitled shall be limited to
direct and actual damages. If a circumstance described in the preceding
sentence should arise and if Buyer establishes that the action of Seller
described therein was taken intentionally in order to allow Seller to sell or
enter into negotiations to sell the Stations, or any of them, to another party,
the damages to which Buyer shall be entitled shall not be limited to direct and
actual damages.
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(e) In any dispute between Buyer and Seller as to which party is
entitled to all or a portion of the Earnest Money, the prevailing party shall
receive, in addition to that portion of the Earnest Money to which it is
entitled, an amount equal to interest on that portion at the rate of 10% per
annum, calculated from the date the prevailing party's demand for all or a
portion of the Earnest Money is received by the Escrow Agent, and its reasonable
attorney fees expended to recover said amounts.
10.3 TERMINATION NOTICE. Each notice given by a party pursuant to
SECTION 10.1 to terminate this Agreement shall specify the Subsection (and
clause or clauses thereof) of SECTION 10.1 pursuant to which such notice is
given.
ARTICLE XI
CASUALTY
Upon the occurrence of any casualty loss, damage or destruction material
to the operation of the Stations prior to the Closing, Seller shall promptly
give Buyer written notice setting forth in detail the extent of such loss,
damage or destruction and the cause thereof if known. Seller shall use its
reasonable efforts to promptly commence and thereafter to diligently proceed to
repair or replace any such lost, damaged or destroyed property. In the event
that such repair or replacement is not fully completed prior to the Closing
Date, Buyer may elect to postpone the Closing until Seller's repairs have been
fully completed or to consummate the transactions contemplated hereby on the
Closing Date, in which event Seller shall assign to Buyer the portion of the
insurance proceeds (less all reasonable costs and expenses, including without
limitation attorney's fees, expenses and court costs incurred by Seller to
collect such amounts), if any, not previously expended by Seller to repair or
replace the damaged or destroyed property (such assignment of proceeds to take
place regardless of whether the parties close on the scheduled or deferred
Closing Date) and Buyer shall accept the damaged Sale Assets in their damaged
condition. In the event the loss, damage or destruction causes or will cause
the Stations to be off the air for more than seven (7) consecutive days or
fifteen (15) total days, whether or not consecutive, then Buyer may elect either
(i) to consummate the transactions contemplated hereby on the Closing Date, in
which event Seller shall assign to Buyer the portion of the insurance proceeds
(less all reasonable costs and expenses, including without limitation attorney's
fees, expenses and court costs, incurred by Seller to collect such amounts), if
any, not previously expended by Seller to repair or replace the damaged or
destroyed property, and Buyer shall accept the damaged Sale Assets in their
damaged condition, or (ii) to terminate this Agreement.
ARTICLE XII
CONTROL OF STATIONS
Except as otherwise provided in the LMAs, between the date of this
Agreement and the Closing Date, Buyer shall not control, manage or supervise the
operation of the Stations or conduct of their business, all of which shall
remain the sole responsibility and under the control of Seller, subject to
Seller's compliance with this Agreement.
ARTICLE XIII
MISCELLANEOUS
13.1 FURTHER ACTIONS. From time to time before, at and after the
Closing, each party, at its expense and without further consideration, will
execute and deliver such documents to the other party as the other party may
reasonably request in order more effectively to consummate the transactions
contemplated hereby.
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13.2 ACCESS AFTER THE CLOSING DATE. After the Closing and for a
period of twelve (12) months, Buyer shall provide Seller, Seller's counsel,
accountants and other representatives with reasonable access during normal
business hours to the books, records, property, personnel, contracts,
commitments and documents of the Stations pertaining to transactions occurring
prior to the Closing Date when requested by Seller, and Buyer shall retain such
books and records for the normal document retention period of Buyer. At the
request and expense of Seller, Buyer shall deliver copies of any such books and
records to Seller.
13.3 PAYMENT OF EXPENSES.
(a) Any fees assessed by the FCC in connection with the filings
contemplated by SECTION 5.2(a) or consummation of the transactions contemplated
hereby shall be shared equally between Seller and Buyer.
(b) All state or local sales or use, stamp or transfer, grant
and other similar taxes payable in connection with consummation of the
transactions contemplated hereby shall be paid by Seller.
(c) Except as otherwise expressly provided in this Agreement,
each of the parties shall bear its own expenses, including the fees of any
attorneys and accountants engaged by such party, in connection with this
Agreement and the consummation of the transactions contemplated herein.
13.4 SPECIFIC PERFORMANCE. Seller acknowledges that the Stations are
of a special, unique, and extraordinary character, and that any breach of this
Agreement by Seller could not be compensated for by damages. Accordingly, if
Seller shall breach its obligations under this Agreement, Buyer shall be
entitled, in addition to any of the remedies that it may have, to enforcement of
this Agreement (subject to obtaining any required approval of the FCC) by decree
of specific performance or injunctive relief requiring Seller to fulfill its
obligations under this Agreement. In any action to equitably enforce the
provisions of this Agreement, Seller shall waive the defense that there is an
adequate remedy at law or equity and agrees that Buyer shall have the right to
obtain specific performance of the terms of this Agreement without being
required to prove actual damages, post bond or furnish other security.
13.5 NOTICES. All notices, demands or other communications given
hereunder shall be in writing and shall be sufficiently given if delivered by
courier or sent by registered or certified mail, first class, postage prepaid,
or by telex, cable, telegram, facsimile machine or similar written means of
communication, addressed as follows:
(a) if to Seller, to:
Children's Broadcasting Corporation
724 First Street North, Fourth Floor
Minneapolis, MN 55401
Attention: Christopher T. Dahl
With a copy to:
Children's Broadcasting Corporation
724 First Street North, Fourth Floor
Minneapolis, MN 55401
Attention: Lance W. Riley, Esq.
(b) if to Buyer, to:
c/o Salem Communications Corporation
4880 Santa Rosa Road, Suite 300
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<PAGE>
Camarillo, California 93012
Attention: Jonathan L. Block, Esq.
Corporate Counsel
or such other address with respect to any party hereto as such party may from
time to time notify (as provided above) to the other party hereto. Any such
notice, demand or communication shall be deemed to have been given (i) if so
mailed, as of the close of the third business day following the date mailed, and
(ii) if personally delivered or otherwise sent as provided above, on the date
received.
13.6 ENTIRE AGREEMENT. This Agreement, the Schedules and Exhibits
hereto, and the other Documents constitute the entire agreement and
understanding between the parties hereto and supersede any prior negotiations,
agreements, understandings or arrangements between the parties including,
without limitation, all letters of intent previously entered into by the parties
hereto.
13.7 BINDING EFFECT; BENEFITS. Except as otherwise provided herein,
this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors or assigns. Except to the extent
specified herein, nothing in this Agreement, express or implied, shall confer on
any person other than the parties hereto and their respective successors or
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
13.8 ASSIGNMENT. This Agreement and any rights hereunder shall not be
assignable by either party hereto without the prior written consent of the other
party, which consent shall not be unreasonably withheld; provided, however, that
Buyer may, at its own expense, without Seller's prior written consent, (A)
assign its rights and obligations hereunder, or any portion thereof, to any
entity controlled by or under common control with Buyer, and (B) assign its
rights and obligations to acquire the Real Property, or any portion thereof, to
Edward G. Atsinger III and Stuart W. Epperson, or trusts or limited partnerships
created for their benefit and/or the benefit of their spouses and their issue,
so long as (i) no delay results in the Closing Date (ii) no extra expense
results to Seller, and (iii) Buyer remains liable for indemnification of Seller
in respect of all Assumed Obligations in respect of the Real Property.
13.9 GOVERNING LAW. This Agreement shall in all respects be governed
by and construed in accordance with the laws of the State of Delaware, including
all matters of construction, validity and performance.
13.10 BULK SALES. Seller shall, in accordance with ARTICLE IX,
indemnify and hold Buyer harmless from and against any and all claims made
against Buyer by reason of the Bulk Sales Act and similar laws of any state or
jurisdiction.
13.11 AMENDMENTS AND WAIVERS. No term or provision of this Agreement
may be amended, waived, discharged or terminated orally but only by an
instrument in writing signed by the party against whom the enforcement of such
amendment, waiver, discharge or termination is sought. Any waiver shall be
effective only in accordance with its express terms and conditions.
13.12 SEVERABILITY. Any provision of this Agreement which is
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such unenforceability without invalidating the remaining
provisions hereof, and any such unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction. To
the extent permitted by applicable law, the parties hereto hereby waive any
provision of law now or hereafter in effect which renders any provision hereof
unenforceable in any respect.
13.13 HEADINGS. The captions in this Agreement are for convenience of
reference only and shall not define or limit any of the terms or provisions
hereof.
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13.14 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and by either party on separate counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
13.15 REFERENCES. All references in this Agreement to Articles and
Sections are to Articles and Sections contained in this Agreement unless a
different document is expressly specified.
13.16 SCHEDULES AND EXHIBITS. Unless otherwise specified herein, each
Schedule and Exhibit referred to in this Agreement is attached hereto, and each
such Schedule and Exhibit is hereby incorporated by reference and made a part
hereof as if fully set forth herein.
13.17 SECTION 1031 ASSET EXCHANGE. The parties acknowledge that each
may desire to effectuate a tax-deferred exchange pursuant to Section 1031 of the
Internal Revenue Code (the "Code"), which may include a non-simultaneous
exchange, with respect to the sale and acquisition of the Sale Assets. The
parties agree to cooperate with the other in connection therewith, provided each
party participating in such an exchange agrees to hold the other free and
harmless of, and indemnify the other from, any liabilities, claims, costs,
damages, expenses and fees (including attorneys' fees) which may arise out of
said party's participation in a tax-deferred exchange, including without
limitation any claims by the Internal Revenue Service.
(SIGNATURES APPEAR ON FOLLOWING PAGE)
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<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written.
"SELLER" "BUYER "
CHILDREN'S BROADCASTING SALEM COMMUNICATIONS
CORPORATION CORPORATION
CHILDREN'S RADIO OF GOLDEN VALLEY, INC.
KYCR-AM, INC.
CHILDREN'S RADIO OF HOUSTON, INC.
KTEK-AM, INC.
By: /s/ Christopher T. Dahl By: /s/ Dick Gastaldo
------------------------------- --------------------------
Christopher T. Dahl Dick Gastaldo
Its: President and CEO Its: Vice President
----------------------------- -------------------------
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APPENDIX III
PURCHASE AGREEMENT BETWEEN THE COMPANY
AND 1090 INVESTMENTS, L.L.C.
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
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
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hereto, and any replacements therefor or improvements thereof acquired
or constructed prior to Closing ("Personal Property");
1.4. Subject to Section 2.6 of this Agreement, all of the Sellers' rights and
benefits under the business agreements, leases and contracts listed on
SCHEDULE D attached hereto, including any renewals, extensions,
amendments or modifications thereof, and any additional agreements,
leases and contracts made or entered into by the Sellers in the ordinary
course 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 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:
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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. 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.
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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 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
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<PAGE>
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 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 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
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<PAGE>
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 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.
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<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 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
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<PAGE>
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 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
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
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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 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 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
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<PAGE>
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.
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 occurrence, 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.
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<PAGE>
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 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") 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
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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-Registered Trademark-/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 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 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.
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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:
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 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
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<PAGE>
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 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,
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<PAGE>
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 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.
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
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<PAGE>
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.
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.
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
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<PAGE>
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 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
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<PAGE>
defense, opposition, compromise or settlement of such Claim, by counsel
or other representatives of its own choosing, on behalf of and for the
account and risk of the indemnifying party.
(c) Anything in this Section 5.4 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 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
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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.
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 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.
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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.
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;
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(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
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;
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(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 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;
(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;
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<PAGE>
(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.
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.
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<PAGE>
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 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 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
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<PAGE>
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 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,
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<PAGE>
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.
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.
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<PAGE>
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
----------------------------- -------------------------------
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APPENDIX IV
APPRAISALS FOR CHILDREN'S BROADCASTING CORPORATION'S STATIONS
DBA RADIO AAHS
1.) NEW YORK - WIDM-AM, ELIZABETH, NJ:
station currently operating on two frequencies: 1530 and 1660 EB.
1530 is a 1000 watt ND daytimer and 1660 is a 10,000 watt day/1000
watt night ND on the extended AM band. The most recent sale in New
York has been WPAT-AM 930 5k/5k, sold November 1995 for 19.5 million
dollars. At the time WPAT was showing a 2.4 rating. If WIDM is
diplexed at WKDM, indications state that the coverage increases to a
potential reach of near 14 million people and would make WIDM value
raise to approximately 15 million.
2.) LOS ANGELES - KPLS-AM:
830 MHZ; 2.5k/1k; Orange, CA; Nations second largest market. KGFJ-AM
sold in 1995 for 5.5 million dollars; 1230 AM; lk/lk. Now that KPLS
has CP for 50k/23k, it becomes one of the strongest signals and should
bring a minimum of 25 million dollars or more in today's market.
3.) PHILADELPHIA (CHESTER) - WPWA-AM:
1590; 2.5 kw/lkw; not much to compare with, WNWR 1540, 50k/.5k Bala
Cynwyd sold for 1.4 million dollars in July, 1995, but WWRL has bought
WERA AM, Plainfield, NJ, 1590 KHZ, WQQW 1590, Waterbury, CT and WLWG
1600khz, Sag Harbor, NY thus eliminating interference to WPWA and
allowing a power increase both day and night which should increase
coverage over Philadelphia. Should all occur, WPWA's value will
increase to approximately 3 million dollars.
4.) DETROIT (LIVONIA) - WCAR-AM:
1090khz, .3k/.5k, lots of sales in Detroit ranging from 23 million
dollars for WXYT 1270, 5k/6k to multi million dollars by ours and
mergers by CBS, Disney, Chancellor and Evergreen markets are driven by
desire and availability. WCAR was a recent purchase, and we believe
WCAR's value to be 2 million dollars.
5.) DALLAS/FT. WORTH - KAHZ-AM:
1360, 5k/lk, market very good. KTCK Dallas 1310, 5k/5k sold
September, 1995 to SFX for 10.5 million dollars. KDFX 1190, 50k/5k,
sold November, 1995 to Salem for 4.8 million. KAHZ should bring
between 3-3.5 million on a quick sale, or as high as 5 million dollars
from an in market group who have reached their limit and wish to
upgrade.
6.) HOUSTON - KTEK-AM:
1110, 2.5kw daytime. Houston has not been a hot bed for AM stations
lately as most AM's are either Spanish or Religion, however, Tichoner
Media bought KMPQ, Rosenberg, TX in May, 1995 for 2.5 million dollars
and Salem bought KENR 1070, 10k/5k in March, 1995 for 5 million
dollars. KTEK is in a tough position being a daytime only facility,
but because it has a very good signal, it could be valuable as a
second signal for a Religious or Spanish broadcaster and could bring
between 2 to 2.5 million dollars.
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<PAGE>
7.) MINNEAPOLIS - WWTC-AM:
1280, 5k/5k, most transfer of ownership in AM's in Minneapolis have
been through combo sales with FM sister stations or group sales, and
because the market is filled with major players such as: Chancellor,
Disney, CBS. Once the scramble for FM's is completed, the power to
control AM will become a factor possibly increasing the value of WWTC
to perhaps 2.5 million dollars.
8.) MINNEAPOLIS - KTCR-AM:
1570, 3.8k/.23k, St. Louis Park is not as good a signal as sister
station WWTC and will not bring nearly the price, but having said that
a full time signal in the 16th market should be able to get between
750,000 to 1 million dollars depending upon various factors.
9.) DENVER - KKYD-AM:
1340, lk/lk, Heavily traded market. December, 1995 Montana Media paid
1.5 million dollars for KJME 1390, 5k/.14k, a low rated station less
than 1 rating. KKYD should be worth 1 to 1.5 million dollars.
10.) KANSAS CITY - KCAZ-AM:
1480, lk/.5k, Mission, KS AM's bring low dollar, I do not know why.
Knowing WDAF-AM is one of the top three stations in the market,
nothing has brought over 800 thousand dollars since 1990, but we must
add in perhaps the fact that, like markets such as Cincinnati, have
gotten much more than 1 million dollars for WSAI and 2 million dollars
for WKYN Florence, and figure that the new laws of ownership will
bring up prices in KC as well. Knowing this, a facility such as KCAZ
should be able to bring 900,000 to 1.2 million dollars.
11.) FAIRWAY, KS - KCNW-AM:
1380, 2.5k/.029k, this station has a better day coverage than KCAZ,
but has no night signal. It should be worth about the same figure as
KCAZ in the 900,000 to 1.2 million dollar range.
12.) MILWAUKEE - WZER-AM:
540khz, 500w/500w, Jackson, WI. The only other sale of an AM stand
alone was WBIX Racine, 1460 with 500w/60w in 1995 and it sold for
275,000 dollars. More information such as billing and cash flow will
alter any analysis of a stations worth, but just from what is in the
facts to work with. I would estimate that WZER could possibly bring 1
million to 1.5 million in today's market.
All estimates on values were done without the aid of any current financial
information, and only on "like kind" for each market or similar market.
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APPENDIX V
OPINION OF FINANCIAL ADVISOR
May 21, 1998
Board of Directors
Children's Broadcasting Corporation
724 First Street
Minneapolis, MN 55401
Members of the Board:
This letter relates to the proposed acquisitions from Children's Broadcasting
Corporation ("Children's") of certain assets and stock related to 13
Company-owned and operated radio stations (the "Acquired Assets") by Catholic
Radio Network LLC ("CRN"), Salem Communications Corporation ("Salem") and 1090
Investments, LLC ("1090") pursuant to Purchase Agreements referred to below
(the "Transactions"). Pursuant to the Purchase Agreements, and subject to
certain exceptions, at the effective time of the Transactions, Children's will
receive $56.7 million in aggregate cash consideration from CRN, Salem and 1090
and a note for $5 million from CRN in exchange for the Acquired Assets. You
have requested our opinion as to the fairness to Children's, from a financial
point of view, of the total consideration to be received by Children's for the
Acquired Assets in the Transactions.
Piper Jaffray Inc. ("Piper Jaffray"), as a customary part of its investment
banking business, is engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, underwritings and secondary
distributions of securities, private placements, and valuations for estate,
corporate and other purposes. In the ordinary course of our business, we and
our affiliates may actively trade securities of Children's for our own account
or the accounts of our customers and, accordingly, may at any time hold a long
or short position in such securities. For our services in rendering this
opinion, Children's will pay us a fee and indemnify us against certain
liabilities. The fee is not contingent upon consummation of the Transaction.
In arriving at our opinion, we have undertaken such reviews, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have:
1. Reviewed the Purchase Agreement with CRN dated April 17, 1998.
2. Reviewed the Asset Purchase Agreement with Salem dated April 24, 1998.
3. Reviewed the Asset Purchase Agreement with 1090 dated May 1, 1998.
4. Reviewed the Annual Reports, Reports on Form 10-KSB, audited financial
statements and Proxy Statements for Children's for the three fiscal years
ended December 31, 1997.
5. Reviewed the Reports on Form 10-QSB for Children's for the quarters ended
March 31, 1998.
6. Reviewed annual unaudited financial results for each of Children's radio
stations included in the Acquired Assets prepared by Children's management
for the three years ended December 31, 1997
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Board of Directors
Children's Broadcasting Corporation
May 21, 1998
Page 2
and for the three-month period ended March 31, 1998.
7. Reviewed an independently conducted appraisal by Force Communications &
Consultants ("Force") dated October 8, 1996 of 12 of the 13 stations
included in the Acquired Assets and discussed the appraisal methodology
with Force.
8. Visited the headquarters of Children's and conducted discussions with
members of senior management of Children's, including the Chief Executive
Officer, Chief Operating and Financial Officer, Executive Vice President of
Programming and General Counsel. Topics discussed included, but were not
limited to, the background and rationale of the proposed Transaction, the
financial condition, operating performance and the balance sheet
characteristics of Children's and the Acquired Assets and future prospects
for Children's.
9. Reviewed the historical prices and trading activity for Children's common
stock.
10. Reviewed the financial terms, to the extent publicly available, of certain
comparable merger and acquisition transactions which we deemed relevant.
11. Compared certain financial and securities data of Children's and certain
financial data of the Acquired Assets with certain financial and securities
data of companies deemed similar to the business represented by the
Acquired Assets.
12. Reviewed such other financial data, performed such other analyses and
considered such other information as we deemed necessary and appropriate
under the circumstances.
We have relied upon and assumed the accuracy and completeness of the financial
statements and other information provided by Children's or otherwise made
available to us and have not assumed responsibility independently to verify such
information. We have further relied upon the assurances of Children's
management that the information provided has been prepared on a reasonable basis
in accordance with industry practice and, with respect to financial planning and
other business outlook information (including the inability to prepare
meaningful forward looking projections, as discussed below), reflects the best
currently available information and judgment of Children's management as to the
expected future financial performance of Children's and that it is not aware of
any information or facts that would make the information provided to us
incomplete or misleading. Without limiting the generality of the foregoing, for
the purpose of this opinion, we have assumed that Children's is not a party to
any pending transaction, including external financing, recapitalizations,
acquisitions or merger discussions, other than the Transaction or in the
ordinary course of business.
In arriving at our opinion, we were not able to perform a discounted cash flow
analysis of Children's or the business represented by the Acquired Assets since
Children's did not have available and did not prepare any forward looking
projections. We were advised that senior management of Children's has
determined that they cannot make reliable projections because the industry's
competitive environment and its economics, as well as Children's current
financial situation, have so radically changed that senior management questioned
the ability to accurately project Children's business going forward in the same
manner it is currently operated. Consequently, senior management has advised us
they believe that any projections reflective of historical operations would not
be meaningful.
In arriving at our opinion, we have not performed any appraisals or valuations
of specific assets or liabilities of Children's, have made no physical
inspection of the properties or assets of Children's and express no opinion
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Board of Directors
Children's Broadcasting Corporation
May 21, 1998
Page 3
regarding the liquidation value of Children's or the Acquired Assets, although,
as mentioned above, we did review an independently conducted appraisal of the
Acquired Assets. Without limiting the generality of the foregoing, we have
undertaken no independent analysis of any pending or threatened litigation,
possible unasserted claims or other contingent liabilities, to which Children's
or its affiliates is a party or may be subject, and at Children's direction and
with its consent, our opinion makes no assumption concerning, and therefore does
not consider, the possible assertion of claims, outcomes or damages arising out
of any such matters. We have also undertaken no analysis of the merits, value
or potential impact on Children's of its current litigation against The Disney
Company.
Our opinion is necessarily based upon information available to us, facts and
circumstances and economic, market and other conditions as they exist and are
subject to evaluation on the date hereof; events occurring after the date hereof
could materially affect the assumptions used in preparing this opinion. We have
not undertaken to reaffirm or revise this opinion or otherwise comment upon any
events occurring after the date hereof. We express no opinion herein as to the
prices at which shares of Children's common stock may trade at any future time.
This opinion is for the benefit of the Board of Directors of Children's in
evaluating the Transaction and shall not be published or otherwise used by any
other persons for any other purpose nor shall any public reference to Piper
Jaffray be made without our prior written consent, except for inclusion of this
opinion in the full proxy statement to be sent to all shareholders of Children's
in connection with the Transaction and in any filings or disclosures required by
law. This opinion is not intended to be and does not constitute a
recommendation to any shareholder as to how such shareholder should vote with
respect to the Transaction. We have not been authorized by the Board of
Directors to solicit other purchasers for the Acquired Assets or alternative
transactions to the Transaction. We were not requested to opine as to, and this
opinion does not in any manner address, the merits of the basic business
decision to proceed with or effect the Transaction or the structure thereof.
Based upon and subject to the foregoing and based upon such other factors as we
consider relevant, it is our opinion that, as of the date hereof, the
consideration to be received by Children's for the Acquired Assets in the
Transactions is fair, from a financial point of view, to Children's.
Sincerely,
PIPER JAFFRAY INC.
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APPENDIX VI
DISSENTERS RIGHTS
SECTIONS 302A.471 AND 302A.473
OF THE MINNESOTA BUSINESS CORPORATION ACT
302A.471. RIGHTS OF DISSENTING SHAREHOLDERS
SUBDIVISION 1. ACTIONS CREATING RIGHTS. A shareholder of a corporation
may dissent from, and obtain payment for the fair value of the shareholder's
shares in the event of, any of the following corporate actions:
(a) An amendment of the articles that materially and adversely affects
the rights or preferences of the shares of the dissenting shareholder in
that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the
redemption of the shares, including a provision respecting a sinking fund
for the redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the
shares to acquire shares, securities other than shares, or rights to
purchase shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a
matter, or to cumulate votes, except as the right may be excluded or
limited through the authorization or issuance of securities of an existing
or new class or series with similar or different voting rights; except that
an amendment to the articles of an issuing public corporation that provides
that section 302A.671 does not apply to a control share acquisition does
not give rise to the right to obtain payment under this section;
(b) A sale, lease, transfer, or other disposition of all or
substantially all of the property and assets of the corporation, but not
including a transaction permitted without shareholder approval in section
302A.661, subdivision 1, or a disposition in dissolution described in
section 302A.725, subdivision 2, or a disposition pursuant to an order of a
court, or a disposition for cash on terms requiring that all or
substantially all of the net proceeds of disposition be distributed to the
shareholders in accordance with their respective interests within one year
after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter
322B, to which the corporation is a party, except as provided in
subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter
322B, to which the corporation is a party as the corporation whose shares
will be acquired by the acquiring corporation, if the shares of the
shareholder are entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote
with respect to which the articles, the bylaws, or a resolution approved by
the board directs that dissenting shareholders may obtain payment for their
shares.
SUBD. 2. BENEFICIAL OWNERS.
(a) A shareholder shall not assert dissenters' rights as to less than
all of the shares registered in the name of the shareholder, unless the
shareholder dissents with respect to all the shares that are beneficially
owned by another person but registered in the name of the shareholder and
discloses the name and address
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of each beneficial owner on whose behalf the shareholder dissents. In that
event, the rights of the dissenter shall be determined as if the shares as
to which the shareholder has dissented and the other shares were registered
in the names of different shareholders.
(b) A beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting shareholder under the terms of
this section and section 302A.473, if the beneficial owner submits to the
corporation at the time of or before the assertion of the rights a written
consent of the shareholder.
SUBD. 3. RIGHTS NOT TO APPLY.
(a) Unless the articles, the bylaws, or a resolution approved by the
board otherwise provide, the right to obtain payment under this section
does not apply to a shareholder of the surviving corporation in a merger,
if the shares of the shareholder are not entitled to be voted on the
merger;
(b) If a date is fixed according to section 302A.445, subdivision 1,
for the determination of shareholders' entitled to receive notice of and to
vote on an action described in subdivision 1, only shareholders as of the
date fixed, and beneficial owners as of the date fixed who hold through
Shareholders, as provided in subdivision 2, may exercise dissenters'
rights.
SUBD. 4. OTHER RIGHTS. The shareholders of a corporation who have a right
under this section to obtain payment for their shares do not have a right at law
or in equity to have a corporate action described in subdivision 1 set aside or
rescinded, except when the corporate action is fraudulent with regard to the
complaining shareholder or the corporation.
302A.473. PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS
SUBDIVISION 1. DEFINITIONS.
(a) For purposes of this section, the terms defined in this
subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action referred to in section 302A.471, subdivision 1
or the successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the
effective date of the corporate action referred to in section 302A.471,
subdivision 1, up to and including the date of payment, calculated at the
rate provided in section 549.09 for interest on verdicts and judgments.
SUBD. 2 NOTICE OF ACTION. If a corporation calls a shareholder meeting at
which any action described in section 302A.471, subdivision 1 is to be voted
upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this section and a
brief description of the procedure to be followed under these sections.
SUBD. 3 NOTICE OF DISSENT. If the proposed action must be approved by the
shareholders, a shareholder who is entitled to dissent under section 302A.471
and who wishes to exercise dissenters' rights must file with the corporation
before the vote on the proposed action a written notice of intent to demand the
fair value of the shares owned by the shareholder and must not vote the shares
in favor of the proposed action.
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SUBD. 4 NOTICE OF PROCEDURE; DEPOSIT OF SHARES.
(a) After the proposed action has been approved by the board and, if
necessary, the shareholders, the corporation shall send to all shareholders
who have complied with subdivision 3 and to all shareholders entitled to
dissent if no shareholder vote was required, a notice that contains:
(1) The address to which a demand for payment and certificates
of certificated shares must be sent in order to obtain payment and the date
by which they must be received;
(2) Any restrictions on transfer of uncertificated shares that
will apply after the demand for payment is received;
(3) A form to be used to certify the date on which the
shareholder, or the beneficial owner on whose behalf the shareholder
dissents, acquired the shares or an interest in them and to demand payment;
and
(4) A copy of section 302A.471 and this section and a brief
description of the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply
with any restrictions on transfer of uncertificated shares within 30 days
after the notice required by paragraph (a) was given, but the dissenter
retains all other rights of a shareholder until the proposed action takes
effect.
SUBD. 5 PAYMENT; RETURN OF SHARES.
(a) After the corporate action takes effect, or after the corporation
receives a valid demand for payment, whichever is later, the corporation
shall remit to each dissenting shareholder who has complied with
subdivisions 3 and 4 the amount the corporation estimates to be the fair
value of the shares, plus interest, accompanied by:
(1) the corporation's closing balance sheet and statement of
income for a fiscal year ending not more than 16 months before the
effective date of the corporate action, together with the latest available
interim financial statements;
(2) an estimate by the corporation of the fair value of the
shares and a brief description of the method used to reach the estimate;
and
(3) a copy of section 302A.471 and this section, and a brief
description of the procedure to be followed in demanding supplemental
payment.
(b) The corporation may withhold the remittance described in
paragraph (a) from a person who was not a shareholder on the date the
action dissented from was first announced to the public or who is
dissenting on behalf of a person who was not a beneficial owner on that
date. If the dissenter has complied with subdivisions 3 and 4, the
corporation shall forward to the dissenter the materials described in
paragraph (a), a statement of the reason for withholding the remittance,
and an offer to pay to the dissenter the amount listed in the materials if
the dissenter agrees to accept that amount in full satisfaction. The
dissenter may decline the offer and demand payment under subdivision 6.
Failure to do so entitles the dissenter only to the amount offered. If the
dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the
deposit of certificates or the imposition of transfer restrictions on
uncertificated shares, it shall return all deposited certificates and
cancel
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all transfer restrictions. However, the corporation may again give notice
under subdivision 4 and require deposit or restrict transfer at a later
time.
SUBD. 6 SUPPLEMENTAL PAYMENT; DEMAND. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest, the dissenter may give written notice to the corporation of the
dissenter's own estimate of the fair value of the shares, plus interest, within
30 days after the corporation mails the remittance under subdivision 5, and
demand payment of the difference. Otherwise, a dissenter is entitled only to
the amount remitted by the corporation.
SUBD. 7 PETITION; DETERMINATION. If the corporation receives a demand
under subdivision 6, it shall, within 60 days after receiving the demand, either
pay to the dissenter the amount demanded or agreed to by the dissenter after
discussion with the corporation or file in court a petition requesting that the
court determine the fair value of the shares, plus interest. The petition shall
be filed in the county in which the registered office of the corporation is
located, except that a surviving foreign corporation that receives a demand
relating to the shares of a constituent domestic corporation shall file the
petition in the county in this state in which the last registered office of the
constituent corporation was located. The petition shall name as parties all
dissenters who have demanded payment under subdivision 6 and who have not
reached agreement with the corporation. The corporation shall, after filing the
petition, serve all parties with a summons and copy of the petition under the
rules of civil procedure. Nonresidents of this state may be served by
registered or certified mail or by publication as provided by law. Except as
otherwise provided, the rules of civil procedure apply to this proceeding. The
jurisdiction of the court is plenary and exclusive. The court may appoint
appraisers, with powers and authorities the court deems proper, to receive
evidence on and recommend the amount of the fair value of the shares. The court
shall determine whether the shareholder or shareholders in question have fully
complied with the requirements of this section, and shall determine the fair
value of the shares, taking into account any and all factors the court finds
relevant, computed by any method or combination of methods that the court, in
its discretion, sees fit to use, whether or not used by the corporation or by a
dissenter. The fair value of the shares as determined by the court is binding
on all shareholders, wherever located. A dissenter is entitled to judgment in
cash for the amount by which the fair value of the shares as determined by the
court, plus interest, exceeds the amount, if any, remitted under subdivision 5,
but shall not be liable to the corporation for the amount, if any, by which the
amount, if any, remitted to the dissenter under subdivision 5 exceeds the fair
value of the shares as determined by the court, plus interest.
SUBD. 8 COSTS; FEES; EXPENSES.
(a) The court shall determine the costs and expenses of a proceeding
under subdivision 7, including the reasonable expenses and compensation of
any appraisers appointed by the court, and shall assess those costs and
expenses against the corporation, except that the court may assess part or
all of those costs and expenses against a dissenter whose action in
demanding payment under subdivision 6 is found to be arbitrary, vexatious,
or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses
of any experts or attorneys as the court deems equitable. These fees and
expenses may also be assessed against a person who has acted arbitrarily,
vexatiously, or not in good faith in bringing the proceeding, and may be
awarded to a party injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an
attorney for the dissenters out of the amount awarded to the dissenters, if
any.
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APPENDIX VII
CONSENT OF INDEPENDENT PUBLIC AUDITORS
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CONSENT OF BDO SEIDMAN, LLP
We consent to the incorporation by reference in the Schedule 14A of
Children's Broadcasting Corporation 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 its 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 26, 1998
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APPENDIX VIII
CHILDREN'S BROADCASTING CORPORATION AMENDED AND RESTATED
1994 STOCK OPTION PLAN
1. PURPOSE
The purpose of this Children's Broadcasting Corporation 1994 Stock
Option Plan (the "Plan") is to promote the interests of Children's Broadcasting
Corporation, a Minnesota corporation (the "Company"), by providing employees of
the Company and certain independent contractors with an opportunity to acquire a
proprietary interest in the Company and thereby develop a stronger incentive to
contribute to the Company's continued success and growth. In addition, the
granting of stock options will assist the Company in attracting and retaining
key personnel of outstanding ability.
2. DEFINITIONS
Wherever used in the Plan, the following terms have the meanings set
forth below:
2.1 "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations promulgated thereunder.
2.2 "Committee" means a committee of the Board of Directors of the
Company designated by such Board to administer the Plan and composed of not less
than two directors. Beginning on the date the Company first registers the Stock
under Section 12 of the Securities Exchange Act of 1934, each member of the
Committee must be a "disinterested person" within the meaning of Rule 16b-3.
2.3 "Incentive Stock Option" or "ISO" means a stock option which is
intended to qualify as an incentive stock option as defined in Section 422 of
the Code.
2.4 "Non-Statutory Stock Option" or "NSO" means a stock option that is
not intended to, or does not, qualify as an incentive stock option as defined in
Section 422 of the Code.
2.5 "Option" means, where required by the context of the Plan, an ISO
or NSO granted pursuant to the Plan.
2.6 "Optionee" means a Participant in the Plan who has been granted one
or more Options under the Plan.
2.7 "Participant" means an individual described in Section 5 of this
Plan who may be granted Options under the Plan.
2.8 "Rule 16b-3" means Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934.
2.9 "Stock" means the Common Stock, $.01 par value, of the Company.
2.10 "Subsidiary" means any corporation, other than the Company, in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns 50% or
more of the voting stock in one of the other corporations in such chain.
VIII - 1
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3. ADMINISTRATION
3.1 The Plan shall be administered by the Committee, which shall have
full power, subject to the provisions and restrictions of the Plan, to grant
Options, construe and interpret the Plan, establish rules and regulations with
respect to the Plan and Options granted hereunder, and perform all other acts,
including the delegation of administrative responsibilities, that it believes
reasonable and necessary.
3.2 The Committee shall have the sole discretion, subject to the
provisions of the Plan, to determine the Participants eligible to receive
Options pursuant to the Plan and the amount, type and terms of any Options and
the terms and conditions of option agreements relating to any Option.
3.3 The Committee may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or in any Option granted hereunder in
the manner and to the extent it shall deem necessary to carry out the terms of
the Plan.
3.4 Any decision made, or action taken, by the Committee arising out of
or in connection with the interpretation and administration of the Plan shall be
final, conclusive and binding upon all Optionees.
4. SHARES SUBJECT TO THE PLAN
4.1 NUMBER. The total number of shares of Stock reserved for issuance
upon exercise of Options under the Plan is one million (1,000,000). Such shares
shall consist of authorized but unissued Stock. If any Option granted under the
Plan lapses or terminates for any reason before being completely exercised, the
shares covered by the unexercised portion of such Option may again be made
subject to Options under the Plan.
4.2 CHANGES IN CAPITALIZATION. In the event of any change in the
outstanding shares of Stock of the Company by reason of any stock dividend,
split, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares or rights offering to purchase stock at a price substantially
below fair market value, or other similar corporate change, the aggregate number
of shares which may be subject to Options under the Plan and the terms of any
outstanding Option, including the number and kind of shares subject to such
Options and the purchase price per share thereof, shall be appropriately
adjusted by the Committee, consistent with such change and in such manner as the
Committee, in its sole discretion, may deem equitable to prevent substantial
dilution or enlargement of the rights granted to or available for Optionees.
Notwithstanding the preceding sentence, in no event shall any fraction of a
share of Stock be issued upon the exercise of an Option.
5. ELIGIBLE PARTICIPANTS
The following persons are Participants eligible to participate in the
Plan:
5.1 INCENTIVE STOCK OPTIONS. Incentive Stock Options may be granted
only to employees of the Company or any Subsidiary, including officers and
directors who are also employees of the Company or any Subsidiary.
5.2 NON-STATUTORY STOCK OPTIONS. Non-statutory stock options may be
granted to (i) any employee of the Company or any Subsidiary, including any
officer or director who is also an employee of the Company or any Subsidiary;
and (ii) any consultant to, or other independent contractor of, the Company who
is not a director of the Company.
6. GRANT OF OPTIONS
Subject to the terms, conditions and limitations set forth in this Plan,
the Company, by action of the Committee, may from time to time grant Options to
purchase shares of the Company's Stock to those eligible Participants as may be
selected by the Committee, in such amounts and on such other terms as the
Committee in
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its sole discretion shall determine. Such Options may be (i) "Incentive Stock
Options" so designated by the Committee and which, when granted, are intended to
qualify as incentive stock options as defined in Section 422 of the Code; (ii)
"Non-Statutory Stock Options" so designated by the Committee and which, when
granted, are not intended to, or do not, qualify as incentive stock options
under Section 422 of the Code; or (iii) a combination of both. The date on
which the Committee approves the granting of an Option shall be the date of
grant of such Option, unless a different date is specified by the Committee on
such date of approval. Notwithstanding the foregoing, with respect to the grant
of any Incentive Stock Option under the Plan, the aggregate fair market value of
Stock (determined as of the date the Option is granted) with respect to which
Incentive Stock Options are exercisable for the first time by an Optionee in any
calendar year (under all such stock option plans of the Company or Subsidiaries)
shall not exceed $100,000. Each grant of an Option under the Plan shall be
evidenced by a written stock option agreement between the Company and the
Optionee setting forth the terms and conditions, not inconsistent with the Plan,
under which the Option so granted may be exercised pursuant to the Plan and
containing such other terms with respect to the Option as the Committee in its
sole discretion may determine.
7. OPTION PRICE AND FORM OF PAYMENT
7.1 The purchase price for a share of Stock subject to an Option
granted hereunder shall not be less than 100% of the fair market value of the
Stock. For purposes of this Section 7, the "fair market value" of the Stock
shall be determined as follows:
(a) if the Stock of the Company is listed or admitted to unlisted
trading privileges on a national securities exchange, the fair market
value on any given day shall be the closing sale price for the Stock, or
if no sale is made on such day, the closing bid price for such day on
such exchange;
(b) if the Stock is not listed or admitted to unlisted trading
privileges on a national securities exchange, the fair market value on
any given day shall be the closing sale price for the Stock as reported
on any NASDAQ market on such day, or if no sale is made on such day, the
closing bid price for such day as entered by a market maker for the
Stock;
(c) if the Stock is not listed on a national securities exchange,
is not admitted to unlisted trading privileges on any such exchange and
is not eligible for inclusion in any NASDAQ market, the fair market
value on any given day shall be the average of the closing
representative bid and asked prices as reported by such other publicly
available compilation of the bid and asked prices of the Stock in any
over-the-counter market on which the Stock is traded; or
(d) if there exists no public trading market for the Stock, the
fair market value on any given day shall be an amount determined in good
faith by the Committee in such manner as it may reasonably determine in
its discretion, provided that such amount shall not be less than the
book value per share as reasonably determined by the Committee as of the
date of determination or less than the par value of the Stock.
Notwithstanding the foregoing, in the case of an Incentive Stock Option granted
to any Optionee then owning more than 10% of the voting power of all classes of
the Company's stock, the purchase price per share of the Stock subject to such
Option shall not be less than 110% of the fair market value of the Stock on the
date of grant of the Incentive Stock Option, determined as provided above.
7.2 Except as provided herein, the purchase price of each share of
Stock purchased upon the exercise of any Option shall be paid:
(a) in United States dollars in cash or by check, bank draft or
money order payable to the order of the Company; or
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(b) at the discretion of the Committee, through the delivery of
shares of Stock valued at fair market value at the time the Option is
exercised (as determined in the manner provided under this Plan); or
(c) at the discretion of the Committee, by a combination of both
(a) and (b) above; or
(d) by such other method as may be permitted in the written stock
option agreement between the Company and the Optionee.
If such form of payment is permitted, the Committee shall determine procedures
for tendering Stock as payment upon exercise of an Option and may impose such
additional limitations and prohibitions on the use of Stock as payment upon the
exercise of an option as it deems appropriate. If the Committee in its sole
discretion so agrees, the Company may finance the amount payable by an Optionee
upon exercise of any Option upon such terms and conditions as the Committee may
determine at the time such Option is granted under this Plan.
8. EXERCISE OF OPTIONS
8.1 MANNER OF EXERCISE. An Option, or any portion thereof, shall be
exercised by delivering a written notice of exercise to the Company and paying
to the Company the full purchase price of the Stock to be acquired upon the
exercise of the Option. Until certificates for the Stock acquired upon the
exercise of an Option are issued to an Optionee, such Optionee shall not have
any rights as a shareholder of the Company with respect to such Stock.
8.2 LIMITATIONS AND CONDITIONS ON EXERCISE OF OPTIONS. In addition to
any other limitations or conditions contained in this Plan or that may be
imposed by the Committee from time to time or in the stock option agreement to
be entered into with respect to Options granted hereunder, the following
limitations and conditions shall apply to the exercise of Options granted under
this Plan:
8.2.1 No Incentive Stock Option may be exercisable by its terms
after the expiration of 10 years from the date of the grant thereof.
8.2.2 No Incentive Stock Option granted pursuant to the Plan to
an eligible Participant then owning more than 10% of the voting power of
all classes of the Company's stock may be exercisable by its terms after
the expiration of five years from the date of the grant thereof.
8.2.3 To the extent required to comply with Rule 16b-3, Stock
acquired upon exercise of an Option granted under to the Plan may not be
sold or otherwise disposed of for a period of six months from the date
of grant of the Option.
9. INVESTMENT PURPOSES
9.1 Unless a registration statement under the Securities Act of 1933 is
in effect with respect to Stock to be purchased upon exercise of Options to be
granted under the Plan, the Company shall require that an Optionee agree with
and represent to the Company in writing that he or she is acquiring such shares
of Stock for the purpose of investment and with no present intention to
transfer, sell or otherwise dispose of such shares of Stock other than by
transfers which may occur by will or by the laws of descent and distribution,
and no shares of Stock may be transferred unless, in the opinion of counsel to
the Company, such transfer would be in compliance with applicable securities
laws. In addition, unless a registration statement under the Securities Act of
1933 is in effect with respect to the Stock to be purchased under the Plan, each
certificate representing any shares of Stock issued to an Optionee hereunder
shall have endorsed thereon a legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT")
AND
VIII - 4
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WITHOUT REGISTRATION UNDER ANY APPLICABLE STATE SECURITIES LAWS, IN
RELIANCE UPON EXEMPTION(S) CONTAINED THEREIN. NO TRANSFER OF THESE
SHARES OR ANY INTEREST THEREIN MAY BE MADE EXCEPT PURSUANT TO EFFECTIVE
REGISTRATION STATEMENTS UNDER SUCH LAWS UNLESS THE COMPANY HAS RECEIVED
AN OPINION OF COUNSEL SATISFACTORY TO IT THAT SUCH TRANSFER OR
DISPOSITION DOES NOT REQUIRE REGISTRATION UNDER SUCH LAWS AND, FOR ANY
SALES UNDER RULE 144 OF THE ACT, SUCH EVIDENCE AS IT SHALL REQUEST FOR
COMPLIANCE WITH THAT RULE, OR APPLICABLE STATE SECURITIES LAWS.
10. TRANSFERABILITY OF OPTIONS
No Option granted under the Plan shall be transferable by an Optionee
(whether by sale, assignment, hypothecation or otherwise) other than by will or
the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined under the Code or Title I of the Employee Retirement
Income Security Act, or the rules thereunder. An Option shall be exercisable
during the Optionee's lifetime only by the Optionee or, if permissible under
applicable law, by the Optionee's guardian or legal representative.
11. TERMINATION OF OPTIONS
11.1 GENERALLY. Except as otherwise provided in this Section 11, if an
Optionee's employment with the Company or Subsidiary is terminated (hereinafter
"Termination") other than by death or Disability (as hereinafter defined), the
Optionee may exercise any Option granted under the Plan, to the extent the
Optionee was entitled to exercise the Option at the date of Termination, for a
period of three months after the date of Termination or until the term of the
Option has expired, whichever date is earlier.
11.2 DEATH OR DISABILITY OF OPTIONEE. In the event of the death or
Disability of an Optionee prior to expiration of an Option held by him or her,
the following provisions shall apply:
11.2.1 If the Optionee is at the time of his or her Disability
employed by the Company or a Subsidiary and has been in continuous
employment (as determined by the Committee in its sole discretion) since
the date of grant of the Option, then the Option may be exercised by the
Optionee until the earlier of one year following the date of such
Disability or the expiration date of the Option, but only to the extent
the Optionee was entitled to exercise such Option at the time of his or
her Disability. For the purpose of this Section 11, the term
"Disability" shall mean a permanent and total disability as defined in
Section 22(e)(3) of the Code. The determination of whether an Optionee
has a Disability within the meaning of Section 22(e)(3) shall be made by
the Committee in its sole discretion.
11.2.2 If the Optionee is at the time of his or her death
employed by the Company or a Subsidiary and has been in continuous
employment (as determined by the Committee in its sole discretion) since
the date of grant of the Option, then the Option may be exercised by the
Optionee's estate or by a person who acquired the right to exercise the
Option by will or the laws of descent and distribution, until the
earlier of one year from the date of the Optionee's death or the
expiration date of the Option, but only to the extent the Optionee was
entitled to exercise the Option at the time of death.
11.2.3 If the Optionee dies within three months after
Termination, the Option may be exercised until the earlier of nine
months following the date of death or the expiration date of the Option,
by the Optionee's estate or by a person who acquires the right to
exercise the Option by will or the laws of descent or distribution, but
only to the extent the Optionee was entitled to exercise the Option at
the time of Termination.
VIII - 5
<PAGE>
11.3 TERMINATION FOR CAUSE. If the employment of an Optionee is
terminated by the Company or a Subsidiary for cause, then the Committee shall
have the right to cancel any Options granted to the Optionee under the Plan.
11.4 SUSPENSION OR TERMINATION FOR MISCONDUCT. If the Committee
reasonably believes that an Optionee has committed an act of misconduct, it may
suspend the Optionee's right to exercise any Option pending a determination by
the Committee. If the Committee determines that an Optionee has committed an
act of embezzlement, fraud, dishonesty, nonpayment of an obligation owed to the
Company, breach of fiduciary duty or deliberate disregard of the Company's rules
resulting in loss, damage or injury to the Company, or if an Optionee makes an
unauthorized disclosure of any Company trade secret or confidential information,
engages in any conduct constituting unfair competition with respect to the
Company or induces any party to breach a contract with the Company, neither the
Optionee nor the Optionee's estate shall be entitled to exercise any Option
whatsoever. In making such determination, the Committee shall act fairly and
shall give the Optionee an opportunity to appear and present evidence on the
Optionee's behalf at a hearing before the Committee.
12. CHANGE IN CONTROL PROVISIONS
12.1 IMPACT OF EVENT. Notwithstanding any other provision of the Plan
to the contrary, in the event of a Change in Control (as defined in 12.2), any
Options outstanding as of the date such Change in Control is determined to have
occurred and not then exercisable and vested shall become fully exercisable and
vested in the full extent of the original grant.
12.2 DEFINITION OF CHANGE IN CONTROL. For purposes of the Plan, a
"Change in Control" shall mean the happening of any of the following events:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of thirty percent (30%) or more of either (1)
the then outstanding shares of Common Stock of the Company or (2) the
combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors;
provided, however, that the following acquisitions shall not constitute
a Change in Control: (1) any acquisition directly from the Company; (2)
any acquisition by the Company; (3) any acquisition by a Person
including the participant or with whom or with which the participant is
affiliated; (4) any acquisition by a Person or Persons one or more of
which is a member of the Board or an officer of the Company or an
affiliate of any of the foregoing on the Effective Date, (5) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company;
or (6) any acquisition by any corporation pursuant to a transaction
described in clauses (A), (B) and (C) of paragraph (c) of this Section
12.2; or
(b) During any period of twenty-four (24) consecutive months,
individuals who, as of the beginning of such period, constituted the
entire Board cease for any reason to constitute at least a majority of
the Board, unless the election, or nomination for election, by the
Company's stockholders, of each new director was approved by a vote of
at least two-thirds (2/3) of the Continuing Directors, as hereinafter
defined, in office on the date of such election or nomination for
election for the new director. For purposes hereof, "Continuing
Director" shall mean:
(i) any member of the Board at the close of business on the
Effective Date; or
(ii) any member of the Board who succeeded any Continuing
Director described in clause (1) above if such successor's
election, or nomination for election, by the Company's
stockholders, was approved by a vote of at least two-thirds (2/3)
of the Continuing Directors then still in office. The term
"Continuing Director" shall not, however, include any individual
whose initial assumption of
VIII - 6
<PAGE>
office occurs as a result of either an actual or threatened
election contest (as such term is used in Rule 14a-11 of Regulation
14A of the Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a person other than the
Board.
(c) Approval by the stockholders of the Company of a
reorganization, merger or consolidation, in each case, unless, following
such reorganization, merger or consolidation, (A) more than 60% of the
then outstanding securities having the right to vote in the election of
directors of the corporation resulting from such reorganization, merger
or consolidation is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were the
beneficial owners of the outstanding securities having the right to vote
in the election of directors of the Company immediately prior to such
reorganization, merger or consolidation, (B) no Person (excluding the
Company, any employee benefit plan (or related trust) of the Company or
such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to
such reorganization, merger or consolidation, directly or indirectly,
30% or more of the then outstanding securities having the right to vote
in the election of directors of the Company) beneficially owns, directly
or indirectly, 30% or more of the then outstanding securities having the
right to vote in the election of the corporation resulting from such
reorganization, merger or consolidation, and (C) at least a majority of
the members of the board of directors of the corporation resulting from
such reorganization, merger are Continuing Directors at the time of the
execution of the initial agreement providing for such reorganization,
merger or consolidation; or
(d) Approval by the stockholders of the Company of (A) a complete
liquidation or dissolution of the Company or (B) the sale or other
disposition of all or substantially all of the assets of the Company,
other than to a corporation, with respect to which following such sale
or other disposition, (1) more than 60% of the then outstanding
securities having the right to vote in the election of directors of such
corporation is then beneficially owned, directly or indirectly, by all
or substantially all of the individuals and entities who were the
beneficial owners of the outstanding securities having the right to vote
in the election of directors of the Company immediately prior to such
sale or other disposition of such outstanding securities, (2) no Person
(excluding the Company and any employee benefit plan (or related trust)
of the Company or such corporation and any Person beneficially owning,
immediately prior to such sale or other disposition, directly or
indirectly, 30% or more of the outstanding securities having the right
to vote in the election of directors of the Company) beneficially owns,
directly or indirectly, 30% or more of the then outstanding securities
having the right to vote in the election of directors of such
corporation and (3) at least a majority of the members of the board of
directors of such corporation are Continuing Directors at the time of
the execution of the initial agreement or action of the Board providing
for such sale or other disposition of assets of the Company.
12.3 CHANGE IN CONTROL PRICE. For purposes of the Plan, "Change in
Control Price" means the highest price per share (i) paid in any transaction
reported on the New York Stock Exchange Composite or other national exchange on
which such shares are listed or on NASDAQ, or (ii) paid or offered in any bona
fide transaction related to a potential or actual Change in Control of the
Company at any time during the preceding sixty (60) day period as determined by
the Committee.
13. AMENDMENT AND TERMINATION OF PLAN
13.1 The Committee may suspend or DISCONTINUE the Plan AT ANY time AND
REVISE OR AMEND THE PLAN IN ANY RESPECT, PROVIDED, HOWEVER, THAT NO REVISION
OR AMENDMENT MAY BE MADE WITHOUT SHAREHOLDER APPROVAL THAT: (a) ABSENT SUCH
SHAREHOLDER APPROVAL WOULD CAUSE RULE 16b-3 UNDER THE SECURITIES EXCHANGE ACT
OF 1934 TO BECOME UNAVAILABLE WITH RESPECT TO THE PLAN OR (b) REQUIRES
SHAREHOLDER APPROVAL UNDER ANY RULES OR REGULATIONS OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. OR ANY EXCHANGE THAT ARE APPLICABLE
TO THE COMPANY.
VIII - 7
<PAGE>
13.2 No amendment, suspension or termination of this Plan shall, without
the Optionee's consent, alter or impair any of the rights or obligations under
any Option theretofore granted to him or her under the Plan.
13.3 The Committee may amend the Plan, subject to the limitations cited
above, in such manner as it deems necessary to permit the granting of Incentive
Stock Options meeting the requirements of future amendments to the Code.
13.4 In the event of the proposed dissolution or liquidation of the
Company, each Option will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Committee. The Committee
may, in the exercise of its sole discretion in such instance, declare that any
Option shall terminate as of a date fixed by the Committee and give each
Optionee the right to exercise his or her Option as to all or any part of the
Option, including Stock as to which the Option would not otherwise be
exercisable. In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Committee determines, in the exercise of its
sole discretion and in lieu of such assumption or substitution, that the
Optionee shall have the right to exercise the Option in full including Stock as
to which the Option would not otherwise be exercisable. If the Committee makes
an Option fully exercisable in lieu of assumption or substitution in the event
of a merger or sale of assets, the Committee shall notify the Optionee that the
Option shall be fully exercisable for a period of 15 days from the date of such
notice, and the Option shall terminate upon the expiration of such period.
14. MISCELLANEOUS PROVISIONS
14.1 NO RIGHT TO CONTINUED EMPLOYMENT. No person shall have any claim
or right to be granted an Option under the Plan, and the grant of an Option
under the Plan shall not be construed as giving an Optionee the right to
continued employment with the Company. The Company further expressly reserves
the right at any time to dismiss an Optionee or reduce an Optionee's
compensation with or without cause, free from any liability, or any claim under
the Plan, except as provided herein or in a stock option agreement.
14.2 TRANSFER OF STOCK AND PAYMENT OF WITHHOLDING TAXES. The Company
shall have the right to require that payment or provision for payment of any and
all withholding taxes due upon the grant or exercise of an Option hereunder or
the disposition of any Stock or other property acquired upon exercise of an
Option be made by an Optionee. Stock acquired upon exercise of an Incentive
Stock Option may not be disposed of by the Optionee before the later of two
years from the date of grant or one year from the date of exercise, unless
adequate provision is made for payment to the Company of funds sufficient for
payment of any withholding and other taxes required by any governmental
authority in respect of the disposition of such Stock. The Company may place a
legend on certificates restricting the transfer of Stock issued pursuant to
Incentive Stock Options in order to obtain compliance with tax withholding
requirements. The Committee shall have the right to establish such other rules
and regulations or impose such other terms and conditions in any agreement
relating to an Option granted hereunder with respect to tax withholding as the
Committee may deem necessary and appropriate.
14.3 GOVERNING LAW. The Plan shall be administered in the State of
Minnesota, and the validity, construction, interpretation and administration of
the Plan and all rights relating to the Plan shall be determined solely in
accordance with the laws of such state, unless controlled by applicable federal
law, if any.
15. EFFECTIVE DATE
The effective date of the Plan is March 18, 1994. No Option may be
granted on or after March 18, 2004; provided, however, that all outstanding
Options shall remain in effect until such outstanding Options have expired or
been canceled. This Plan shall become effective upon its approval and adoption
by the shareholders of the Company on or before March 18, 1995.
VIII - 8
<PAGE>
CHILDREN'S BROADCASTING CORPORATION
724 FIRST STREET NORTH
MINNEAPOLIS, MN 55401
(612) 338-3300
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Children's Broadcasting Corporation, a
Minnesota corporation (the "Company"), hereby acknowledges receipt of the
Notice of Annual Meeting of Shareholders and Proxy Statement, each dated July
9, 1998, and hereby appoints James G. Gilbertson and Lance W. Riley, or
either of them, proxies and attorneys-in-fact, with full power to each of
substitution and revocation, on behalf and in the name of the undersigned, to
represent the undersigned at the 1998 Annual Meeting of Shareholders of the
Company to be held at the Minneapolis Hilton and Towers, 1001 Marquette
Avenue, Minneapolis, Minnesota, on August 18, 1998, at 9:30 a.m. local time,
or at any adjournment or postponement thereof, and to vote, as designated
below, all shares of Common Stock of the Company which the undersigned would
be entitled to vote if then and there personally present, on the matters set
forth below.
1. To elect four directors for the ensuing year and until their successors
shall be elected and duly qualified.
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees
listed below
CHRISTOPHER T. DAHL, RICHARD W. PERKINS, MICHAEL R. WIGLEY, WILLIAM E. CAMERON
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL, WRITE THAT
NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.
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2. To approve the plan for the sale of all of the Company's owned and operated
radio stations (the "Plan") pursuant to which (a) ten stations will be sold
to Catholic Radio Network, LLC ("CRN") for $57.0 million (subject to
adjustment), (b) two stations will be sold to Salem Communications
Corporation ("Salem") for $2.7 million (subject to adjustment) and (c) one
station will be sold to 1090 Investments, L.L.C. ("1090") for $2.0 million
(subject to adjustment). Copies of the purchase agreements with CRN, Salem
and 1090 are set forth in Appendices I, II and III to the Proxy Statement.
If any sale to Salem, 1090 or both such entities is not completed, approval
of the Plan will authorize the Board of Directors to sell such station or
stations on such terms as the Board of Directors may approve.
/ / FOR / / AGAINST / / ABSTAIN
3. To approve an amendment to the Company's 1994 Stock Option Plan (the
"1994 Plan") which would permit the committee administering the 1994
Plan to suspend or discontinue it at any time and to revise or amend it in
any respect, provided, however, that no revision or amendment may be made
without shareholder approval that: (a) absent such shareholder approval,
would cause Rule 16b-3 under the Securities Exchange Act of 1934 to become
unavailable with respect to the 1994 Plan or (b) requires shareholder
approval under any rules or regulations of the National Association of
Securities Dealers, Inc. or any exchange that are applicable to the
Company.
/ / FOR / / AGAINST / / ABSTAIN
4. To ratify the appointment of BDO Seidman, LLP as the Company's independent
public accountants for the fiscal year ending December 31, 1998.
/ / FOR / / AGAINST / / ABSTAIN
5. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting or any adjournment
or postponement thereof.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE.)
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED ON THE
PROXY BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1 THROUGH 4. ABSTENTIONS WILL BE COUNTED TOWARDS THE
EXISTENCE OF A QUORUM.
Please sign exactly as name appears on this proxy. When shares are held by
joint tenants, both should sign. If signing as attorney, executor,
administrator, trustee or guardian, please give full title as such and, if not
previously furnished, a certificate or other evidence of appointment should be
furnished. If a corporation, please sign in full corporate name by president or
other authorized officer. If a partnership, please sign in partnership name by
an authorized person.
Dated:________________________ __________________________
__________________________
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.