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:
|_| Preliminary Proxy Statement |_| Confidential, For Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
|X| 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):
|X| No fee required.
|_| 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:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
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):
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4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------------
|_| 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.:
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3) Filing Party:
----------------------------------------------------------------------
4) Date Filed:
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<PAGE>
CHILDREN'S BROADCASTING CORPORATION
5501 EXCELSIOR BOULEVARD
MINNEAPOLIS, MN 55416
(612) 925-8840
May 6, 1999
Dear Shareholder:
I am pleased to invite you to attend the 1999 Annual Meeting of Shareholders of
Children's Broadcasting Corporation, to be held at the Minneapolis Hilton and
Towers, 1001 Marquette Avenue, Minneapolis, Minnesota, on June 22, 1999, at
10:30 a.m. local time.
At the Annual Meeting you will be asked to vote for the election of directors,
to consider and vote upon an amendment to our 1994 Director Stock Option Plan
which would increase the number of shares reserved for issuance thereunder from
125,000 to 500,000, and to ratify the appointment by the Board of Directors of
BDO Seidman, LLP as our independent public accountants for the fiscal year
ending December 31, 1999. 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 Annual Meeting. Whether or not
you are able to attend in person, I urge you to sign and date the enclosed proxy
and return it promptly in the enclosed envelope. If you do attend in person, you
may withdraw your proxy and vote personally on any matters brought properly
before the Annual Meeting.
CHILDREN'S BROADCASTING CORPORATION
/s/ Christopher T. Dahl
Christopher T. Dahl
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
CHILDREN'S BROADCASTING CORPORATION
5501 EXCELSIOR BOULEVARD
MINNEAPOLIS, MN 55416
(612) 925-8840
--------------------
NOTICE
OF
1999 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
JUNE 22, 1999
--------------------
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Shareholders of
Children's Broadcasting Corporation, a Minnesota corporation (the "Company"),
will be held at the Minneapolis Hilton and Towers, 1001 Marquette Avenue,
Minneapolis, Minnesota, on June 22, 1999, at 10:30 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 consider and vote upon an amendment to the Company's 1994
Director Stock Option Plan which would increase the number of
shares reserved for issuance thereunder from 125,000 to
500,000;
3. To ratify the appointment of BDO Seidman, LLP as the Company's
independent public accountants for the fiscal year ending
December 31, 1999; and
4. 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.
Only shareholders of record at the close of business on April 29, 1999 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/ Jill J. Theis
Jill J. Theis
SECRETARY AND GENERAL COUNSEL
Minneapolis, Minnesota
May 6, 1999
<PAGE>
CHILDREN'S BROADCASTING CORPORATION
5501 EXCELSIOR BOULEVARD
MINNEAPOLIS, MN 55416
(612) 925-8840
--------------------
PROXY STATEMENT
FOR
1999 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
JUNE 22, 1999
--------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
This Proxy Statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Children's Broadcasting Corporation (the "Company")
for use at the 1999 Annual Meeting of Shareholders (the "Annual Meeting") to be
held at the Minneapolis Hilton and Towers, 1001 Marquette Avenue, Minneapolis,
Minnesota, on June 22, 1999, at 10:30 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 the amendment to the Company's 1994 Director Stock Option Plan, and
for ratification of the appointment of the independent public accountants for
the fiscal year ending December 31, 1999. 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 May 6, 1999.
RECORD DATE AND OUTSTANDING COMMON STOCK
The Board has fixed the close of business on April 29, 1999 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
6,575,742 shares of Common Stock issued, outstanding and entitled to vote.
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
(a) 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, (b)
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 (c)
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,
5501 Excelsior Boulevard, Minneapolis, Minnesota 55416, Attention: Jill J.
Theis, Esq., or hand-delivered to Ms. Theis prior to the vote at the Annual
Meeting.
<PAGE>
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. 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>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table contains certain information as of April 29, 1999, regarding
the beneficial ownership of the Company's Common Stock by (a) each person known
by the Company to own beneficially more than 5% of the Company's Common Stock,
(b) each director, (c) each Named Executive Officer (as defined herein), and (d)
the current directors and executive officers 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. Unless otherwise noted, the address for each person identified below is
c/o Children's Broadcasting Corporation, 5501 Excelsior Boulevard, Minneapolis,
Minnesota 55416.
SHARES BENEFICIALLY PERCENT OF
OWNED(1) CLASS
------------------- ----------
Heartland Advisors, Inc.................. 1,185,900(2) 18.0%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
Christopher T. Dahl...................... 1,020,882(3) 14.5
Foothill Capital Corporation............. 600,000(4) 8.4
11111 Santa Monica Boulevard
Los Angeles, California 90025
Richard W. Perkins....................... 502,299(5)(6) 7.3
730 East Lake Street
Wayzata, Minnesota 55391
Perkins Capital Management, Inc.......... 371,567(7) 5.7
730 East Lake Street
Wayzata, Minnesota 55391
James G. Gilbertson...................... 185,976(8) 2.8
Gary W. Landis(9)........................ 85,082(10) 1.3
Barbara A. McMahon....................... 53,548(10) *
Rick E. Smith(11)........................ 50,719(10) *
Michael R. Wigley........................ 18,750(6)(10) *
William E. Cameron....................... 18,750(6)(10) *
Lance W. Riley(12)....................... 0 0
All current directors and executive
officers as a group (8 persons)..... 1,832,711(13) 24.0%
- ---------------
* 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 SEC 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 of April 29, 1999.
(2) Based upon statements filed with the SEC, 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. The interests of one
such account, Heartland Value Fund, a series of Heartland Group, Inc.,
a registered investment company, relate to more than 5% of the class.
Includes 431,900 shares over which Heartland Advisors, Inc. claims sole
voting power and 1,185,900 shares over which sole dispositive power is
claimed.
3
<PAGE>
(3) Mr. Dahl has the sole right to sell and has sole voting power over
873,382 of such shares. Mr. Dahl has shared power to sell and shared
voting power over 22,500 of such shares. Includes 480,396 shares
purchasable upon the exercise of options and warrants.
(4) Represents shares purchasable upon the exercise of warrants.
(5) Represents shares held by Mr. Perkins as trustee for various trusts of
which he is sole trustee. Includes (a) 239,690 shares owned directly by
Mr. Perkins, (b) 6,769 shares beneficially owned by Mr. Perkins through
Perkins Capital Management, Inc. Profit Sharing Plan and Trust and
Perkins Foundation, (c) 250,215 shares purchasable upon the exercise of
options and warrants by Mr. Perkins and (d) 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 Perkins Capital Management,
Inc. ("PCM").
(6) Subject to shareholder approval of an increase in the number of shares
reserved for issuance under the 1994 Director Stock Option Plan, the
Board of Directors, in April 1999, approved the grant to each
non-employee director of an option to purchase 45,000 shares of the
Company's Common Stock at fair market value on the date of grant. Each
such option vests as follows: (a) 15,000 shares on the date of grant,
(b) 15,000 shares on the first anniversary of the date of grant
provided that the optionee remains a director on such date, and (c)
15,000 shares on the second anniversary of the date of grant provided
that the optionee remains a director on such date. The information
reported in the table above includes such options.
(7) Based upon statements filed with the SEC, 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 SEC
on December 3, 1998, PCM has the sole right to sell such shares and has
sole voting power over 68,151 of such shares. Mr. Perkins and PCM
disclaim any beneficial interest in such shares. Excludes shares
beneficially owned by Mr. Perkins.
(8) Includes 181,476 shares purchasable upon the exercise of options.
(9) Mr. Landis' employment with the Company terminated on January 15, 1999.
(10) Represents shares purchasable upon the exercise of options or warrants.
(11) Mr. Smith's employment with the Company terminated on January 1, 1999.
(12) Mr. Riley's employment with the Company terminated on January 31, 1999.
(13) Includes 1,056,266 shares purchasable upon the exercise of options and
warrants.
4
<PAGE>
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, by a majority of the voting power of the
shares present and entitled to vote, to serve until the next Annual Meeting 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 present and 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>
Christopher T. Dahl(1) 55 Chairman of the Board, President and Chief Executive 1990
Officer of the Company
Richard W. Perkins(1)(2) 68 President, Chief Executive Officer and Director of 1990
Perkins Capital Management, Inc.
Michael R. Wigley(2)(3) 44 President and Chief Executive Officer of Great Plains 1998
Companies, Inc.
William E. Cameron(2)(3) 54 Television Distribution Executive 1998
</TABLE>
- --------------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
(3) Member of Related Party Transaction Committee.
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 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 serves as President, Chief Executive
Officer and Chairman of Harmony Holdings, Inc. ("Harmony"), a company which
produces television commercials, music videos and related media, of which the
Company is the largest shareholder. Messrs. Dahl and Perkins own Media
Management, LLC ("MMLLC"). Employees of MMLLC provide certain administrative,
legal and accounting services to the Company, CAC and Harmony. From 1969 to
1979, Mr. Dahl 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.
5
<PAGE>
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 PCM, a registered investment advisor. As noted above, Messrs. Perkins and
Dahl own MMLLC. Mr. Perkins is also a director of CAC 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. Mr. Wigley is President and Chief Executive Officer of Great Plains
Companies, Inc. ("Great Plains"), a building material and supply 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. 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. In 1998, Mr. Cameron took
over International Telemedicine Marketing for KZT Corporation, a video phone
corporation. Mr. Cameron also serves as a director of Harmony and a privately
held company.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held six meetings during the fiscal year ended December
31, 1998. Each of the incumbent directors attended all of the meetings of the
Board held while he was a member during the last fiscal year. The Board of
Directors also took action pursuant to written consent 16 times during the last
fiscal year. The Board of Directors has established Audit, Compensation and
Related Party Transaction Committees. The Board of Directors has not established
a Nominating Committee.
The Audit Committee, which consisted of Messrs. Dahl and Perkins during 1998, is
responsible for recommending independent public accountants, reviewing with the
independent public accountants the scope and results of the audit engagement,
establishing and monitoring the Company's financial policies and control
procedures, and reviewing and monitoring the provision of non-audit services by
the Company's independent public accountants. The Audit Committee did not meet
during the last fiscal year.
The Compensation Committee, which consisted of Messrs. Perkins and Cameron
during 1998, determines and establishes the salaries, bonuses and other
compensation of the executive officers of the Company. The Compensation
Committee did not meet during the last fiscal year, but it took action pursuant
to written consent twice. In April 1999, Mr. Wigley became a member of the
Compensation Committee.
The Related Party Transaction Committee, which consisted of Messrs. Cameron and
Wigley during 1998, reviews all potential conflict of interest situations. The
Related Party Transaction Committee met once during the last fiscal year. Such
meeting was attended by all members of the committee. The committee also took
action pursuant to written consent four times during the last fiscal year.
6
<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, 1998, 1997 and
1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------
AWARDS
ANNUAL COMPENSATION ---------------------
----------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS
--------------------------- ---- ------ ----- -------
<S> <C> <C> <C> <C>
Christopher T. Dahl................. 1998 291,000(1) 500,000 330,396(2)
Chairman, President and 1997 241,250(1) 15,000(1) 37,500(3)
Chief Executive Officer 1996 210,000 56,500 150,000(4)(5)
James G. Gilbertson................. 1998 137,439(6) 366,667 146,428(7)
Chief Operating Officer and 1997 123,500(6) 7,500(6) 25,000(8)
Chief Financial Officer 1996 123,500 55,875 100,000(5)(9)
Lance W. Riley(10).................. 1998 125,000(6) 200,000 112,298(11)
Secretary and General 1997 118,750(6) 7,500(6) 12,500(12)
Counsel 1996 110,833 42,500 75,000(5)(13)
Gary W. Landis(14).................. 1998 125,000 33,333 85,082(15)
Executive Vice President 1997 125,000 -- 12,500(12)
of Programming 1996 125,000 12,500 75,000(5)(13)
Barbara A. McMahon.................. 1998 99,688 33,333 53,548(16)
Vice President of 1997 97,396 -- 9,000(17)
Populuxe 1996 93,292 1,000 75,000(5)(18)
Rick E. Smith(19)................... 1998 113,154 15,000 50,719(20)
Executive Vice President of 1997 151,154 -- 27,000(21)
National Sales 1996 79,849 1,000 38,000(22)
</TABLE>
- ---------------
(1) Includes compensation paid by MMLLC and Harmony for services rendered.
(2) Option grants at $3.19 per share pursuant to the Company's 1994 Stock
Option Plan. As part of the Company's repricing plan, Mr. Dahl
forfeited 278,750 options at a weighted average price per share of
$5.56 each in return for a grant of 180,396 options at $3.19 each. By
reducing the number of shares granted as part of this repricing, it was
the Company's intent to make an even value exchange.
(3) Option grants of $3.50 per share pursuant to the Company's 1994 Stock
Option Plan. In April 1998, these options were forfeited in return for
a grant of 34,178 options at $3.19 per share.
(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. In
April 1998, these options were forfeited in return for a grant of
95,482 options at $3.19 per share.
(5) Non-qualified grant of options for 25,000 shares at $5.88 per share. In
April 1998, these options were forfeited in return for a grant of
13,562 options at $3.19 per share.
(6) Includes compensation paid by MMLLC and Harmony for administrative
management and professional services rendered to the Company and
Harmony.
7
<PAGE>
(7) Option grants at $3.19 per share pursuant to the Company's 1994 Stock
Option Plan. As part of the Company's repricing plan, Mr. Gilbertson
forfeited 187,500 options at a weighted average price per share of
$5.53 each in return for a grant of 121,428 options at $3.19 each. By
reducing the number of shares granted as part of this repricing, it was
the Company's intent to make an even value exchange.
(8) Option grants at $3.50 per share pursuant to the Company's 1994 Stock
Option Plan. In April 1998, these options were forfeited in return for
a grant of 22,785 options at $3.19 per share.
(9) 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. In
April 1998, these options were forfeited in return for a grant of
59,133 options at $3.19 per share.
(10) Mr. Riley's employment with the Company terminated on January 31, 1999.
(11) Option grants at $3.19 per share pursuant to the Company's 1994 Stock
Option Plan. As part of the Company's repricing plan, Mr. Riley
forfeited 152,500 options at a weighted average price per share of
$6.22 each in return for a grant of 87,298 options at $3.19 each. By
reducing the number of shares granted as part of this repricing, it was
the Company's intent to make an even value exchange.
(12) Option grants at $3.50 per share pursuant to the Company's 1994 Stock
Option Plan. In April 1998, these options were forfeited in return for
a grant of 11,392 options at $3.19 per share.
(13) 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. In
April 1998, these options were forfeited in return for a grant of
36,347 options at $3.19 per share.
(14) Mr. Landis' employment with the Company terminated on January 15, 1999.
(15) As part of the Company's repricing plan, Mr. Landis forfeited 152,500
options at a weighted average price per share of $6.62 each in return
for a grant of 85,082 options at $3.19 each. By reducing the number of
shares granted as part of this repricing, it was the Company's intent
to make an even value exchange.
(16) As part of the Company's repricing plan, Ms. McMahon forfeited 91,500
options at a weighted average price per share of $6.18 each in return
for a grant of 53,548 options at $3.19 each. By reducing the number of
shares granted as part of this repricing, it was the Company's intent
to make an even value exchange.
(17) Option grants at $3.50 per share pursuant to the Company's 1994 Stock
Option Plan. In April 1998, these options were forfeited in return for
a grant of 8,202 options at $3.19 per share.
(18) Option grants of 18,000 shares at $3.50 per share and 32,000 shares at
$8.38 per share pursuant to the Company's 1994 Stock Option Plan. In
April 1998, these options were forfeited in return for a grant of
28,586 options at $3.19 per share.
(19) Mr. Smith's employment with the Company terminated on January 1, 1999.
(20) As part of the Company's repricing plan, Mr. Smith forfeited 72,750
options at a weighted average price per share of $5.73 each in return
for a grant of 50,719 options at $3.19 each. By reducing the number of
shares granted as part of this repricing, it was the Company's intent
to make an even value exchange.
(21) 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. In April 1998, these
options were forfeited in return for a grant of 24,608 options at $3.19
per share.
(22) Option grant of 20,000 shares at $8.38 per share and 18,000 shares at
$3.50 per share pursuant to the 1994 Company's Stock Option Plan. In
April 1998, these options were forfeited in return for a grant of
24,018 options at $3.19 per share.
8
<PAGE>
The following table sets forth the number of securities underlying options
granted in 1998, the percent the grant represents of the total options granted
to employees during such fiscal year, the per share exercise price of the
options granted, and the expiration date of the options for the Named Executive
Officers. No stock appreciation rights were granted during 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL EXERCISE OR
SECURITIES OPTIONS GRANTED TO BASE
UNDERLYING OPTIONS EMPLOYEES IN PRICE(1) EXPIRATION
NAME GRANTED FISCAL YEAR ($/SHARE) DATE
- ----------------------------- ------------------ ------------------ ----------- ----------
<S> <C> <C> <C> <C>
Christopher T. Dahl.......... 20,714 1.9 3.19 05/23/99
16,448 1.5 3.19 01/05/00
40,722 3.8 3.19 07/09/01
68,352 6.4 3.19 12/10/01
34,160 3.2 3.19 06/02/02
150,000 14.1 3.19 04/03/03
James G. Gilbertson.......... 14,952 1.4 3.19 03/18/99
27,148 2.6 3.19 07/09/01
45,564 4.3 3.19 12/10/01
22,780 2.1 3.19 06/02/02
25,000 2.4 3.19 04/03/03
10,984 1.0 3.19 01/05/05
Lance W. Riley(2)............ 14,994 1.4 3.19 03/18/99
27,148 2.6 3.19 07/09/01
22,776 2.1 3.19 12/10/01
11,380 1.1 3.19 06/02/02
25,000 2.4 3.19 04/03/03
11,000 1.0 3.19 01/05/05
Gary W. Landis(3)............ 14,214 1.3 3.19 05/25/99
27,148 2.6 3.19 07/09/01
22,776 2.1 3.19 12/10/01
11,380 1.1 3.19 06/02/02
1,875 0.2 3.19 04/12/03
7,689 0.7 3.19 01/05/05
Barbara A. McMahon........... 3,190 0.3 3.19 01/04/00
12,180 1.1 3.19 04/22/01
13,574 1.3 3.19 07/09/01
16,404 1.5 3.19 12/10/01
8,200 0.8 3.19 06/02/02
Rick E. Smith(4)............. 109 0.0 3.19 10/16/99
1,992 0.2 3.19 04/01/00
7,610 0.7 3.19 04/22/01
16,404 1.5 3.19 12/10/01
8,200 0.8 3.19 06/02/02
16,404 1.5 3.19 09/22/02
</TABLE>
- --------------
(1) Fair market value on the date of grant, in accordance with the
Company's 1994 Stock Option Plan.
(2) Mr. Riley's employment with the Company terminated on January 31, 1999.
(3) Mr. Landis' employment with the Company terminated on January 15, 1999.
(4) Mr. Smith's employment with the Company terminated on January 1, 1999.
9
<PAGE>
The following table sets forth certain information concerning the unexercised
options held by the Named Executive Officers at December 31, 1998. No options
were exercised by the Named Executive Officers during 1998. No stock
appreciation rights were exercised by the Named Executive Officers in 1998 or
were outstanding at the end of that year.
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
FY-END FY-END(1)
------------------------- -------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------------- ------------------------- -------------------------
<S> <C> <C>
Christopher T. Dahl.................. 330,396/0 0/0
James G. Gilbertson.................. 146,428/0 0/0
Lance W. Riley(2).................... 112,298/0 0/0
Gary W. Landis(3).................... 85,082/0 0/0
Barbara A. McMahon................... 53,548/0 0/0
Rick E. Smith(4)..................... 50,719/0 0/0
</TABLE>
- ---------------
(1) Market value of underlying securities at fiscal year-end minus the
exercise price.
(2) Mr. Riley's employment with the Company terminated on January 31, 1999.
(3) Mr. Landis' employment with the Company terminated on January 15, 1999.
(4) Mr. Smith's employment with the Company terminated on January 1, 1999.
COMPENSATION OF DIRECTORS
Directors currently do not receive any cash compensation from the Company for
their service as members of the Board; however, the Company may pay fees to its
directors, or reimburse certain expenses of its directors in connection with
attendance at Board and committee meetings, in the future. Non-employee
directors receive periodic option grants under the Company's 1994 Director Stock
Option Plan. During 1998, the Company granted an option, under such plan, for
the purchase of 3,750 shares of Common Stock to each non-employee director and
automatically grants such options annually for each year of continued service on
the Board of Directors.
Subject to shareholder approval of an increase in the number of shares reserved
for issuance under the 1994 Director Stock Option Plan, the Board of Directors,
in April 1999, approved the grant to each non-employee director of an option to
purchase 45,000 shares of the Company's Common Stock at fair market value on the
date of grant. Each such option vests as follows: (a) 15,000 shares on the date
of grant, (b) 15,000 shares on the first anniversary of the date of grant
provided that the optionee remains a director on such date, and (c) 15,000
shares on the second anniversary of the date of grant provided that the optionee
remains a director on such date. As amended, such plan also provides that each
non-employee director will automatically be awarded an option to purchase 45,000
shares of the Company's Common Stock on December 31, 2000 and December 31, 2003.
Such options will vest ratably over three-year periods provided that the
optionee remains a director.
In April 1999, the Company adopted a severance plan which covers Richard W.
Perkins, a non-employee member of the Board of Directors. See "- Employment
Contracts, Termination of Employment and Change-in-Control Arrangements" for
further information on such plan.
10
<PAGE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS
After consultation with an outside consulting firm, the Board of Directors
adopted a severance plan which covers two of the Company's executive officers,
Christopher T. Dahl and James G. Gilbertson, and one of the Company's
non-employee directors, Richard W. Perkins. As to the officers, the plan provide
for severance benefits in the event of termination of employment under certain
circumstances following a change in control of the Company (as defined). The
applicable circumstances are (a) termination by the Company without cause (as
defined) other than because of death, retirement or disability, (b) termination
by the officer for good reason (as defined), or (c) termination by the officer
without good reason if the date of termination is within 180 days after a change
in control. Following any such termination, in addition to compensation and
benefits already earned, the officer will be entitled to receive a lump sum
severance payment equal to a multiple of the officer's annual gross base salary
from MMLLC, Harmony and the Company as then in effect, including amounts accrued
but not paid. The applicable multiples for Messrs. Dahl and Gilbertson are five
and two, respectively. Based upon 1998 annual gross base salaries, Messrs. Dahl
and Gilbertson would be eligible to receive lump sum severance payments of
$1,455,000 and $274,878, respectively. As to the non-employee director, the plan
provides for severance benefits following a change in control of the Company.
Following any such change in control, the non-employee director will be entitled
to receive a lump sum severance payment of $500,000. Mr. Perkins is
participating in the plan in consideration of his status as a founding director
of the Company and his ongoing consulting with management, for which he has not
received separate compensation. The plan also provides for the accelerated
vesting of outstanding stock options and certain other benefits following a
change in control of the Company.
In general, a change in control is defined to include (a) the incumbent
directors failing to constitute a majority of the Board, (b) any person becoming
the beneficial owner of securities representing 20% or more of the voting power
of the Company's then outstanding securities eligible to vote for the election
of the Board, (c) the Company consummating a merger, amalgamation,
consolidation, statutory share exchange or similar form of corporate transaction
involving the Company and any of its affiliates that requires the approval of
the Company's shareholders, (d) the Company consummating a plan of complete
liquidation or dissolution or a sale of substantially all of its assets, or (e)
the Company making a distribution or a series of distributions within 24 months
whereby the Company distributes to shareholders cash or other property equal to
at least 50% of the value of the Company.
Cause for termination by the Company includes (a) the officer committing a
felony or entering a plea of no contest to a felonious crime in a court of law
which results in material damage to the Company or any of its affiliates or
materially impairs the value of the officer's services to the Company or its
affiliates, or (b) the officer willfully engaging in one or more acts, or
willfully omitting to act, except for sickness, a disability, vacation or
authorized leave of absence, which is demonstrably willful and materially
damaging to the Company or any of its affiliates committed in bad faith or with
reasonable belief that such act or omission to act was damaging to the Company
or an affiliate, including acts and omissions that constitute gross negligence
in the performance of the officer's duties as in effect immediately prior to the
commencement of the applicable term of the plan.
Good reason for termination by the officer includes (a) the assignment of duties
inconsistent with the individual's status as an officer or a substantial
alteration in responsibilities, (b) the relocation of the officer's principal
place of business, (c) a reduction in base salary, (d) the failure of the
Company to maintain compensation plans in which the officer participates or to
continue providing certain other existing employment benefits, (e) the failure
of the Company to obtain from a successor a satisfactory assumption in writing
of the Company's obligations under the severance plan, or (f) any failure to
maintain reasonable and adequate indemnification in respect of the officer's
services as an officer.
The plan is in effect from April 1, 1999 through March 31, 2002. Thereafter, the
plan automatically renews annually unless the Company gives notice that it does
not wish to extend it. In addition, the plan will continue in effect for three
years after a change in control of the Company.
Payments made pursuant to the severance plan and, under certain circumstances,
accelerated vesting or exercise of options in connection with a change in
control of the Company might be deemed "excess parachute payments" for purposes
of the golden parachute payment provisions of Section 280G of the Internal
Revenue Code. To the extent such benefits are so
11
<PAGE>
considered, the plan participant would be subject to an excise tax equal to 20%
of the amount of the excess parachute payment, and the Company would be denied a
tax deduction for the excess parachute payment. In that event, the Company has
agreed to pay each plan participant an additional amount so that the net amount
retained by each of them, after payment of such excise tax and other applicable
taxes on the additional amount, will equal the full amount to which each would
be entitled in the absence of such excise tax.
The Company's income tax deduction for executive compensation is limited by
Internal Revenue Code Section 162(m) to $1,000,000 per executive per year (less
the amount of any excess parachute payments), unless compensation above that
amount is "performance-based." This limit applies to the Company's Chief
Executive Officer and the other most highly compensated executive officers
identified in the Summary Compensation Table. The Company has not had any
deductions limited by Section 162(m) to date. The Company will make every
reasonable effort to ensure that all compensation paid to its executives is
fully deductible, provided it determines that application of this limit is
consistent with the Company's needs and its compensation philosophy.
REPRICING OF STOCK OPTIONS
In April 1998, the Compensation Committee of the Board of Directors adopted a
stock option repricing program for the Company's then outstanding options. The
purpose of the plan was to provide an incentive to those individuals whose stock
options were out-of-the-money. The formula for new options received by the
option holders was determined ratably based on the ratio of the existing option
exercise price and the new exercise price of $3.19, which was the market value
of the Common Stock on the date of such repricing. The exchange of options was
at each employee's discretion and it was the Company's intent to make an even
value exchange. The Company repriced stock options for the following Named
Executive Officers: Christopher T. Dahl, Chairman of the Board, President and
Chief Executive Officer; James G. Gilbertson, Chief Operating Officer and Chief
Financial Officer; Lance W. Riley, General Counsel and Secretary; Gary W.
Landis, Executive Vice President of Programming; Barbara A. McMahon, Vice
President of Populuxe; and Rick E. Smith, Executive Vice President of National
Sales. Mr. Riley's employment with the Company terminated on January 31, 1999.
See the Summary Compensation Table and Option Grants in Last Fiscal Year for
further information on the stock option repricing.
PROPOSAL NO. 2
AMENDMENT TO THE 1994 DIRECTOR STOCK OPTION PLAN
BACKGROUND AND SUMMARY OF THE PLAN
GENERAL. The Board of Directors and shareholders previously adopted the
Company's 1994 Director Stock Option Plan (the "Plan") and reserved 125,000
shares of Common Stock for issuance thereunder. A general description of the
Plan is set forth below, but such description is qualified in its entirety by
reference to the full text of the Plan, a copy of which is attached to this
Proxy Statement as Exhibit A.
PURPOSE. The purpose of the Plan is to attract and retain the best available
individuals to serve as non-employee directors of the Company, to provide
additional incentives to the non-employee directors of the Company to serve as
directors, and to encourage their continued service on the Board of Directors.
TERM. The Plan shall continue in effect through January 1, 2004. The Board of
Directors may terminate the Plan at an earlier date; provided, however, that
such termination cannot affect options then outstanding.
ADMINISTRATION. The Plan is administered by the Compensation Committee. The Plan
gives broad powers to such committee to administer and interpret the Plan,
including the authority to select the fair market value of the Common Stock and
to make all other determinations necessary or advisable for the administration
of the Plan.
ELIGIBILITY. Options may be granted only to non-employee directors.
12
<PAGE>
OPTIONS. When a stock option is granted under the Plan, the Compensation
Committee, in its discretion, specifies the option price. 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 April 29, 1999, the closing
price of the Company's Common Stock as reported on the Nasdaq National Market
was $1.6875 per share. The term of each option shall be ten years.
AUTOMATIC GRANTS. Subject to shareholder approval of an increase in the number
of shares reserved for issuance under the Plan, the Board of Directors, in April
1999, approved the grant to each non-employee director of an option to purchase
45,000 shares of the Company's Common Stock at fair market value on the date of
grant. Each such option vests as follows: (a) 15,000 shares on the date of
grant, (b) 15,000 shares on the first anniversary of the date of grant provided
that the optionee remains a director on such date, and (c) 15,000 shares on the
second anniversary of the date of grant provided that the optionee remains a
director on such date. As amended, the Plan also provides that each non-employee
director will automatically be awarded an option to purchase 45,000 shares of
the Company's Common Stock on December 31, 2000 and December 31, 2003. Such
options will vest ratably over three-year periods provided that the optionee
remains a director.
AMENDMENT. The Board of Directors may from time to time suspend or discontinue
the 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 shareholder
approval is required for continued applicability of Rule 16b-3 under the
Exchange Act or for initial or continued listing of the Common Stock or other
securities of the Company upon any stock exchange.
ANTIDILUTION PROVISIONS. The Board of Directors shall equitably adjust the
maximum number of shares of Common Stock reserved for issuance under the 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.
OTHER PROVISIONS. 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. Except as permitted by the Board or Compensation Committee,
each option granted under the Plan is nontransferable during the lifetime of the
optionee. If an optionee ceases to serve as a director, the optionee may, but
only within 12 months after the date the optionee ceases to be a non-employee
director of the Company, exercise his or her option to the extent the optionee
was entitled to exercise it at the date of such termination. On April 29, 1999,
excluding the April 1999 option grants which are subject to shareholder approval
of an increase in the number of shares reserved for issuance under the Plan,
there were outstanding options granted under the Plan to purchase 49,490 shares
of Common Stock.
PROPOSED PLAN AMENDMENT
The Board has approved, subject to shareholder approval, an amendment to the
Plan which would increase the aggregate number of shares of Common Stock
available under the Plan from 125,000 to 500,000. The Board believes that this
increase will advance the interests of the Company and its shareholders by
increasing the proprietary interest of directors in the Company's long-term
success and more closely aligning the interests of the directors with the
Company's shareholders.
TAX INFORMATION
NONSTATUTORY STOCK OPTIONS. A participant will not recognize taxable income upon
the grant of a nonstatutory stock option. However, a participant who exercises a
nonstatutory stock option generally will recognize ordinary compensation income
in an amount equal to the excess of the fair market value of the Common Stock
acquired through the exercise of the option ("NSO Stock") on the exercise date
over the exercise price.
WITH RESPECT TO ANY NSO STOCK. A participant will have a tax basis equal to the
exercise price plus any income recognized upon the exercise of the option. Upon
selling NSO Stock, a participant generally will recognize capital gain or loss
in an amount equal to the excess of the sale price of the NSO Stock over the
participant's tax basis in the NSO Stock. This capital
13
<PAGE>
gain or loss will be a long-term gain or loss if the participant has held the
NSO Stock for more than one year prior to the date of the sale, and will be a
short-term capital gain or loss if the participant has held the NSO Stock for a
shorter period.
TAX CONSEQUENCES TO THE COMPANY. The grant of an option under the Plan will have
no tax consequences to the Company. The Company generally will be entitled to a
business-expense deduction with respect to any ordinary compensation income
recognized by a participant upon the exercise of an option under the Plan.
INTEREST OF CERTAIN PERSONS IN PROPOSED AMENDMENT TO THE PLAN
Each non-employee director received an option during 1998 for 3,750 shares of
Common Stock. If the amendment to the Plan is approved, each non-employee
director will receive an option during 1999 for 45,000 shares of Common Stock.
Each such director will also receive an option for 45,000 shares of Common Stock
on December 31, 2000 and December 31, 2003.
NEW PLAN BENEFITS
The following table sets forth the benefits that had been awarded under the
Plan, subject to shareholder approval of the amendment to the Plan, as of April
29, 1999.
1994 DIRECTOR STOCK OPTION PLAN
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE NUMBER OF SHARES
- ----------------- ------------ ----------------
<S> <C> <C>
Christopher T. Dahl....................................... 0 0
Chairman, President and Chief Executive Officer
James G. Gilbertson....................................... 0 0
Chief Operating Officer and Chief Financial Officer
Lance W. Riley(1)......................................... 0 0
Secretary and General Counsel
Gary W. Landis(2)......................................... 0 0
Executive Vice President of Programming
Barbara A. McMahon........................................ 0 0
Vice President of Populuxe
Rick E. Smith(3).......................................... 0 0
Executive Vice President of National Sales
Executive Group........................................... 0 0
Non-Executive Director Group.............................. $8,438(4) 135,000
Non-Executive Officer Employee Group...................... 0 0
</TABLE>
- ----------------
(1) Mr. Riley's employment with the Company terminated on January 31, 1999.
(2) Mr. Landis' employment with the Company terminated on January 15, 1999.
(3) Mr. Smith's employment with the Company terminated on January 1, 1999.
(4) Market value of underlying securities at April 29, 1999 minus the
exercise price.
REQUIRED VOTE
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 THE PLAN TO BE IN THE BEST
INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS THAT YOU VOTE FOR
THE AMENDMENT.
14
<PAGE>
PROPOSAL NO. 3
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, 1999. 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.
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, 1999.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LEASES
Until October 1998, the studios and tower site of WWTC(AM) and KYCR(AM) were
located in St. Louis Park, Minnesota. The studio facility consisted of
approximately 12,000 square feet. The tower site included four 200-foot towers,
a transmitter building and a storage garage on approximately 16 acres. The tower
site was leased from Christopher T. Dahl, President, Chief Executive Officer and
Chairman of the Company, at a total annual rent of approximately $114,000, and
the studio site was leased from a partnership consisting of Messrs. Dahl and
Perkins, a director of the Company, at an annual rent of approximately $132,000.
In connection with the sale of radio station KYCR(AM) to Salem Communications
Corporation ("Salem") in October 1998, Salem entered into a new lease agreement
and became the lessee for the KYCR(AM) tower site lease. Under the Salem tower
lease, Salem pays a lower monthly rental rate then what Mr. Dahl had received
under the tower lease agreement with the Company. Because the Company was
obligated under its lease until October 31, 2001, the Related Party Transaction
Committee ratified and approved the Company's reimbursement of Mr. Dahl for the
$84,000 difference between the monthly rental he would have received from the
Company and the monthly rental paid by Salem from November 1998 through October
2001. In addition, after the first year of its lease, Salem has the ability to
terminate its lease with one year's notice. In the event the lease is terminated
by Salem and Mr. Dahl is unable to lease the tower site to another party, the
Company has agreed to pay Mr. Dahl $4,500 per month, the full amount he would
have otherwise received from Salem, through October 2001.
From January 1996 through February 1999, the Company leased 6,000 square feet of
office space at 724 First Street North, Minneapolis, Minnesota, the former
location of its executive offices, from 724 Associates, a partnership consisting
of Messrs. Dahl, President, Chief Executive Officer and Chairman of the Company,
Perkins, a director of the Company, and Stephen L. Wallack, a shareholder of the
Company. These facilities were leased at annual rental of $54,000. The executive
offices were adjacent to the offices of CAC and Radio Management Corporation
("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. Under the
terms of the lease, the Company was 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. In March 1999, the Company assigned all of its rights and obligations
under the lease to 5501 Building Partnership, an entity owned by Messrs. Dahl
and Perkins.
MANAGEMENT SERVICES FROM AN AFFILIATE
From July 1993 through July 1998, the Company received administrative, legal and
accounting services from employees of RMC, an entity owned by Messrs. Dahl,
President, Chief Executive Officer and Chairman of the Company, Perkins, a
director of the Company and Cowles, a former director-elect. Since August 1998,
the Company has received such
15
<PAGE>
services from employees of MMLLC, an entity owned by Messrs. Dahl and Perkins.
Employees of MMLLC also provide similar services to CAC and Harmony. The Company
pays a set monthly fee of $75,000 for the services listed above. Effective May
1999, the Company's management fee will be reduced to $55,000 per month. All
outside services directly attributable to the Company are billed directly to the
Company. The Company paid RMC an aggregate of $525,000 for services during 1998
and an aggregate of $900,000 for services during 1997. The Company paid MMLLC an
aggregate of $745,000 for services during 1998, $370,000 of which was paid in
conjunction with expenses incurred in the sale of the Company's radio stations.
During 1998, the salaries of two officers of the Company, Messrs. Riley and
Gilbertson, were paid by RMC and MMLLC. At present, the salaries of two officers
of the Company, Mr. Gilbertson and Ms. Theis, are paid by MMLLC.
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 were evidenced by notes bearing
interest at 10% per annum, initially payable in July 1998, and amended in June
1998 to be payable in October 1998. Warrants to purchase an aggregate of 125,000
shares of Common Stock at $4.00 per share were issued to those lenders in July
1997. In connection with the June 1998 amendment to such notes, (a) the interest
rate on the note issued to Mr. Burwell was increased to 20% per annum effective
July 1998, (b) an additional warrant to purchase 25,000 shares of Common Stock
at $3.0625 per share was issued to Pyramid Partners, L.P. and (c) an additional
warrant to purchase 12,500 shares of Common Stock at $3.0625 per share was
issued to Mr. Toles. In November 1998, the Company repaid Messrs. Perkins, Toles
and Burwell in full.
Messrs. Dahl, Perkins and William E. Cameron, directors of the Company, are
directors of Harmony, an entity of which the Company is the largest shareholder.
In January 1998, the Company borrowed $611,000 from Harmony, and paid debt
issuance costs of $39,000, evidenced by a note payable to Harmony in the amount
of $650,000. The note payable bore interest at 15% per annum, was unsecured and
was 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 1998. In June
1998, the Company repaid the note in full. From November 1998 to March 1999, the
Company advanced Harmony an aggregate sum of approximately $3.1 million under
notes receivable bearing interest at 14% per annum.
In April 1998, the Company assigned to Pyramid Partners, L.P.; Perkins &
Partners, Inc., Profit Sharing Plan & Trust; and Christopher T. Dahl & State
Bank of New Prague Joint Account 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. Pyramid Partners, L.P. is an entity of which PCM is the managing
partner. Mr. Perkins, a director of the Company, is President and Chief
Executive Officer of PCM. Mr. Perkins is also President of Perkins & Partners,
Inc. Mr. Dahl is President, Chief Executive Officer and Chairman of the Company.
In October 1998, the Company repurchased the 225,000 shares of common stock of
Harmony at $2.75 from Pyramid Partners, L.P.; Perkins & Partners, Inc., Profit
Sharing Plan & Trust; and Christopher T. Dahl and State of New Prague Joint
Account.
NON-COMPETITION AGREEMENTS
In connection with the sale of radio station assets to Catholic Radio Network,
LLC ("CRN"), Christopher T. Dahl, President, Chief Executive Officer and
Chairman of the Company, entered into a three-year Consulting and Non-
Circumventive Agreement with CRN, pursuant to which Mr. Dahl received $750,000.
In connection with sale of radio station assets to Radio Unica Corp. ("Radio
Unica"), Mr. Dahl entered into a two-year Non-Competition Agreement with Radio
Unica, pursuant to which Mr. Dahl received $750,000.
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REPURCHASE OF SHARES
In August 1998, the Board of Directors of the Company authorized the repurchase
of up to 400,000 shares of the Company's Common Stock pursuant to Exchange Act
Rule 10b-18. The repurchase was to be made through a broker which was to have
made purchases of Common Stock in the open market in the Company's name and on
its behalf. The Company subsequently determined that the broker did not follow
the Company's instructions with respect to the purchase of such shares and
canceled its authorization for the repurchase of shares. The broker then advised
the Company that it had accumulated 385,000 shares of the Company's Common Stock
for its own account and presented Company with the opportunity to purchase such
shares, but the Company was unable to effect such purchase because of delays in
connection with the closing of the sale of assets to CRN and restrictions placed
upon the Company by its primary lender. Christopher T. Dahl, President, Chief
Executive Officer and Chairman of the Company, and Richard W. Perkins, a
director of the Company, with the consent of the Board, initiated negotiations
with the broker to acquire the broker's shares and financed the acquisition of
171,000 shares of the Company's Common Stock from the broker for their own
account and assumed all market and other risks associated therewith. Upon the
closing of the sale of the assets to CRN, the Company purchased the 171,000
shares of Common Stock from Messrs. Dahl and Perkins at their actual cost,
including financing expenses associated therewith and assumed the financing
obligations of Messrs. Dahl and Perkins at Key Community Bank. In January 1999,
the Company repaid in full its indebtedness to Key Community Bank.
SEVERANCE PLAN
In April 1999, the Company adopted a severance plan which covers Christopher T.
Dahl, Chairman of the Board, President and Chief Executive Officer; James G.
Gilbertson, Chief Operating Officer and Chief Financial Officer; and Richard W.
Perkins, a non-employee member of the Board of Directors. See "Executive
Compensation - Employment Contracts, Termination of Employment and
Change-in-Control Arrangements" for further information on such plan.
OTHER
Lance W. Riley, former Secretary and General Counsel of the Company, had an of
counsel relationship with Hessian & McKasy, P.A. ("HMPA"). HMPA is one of the
law firms which represented 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. During 1998, the Company paid HMPA legal fees of
$419,299 and disbursements of $50,735. On information and belief, Mr. Riley
received payments from HMPA in connection with the ABC/Disney litigation. The
Company has not been able to confirm the amount of such payments. Such payments
could involve more or less than $60,000.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 SEC.
Such officers, directors and shareholders are required by the SEC 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 SEC during 1998, all
applicable Section 16(a) filing requirements were satisfied, except that James
G. Gilbertson, Chief Operating Officer and Chief Financial Officer of the
Company, filed a late Form 5 in March 1999 regarding the disposition of 10,750
shares of the Company's Common Stock in October 1998.
SHAREHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING
If a shareholder of the Company wishes to present a proposal for consideration
for inclusion in the Proxy Statement for the 2000 Annual Meeting, the proposal
must be sent by certified mail, return receipt requested, and must be received
at the executive offices of Children's Broadcasting Corporation, 5501 Excelsior
Boulevard, Minneapolis, Minnesota 55416, Attn: Secretary, no later than January
7, 2000. All proposals must conform to the rules and regulations of the SEC. The
SEC recently amended Rule 14a-4, which governs the use by the Company of
discretionary voting authority with respect to other shareholder proposals. SEC
Rule 14a-4(c)(1) provides that, if the proponent of a shareholder proposal fails
to notify the
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Company at least 45 days prior to the month and day of the mailing of the prior
year's Proxy Statement, the proxies of the Company's management would be
permitted to use their discretionary authority at the Company's next Annual
Meeting of Shareholders if the proposal were raised at the meeting without any
discussion of the matter in the Proxy Statement. For purposes of the Company's
2000 Annual Meeting of Shareholders, the deadline is March 22, 2000.
ANNUAL REPORT ON FORM 10-KSB
A copy of the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1998, as filed with the SEC, including the financial statements and
financial statement schedules thereto, accompanies this Notice of Annual
Meeting, Proxy Statement and related proxy card. The Company will furnish to any
person whose proxy is being solicited any exhibit described in the exhibit index
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 exhibit(s) should be directed to Jill J. Theis, 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
May 6, 1999
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CHILDREN'S BROADCASTING CORPORATION
1994 DIRECTOR STOCK OPTION PLAN
(AS RESTATED EFFECTIVE APRIL 7, 1999)
1. Purpose of the Plan. The purpose of this 1994 Director Stock Option
Plan, is to attract and retain the best available individuals to serve as
Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.
The Company intends that the options granted hereunder shall not
constitute incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986. The Plan is intended to comply with the
requirements of Rule 16b-3 under the Exchange Act.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Common Stock" shall mean the Common Stock, $0.02 par value
per share, of the Company.
(b) "Company" shall mean Children's Broadcasting Corporation, a
Minnesota corporation.
(c) "Committee" shall mean a committee of the Board appointed by
the Board to administer the Plan.
(d) "Continuous Service as a Director" shall mean the absence of
any interruption or termination of service as a Director. Continuous
Service as a Director shall not be considered interrupted in the case
of sick leave, military leave, or any other leave of absence approved
by the Board or Committee.
(e) "Director" shall mean a member of the Board.
(f) "Employee" shall mean any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the
Company. The payment of fees to a Director shall not be sufficient in
and of itself to constitute "employment" by the Company.
(g) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(h) "Option" shall mean a stock option granted pursuant to the
Plan.
(i) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(j) "Optionee" shall mean an Outside Director who receives an
option.
(k) "Outside Director" shall mean a Director who is not an
Employee.
(l) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Internal
Revenue Code of 1986, as amended.
(m) "Plan" shall mean this 1994 Director Stock Option Plan.
(n) "Share" shall mean a share of Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(o) "Subsidiary" shall mean a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the
Internal Revenue Code of 1986, as amended.
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3. Stock Subject to the Plan. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 500,000. The Shares may be authorized, but unissued, or
reacquired Common Stock; provided, however, that Shares which were acquired upon
exercise of an Option and subsequently repurchased by the Company shall not
become available for future grant under the Plan. If an Option expires or
becomes unexercisable for any reason without having been exercised in full, the
unexercised Shares which were subject thereto shall, unless the Plan has been
terminated, become available for future grant under the Plan.
4. Automatic Grant of Options. All grants of Options hereunder shall
be automatic and non-discretionary and shall be made strictly in accordance with
the following provisions:
(a) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of
Shares to be covered by Options granted to Outside Directors.
(b) Subject to shareholder approval of an increase in the maximum
aggregate number of Shares which may be optioned and sold under the
Plan from 125,000 to 500,000, each Outside Director who was serving as
such on April 7, 1999 shall automatically be granted an Option to
purchase 45,000 Shares, effective April 7, 1999 (the "First Option"),
in lieu of the Option the Outside Director would have been entitled to
receive during calendar year 1999. Thereafter, such Outside Director
shall automatically be granted an Option to purchase 45,000 Shares (1)
on December 31, 2000 provided that such Outside Director has provided
Continuous Service as a Director through December 31, 2000 (the
"Second Option") and (2) on December 31, 2003 provided that such
Outside Director has provided Continuous Service as a Director through
December 31, 2003 (the "Third Option"). Each such Option shall vest in
accordance with the following schedule.
Option Grant Date Exercisability Date Shares Exercisable
------ ---------- ------------------- ------------------
First April 7, 1999 April 7, 1999 15,000
December 31, 1999 15,000
December 31, 2000 15,000
Second December 31, 2000 December 31, 2001 15,000
December 31, 2002 15,000
December 31, 2003 15,000
Third December 31, 2003 December 31, 2004 15,000
December 31, 2005 15,000
December 31, 2006 15,000
(c) Any person who first becomes an Outside Director after April
7, 1999, whether through election by the shareholders of the Company
or appointment by the Board to fill a vacancy, shall automatically be
granted an Option to purchase a pro rata portion of 45,000 Shares in
the following manner: (1) a person who becomes an Outside Director
between April 8, 1999 and December 30, 2000 shall automatically be
granted a pro rata portion of the First Option (and all of the Second
Option and Third Option if eligible under Section 4(b)), (2) a person
who becomes an Outside Director between December 31, 2000 and December
30, 2002 shall automatically be granted a pro rata portion of the
Second Option (and all of the Third Option if eligible under Section
4(b)), and (3) a person who becomes an Outside Director after December
31, 2003 shall automatically be granted a pro rata portion of the
Third Option. The Company shall calculate the pro rata portion of an
option issuable pursuant to Section 4(c) based upon the number of
complete months of service as an Outside Director elapsed during the
vesting cycle of a given option.
(d) Notwithstanding the provisions of Sections 4(b) and (c)
hereof, in the event that a grant would cause the number of Shares
subject to outstanding Options to Outside Directors plus Shares
previously purchased upon exercise of Options by Outside Directors to
exceed the number of Shares specified in Section 3, then each
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such automatic grant shall be for that number of Shares determined by
dividing the total number of Shares remaining available for grant by
the number of Outside Directors on the automatic grant date. Any
further grants shall then be deferred until such time, if any, as
additional Shares become available for grant under the Plan through
action of the shareholders to increase the number of Shares which may
be issued under the Plan or through cancellation or expiration of
Options previously granted hereunder.
5. Option Terms and Conditions. The terms and conditions of an Option
granted hereunder shall be as follows:
(a) the term of each Option shall be ten (10) years, subject to
Sections 12 and 13 hereof.
(b) the Option shall be exercisable only while the Outside
Director serves as an Outside Director of the Company, and for a
period of twelve (12) months after ceasing to be an Outside Director
pursuant to Section 10(b) hereof.
(c) the exercise price per Share shall be 100% of the fair market
value per Share on the date of grant of the Option, as determined in
accordance with Section 9(a) hereof.
(d) the effectiveness of any Options granted hereunder is
conditioned upon shareholder approval of the Plan in accordance with
Rule 16b-3 under the Exchange Act.
6. Administration of and Grants of Options under the Plan.
(a) Administration. Except as otherwise required herein, the Plan
shall be administered by the Board or a Committee.
(b) Powers of the Board or Committee. Subject to the provisions
and restrictions of the Plan, the Board or Committee shall have the
authority, in its discretion: (i) to determine, upon review of
relevant information and in accordance with Section 9(a) hereof, the
fair market value of the Common Stock; (ii) to interpret the Plan;
(iii) to prescribe, amend and rescind rules and regulations relating
to the Plan; (iv) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option
hereunder; and (v) to make all other determinations deemed necessary
or advisable for the administration of the Plan.
(c) Effect of Board or Committee Decision. All decisions,
determinations and interpretations of the Board or Committee shall be
final and binding on all Optionees and any other holders of any
Options granted under the Plan.
(d) Suspension or Termination of Option. If the Board or
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 Board or Committee (excluding the
Outside Director accused of such misconduct). If the Board or
Committee (excluding the Outside Director accused of such misconduct)
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 Board or Committee (excluding the
Outside Director accused of such misconduct) 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 Board or Committee.
(e) Date of Grant of Options. The date of grant of an Option
shall, for all purposes, be the date determined in accordance with
Section 4 hereof, notwithstanding the fact that an Optionee may not
have entered
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into an option agreement with the Company on such date. Notice of the
grant of an Option shall be given to the Optionee within a reasonable
time after the date of such grant.
7. Eligibility. Options may be granted only to Outside Directors. All
options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof. The Plan shall not confer upon any Optionee any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in any way with any rights which a Director or
the Company may have to terminate such Director's directorship at any time.
8. Term of Plan. The effective date of this Plan is May 23, 1994, the
date upon which it was adopted by the Board. The Plan shall continue in effect
through January 1, 2004, unless terminated sooner under Section 13 hereof.
9. Fair Market Value and Form of Consideration.
(a) Fair Market Value. The fair market value per share shall be
determined as follows:
(i) if the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such
exchange, the fair market value on any given day shall be the
closing sale price for the Common Stock on such day, as reported
in the Wall Street Journal or other newspaper of general
circulation;
(ii) if the Common Stock is not listed on a national
securities exchange, the fair market value on any given day shall
be the closing sale price for the Common Stock on the NASDAQ
National Market System on such day, as reported in the Wall
Street Journal or other newspaper of general circulation;
(iii) if the Common 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 on the NASDAQ National Market System, the fair market
value on any given day shall be the average of the closing
representative bid and asked prices on such day, as reported on
the NASDAQ System, and if not reported on such system, then as
reported by the National Quotation Bureau, Inc. or such other
publicly available compilation of the bid and asked prices of the
Common Stock in any over-the-counter market on which the Common
Stock is traded; or
(iv) if there exists no public trading market for the Common
Stock, the fair market value on any given day shall be an amount
determined by the Board or 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 Board or Committee as of the date of
determination nor less than the par value of the Stock.
(b) Form of Consideration. The consideration to be paid for the
Shares to be issued upon exercise of an Option shall consist entirely
of cash or such other form of consideration as the Board or Committee
may determine, in its sole discretion, to be appropriate for payment,
including but not limited to other shares of Common Stock having a
fair market value on the date of surrender equal to the aggregate
exercise price of the Shares as to which the Option is exercised, or
any combination of such methods of payment.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times as are set forth
in Section 4 hereof. An Option may not be exercised for a fraction of
a Share, or for fewer than 100 shares.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and
full payment
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for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may consist of any consideration
and method of payment allowable under Section 9(b) hereof. Until the
issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the
stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a shareholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the
Option. No adjustment will be made for a dividend or other right for
which the record date is prior to the date the stock certificate is
issued, except as provided in Section 12 hereof.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of
Shares as to which the Option was exercised.
(b) Termination of Status as a Director. If an Optionee ceases to
serve as a Director, the Optionee may, but only within twelve (12)
months after the date the Optionee ceases to be an Outside Director of
the Company, exercise his or her Option to the extent the Optionee was
entitled to exercise it at the date of such termination. To the extent
that the Optionee was not entitled to exercise an Option at the date
of such termination, or if the Optionee does not exercise such Option
within the time specified herein, the Option shall terminate.
(c) Death of Optionee. In the event of the death of an Optionee
occurring:
(i) during the term of the Option, and provided that the
Optionee was at the time of death a Director of the Company and
had been in Continuous Service as a Director since the date of
grant of the Option, the Option may be exercised, at any time
within six (6) months following the date of death, by the
Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the
extent of the right to exercise that would have accrued had the
Optionee continued living and remained in Continuous Service a
Director for six (6) months after the date of death.
(ii) within thirty (30) days after the termination of
Continuous Service as a Director, the Option may be exercised, at
any time within six (6) months following the date of death, by
the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the
extent of the right to exercise that had accrued at the date of
termination of Continuous Service as a Director.
11. Non-Transferability of Options. Except as permitted by the Board
or Committee, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
12. Changes In Capitalization; Fundamental Events.
(a) Adjustments Upon Changes in Capitalization or Merger. The
number of shares of Common Stock covered by each outstanding Option,
and the number of shares of Common Stock which have been authorized
for issuance under the Plan but as to which Options have not yet been
granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common
Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of
issued and outstanding shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in
that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of
any class, or options or rights to purchase shares
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of stock of any class shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option.
(b) Dissolution, Liquidation, Merger or Sale of Assets.
(i) 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 Board. The Board may, in the exercise of its sole
discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board and give each Optionee
the right to exercise his or her Option as to all or any part of
the Optioned Stock, including Shares as to which the Option would
not otherwise be exercisable.
(ii) 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 Board 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 as
to all of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable. If the Board makes an
Option fully exercisable in lieu of assumption or substitution in
the event of a merger or sale of assets, the Board shall notify
the Optionee that the Option shall be fully exercisable and shall
terminate in accordance with its terms.
13. Amendment, Termination and Approval of the Plan. The Board may at
any time amend or terminate the Plan, except that if any amendment to the Plan
requires approval by the shareholders of the Company for continued applicability
of Rule 16b-3 under the Exchange Act, or for initial or continued listing of the
Common Stock or other securities of the Company upon any stock exchange, then
such amendment shall be approved by the affirmative vote of the holders of a
majority of the securities of the Company present, or represented, and entitled
to vote at a meeting duly held in accordance with applicable law. The foregoing
provisions of this Section notwithstanding, no amendment or termination shall,
without the consent of the holder of an Option, alter or impair any rights or
obligations under any Option theretofore granted under the Plan except as is
permitted pursuant to Section 12 of the Plan.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of the NASD or any stock
exchange upon which the Shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law. Such Shares may also be issued
with appropriate legends on stock certificates representing such Shares, and the
Company may place stop transfer orders with respect to such Shares.
Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
15. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
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16. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board or Committee shall approve.
17. Information to Optionees. The Company shall provide to each
Optionee, during the period for which such Optionee has one or more Options
outstanding, copies of all annual reports and other information which are
provided to all shareholders of the Company.
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CHILDREN'S BROADCASTING CORPORATION
5501 EXCELSIOR BOULEVARD
MINNEAPOLIS, MN 55416
(612) 925-8840
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 May 6, 1999, and hereby
appoints James G. Gilbertson and Jill J. Theis, 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
1999 Annual Meeting of Shareholders of the Company to be held at the Minneapolis
Hilton and Towers, 1001 Marquette Avenue, Minneapolis, Minnesota, on June 22,
1999, at 10:30 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 to vote for all nominees listed
below) 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.
---------------------------------------------------------------------------
2. To consider and vote upon an amendment to the Company's 1994 Director Stock
Option Plan which would increase the number of shares reserved for issuance
thereunder from 125,000 to 500,000.
|_| FOR |_| AGAINST |_| ABSTAIN
3. To ratify the appointment of BDO Seidman, LLP as the Company's independent
public accountants for the fiscal year ending December 31, 1999.
|_| FOR |_| AGAINST |_| ABSTAIN
4. 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.
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 3. 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.
