U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For Quarterly period ended September 30, 1999 or
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the Transition period from _________ to _________
Commission File No. 0-21534
iNTELEFILM Corporation
----------------------
(Exact name of small business issuer as specified in its charter)
Children's Broadcasting Corporation
-----------------------------------
(former name)
Minnesota 41-1663712
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
5501 Excelsior Blvd., Minneapolis, MN 55416
-------------------------------------------
(Address of principal executive office, including zip code)
(612) 925-8840
--------------
(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes__X__ No_____
As of November 2, 1999, there were outstanding 6,131,842 shares of common
stock, $.02 par value, of the registrant.
<PAGE>
INDEX
iNTELEFILM CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -- September 30, 1999 and December 31,
1998.
Consolidated Statements of Operations -- Three and nine months ended
September 30, 1999 and 1998.
Consolidated Statements of Cash Flows -- Nine months ended
September 30, 1999 and 1998.
Notes to Consolidated Financial Statements -- September 30, 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
<PAGE>
iNTELEFILM Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
(unaudited) (audited)
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,524,259 $ 253,905
Accounts receivable 6,547,960 39,000
Allowance for doubtful accounts (179,664) (39,000)
Accounts receivable - affiliates 587,078 280,438
Radio station assets available for sale -- 11,391,402
Other accounts receivable 1,583,780 331,527
Prepaid expenses 193,424 279,816
Note receivable 15,000,000 --
------------- -------------
Total current assets 26,256,837 12,537,088
Note receivable -- 15,000,000
Investment in & notes receivable from Harmony -- 5,421,322
Property and equipment, net 3,072,519 120,385
Goodwill, net 6,811,595 --
Deferred debt issue costs -- 742,737
Other Assets 663,544 --
------------- -------------
Total assets $ 36,804,495 $ 33,821,532
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,930,204 $ 2,205,212
Accounts payable - affiliates -- 363,727
Accrued interest 1,298 143,505
Accrued income taxes 3,017,351 328,000
Deferred revenue 1,090,707 2,675,556
Other accrued expenses 5,115,995 1,227,637
Line of credit 2,124,773 434,974
Long-term debt - current portion 1,921,764 10,665,792
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Total current liabilities 16,202,092 18,044,403
Long-term debt, less current maturities 731,347 848,111
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Total liabilities 16,933,439 18,892,514
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Commitments and Contingencies -- --
Redeemable convertible preferred stock -- 2,448,486
Minority interest 81,387 --
Shareholders' equity
Common stock 117,929 129,015
Authorized shares - 50,000,000
Issued & outstanding shares - voting: 5,955,001
September 30, 1999 and 6,261,701 - December 31, 1998
Issued and outstanding shares - nonvoting:
189,041 - September 30, 1999 and December 31, 1998
Additional paid-in capital 45,258,431 45,773,584
Accumulated deficit (25,481,691) (33,292,504)
Stock subscriptions receivable (105,000) (129,563)
------------- -------------
Total Shareholders' Equity 19,789,669 12,480,532
------------- -------------
Total Liabilities & Shareholders' Equity $ 36,804,495 $ 33,821,532
============= =============
</TABLE>
<PAGE>
iNTELEFILM Corporation
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Production contract revenues $ 21,492,732 $ -- $ 45,732,020 $ --
Broadcast related revenues $ -- 531,842 $ 99,912 1,971,248
------------- ------------ ------------- ------------
Total revenues 21,492,732 531,842 45,831,932 1,971,248
Cost of Production 18,024,181 -- 38,317,499 --
------------- ------------ ------------- ------------
Gross profit $ 3,468,551 $ 531,842 $ 7,514,433 $ 1,971,248
Operating expenses:
Production divisions
Selling 598,009 -- 1,561,025 --
General and administrative 2,238,867 -- 4,425,274 --
Broadcast related expenses -- 1,102,111 193,319 3,443,814
------------- ------------ ------------- ------------
Production service income (loss) 631,675 (570,269) 1,334,815 (1,472,566)
Stock option compensation 60,000 -- 2,018,250 --
Corporate 893,382 1,413,877 2,278,010 3,941,445
Depreciation and amortization 446,680 528,005 1,018,176 1,621,626
------------- ------------ ------------- ------------
Income (loss) from operations (768,387) (2,512,151) (3,979,621) (7,035,637)
Gain/(loss) on sale of radio stations and production division 141,517 542,297 16,679,473 542,297
Equity loss in Harmony -- (877,074) (1,930,942) (1,803,871)
Interest income net of interest (expense) 296,150 (1,267,549) 165,182 (3,414,533)
------------- ------------ ------------- ------------
Net income (loss) before income taxes (330,720) (4,114,477) 10,934,092 (11,711,744)
Income tax provision -- -- 3,101,892 --
------------- ------------ ------------- ------------
Net income (loss) $ (330,720) $ (4,114,477) $ 7,832,200 $(11,711,744)
Accretion of preferred stock and minority interest (21,387) (544,189) (21,387) (544,189)
------------- ------------ ------------- ------------
Net income (loss) to common shareholders $ (352,107) $ (4,658,666) $ 7,810,813 $(12,255,933)
============= ============ ============= ============
Basic and diluted net income (loss) per share $ (0.05) $ (0.69) $ 1.21 $ (1.83)
============= ============ ============= ============
Weighted average number of shares outstanding 6,410,305 6,728,000 6,463,852 6,692,000
============= ============ ============= ============
</TABLE>
<PAGE>
iNTELEFILM Corporation
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
-----------------------------
<S> <C> <C>
Operating activities:
Net income (loss) $ 7,832,200 $(11,711,744)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Provision for doubtful accounts 96,947 (285,995)
Depreciation & amortization 1,018,176 1,621,626
Gain on sale of radio stations & production division (16,679,473) (542,297)
Net barter activity -- (8,840)
Stock option compensation 2,018,250 --
Amortization and write-off of deferred debt issue costs 742,737 615,640
Equity loss in Harmony 1,930,942 1,803,871
Non-cash interest payment related to sale of stations 92,008 --
Issuance of common stock for payment of interest -- 79,788
Decrease (increase) in:
Accounts receivable (648,865) 1,387,276
Other receivables 223,365 (68,751)
Prepaid expenses 99,322 (29,655)
Increase (decrease) in:
Accounts payable (3,328,793) 615,272
Accrued interest (12,493) 132,043
Deferred income (352,078) --
Other accrued expenses 4,106,589 3,242,624
------------ ------------
Net cash used in operating activities (2,861,166) (3,149,142)
------------ ------------
Investing activities:
Sale/purchase of property & equipment (494,577) 151,783
Net investment in & notes receivable from Harmony (1,663,102) (1,557,500)
Cash acquired related to Harmony consolidation 723,872 --
Investment in Curious Pictures (1,500,000) --
Other capital expendiures (844,938) 1,452,327
Proceeds from sale station and production division assets 13,720,358 --
------------ ------------
Net cash provided by (used in) investing activities 9,941,613 46,610
------------ ------------
Financing activities:
Payment of debt (1,556,468) (2,869,784)
Proceeds from debt financings -- 3,724,449
Redemption of convertible preferred stock (2,450,002) --
Repurchase of common stock (825,123) --
Proceeds from issuance of common stock -- 5,000
Proceeds from issuance of convertible preferred stock 21,500 1,864,250
------------ ------------
Net cash provided by (used in) financing activities (4,810,093) 2,723,915
------------ ------------
Increase (decrease) in cash and cash equivalents 2,270,354 (378,617)
Cash and cash equivalents at beginning of period 253,905 545,258
------------ ------------
Cash and cash equivalents at end of period $ 2,524,259 $ 166,641
============ ============
</TABLE>
<PAGE>
iNTELEFILM Corporation
Notes to Consolidated Financial Statements (unaudited)
September 30, 1999
Note 1 Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310 of
Regulation S-B. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals with the exception of the adjustments discussed in
Note 2) considered necessary for a fair presentation have been included.
Operating results for the three and nine-month periods ended September 30, 1999,
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Form 10-KSB
for the year ended December 31, 1998.
Additionally, in April 1999, the Company acquired additional shares of Harmony
Holdings, Inc. ("Harmony") (see Note 3). This additional ownership allows the
Company to consolidate Harmony, for financial statement purposes, as of April 1,
1999, rather than accounting for the investment under the equity method as it
has for all previous periods presented.
Note 2 Significant Transactions during 1999
The following significant transactions occurred during 1999 and are considered
non-recurring:
A. In January and February 1999, the Company advanced Harmony $2.38
million in cash pursuant to unsecured note receivable agreements due on
demand, which bore interest at 10%. Additionally, in February 1999, all
notes with Harmony were amended to provide for interest at 14%. It is
management's belief that 14% reflects the interest rate that would be
charged to Harmony by other junior and unsecured lenders. In June and
August 1999, Harmony paid the Company an aggregate of $1.0 million
representing approximately $771,000 of principal and $229,000 of
related interest. Notes outstanding with Harmony aggregated
approximately $2.3 million as of November 3, 1999. These notes and
related interest are eliminated for all consolidated periods presented.
B. In January 1999, the Company closed on the sale of the radio broadcast
licenses and certain other assets of its radio stations KAHZ(AM),
Dallas, KIDR(AM), Phoenix, and WJDM(AM), New York, to Radio Unica Corp.
("Radio Unica"). The Company received gross proceeds of $29.25 million
for the stations' assets which had a net book value of approximately
$11.4 million at the time of the sale. The Company incurred
approximately $1.5 million of transaction costs including bonuses paid
to management, employees and Media Management, LLC.
C. In January 1999, the Company redeemed all of its 606,061 shares of
Series B Convertible Preferred Stock which were issued in June 1998.
<PAGE>
The preferred stock was redeemed at $4.04 per share, or $2.45 million,
utilizing a portion of the proceeds from the Radio Unica transaction
(Note 2B).
D. In January 1999, the Company entered into an agreement regarding the
production of a picture titled "True Rights" based on a screenplay
written by Meg Thayer. In exchange for providing certain financing of
the production, the Company received a 33.33% equity interest in the
screenplay, production of "True Rights" and any other material relating
thereto. Also, the Company shall receive 30.0% of the net proceeds from
the distribution and exploitation of "True Rights" in all media and all
sources worldwide after the Company receives, on a parri passu basis
with other investors, the sum equal to 125% of its respective
contribution to the production of "True Rights". The Company's
financing obligation totaled $126,000 and was paid in full during the
filming of the project.
E. In February 1999, the Company incorporated a new subsidiary, Buffalo
Rome Films, Inc. ("Buffalo Rome"). Buffalo Rome seeks out independent
film opportunities.
F. On March 4, 1999, the Company acquired all of the issued and
outstanding common stock of Chelsea Pictures, Inc. ("Chelsea") for
consideration totaling approximately $1.14 million, representing
125,000 shares of common stock with a value of $250,000 and the
assumption of approximately $885,000 of liabilities net of assets.
Chelsea is a television commercial production company with principal
operations in New York. The acquisition has been accounted for as a
purchase, whereby, all assets purchased and liabilities assumed were
recorded at their fair market value. Additional consideration for the
transaction may consist of issuance of up to an aggregate of 75,000
additional shares of the Company's common stock. Any future issuance is
dependent on Chelsea meeting certain performance goals during the year
ended December 31, 1999. The value of shares issued will be treated as
an adjustment to the purchase price at the time of issuance.
The unaudited pro forma results of operations which follow, assume that
the acquisition of Chelsea had occurred at January 1, 1998. In addition
to combining the historical results operations of the Company and the
acquired business, the pro forma calculations include adjustments for
the estimated effect on the historical results of operations for
depreciation, interest and issuances of common stock related to the
business acquisition.
Three Months Ended Nine Months Ended
------------------ -----------------
9/30/99 9/30/98 9/30/99 9/30/98
------- ------- ------- -------
Revenues $ 21,492,732 $ 3,783,415 $ 47,439,932 $ 11,725,966
Gross profit 3,468,551 885,041 7,680,707 3,030,846
Loss from operations (768,387) (2,510,852) (4,202,683) (7,031,741)
Net income/(loss) (330,720) (4,106,776) 7,695,885 (11,688,640)
Net income per share (0.05) (0.60) 1.19 (1.71)
Weighted average number 6,410,000 6,853,000 6,464,000 6,817,000
of shares outstanding
<PAGE>
The unaudited pro forma results do not purport to be indicative of the
results of operations which actually would have resulted had the
acquisition occurred on January 1, 1998, or of future results of
operations of the consolidated entities.
G. In April 1999, the Company's Board of Directors authorized the
repurchase of up to 500,000 shares of its common stock, representing
approximately 7.6% of the then outstanding common stock, over a period
of 12 months. Repurchases have been and will be made in accordance with
Exchange Act Rule 10b-18, and will be subject to the availability of
stock, trading price, market conditions and the Company's financial
performance. The repurchased shares will be canceled and returned to
the Company's authorized capital stock. As of November 2, 1999, the
Company had repurchased an aggregate of 443,900 shares at prices
ranging from $1.63 to $2.06 per share.
H. In April, May and June 1999, the Company purchased an aggregate of
456,600 shares of Harmony's common stock at prices ranging from $.94 to
$1.03 per share. These purchases increased the Company's ownership in
Harmony to approximately 55.2%. For reporting purposes, the Company has
prepared consolidated financial statements under the purchase method of
accounting for the acquisition of a majority interest in a subsidiary.
I. Effective July 1, 1999, Harmony sold 90% of the issued and outstanding
shares of capital stock of one of its consolidated subsidiaries, The
End (London), LTD ("The End (London)"), to a principal executive (the
"Purchaser") of The End (London) for nominal consideration. The End
(London) is a commercial production company based in London, England,
and, prior to this sale, was a wholly owned subsidiary of Harmony. In
connection with the sale, the Company and the Purchaser entered into an
agreement granting the Purchaser the right, under certain
circumstances, to purchase the remaining 10% equity interest in The End
(London) from Harmony for approximately $803,000.
J. Effective as of August 1, 1999, the Company purchased the Option and
Share Transfer Agreement ("Option Agreement") entered into by Harmony
and the four principal executives (collectively, "Curious Management")
of Curious Pictures Corporation ("Curious Pictures") dated December 15,
1996. Under the Option Agreement, Curious Management could earn the
right to purchase 50% of the outstanding stock of Curious Pictures from
Harmony upon the achievement of certain specified financial goals.
Pursuant to the Company's purchase agreement and based on the results
of operations of Curious Pictures, it was agreed by all parties that
Curious Management's rights to purchase the 50% equity interest in
Curious Pictures had fully vested and were exercisable for
consideration totaling $50. Following its purchase of the Option
Agreement, the Company acquired 50% of Curious Pictures through the
exercise of stock options granted under the Option Agreement. The
Company also acquired a 1% equity interest in Curious Pictures owned by
Curious Management that was initially conveyed to Curious Management
upon signing the Option Agreement. The consideration paid to Curious
Management by the Company for the aforementioned acquisitions
aggregated $3.0 million consisting of $1.5 million in cash and a $1.5
<PAGE>
million note receivable bearing an interest rate of 8%, due May 31,
2000. As a result of the aforementioned transaction, the Company owns
51% of the outstanding stock of Curious Pictures and Harmony owns 49%
of the outstanding stock of Curious Pictures.
In addition, as of January 1, 1999, Curious Pictures entered into new
five-year employment agreements with each of the four members of
Curious Management. As part of the compensation to be paid to Curious
Management, at the end of each employment year, each member of Curious
Management was granted the right to purchase from Harmony, one share of
Curious Pictures, representing 1% of the capital stock of Curious
Pictures. As a result, if all of the members of Curious Management
exercise all of their new options over the five-year term of their
employment agreements, the Company will own 51% of the Curious Pictures
stock, Curious Management will collectively own 20%, and Harmony will
own the remaining 29%. Additionally, the Company granted Curious
Management warrants to purchase 300,000 shares of the Company's common
stock for approximately $1.92 per share.
The Company, Harmony, and Curious Management also entered into a Stock
Agreement effective as of August 1, 1999. Under this agreement, the
members of Curious Management were granted the right to sell to the
Company, the shares of Curious Pictures that they earn from Harmony
(the put right), and the Company obtained the right to purchase such
shares from Curious Management (the call right). The price to be paid
by the Company to Curious Management under the put or call is $96,774
per share. These options have been valued at their intrinsic value as
of August 1, 1999 ($54,000 per option). The related compensation
expense will be recognized ratably over the employment agreement
service period and reflected as a minority interest on the Company's
balance sheet. Further, the minority interest will be ratably accreted
to the value of management's put right ($96,774 per share) over the
time period from the option vesting date to the date that the put right
may be exercised. During the three month period ended September 30,
1999, the Company recognized compensation expense and accretion of the
minority interest of $60,000 and $21,000, respectively, resulting in a
minority interest valuation aggregating $81,000 at September 30, 1999.
K. In October 1999, the Company received payment in full on its $15.0
million note receivable with Catholic Radio Network ("CRN"). The
related interest and negotiated radio station sale prorations paid at
that time were approximately $226,000. The note was originally
scheduled to mature April 2000.
Note 3 Investment in Harmony
With the purchase of 456,600 shares of Harmony's common stock (see Note
2H), the Company holds a majority interest in Harmony through the
ownership of 4,139,562 shares of Harmony's common stock. As of November
3, 1999, the Company's investment represented 55.2% of Harmony's
outstanding common stock. Harmony's most recent fiscal year end was
June 30, 1999. Harmony's operations prior to the Company consolidating
Harmony's financial statements, are summarized as follows for the
quarter ended March 31, 1999:
<PAGE>
Three Months
Ended 3/31/99
-------------
Contract revenues $16,274,699
Cost of production 13,889,304
-----------
Gross profit 2,385,395
Production expenses 2,850,724
-----------
Income from productions (465,329)
Corporate, depreciation
& amortization 835,624
Restructuring cost &
impairment of assets (175,000)
Loss from
operations (1,125,953)
Interest expense (79,089)
-----------
Net loss $(1,205,042)
-----------
Harmony's results from operations are consolidated in the quarters
ended June 30, 1999 and September 30, 1999 (see Note 2H). Previous periods are
accounted for under the equity method.
No minority interest is currently shown related to Harmony, as the
minority shareholders no longer have any equity basis in their investment. As of
September 30, 1999, the Company has recognized losses in excess of its prorata
share totaling $1.9 million.
Note 4 Reclassifications
Certain amounts in the 1998 financial statements have been reclassified to
conform to the 1999 presentation. These reclassifications have no effect on the
accumulated deficit or net income or loss previously reported.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This discussion and analysis contains certain non-historical
forward-looking terminology such as "believes," "expects," "anticipates," and
"intends," or comparable terminology. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those projected. Potential purchasers of the Company's securities are
cautioned not to place undue reliance on such forward-looking statements which
are qualified in their entirety by the cautions and risks described herein.
General
The Company has officially changed its name to iNTELEFILM Corporation
and changed its Nasdaq symbol to "FILM". The Company
<PAGE>
implemented these changes as part of its repositioning into the commercial
production industry. Further, management believes that the Company has become
the largest producer of television commercials in the world. The Company has
made several investments in, and acquisitions of, television commercial
production and related media companies. These transactions are briefly described
in the following paragraph. More details on these transactions can be found in
Note 2 to the financial statements elsewhere in this document.
The Company has become a 55.2% owner of Harmony, a company that
produces television commercials, music videos, and related media. Additionally,
the Company has incorporated two new subsidiaries, Populuxe Pictures, Inc.
("Populuxe"), and Buffalo Rome. Populuxe is based in New York and currently is
comprised of three directors along with an executive staff. Populuxe produces
television commercials and related media. Buffalo Rome seeks independent film
opportunities. The Company also acquired a 33.3% equity interest in the
screenplay, production of, and any other material relating to the film "True
Rights". In the first quarter of 1999, the Company acquired the stock of
Chelsea, which is based in New York and engages in the production of television
commercials, independent films and related media. Effective August 1, 1999, the
Company purchased 51% of the stock of Curious Pictures, a commercial production
company and a producer of broadcast television programming. Curious Pictures has
studios in New York and San Francisco.
In the past year, the Company has transformed itself into a leading
source of services for the television commercial production industry, offering
the most extensive production capability available in the United States and the
exclusive services of established industry talent. The Company plans additional
acquisitions to further broaden its offering of services with the objective of
enhancing overall profit margins and leveraging its unique pool of talent and
technical expertise to capitalize on the convergence of short-form video content
and technologies of broadband Internet delivery systems.
It is the Company's intention to acquire small to medium sized
commercial production companies, as well as ancillary support and information
businesses. By undertaking this strategy, the Company believes it can increase
revenues and profits four ways: (i) Increase its talent base of in-demand
creative personnel; (ii) eliminate duplication of efforts through a centralized
accounting, sales and marketing effort; (iii) increase leverage with suppliers
and support services to receive more competitive rates and (iv) raise overall
profits through the strategic addition of high margin ancillary support and
information business.
Management believes that such a consolidation will place the Company in
a position to better serve and interact with the recent consolidation of global
advertising agencies, as well as position itself for the transition to digital
based business and Internet/new media applications.
<PAGE>
During 1998, the Company focused on the sale of the radio stations it
had acquired pursuant to its former business strategy. The last of such were
sold on January 14, 1999. In exchange for its radio stations, the Company
obtained approximately $55.0 million in cash and a note receivable for $15
million which was paid in full in October 1999.
Results of Operations:
Three and Nine Months ended September 30, 1999 compared to Three and
Nine Months ended September 30, 1998.
During the quarter ended June 30, 1999, the Company's ownership in
Harmony increased to 55.2%. As a result of this majority interest in Harmony,
the Company is required to prepare consolidated financial statements under the
purchase method of accounting for the acquisition of a majority interest in a
subsidiary. Harmony's results from operations are consolidated in the quarters
ended June 30, 1999 and September 30, 1999 (see Note 2H to the financial
statements). Previous periods are accounted for under the equity method.
The Company's total revenues increased $20,961,000 from $532,000 in the
third quarter of 1998 to $21,493,000 in the third quarter of 1999. During the
first nine months of 1999, revenues increased $43,861,000 over the same period
in 1998. Of these increases, $16,378,000 was produced by Harmony during the
third quarter of 1999, and $35,060,000 was produced by Harmony during the second
and third quarters of 1999 ("the Consolidated Reporting Period"). Chelsea and
Populuxe, two of the Company's new production companies, provided $5,114,000 of
revenue during the third quarter of 1999 and a total of $10,672,000 of revenues
during the first nine months of 1999, while the remaining revenues were related
to the broadcasting entities the Company held until mid-January 1999. Populuxe
is a start-up company which is building a new base of talent and directors with
which to produce revenues. Management believes that revenues will increase over
time as this base becomes fully developed. The Company began operating Chelsea
in March 1999. Chelsea currently has a base of talent and directors from which
to draw, but intends to continue to build that base to increase revenues.
Cost of production is directly related to revenues and includes all
direct costs incurred in connection with the production of television
commercials including film, crews, location fees and commercial directors' fees.
Cost of production as a percentage of production contract revenues was 84%
during the third quarter and first nine months of 1999. Management believes the
cost of production as a percentage of revenues will decrease as the production
companies retain more directors and these directors become more established.
<PAGE>
Selling expenses consist of sales commissions, advertising and
promotional expenses, travel and other expenses incurred in the securing of
television commercial contracts. Harmony's selling expenses were $551,000 and
$1,391,000 during the third quarter of 1999 and the Consolidated Reporting
Period, respectively, while selling expenses at Chelsea and Populuxe were
$47,000 and $170,000 for the three and nine months ended June 30, 1999,
respectively.
General and administrative expenses at the production companies consist
of overhead costs such as office rent and expenses, executive, general and
administrative payroll, and related items. Harmony's general and administrative
expenses were $1,636,000 and $3,102,000 for the third quarter of 1999 and the
Consolidated Reporting Period, respectively, while these expenses at Chelsea and
Populuxe were $603,000 and $1,323,000 during the three and nine months ended
September 30, 1999, respectively.
Expenses related to the Company's broadcasting entities held until
mid-January 1999 were $190,000 for the nine months ended September 30, 1999, a
decrease of $3,254,000 compared to the first nine months of 1998. These expenses
decreased as the radio stations were sold and the network discontinued producing
programming.
Stock option compensation was $2,018,000 for the nine months ended
September 30, 1999 and includes the following: (i) $50,000 of expense related to
options granted to members of the Company's Board of Directors, (ii) $1,908,000
of expense related to previously existing options granted to Curious Management,
and (iii) $60,000 of expense related to current options granted to Curious
Management.
Corporate charges decreased $521,000 during the third quarter of 1999
from $1,414,000 in the third quarter of 1998 to $893,000. During the first nine
months of 1999, these expenses decreased $1,663,000 as compared to the same
period in 1998. This decrease is attributable in part to a decrease in legal,
accounting, and outside service fees which were elevated in 1998 due to the
activity related to the sale of the radio stations. Additionally, during the
first nine months of 1999, there was a decrease in litigation expenses of
$2,103,000 as the trial against ABC/Disney was concluded in the last quarter of
1998. A less costly appeals process continues at this time. Corporate charges of
$642,000 during the Consolidated Reporting Period are attributable to Harmony.
Depreciation and amortization decreased $81,000 in the third quarter of
1999 compared to the third quarter of 1998, and decreased $603,000 in the first
nine months of 1999 compared to the first nine months of 1998. Depreciation and
amortization related to Harmony was $183,000 and $394,000 for the third quarter
of 1999 and the Consolidated Reporting Period, respectively. The decrease in
depreciation and amortization is a result of the Company's sale of its radio
stations. The Company reported $225,000 of amortization expense in each of the
second and third quarters of 1999 related to the excess of the investment cost
over the value of the underlying net assets (goodwill) of Harmony. Prior to the
Company obtaining a majority
<PAGE>
interest in Harmony, this expense was reported as a portion of the equity loss
in Harmony.
A net gain of $16,530,000 was realized in the first quarter months of
1999 from the sale of three of the Company's radio stations to Radio Unica. In
the third quarter of 1999, a gain of $150,000 was realized related to the sale
of 90% of the common stock of The End (London), a previously consolidated
subsidiary of Harmony (see Note 2I to the financial statements).
Net interest income for the third quarter of 1999 was $296,000 compared
to net interest expense of $1,268,000 during the same period of 1998. Net
interest income for the first nine months of 1999 was $165,000 compared to net
interest expense of $3,415,000. This decrease in interest expense was a result
of the payoff of the majority of the Company's debt in existence at the time of
the radio station sale, January 1999. Since that time, the Company has been
reporting the interest earned from the $15.0 million note receivable due from
CRN which was paid in full in October 1999, and, prior to the Consolidated
Reporting Period, the interest earned from the advances made to Harmony.
A tax provision of $3,100,000 was recorded in the first quarter of
1999. This represents approximately $700,000 of federal income tax and
$2,400,000 of state taxes estimated to be due as a result of the sale of the
radio stations. Income tax expense of $2,000 related to Harmony was recorded
during the Consolidated Reporting Period.
Net loss of $331,000 was realized in the third quarter of 1999 compared
to a net loss of $4,114,000 in the third quarter of 1998. Net income of
$7,832,000 was realized during the first nine months 1999 compared to a net loss
of $11,712,000 in the first nine months of 1998. This increase was due primarily
to the sale of the radio stations and the reduction of those stations' operating
losses.
Liquidity and Capital Resources
The Company's liquidity, as measured by its working capital, was
$10,055,000 at September 30, 1999, compared to a deficit of $5,507,000 at
December 31, 1998. This increase in working capital was due to the sale of three
radio stations to Radio Unica, the payoff of related debt, and the
reclassification of the note receivable from CRN of $15.0 million to a current
asset.
In January 1999, the Company closed on the sale of the radio broadcast
licenses and certain other assets of its radio stations KAHZ(AM), Dallas,
KIDR(AM), Phoenix, and WJDM(AM), New York, to Radio Unica. The Company received
gross proceeds of $29.25 million for the stations' assets which had a net book
value of approximately $11.4 million at the time of the sale. The Company
recognized approximately $1.5 million in transaction costs including bonuses
paid to management, employees and Media Management, LLC, recorded a tax
provision of $3.1 million, and paid off all but $981,000 of its debt outstanding
at the time of closing. The following is a description of the use of the
proceeds from the Radio Unica transaction:
<PAGE>
* The Company redeemed 606,061 shares of Series B Convertible
Preferred Stock which were issued in June 1998 for an aggregate
of $2.45 million (see Note 2C to the financial statements).
* The Company advanced Harmony approximately $2.4 million in cash
pursuant to unsecured note receivable agreements which are due on
demand and bear an interest rate of 14%. Total advances from the
Company at that time were approximately $3.1 million.
Subsequently, Harmony repaid the Company a total of $1.0 million
in principal and related interest which leaves approximately $2.3
million remaining due and payable to the Company as of November
3, 1999 (see Note 2A to the financial statements). These notes
and the related interest are eliminated in the Company's
consolidation of Harmony for periods after April 1, 1999.
* The Company acquired all of the issued and outstanding common
stock of Chelsea for consideration totaling approximately
$1,135,000, representing 125,000 shares of common stock with a
value of $250,000 and the assumption of approximately $885,000 of
liabilities net of assets (see Note 2F to the financial
statements).
* The Company's Board of Directors authorized the repurchase of up
to 500,000 additional shares of its common stock. As of November
2, 1999, the Company has paid a total of approximately $839,000
to repurchase an aggregate of 443,900 shares of common stock
under this plan (see Note 2G to the financial statements).
* The Company purchased 51% of Curious Pictures, a commercial
production company, from Curious Management for $1.5 million in
cash and $1.5 million pursuant to a promissory note bearing 8%
interest, due May 31, 2000. Curious Pictures was a subsidiary of
Harmony, which now owns 49% of Curious Pictures (see Note 2J to
the financial statements).
In October 1999, the Company received payment in full on its $15.0
million note receivable due from CRN. Management believes that with this money
as the foundation of its acquisition capital, the Company will have adequate
capital to continue its new business plan and acquisition strategy. However,
should a potential acquisition require greater capital than the Company's
current cash sources, the Company may need to obtain additional financing. If
the Company is not able to obtain adequate financing, or financing on acceptable
terms, it could possibly cause a delay in the implementation of its full
business plan. The Company has begun to execute the initial phase of its
business plan to acquire production companies through the acquisition of Chelsea
in March 1999, and the acquisition of 51% of Curious Pictures in August 1999.
The Company believes that a number of potential acquisitions similar in nature
to its acquisition of Chelsea exist. There can be no assurance that the Company
will consummate any
<PAGE>
additional acquisition or that any acquisition, if consummated, will ultimately
be advantageous or profitable for the Company.
Consolidated cash was $2,524,000 at September 30, 1999 and $254,000 at
December 31, 1998, an increase of $2,270,000.
Cash used in operating activities during the nine months ended
September 30, 1999 was $2,861,000 and the operating cash flows reflected are net
of account increases occurring as a result of acquisitions. Accounts receivable
at September 30, 1999 increased $649,000 from December 31, 1998, other
receivables at September 30, 1999 decreased $223,000, and prepaid expenses at
September 30, 1999 decreased $99,000 from December 31, 1998. Accounts payable at
September 30, 1999 decreased $3,329,000 from December 31, 1998, accrued interest
at September 30, 1999 decreased $12,000, other accrued expenses at September 30,
1999 increased $4,107,000 from December 31, 1998, and deferred income decreased
$352,000 during the same period.
During the nine months ended September 30, 1999, net cash obtained
through investing activities was $9,942,000 and was provided primarily by the
sale of the radio stations to Radio Unica net of proceeds utilized for the
direct payment of outstanding debt. As of September 30, 1999, advances made to
Harmony under note receivable agreements were $2,279,000 net of Harmony's
repayments. Of the $3,250,000 principal advance to Harmony, Harmony has repaid
the Company $971,000 of principal as well as the related interest. Proceeds from
the sale of radio stations totaled $14,034,000, net of advance payments received
prior to December 31, 1998.
Cash used in financing activities amounted to $4,810,000 during the
nine months ended September 30, 1999. This represents the redemption of the
convertible preferred stock for $2,450,000, the repurchase of the Company's
common stock of $825,000, and the cash used to repay debt.
Subsequent Events
In October 1999, the Company received payment in full on its $15.0
million note receivable due from CRN (see "Liquidity and Capital Resource").
Year 2000 Readiness Disclosure
The term "Year 2000" is used to describe general problems that may
result from improper processing of dates and date-sensitive calculations by
computers or other machinery as the year 2000 is approached and reached. This
problem stems from the fact that many of the world's computer hardware and
software applications have historically used only the last two digits to refer
to a year. As a result, many of these computer programs do not or will not
properly recognize a year that begins with "20" instead of the familiar "19". If
not corrected, this could result in a system failure or miscalculations which
may cause disruptions in operations, including
<PAGE>
among other things, a temporary inability to process transactions, send
invoices, or engage in similar business activities.
State of Readiness
To operate its business, the Company relies on certain information
technology ("IT") and non-technology systems, including its payroll, accounts
payable, banking and general ledger systems. The Company does not maintain any
proprietary IT systems and has not made any modifications to any of the IT
systems provided to it by outside vendors. The Company has used an outside IT
consultant to assess the readiness of its hardware and software. This assessment
has been completed and the remediation needed to bring the Company's systems
into compliance is scheduled to be completed by November 25, 1999. As part of
this remediation process, the Company replaced its voice-mail system during the
second quarter of 1999 at a cost of approximately $8,000.
The Company also relies upon certain suppliers and service providers,
over which it can assert little control. The Company has contacted critical
suppliers and service providers to assess the readiness of such parties and to
determine the extent to which the Company may be vulnerable to such parties'
failure to resolve their own Year 2000 issues. To date, ongoing communications
with these parties have not brought to our attention any material non-compliant
issues.
Costs to Address Year 2000 Issues
The Company anticipates that it may incur up to approximately $32,000
in additional costs to bring its remaining systems into Year 2000 compliance.
Based on the results of the Company's assessment, the Company believes that any
future expenses that may be incurred will not have a material adverse effect on
the Company's business, operating results or financial condition.
Risks of Year 2000 Issues
The Company recognizes that Year 2000 issues constitute a material
known uncertainty. The Company also recognizes the importance of ensuring that
Year 2000 issues will not adversely affect its operations. The Company believes
that the processes described above will be effective to manage the risks
associated with the problem. However, there can be no assurance that the
processes can be completed on the timetable described above or that remediation
will be fully effective. The failure to identify and remediate Year 2000 issues,
or the failure of key vendors, suppliers and service providers or other critical
third parties who do business with the Company to timely remediate their Year
2000 issues could cause an interruption in the business operations of the
Company. At this time, however, the Company does not possess information
necessary to estimate the overall potential financial impact of Year 2000
compliance issues.
Specific risks the Company may face with regard to Year 2000 issues may
include the inability of the Company's suppliers and service providers to be
Year 2000 ready which could result in television
<PAGE>
commercial production delay and may affect the Company's business. The most
likely worst case scenario for the Company is that it would be temporarily
unable to produce television commercials due to disruptions in the functioning
of its production equipment. The failure to produce television commercials would
result in reduced revenues and cash flows for the Company during the period of
disruption.
Contingency Plans
The Company recognizes the need for Year 2000 contingency plans in the
event that remediation is not fully successful or that remediation efforts of
its suppliers are not timely completed. Contingency plans for Year 2000 related
interruptions are being finalized.
Seasonality and Inflation
In the past, the Company's revenues generally followed retail sales
trends, with the fall season, September through December, reflecting the highest
revenues for the year, due primarily to back-to-school and holiday season retail
advertising, and the first quarter reflecting the lowest revenues for the year.
Presently, the Company has not determined the impact of seasonality on its
future revenues. The Company does not believe inflation has affected the results
of its operations, and does not anticipate that inflation will have an impact on
its future operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company filed a lawsuit in the fall of 1996 against ABC Radio
Networks, Inc. ("ABC Radio") and The Walt Disney Company ("Disney")
(collectively, "ABC/Disney"). On September 30, 1998, the jury entered a
verdict in favor of the Company and awarded the Company $20 million in
damages for breach of contract by ABC Radio, $10 million for
misappropriation of trade secret by ABC Radio and $10 million for
misappropriation of trade secret by Disney. On January 15, 1999,
although the United States District Court for the District of Minnesota
upheld the jury's findings as to liability, it set aside the jury's
verdict on causation and damages. The Company filed a Notice of Appeal
on February 12, 1999, and the Company intends to pursue its appeal of
the judgment. Certain personnel and financial resources will be used to
this end.
Item 2. Changes in Securities.
a. Not applicable.
b. Not applicable.
c. On July 27, 1999, the Company issued warrants to purchase
300,000 shares of its Common Stock, exercisable at $1.92
<PAGE>
per share, to the four principal officers of Curious Pictures
Corporation. Each warrant becomes exercisable to the extent of
50% of the shares purchasable thereunder on January 1, 2001,
provided that the warrant holder is then employed by Curious
Pictures. If the holder of the warrant agrees to extend his or
her employment agreement with Curious Pictures through
December 31, 2004, such warrant will become exercisable as to
the remaining 50% of the shares purchasable thereunder on
January 1, 2004. Each warrant expires on December 31, 2004.
This issuance was in connection with the Company's purchase of
1% of the equity of Curious Pictures and the Company's right
to acquire an additional 50% of the equity of Curious Pictures
from the four principal officers of Curious Pictures.
The above issuance was made in reliance upon the exemption
provided in Section 4(2) of the Securities Act of 1933, as
amended (the "Act"), which provides an exemption for
transactions not involving a public offering. The purchasers
of the securities described above acquired the warrants for
their own account and not with a view to any distribution
thereof to the public. At its issuance, the foregoing
securities were restricted as to sale or transfer, unless
registered under the Act, and the documents representing such
securities contained a restrictive legend, stating that the
securities were not to be offered, sold, or transferred other
than pursuant to an effective registration statement under the
Act, or an exemption from such registration. In addition, the
recipients of such securities received or had access to
material information concerning the Company, including but not
limited to the Company's reports on Form 10-KSB, Form 10-QSB
and Form 8-K, as filed with the Securities and Exchange
Commission. No underwriting commissions or discounts were paid
with respect to the issuances of the securities described
above.
d. Not applicable.
Item 3. Defaults upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Securities Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
<PAGE>
a. Exhibits
3 Articles of Incorporation, as amended.
27 Financial Data Schedule
b. Current Reports on Form 8-K
The Company filed the following Current Reports on Form 8-K
(File No. 0-21534) with the Commission during the quarter for which this report
is filed:
1. The Company's Current Report on Form 8-K filed on
July 2, 1999, relating to the Company doing business
as iNTELEFILM and changing its ticker symbol to
"FILM."
2. The Company's Current Report on Form 8-K filed on
August 4, 1999, relating to the Company's purchase of
51% of the equity in Curious Pictures Corporation.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized on November 8, 1999.
iNTELEFILM Corporation
BY: /s/ James G. Gilbertson
-----------------------------------
James G. Gilbertson
ITS: Chief Operating Officer and Chief
Financial Officer
EXHIBIT INDEX
3 Articles of Incorporation, as amended.
27 Financial Data Schedule
EXHIBIT 3
ARTICLES OF MERGER AND PLAN OF MERGER
OF
CHILDREN'S BROADCASTING CORPORATION
AND
CHILDREN'S RADIO OF KANSAS CITY, INC.
Pursuant to Section 302A.621 of the Minnesota Business Corporation Act,
the undersigned officer of Children's Broadcasting Corporation, a Minnesota
corporation (the "Surviving Corporation"), which is the owner of 100% of the
outstanding capital stock of Children's Radio of Kansas City, Inc., a Minnesota
corporation (the "Subsidiary Corporation"), hereby executes and files these
Articles of Merger:
FIRST: The Plan of Merger, in the form of resolutions duly adopted by
unanimous written action of the Board of Directors of the Surviving Corporation,
effective September 24, 1999, is attached hereto as Exhibit A.
SECOND: The number of outstanding shares of each class and series of
the Subsidiary Corporation and the number of shares of each class and series
owned by the Surviving Corporation are as follows:
-----------------------------------------------------------------------
DESIGNATION OF NUMBER OF NUMBER OF SHARES OWNED
CLASS AND SERIES OUTSTANDING SHARES BY SURVIVING CORPORATION
-----------------------------------------------------------------------
Common Stock, 100 100
no par value
-----------------------------------------------------------------------
THIRD: Since there are no shareholders of the Subsidiary Corporation
other than the Surviving Corporation, Minnesota Statutes ss. 302A.621 does not
require the mailing of a copy of the Plan of Merger to any shareholders of the
Subsidiary Corporation.
FOURTH: The Plan of Merger has been duly approved by the Surviving
Corporation pursuant to Minnesota Statutes ss. 302A.621.
FIFTH: The merger shall be effective on September 30, 1999.
Dated: September 24, 1999.
CHILDREN'S BROADCASTING CORPORATION
By
--------------------------------------
Christopher T. Dahl
Chairman and Chief Executive Officer
<PAGE>
EXHIBIT A
CHILDREN'S BROADCASTING CORPORATION
WRITTEN ADOPTION OF RESOLUTIONS
BY BOARD OF DIRECTORS
The undersigned, being all of the directors of Children's Broadcasting
Corporation, a Minnesota corporation subject to the Minnesota Business
Corporation Act (the "Company"), hereby adopt the following resolutions
effective as of September 24, 1999:
WHEREAS, the Company owns 100% of the issued and outstanding capital
stock of Children's Radio of Kansas City, Inc., a Minnesota corporation
("Subsidiary"), consisting of 100 shares of common stock, no par value; and
WHEREAS, the Company desires to effect the merger of Subsidiary with
and into the Company pursuant to Section 302A.621 of the Minnesota Business
Corporation Act.
NOW, THEREFORE, BE IT RESOLVED, that Children's Radio of
Kansas City, Inc. be merged with and into the Company pursuant to
Section 302A.621 of the Minnesota Business Corporation Act, in
accordance with the further resolutions set forth below (which
resolutions shall constitute the Plan of Merger).
RESOLVED FURTHER, that at the effective time of the merger,
all of the outstanding shares of common stock of Subsidiary owned by
the Company shall be canceled, and no securities of the Company or any
other corporation, or any money or other property, shall be issued in
exchange therefor.
RESOLVED FURTHER, that pursuant to unanimous action of the
Board of Directors of the Company hereby, the Company, as the surviving
corporation in the merger with the Subsidiary, shall change its
corporate name to iNTELEFILM Corporation, to be effective upon the
effective date of the merger, and Article I of the Articles of
Incorporation of the Company shall be deemed restated as follows:
ARTICLE I.
NAME
The name of this corporation shall be iNTELEFILM Corporation.
RESOLVED FURTHER, that the merger shall be effective upon the
later of (i) September 30, 1999, or (ii) the date of filing of articles
of merger with the Secretary of State of the State of Minnesota in the
manner required by law.
RESOLVED FURTHER, that any officer of the Company be and
hereby is authorized and directed to make, sign and acknowledge, for
and on behalf of the Company, articles of merger setting forth the
foregoing Plan of Merger and such other information as required by law,
and to cause such articles to be filed for record with the Secretary of
State of the State of Minnesota in the manner required by law.
RESOLVED FURTHER, that the officers of the Company, and each
of them, be and they hereby are authorized, for and on behalf of the
Company, to take such other action as such officers, or any of them,
shall deem necessary or appropriate to carry out the purposes of the
foregoing resolutions.
<PAGE>
------------------------------------------
Christopher T. Dahl
------------------------------------------
Richard W. Perkins
------------------------------------------
Michael R. Wigley
------------------------------------------
William E. Cameron
Constituting the entire Board of Directors
<PAGE>
STATE OF MINNESOTA
SECRETARY OF STATE
CERTIFICATE OF INCORPORATION
I, Joan Anderson Growe, Secretary of State of Minnesota, do certify
that: Articles of Incorporation, duly signed and acknowledged under oath, have
been filed on this date in the Office of the Secretary of State, for the
incorporation of the following corporation, under and in accordance with the
provisions of the chapter of Minnesota Statutes listed below.
This corporation is now legally organized under the laws of Minnesota.
Corporate Name: CD Broadcasting Corporation of Minneapolis
Corporate Charter Number: 60 568
Chapter Formed Under: 302A
This certificate has been issued on 02/07/1990.
----------------------------------------
Secretary of State
<PAGE>
STATE OF MINNESOTA -> See instructions on
OFFICE OF THE SECRETARY OF STATE reverse side for
completing this form
ARCTICLES OF INCORPORATION
CHAPTER 302A
- --------------------------------------------------------------------------------
CORPORATE NAME
CD Broadcasting Corporation of Minneapolis
- --------------------------------------------------------------------------------
The undersigned incorporators, who are natural persons 18 years of age or older,
in order to form a corporate entity under Minnesota Statues, Chapter 302A, adopt
the following articles of incorporation:
ARTICLE I
The name of the corporation is:
- --------------------------------------------------------------------------------
CORPORATION NAME
CD Broadcasting Corporation of Minneapolis
- --------------------------------------------------------------------------------
ARTICLE II
The registered office of this corporation is located at:
- --------------------------------------------------------------------------------
STREET ADDRESS CITY, STATE, ZIP COUNTY
5200 Willson Road, Ste. 308 Edina, MN 55424 Hennepin
- --------------------------------------------------------------------------------
The registered agent at that address is (Note: The appointment of an agent is
optional):
- --------------------------------------------------------------------------------
NAME OF AGENT
None
- --------------------------------------------------------------------------------
ARTICLE III
The corporation is authorized to issue an aggregate total of: NUMBER OF SHARES
(The minimum number of authorized shares is one.) 1,000
ARTICLE IV
The names and addresses of the incorporators are (Note: Only one incorporator is
required under Section 302A.105):
Name Address (may not be a post office box) Incorporator's Signature
(All incorporators must
sign the articles)
Lance W. Riley 5200 Willson Road, Ste. 308
Edina, Mn 55424
<PAGE>
STATE OF MINNESOTA
ss
County of Hennepin
The foregoing instrument was acknowledged before me this ___ day of ___________,
19__.
-----------------------------------------
(Notary Public)
(Notarial Seal)
- --------------------------------------------------------------------------------
INSTRUCTIONS FOR USE ONLY BY SECRETARY OF STATE
1. Type or print with dark black ink.
2. Total filing fee as required by Minnesota
Statues, Section 302A.011; 302.153 for
valid incorporation.
Filing Fee - $15.00.
Incorporation Fee - $70.00
3. Make check for the total filing fee of $85
payable to the Secretary of State.
4. Mail or bring completed form to:
Secretary of State
Corporation Division
180 State Office Building
St. Paul, MN 55155
(612) 296-2803
Note: This form is intended merely as a guide
in the formation of a Minnesota business
corporation under Minnesota Statutes Chapter
302A and is not intended to cover all
situations anticipated by that Statute. If this
form does not meet the specific needs and
requirements of the corporation that is being
formed, the incorporators should draft their
own articles specifically listing the
modifications or denials of each provision to
which they wish to be subject or from which
they wish to be exempt.
-> See instructions on
STATE OF MINNESOTA reverse side for
OFFICE OF THE SECRETARY OF STATE completing this form
CERTIFICATE OF CHANGE OF REGISTERED OFFICE
by
- --------------------------------------------------------------------------------
NAME OF CORPORATION
CD Broadcasting Corporation of Minneapolis
- --------------------------------------------------------------------------------
<PAGE>
Pursuant to Minnesota Status Section 302A.123, or 317.19, the undersigned hereby
certifies that the Board of Directors of the above named Minnesota corporation
has resolved to change the corporation's registered office:
- --------------------------------------------------------------------------------
F ADDRESS (NO. & 5200 Wilson Road, Suite 308
R STREET)
O -----------------------------------------------------
M CITY COUNTY ZIP
Hennepin Edina MN 55424
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADDRESS (NO. & 5001 West 80th Street, Suite 255
T STREET)
O -----------------------------------------------------
CITY COUNTY ZIP
Hennepin Bloomington MN 55437
- --------------------------------------------------------------------------------
The effective date of the change will be the _______ day of _________________,
19__, or the day of filing of this certificate with the Secretary of State,
whichever is later.
I swear that the foregoing is true and accurate and that I have the authority to
sign this document on behalf of the corporation.
NAME OF OFFICER OR OTHER AUTHORIZED AGENT OF CORPORATION SIGNATURE
Lance W. Riley
TITLE OR OFFICE DATE
Secretary March 15, 1991
STATE OF MINNESOTA ) The foregoing instrument was acknowledged
)SS. before me on this ____ day of _____, 19__.
COUNTY OF __________________ )
-----------------------------------
(Notarial (Notary Public)
Seal)
- --------------------------------------------------------------------------------
Receipt Number File Data
- --------------------------------------------------------------------------------
<PAGE>
ARTICLES OF AMENDMENT
OF
CD BROADCASTING CORPORATION OF MINNEAPOLIS
RESTATING AND AMENDING THE
ARTICLES OF INCORPORATION
The undersigned, President of CD Broadcasting Corporation of
Minneapolis, a corporation subject to Chapter 302A, hereby certifies that the
Articles of Amendment set forth below, containing the restatement of the
Articles of Incorporation with amendments thereto, were adopted by unanimous
written authorization of the directors and shareholders pursuant to Sections
302A.239 and 302A.441, Minnesota Statutes:
ARTICLE I.
NAME
The name of this corporation shall be Children's Broadcasting
Corporation.
ARTICLE II.
REGISTERED OFFICE
The registered office of this corporation is located at 215 South
Eleventh Street, Minneapolis, MN 55403.
ARTICLE III.
The names and addresses of the members of the Board of Directors at the
time of the adoption of these Amended and Restated Articles are:
NAME ADDRESS
Christopher T. Dahl 5404 Interlachen Blvd.
Edina, MN 55436
Richard W. Perkins 1485 Fox Street
Orono, MN 55391
ARTICLE IV.
CAPITAL
The aggregate number of shares of stock which this corporation shall
have the authority to issue is ten million shares with a par value of One Cent
($0.01) per share.
<PAGE>
ARTICLE V.
CLASSES AND SERIES OF STOCK
In addition to, and not by way of limitation of, the powers granted to
the Board of Directors by Minnesota Statutes, Chapter 302A, the Board of
Directors of this corporation shall have the power and authority to fix by
resolution any designation, class, series, voting power, preference, right,
qualification, limitation, restriction, dividend, time and price of redemption,
and conversion right with respect to any stock of the corporation. Upon adoption
of such resolution, a statement shall be filed with the Secretary of State in
compliance with Section 302A.401, Minnesota Statutes, before the issuance of any
shares for which the resolution creates rights or preferences not set forth in
these Articles; provided, however, where the shareholders have received notice
of the creation of shares with rights or preferences not set forth in the
Articles before the issuance of the shares, the statement may be filed any time
within one year after the issuance of the shares.
ARTICLE VI.
SHAREHOLDER VOTING
No shareholder of this corporation shall be entitled to any cumulative
voting rights.
The shareholders of the corporation shall take action by the
affirmative vote of the holders of a majority of the shares present and entitled
to vote, except where a larger proportion is required by law, these Articles of
Incorporation or a shareholder control agreement.
The affirmative vote of a majority of the voting power of all shares
entitled to vote shall be required to authorize the sale, lease, exchange or
other disposition of all or substantially all of the property and assets of the
corporation, including its goodwill, to amend the Articles of Incorporation, to
adopt or reject an agreement of merger or to authorize the dissolution of the
corporation.
ARTICLE VII.
PREEMPTIVE RIGHTS
No shareholder of this corporation shall have any preferential,
preemptive, or other rights of subscription to any shares of any class or series
of stock of this corporation allotted or sold or to be allotted or sold, whether
now or hereafter authorized, or to any obligations or securities convertible
into any class or series of stock of this corporation.
ARTICLE VIII.
DIRECTOR LIABILITY
A director of the corporation shall not be personally liable to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for (i) liability based on a breach of the duty of
loyalty to the corporation or the shareholders; (ii) liability for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law; (iii) liability based on the payment of an improper dividend
or an improper repurchase of the corporation's stock under Minnesota Statutes,
Section 302A.559, or on violations of federal or state securities laws; (iv)
liability for any transaction from which the director derived an improper
personal benefit; or (v) liability for any act or omission occurring prior to
the date this Article becomes effective. If Minnesota Statutes, Chapter 302A,
hereafter is amended to authorize the further
<PAGE>
elimination or limitation of the liability of directors, then the liability of a
director of the corporation in addition to the limitation on personal liability
provided herein, shall be limited to the fullest extent permitted by the amended
Chapter 302A. Any repeal of this provision as a matter of law or any
modification of this Article by the shareholders of the corporation shall be
prospective only, and shall not adversely affect any limitation on the personal
liability of a director of the corporation existing at the time of such repeal
or modification.
ARTICLE IX.
BOARD OF DIRECTORS VOTE
The affirmative vote of a majority of the Board of Directors of the
corporation present at a meeting is required for an action of the Board.
ARTICLE X.
BOARD ACTION WITHOUT A MEETING
Any action required or permitted to be taken at any meeting of the
Board of Directors may be taken without a meeting by written action signed by a
majority of the Board of Directors then in office, except as to those matters
which require shareholder approval, in which case the written action shall be
signed by all members of the Board of Directors then in office. Whenever written
action is taken by less than all of the directors, all directors shall be
notified immediately of the text and the effective date. Failure to provide the
notice to the other directors shall not invalidate the written action.
The undersigned has been authorized and directed to sign and file these
Articles of Amendment in the manner required by law.
-----------------------------------------
President
<PAGE>
CHILDREN'S BROADCASTING CORPORATION
CERTIFICATE OF DESIGNATION OF STOCK
The undersigned, being the duly appointed Secretary of Children's
Broadcasting Corporation, hereby certifies that the Board of Directors of the
Corporation, acting pursuant to Chapter 302A, Minnesota Statutes, took action by
unanimous resolution on November 18, 1991 to designate 378,083 shares of
non-voting Common Stock of the Corporation, pursuant to which resolution said
stock was issued on April 16, 1992.
The undersigned further certifies that the following resolution has
been duly adopted by the Board of Directors of the Corporation with respect to
the establishment and designation of non-voting stock:
DESIGNATION OF NON-VOTING STOCK
RESOLVED, in accordance with the Articles of Incorporation of
the Corporation and pursuant to Minnesota Statutes, Chapter
302A, the Board of Directors hereby establishes and designates
from the Corporation's unauthorized and unissued shares,
378,083 shares of common stock without voting rights (except
as hereinafter provided), which shares shall in all respects,
except for voting, be equal and have the same rights as, the
common stock of the Corporation, such non-voting common stock
hereinafter referred to as "Nonvoting Common Stock".
Notwithstanding the foregoing, such non-voting stock shall
have full voting rights at such time as the transfer of such
shares is legally permitted pursuant to the terms of an
agreement dated August 1,1991 between this Corporation,
Russell Cowles II, Marguerite A. Cowles and First Bank
Minneapolis, N.A., Trustees of the John Cowles Family Trust
for the benefit of Russell Cowles, II.
RESOLVED FURTHER, that the President and Secretary of the
Corporation are authorized and directed to take such further
action as shall be necessary or required to issue said
Non-Voting Common Stock and they, or any of them, are
authorized and directed to file a certificate of designation
pursuant to Section 302A.401, Subd. 3 of the Minnesota
Business Corporation Act with the Minnesota Secretary of
State.
I certify that I am authorized to execute this instrument and
I further certify that I understand that by signing this amendment I am
subject to the penalties of perjury as set forth in Section 609.48 as
if I had signed this Amendment under oath.
-----------------------------------------
Secretary of
CHILDREN'S BROADCASTING
CORPORATION
<PAGE>
CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS
OF CONVERTIBLE PREFERRED STOCK SERIES 1993-A
OF CHILDREN'S BROADCASTING CORPORATION
Children's Broadcasting Corporation, a corporation organized and
existing under the laws of Minnesota (the "Corporation"), does hereby certify:
That pursuant to authority vested in it by the provisions of the
Articles of Incorporation, the Board of Directors of the Corporation, at a
meeting of the Board held on December 8, 1993, at which meeting a quorum of
directors was present and acting throughout, did adopt the following resolution
authorizing the creation and issuance of a series of Preferred Stock designated
as Convertible Preferred Stock Series 1993-A:
RESOLVED, that the Corporation hereby designates 290,213 shares of its
authorized but unissued Preferred Stock, par value $.01, as Convertible
Preferred Stock, Series 1993-A, which shall have the following designations,
preferences, rights, qualifications, limitations and restrictions in addition to
those set forth in the Articles of Incorporation, as amended, of the
Corporation:
1 Designation: Number of Shares: Stated Value: Dividends.
Two Hundred Ninety Thousand Two Hundred Thirteen (290,213) shares of
Preferred Stock shall be designated Convertible Preferred Stock 1993-A
(hereinafter sometimes referred to as the "Convertible Preferred Stock" or as
this "Series"). Shares of this Series shall have a stated value of $10.00 per
share ("Stated Value"). Except as provided herein, shares of this Series shall
not be entitled to dividends or other distributions and shall be
non-participating for all purposes.
2 Redemption At Option of Holders.
(a) Commencing with the second day following the fifth
anniversary of the date of issuance (the "Redemption Commencement
Date"), the Corporation shall, subject to the requirements of the
Minnesota Business Corporation Act, from time to time, redeem all
shares of this Series tendered to the Corporation for redemption at the
option of the holders of the Convertible Preferred Stock. The
redemption price shall be the Stated Value. Such redemption shall be
effected on the terms and conditions hereinafter provided.
(b) Each holder of shares of this Series who elects to require
the Corporation to purchase all or any of such holder's shares shall
surrender to the Corporation's transfer agent (or other fiduciary
designated in writing by the Corporation as agent for redemption)
certificates of this Series then outstanding as soon as practicable
following the Redemption Date (hereinafter defined). The "Redemption
Date" shall mean a date which is eight (8) calendar months following
the giving of written notice (the "Redemption Notice") by such holder
to the Corporation. The Redemption Notice may be given up to eight
months prior to the Redemption Commencement Date and at any time after
the Redemption Commencement Date. A Redemption Notice shall contain the
holder's demand for redemption and be given to the Company at its
principal executive offices last set forth in the Corporation's
l0-Q/l0-QSB report filed with the Securities and Exchange Commission
or, if no such report has been filed, to the Corporation's registered
office in the state of its incorporation, as certified to or disclosed
by the secretary of state of such state. Such notice shall be deemed
given if in writing and sent postage prepaid by certified or registered
first class mail or by nationwide overnight courier. Once given, a
Redemption Notice may not be withdrawn; however, a holder may elect to
convert, in accordance with paragraph 3 hereof, any or all of the
shares of this Series prior to the Redemption Date.
<PAGE>
(c) The Corporation shall, on or before the Redemption Date,
deposit with its transfer agent (or such other agent for redemption
selected by the Corporation) as a trust fund, a sum sufficient to
redeem the shares of this Series subject to redemption, with
irrevocable instructions and authority to such transfer agent or other
redemption agent to give or complete the notice of redemption thereof
and to pay to the respective holders of such shares, as evidenced by a
list of such holders who have duly exercised such rights of redemption,
certified by an officer of the Corporation, the redemption price upon
surrender of their respective share certificates. Such deposit shall be
deemed to constitute full payment of such shares to their holders; and
from and after the date of such deposit, notwithstanding that any
certificates for such shares shall not have been surrendered for
cancellation by holders who have given a Redemption Notice, the shares
represented thereby shall no longer be deemed outstanding, and all
rights of such holders of the shares of Convertible Preferred Stock
shall cease and terminate, except the right to receive the redemption
price, without interest, as of the Redemption Date.
3 Conversion.
(a) The holder of any shares of this Series may at any time,
prior to a Redemption Date applicable to such holder, elect to convert
all or any portion of the shares of this Series into fully paid and
non-assessable shares of Common Stock at the initial rate of one (1)
share of Common Stock for each share of this Series, subject to
adjustment pursuant to the provisions of subparagraph (c) of this
paragraph 3. Such right of conversion shall be exercised by the
surrender of the shares so to be converted to the Corporation at any
time during normal business hours at the principal executive offices of
the Corporation or at the office of any agent for conversion from time
to time designated by it for conversion of ("Conversion Agent") the
shares of this Series accompanied by written notice of such holder's
election to convert and (if so required by the Corporation or the
Conversion Agent) by instruments of transfer, in form satisfactory to
the Corporation and to the Conversion Agent, duly executed by the
registered holder or by his duly authorized attorney, and transfer tax
stamps or funds therefor, if required pursuant to subparagraph (h) of
this paragraph 3.
(b) As promptly as practicable after the surrender for
conversion of any shares of this Series in the manner provided in
subparagraph (a) of this paragraph 3 and the payment in cash of any
amount required by the provisions of subparagraphs (a) and (h) of this
paragraph 3, the Corporation will deliver or cause to be delivered at
the principal executive offices of the Corporation or at the office of
the Conversion Agent to or upon the written order of the holder of such
shares, certificates representing (i) the number of full shares of
Common Stock issuable upon such conversion, and (ii) if less than the
full number of shares evidenced by the Convertible Preferred Stock
certificate are being converted, a new certificate for the remaining
number of shares thereof issued in such name or names as such holder
may direct. Such conversion shall be deemed to have been immediately
prior to the close of business on the date of such surrender of the
shares, and all rights of the holder of such shares as a holder of such
shares shall cease at such time and the person or persons In whose name
or names the certificates for such shares of Common Stock are to be
issued shall be treated for all purposes as having become the record
holder or holders thereof at such time and such conversion shall be at
the conversion rate in effect at such time; provided, however, that any
such surrender and payment on any date when the stock transfer books of
the Corporation shall be closed shall constitute the person or persons
in whose name or names the certificates for such shares of Common Stock
are to be issued as the record holder or holders thereof for all
purposes immediately prior to the close of business on the next
succeeding day on which such stock transfer books are opened and such
conversion shall be at the conversion rate in effect at such time on
such succeeding day.
<PAGE>
(c) The initial conversion rate shall be one (1) share of
Common Stock per share of this Series (equivalent to a conversion price
of $10.00 per share). The conversion rate shall be subject to
adjustment as follows:
(i) In case the Corporation shall (A) pay a dividend
or make a distribution in shares of its capital stock (whether
shares of Common Stock or of capital stock of any other
class), (B) subdivide its outstanding shares of Common Stock,
(C) combine its outstanding shares of Common Stock into a
smaller number of shares, (D) issue by reclassification of its
shares of Common Stock (whether by merger or consolidation or
otherwise) any shares of capital stock of the Corporation or
(E) take any action with the same effect as any of the
foregoing, the conversion privilege and the conversion rate in
effect immediately prior to such action shall be adjusted so
that the holder of any shares of this Series thereafter
surrendered for conversion shall be entitled to receive
(subject to further adjustments pursuant to subparagraphs
(c)(ii) and (c)(iii) hereof) the number of shares of capital
stock of the Corporation (or of the corporation surviving or
resulting from any merger or consolidation) which he would
have owned immediately following such action had such share
been converted immediately prior thereto. An adjustment made
pursuant to this subparagraph (c)(i) shall become effective
retroactively immediately after the record date in the case of
a dividend or distribution and shall become effective
immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result
of an adjustment made pursuant to this subparagraph (c)(i),
the holder of any shares thereafter surrendered for conversion
shall become entitled to receive shares of two or more classes
of capital stock of the Corporation, the Board of Directors
(whose determination shall be conclusive) shall determine the
allocation of the adjusted conversion rate between or among
shares of such classes of capital stock.
(ii) In case the Corporation shall issue rights or
warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock at a price
per share less than the current market price per share (as
determined pursuant to subparagraph (c)(iv) below) on the
record date mentioned below, other than pursuant to a dividend
reinvestment plan, the conversion rate shall be adjusted so
that the same shall equal the rate determined by multiplying
the conversion rate in effect immediately prior to the date of
issuance of such rights or warrants by a fraction of which the
numerator shall be the number of shares of Common Stock
outstanding on the date of issuance of such rights or warrants
plus the number of additional shares of Common Stock offered
for subscription or purchase, and of which the denominator
shall be the number of shares of Common Stock outstanding on
the date of issuance of such rights or warrants plus the
number of shares in which the aggregate offering price of the
total number of shares so offered would purchase at such
current market price. Such adjustment shall become effective
retroactively immediately after the record date for the
determination of stockholders entitled to receive such rights
or warrants. For the purposes of this paragraph 3(c)(ii), the
issuance of rights or warrants to subscribe for or purchase
stock or securities convertible into shares of Common Stock
shall be deemed to be the issuance of rights or warrants to
purchase the shares of Common Stock into which such stock or
securities are convertible at an aggregate offering price
equal to the aggregate offering price of such stock or
securities plus the minimum aggregate amount (if any) payable
upon conversion of such stock or securities into Common Stock.
(iii) In case the Corporation shall distribute to all
holders of its Common Stock evidences of its indebtedness or
assets (excluding any cash dividend paid
<PAGE>
from retained earnings of the Corporation) or rights or
warrants to subscribe to securities of the Corporation
(excluding those referred to in subparagraph (c)(ii) above),
then in each such case the conversion rate shall be adjusted
so that the same shall equal the rate determined by
multiplying the conversion rate in effect immediately prior to
the date of such distribution by a fraction of which the
numerator shall be the current market price per share
(determined as provided in subparagraph (c)(iv) below) of the
Common Stock on the record date mentioned below, and of which
the denominator shall be such current market price per share
of Common Stock less the then fair market value (as determined
by the Board of Directors of the Corporation, whose
determination shall be conclusive) of the portion of the
assets or evidences of indebtedness so distributed or of such
subscription rights or warrants applicable to one share of
Common Stock. Such adjustment shall become effective
retroactively immediately after the record date for the
determination of stockholders entitled to receive such
distribution.
(iv) For the purpose of any computation under
subparagraphs (c)(ii) and (c)(iii) above, the current market
price per share of Common Stock on any date shall be deemed to
be the average of the daily closing prices for 30 consecutive
trading days commencing 45 trading days before the day in
question. The "closing price" on any day shall mean the
reported last sale price on such day or, in case no such
reported sales takes place on such day, the average of the
reported closing bid and asked prices, in each case on the New
York Stock Exchange, or, if the Common Stock is not listed or
admitted to trading on such exchange, on the principal
national securities exchange on which the Common Stock is
listed or admitted to trading, or, if not listed or admitted
to trading on any national securities exchange, then in the
over-the-counter market as reported on NASDAQ or a similar
reporting service, or, if no such quotations are available,
the fair market price as determined by the Corporation (whose
determination shall be conclusive).
(v) In any case in which this subparagraph (c) shall
require that an adjustment be made retroactively immediately
following a record date, the Corporation may elect to defer
(but only until five business days following the mailing by
the Corporation of the certificate of independent public
accountants described in subparagraph (c)(vii) below) issuing
to the holder of any shares converted after such record date
(x) the shares of Common Stock and other capital stock of the
Corporation issuable upon such conversion over and above (y)
the shares of Common Stock and other capital stock of the
Corporation issuable upon such conversion only on the basis of
the conversion rate prior to adjustment.
(vi) No adjustment in the conversion rate shall be
required unless such adjustment would require an increase or
decrease of at least 1% in such rate; provided, however, that
any adjustments which by reason of this subparagraph (c)(vi)
are not required to be made shall be carried forward and taken
into account in any subsequent adjustment; and, provided
further, that the provisions of this paragraph 3 (other than
this subparagraph (c)(vi)) not later than such time as may be
required in order to preserve the tax-free nature of a
distribution to the holders of shares of Common Stock. All
calculations under this paragraph 3 shall be made to the
nearest cent or to the nearest one-hundredth of a share, as
the case may be. Anything in this paragraph 3 to the contrary
notwithstanding, the Corporation shall be entitled to make
such increases in the conversion rate in addition to those
required by this subparagraph (c) as it in its discretion
shall determine to be advisable in order that any stock
dividends, subdivision of shares, distribution of rights to
purchase stock or securities, or distribution of securities
convertible into or exchangeable for stock hereafter made by
the Corporation to its stockholders shall not be taxable.
<PAGE>
(vii) Whenever the conversion rate is adjusted as
herein provided, the Corporation shall promptly (x) file with
the Conversion Agent a certificate of a firm of independent
public accountants selected by the Board of Directors (who may
be the regular accountants employed by the Corporation)
setting forth the conversion rate after such adjustment and
setting forth a brief statement of the facts requiring such
adjustment, which certificate shall be conclusive evidence of
the correctness of such adjustment, and (y) mail or cause to
be mailed a notice of such adjustment to the holders of shares
of this Series at their last addresses as they shall appear
upon the books of the Corporation.
(viii) The term "Common Stock" shall mean the
Corporation's voting Common Stock, par value $.01 per share,
as the same exists at the date of filing of this Certificate
of Designation, Preferences and Rights of the Convertible
Preferred Stock, or any other class of stock resulting from
successive changes or reclassifications of such Common Stock
consisting solely of changes in par value or from par value to
no par value, or from no par value to par value. In the event
that at any time as a result of an adjustment made pursuant to
subparagraph (c)(i) above, the holder of any share thereafter
surrendered for conversion shall become entitled to receive
any shares of the Corporation other than shares of its Common
Stock, thereafter the conversion rate of such other shares so
receivable upon conversion of any share shall be subject to
adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with
respect to Common Stock contained in subparagraphs (c)(i)
through (c)(vii) above, and the provisions of subparagraphs
(a) through (c) and subparagraphs (e) through (k) of this
paragraph 4 with respect to the Common Stock shall apply on
like or similar terms to any such other shares.
(d) No fractional shares of stock shall be issued upon the
conversion of any share or shares of this Series. If more than one such
share of this Series shall be surrendered for conversion at the same
time by the same holder, the number of full shares which shall be
issuable upon the conversion thereof shall be computed on the basis of
the aggregate number of shares so surrendered. If any fractional
interest in a share of Common Stock would, except for the provisions of
this subparagraph (e), be deliverable upon the conversion of any share
or shares, the Corporation shall in lieu of delivering the fractional
share therefor, adjust such fractional interest by payment to the
holder of such surrendered share or shares of an amount in cash equal
(computed to the nearest cent) to the current market value of such
fractional interest on the last business day prior to the date of
conversion, computed on the basis of the last reported sale price on
such day or, in case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices, in each case on
the New York Stock Exchange or, if the Common Stock is not listed or
admitted to trading on such Exchange, on the principal national
securities exchange on which the Common Stock is listed or admitted to
trading, or, if not listed or admitted to trading on any national
securities exchange, then in the over-the-counter market as reported by
NASDAQ or a similar reporting service, or if no such quotations are
available, the fair market price as determined by the Corporation
(whose determination shall be conclusive).
(e) If either of the following shall occur, namely: (i) any
consolidation or merger to which the Corporation is a party, other than
a consolidation or a merger in which consolidation or merger the
Corporation is a continuing corporation and which does not result in
any reclassification of, or change (other than a change in par value or
from par value to no par value or from no par value to par value, or as
a result of a subdivision or combination) in, outstanding shares of the
Common Stock, or (ii) any sale or conveyance to another corporation of
the property of the Corporation as an entirety or substantially as an
<PAGE>
entirety in consideration for property or securities of such other
corporations; then the holder of each share of Convertible Preferred
Stock then outstanding shall have the right to convert such share into
the kind and amount of shares of stock and other securities and
property receivable upon such consolidation, merger, sale or conveyance
by a holder of the number of shares of Common Stock issuable upon
conversion of such share immediately prior to such consolidation,
merger, sale or conveyance, subject to adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for
in this paragraph 3. In any such event, effective provision shall be
made in the articles or certificate of incorporation of the resulting
or surviving corporation or other corporation issuing or delivering
such shares of stock or other securities or property or otherwise, so
that the provisions set forth herein for the protection of the
conversion rights of the Convertible Preferred Stock shall thereafter
be applicable, as nearly as reasonably may be, to any such other shares
of stock and other securities and property deliverable upon conversion
of the Convertible Preferred Stock remaining outstanding or other
convertible stock or securities received by the holders in place
thereof; and any such resulting surviving corporation or other
corporation issuing or delivering such shares or other securities or
property shall expressly assume the obligation to deliver, upon the
exercise of the conversion privilege, such shares of stock or other
securities or property as the holders of the Convertible Preferred
Stock remaining outstanding, or other convertible stock or securities
received by the holders of the Convertible Preferred Stock remaining
outstanding, or other convertible stock or securities received by the
holders in place thereof, shall be entitled to receive, pursuant to the
provisions hereof, and to make provision for the protection of the
conversion right as above provided. In case shares, securities or other
property other than Common Stock shall be issuable or deliverable upon
conversion as aforesaid, then all references to Common Stock in this
paragraph 3(e) shall be deemed to apply, so far as provided and as
nearly as is reasonable, to any such shares of stock and other
securities and property. The provisions of this subparagraph (e) shall
similarly apply to successive consolidations, mergers, sales or
conveyances.
(f) The Corporation covenants that it will at all times
reserve and keep available, solely for the purpose of issue upon
conversion of the shares of this Series, such number of shares of
Common Stock as shall be issuable upon the conversion of all such
outstanding shares; provided, that nothing contained herein shall be
construed to preclude the Corporation from satisfying its obligations
in respect of the Conversion of the shares by delivery of purchased
shares of Common Stock which are held in the treasury of the
Corporation. For the purpose of this subparagraph (f), the full number
of shares of Common Stock issuable upon the conversion of all
outstanding shares of this Series shall be computed as if at the time
of computation of such number of shares of Common Stock all outstanding
shares of this Series were held by a single holder.
The Corporation will endeavor to list the shares of Common
Stock required to be delivered upon conversion of shares prior to such
delivery on NASDAQ or each national securities exchange upon which the
outstanding Common Stock is listed at the time of such delivery.
The Corporation covenants that all shares of Common Stock
which shall be issued upon conversion of the shares will upon issue be
fully paid and non-assessable and not subject to any preemptive rights.
(g) Before taking any action which would cause an adjustment
reducing the conversion price per share of this Series below the then
par value of the Common Stock, the Corporation will take any corporate
action which may, in the opinion of its counsel, be necessary in order
that the Corporation may validly and legally issue fully paid and
non-assessable shares of Common Stock at the conversion rate as so
adjusted. If as a
<PAGE>
result of conversion of the shares of this Series it becomes necessary
to authorize additional shares of Common Stock, the Corporation
covenants that it will take such action at such time as is necessary by
amendment of the Corporation's Articles of Incorporation.
(h) The Corporation shall pay any and all issue or other taxes
payable in respect of any issue or delivery of shares of Common Stock
upon conversion. However, if any such certificate is to be issued in a
name other than that of the holder of the share or shares converted,
the person or persons requesting the issuance thereof shall pay to the
Corporation the amount of any tax which may be payable in respect of
any transfer involved in such issuance or shall establish to the
satisfaction of the Corporation that such tax has been paid.
(i) Notwithstanding anything elsewhere contained in this
Certificate, any funds which at any time shall have been deposited by
the Corporation or on its behalf with any paying agent for the purpose
of paying dividends on or the redemption price of any shares of this
Series and which shall not be required for such purposes because of the
conversion of such shares, as provided in this paragraph 3, shall be,
upon delivery to the paying agent of evidence satisfactory to it of
such conversion, after such conversion be repaid to the Corporation by
the paying agent.
(j) In case:
(i) the Corporation shall take any action which would
require an adjustment in the conversion rate pursuant to
subparagraph (c) of this paragraph 3; or
(ii) the Corporation shall authorize the granting to
the holders of its Common Stock of rights or warrants to
subscribe for or purchase any shares of stock of any class or
of any other rights and notice thereof shall be given to
holders of Common Stock; or
(iii) there shall be any capital reorganization or
reclassification of the Common Stock (other than a subdivision
or combination of the outstanding Common Stock and other than
a change in par value or from par value to no par value or
from no par value to par value of the Common Stock), or any
consolidation or merger to which the Corporation is a
consolidation or merger to which the Corporation is a party
and for which approval of any stockholders of the Corporation
is required, or any sale or transfer of all or substantially
all of the assets of the Corporation; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed with any conversion agent,
and shall cause to be given to the holders of the shares of this Series
at least ten business days prior to the applicable date hereinafter
specified, a notice setting forth (x) the date on which a record is to
be taken for the purpose of any distribution or grant to holders of
Common Stock, or, if a record is not to be taken, the date as of which
the holders of Common Stock of record to be entitled to such
distribution or grant are to be determined or (y) the date on which
such reorganization, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up is expected to become
effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, transfer
dissolution, liquidation or winding-up. Failure to give
<PAGE>
such notice or any defect therein shall not affect the legality or
validity of the proceedings described in clauses (i) through (iv) of
this subparagraph (j).
4 Voting.
The shares of this Series shall not have any voting powers either
general or special, except as provided by law. In exercising any voting rights
conferred by law, each share of Convertible Preferred Stock shall be entitled to
one vote.
5 Liquidation Rights.
Upon the dissolution, liquidation or winding-up of the Corporation,
whether voluntary or involuntary, the holders of the shares of this Series shall
be entitled to receive, before any payment or distribution of the assets of the
Corporation or proceeds thereof (whether capital or surplus) shall be made to or
set apart for the holders of the Common Stock or any other class or series of
stock, the amount of $10.00 per share. If, upon any liquidation, dissolution or
winding-up of the Corporation, the assets of the Corporation, or proceeds
thereof, distributable among the holders of shares of the Convertible Preferred
Stock and any other class or series of Preferred Stock ranking on a parity with
the Convertible Preferred Stock as to payments upon liquidation, dissolution or
winding-up shall be insufficient to pay in full the preferential amount
aforesaid, then such assets or the proceeds thereof, shall be distributed among
such holders ratably in accordance with the respective amounts which would be
payable on such shares if all amounts payable thereon were paid in full. For the
purposes of this paragraph 5, the voluntary sale, conveyance, lease, exchange or
transfer (for cash, shares of stock, securities or other consideration) of all
or substantially all the property or assets of the Corporation to, or a
consolidation or merger of the Corporation with, one or more other corporations
(whether or not the Corporation is the corporation surviving such consolidation
or merger) shall not be deemed to be a liquidation, dissolution or winding-up,
voluntary or involuntary.
6 No Purchase. Retirement or Sinking Fund.
The shares of this Series shall not be subject to the operation of any
purchase, retirement or sinking fund.
7 Status.
Shares of this Series which have been issued and reacquired in any
manner by the Corporation shall, upon compliance with any applicable provisions
of the Minnesota Business Corporation Act, have the status of authorized and
unissued shares of Preferred Stock and may be reissued as a part of this Series
or as part of a new series of Preferred Stock to be established by the Board of
Directors or as part of any other series of Preferred Stock the terms of which
do not prohibit such reissue; provided, however, that such shares may not be
reissued as shares of this Series.
8 Priority.
The Common Stock and all other series of Preferred Stock of the
Corporation, now or hereafter issued, shall rank junior to the Convertible
Preferred Stock as to payment of dividends and as to distributions of assets
upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary.
9 Relative Rights of Convertible Preferred Stock.
So long as any of the Convertible Preferred Stock is outstanding, the
Corporation will not:
<PAGE>
(a) Declare, or pay, or set apart for payment, or make any
distribution in cash or other property on any other class or series of
stock of the Corporation ranking junior to the Convertible Preferred
Stock either upon liquidation, dissolution or winding-up, and will not
redeem, purchase or otherwise acquire any shares of any such junior
class or series if at the time of making such declaration, payment,
distribution, redemption, purchase or acquisition the Corporation shall
be in default with respect to any obligation to redeem shares of
Convertible Preferred Stock which shall have been tendered for
redemption; and
(b) Without the affirmative vote or consent of the holders of
at least a majority of all the Convertible Preferred Stock at the time
outstanding, voting separately as a class, given in person or by proxy,
either in writing or by resolution adopted either at an annual meeting
or special meeting called for the purpose, (i) authorize, create, or
issue, or increase the authorized or issued amount, of any class or
series of stock ranking on a par with or prior to the Convertible
Preferred Stock, upon liquidation, dissolution or winding-up or (ii)
amend, alter or repeal (whether by merger, consolidation or otherwise)
any of the provisions of the Corporation's Articles of Incorporation,
or of the Certificate of Designation, Preferences and Rights of the
Convertible Preferred Stock, so as to materially and adversely affect
the preferences, special rights, privileges or powers of the
Convertible Preferred Stock; provided, however, that the creation and
issuance of other series of Preferred Stock ranking junior to the
Convertible Preferred Stock shall not be deemed to materially and
adversely affect such preferences, rights, privileges or powers.
<PAGE>
IN WITNESS WHEREOF, CHILDREN'S BROADCASTING CORPORATION has caused its
corporate seal to be hereunto affixed and this Certificate of Designation of
Preferences and Rights to be signed by its President and attested by its
Secretary this _____day of _____________, 19__.
CHILDREN'S BROADCASTING CORPORATION
[Corporate Seal]
By:
--------------------------------------
Christopher T. Dahl
Attest: Chief Executive Officer
Lance W. Riley, Secretary
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
CHILDREN'S BROADCASTING CORPORATION
The undersigned officer, on behalf of Children's Broadcasting
Corporation, a Minnesota corporation (the "Corporation"), hereby certifies that
an amendment to the Corporation's Articles of Incorporation has been duly
approved by the Company's Board of Directors and shareholders in accordance with
Sections 302A.135 and 302A.139 of the Minnesota Statutes. Accordingly, Article
IV is amended in its entirety to read as follows:
ARTICLE IV
CAPITAL
The aggregate number of shares of stock which this corporation shall
have the authority to issue is twenty-five million (25,000,000) shares with a
par value of one cent ($0.01) per share.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to the Articles of Incorporation to be executed this 31st day of
October, 1994.
CHILDREN'S BROADCASTING CORPORATION
By:
-------------------------------------
Its:
--------------------------------
<PAGE>
ARTICLES OF AMENDMENT
TO
RESTATED ARTICLES OF INCORPORATION
OF
CHILDREN'S BROADCASTING CORPORATION
CHILDREN'S BROADCASTING CORPORATION, a corporation organized and
existing under the laws of the State of Minnesota (herein referred to as the
"Corporation"), in accordance with the provisions of Minnesota Statutes, Section
302A.139, does hereby certify that:
1. Effective as of January 11, 1996, pursuant to the authority conferred
upon the Board of Directors by Minnesota Statutes, Section 302A.402,
Subdivision 3, the Board of Directors authorized and adopted in writing
resolutions providing for a one (1) for two (2) "Combination" and the
following is a true copy of such resolutions:
RESOLVED, that there is hereby declared a Reverse Stock Split
or Combination, pursuant to which every two (2) shares of
issued and outstanding voting or nonvoting Common Stock, $.0l
par value per share, and every two (2) shares of authorized
but unissued voting or nonvoting Common Stock, $.01 par value
per share, existing on the Combination Effective Date, shall
be converted into one (1) share of Common Stock, $.02 par
value per share; and every two (2) shares of Common Stock,
$.0l par value per share issuable or reserved for issuance
upon conversion of convertible preferred stock, or upon
exercise of outstanding stock options and stock purchase
warrants, shall, as of the Combination Effective Date, be
converted automatically into one (1) share of Common Stock,
$.02 par value per share.
FURTHER RESOLVED, that in order to effect the Combination,
Article IV of the Corporation's Restated Articles of
Incorporation is amended in its entirety as follows:
ARTICLE IV
CAPITAL
The aggregate number of shares of
stock which this corporation shall have the
authority to issue is twelve million five
hundred thousand (12,500,000) shares with a
par value of two cents ($.02) per share.
FURTHER RESOLVED, that such Combination shall be effected
automatically on January 23, 1996, or such later date when the
Amendment shall be filed with the Minnesota Secretary of State
without further action by the Board of Directors or
shareholders.
FURTHER RESOLVED, that the appropriate officers are hereby
authorized and directed to prepare, execute, acknowledge and
file on the Combination Effective Date the Articles of
Amendment to the Restated Articles of Incorporation of this
Corporation together with any other document or instrument
necessary in connection with such Combination; and to request
shareholders to exchange their stock certificates representing
shares of Common Stock held prior to the Combination for new
certificates representing shares of Common Stock issued as a
result of the Combination.
FURTHER RESOLVED, that, promptly following the Combination
Effective Date, the Corporation shall furnish the shareholders
with the necessary materials and
<PAGE>
instructions to effect the exchange of their stock
certificates in accordance with the Combination.
FURTHER RESOLVED, that shareholders who after the Combination
would otherwise be entitled to receive fractional shares of
Common Stock, will, upon surrender of their stock certificates
representing shares of Common Stock owned as of the
Combination Effective Date, receive a cash payment in lieu
thereof equal to the value of such fractional shares
determined by reference to the average closing bid price of
the Common Stock for a period of ten trading days immediately
preceding the Combination Effective Date, as reported by the
NASDAQ SmallCap Market.
FURTHER RESOLVED, that certificates representing shares of
Common Stock outstanding immediately prior to the Combination
Effective Date which are subsequently presented for transfer
will not be transferred on the books and records of the
Corporation until the certificates representing such shares of
Common Stock have been exchanged of record for certificates
representing shares of Common Stock reflecting the
Combination.
FURTHER RESOLVED, that in the event any certificate
representing shares of Common Stock outstanding prior to the
Combination is not presented for exchange upon request by the
Corporation, any dividends that may be declared after the
Combination Effective Date with respect to the Common Stock
represented by such certificate will be withheld by the
Corporation until such certificate has been properly presented
for exchange.
FURTHER RESOLVED, that the appropriate officers of the
Corporation, be and they hereby are authorized and directed,
upon filing of the Amendment pursuant to Minnesota Statutes,
Section 302A.402, to proceed promptly to carry out the
foregoing Actions and to execute and file all documents and
instruments and to take such other actions as such officers
deem necessary and appropriate to complete the Combination in
accordance with Minnesota Statutes, Chapter 302A.
FURTHER RESOLVED, that the effective date of the above
Resolutions shall be as of January 11, 1996.
2. The foregoing amendment to Article IV of the Restated Articles of
Incorporation will not adversely affect the rights or preferences of
the holders of outstanding shares of any class or series of the
Corporation's stock and will not result in the percentage of authorized
shares that remains unissued after the Combination exceeding the
percentage of authorized shares that were unissued before the
Combination.
3. The amendment to Article IV of the Restated Articles of Incorporation
was adopted pursuant to Chapter 302A.
IN WITNESS WHEREOF, Children's Broadcasting Corporation has caused
these Articles of Amendment to be signed by its President this 18th day of
January, 1996.
CHILDREN'S BROADCASTING CORPORATION
By:
-------------------------------------
Christopher T. Dahl
President
<PAGE>
ARTICLES OF AMENDMENT
TO
RESTATED ARTICLES OF INCORPORATION
OF
CHILDREN'S BROADCASTING CORPORATION
CHILDREN'S BROADCASTING CORPORATION, a corporation organized and
existing under the laws of the State of Minnesota (herein referred to as the
"Corporation"), in accordance with the provisions of Minnesota Statutes, Section
302A.139, does hereby certify that:
1. Effective as of January 11, 1996, pursuant to the authority conferred
upon the Board of Directors by Minnesota Statutes, Section 302A.402,
Subdivision 3, the Board of Directors authorized and adopted "I writing
resolutions providing for a one (1) for two (2) "Combination" and the
following is a true copy of such resolutions:
RESOLVED, that there is hereby declared a Reverse Stock Split
or Combination, pursuant to which every two (2) shares of
issued and outstanding voting or nonvoting Common Stock, $.01
par value per share, and every two (2) shares of authorized
but unissued voting or nonvoting Common Stock, $.0l par value
per share, existing on the Combination Effective Date, shall
be converted into one (1) share of Common Stock, $.02 par
value per share; and every two (2) shares of Common Stock,
$.0l par value per share issuable or reserved for issuance
upon conversion of convertible preferred stock, or upon
exercise of outstanding stock options and stock purchase
warrants, shall, as of the Combination Effective Date, be
converted automatically into one (1) share of Common Stock,
$.02 par value per share.
FURTHER RESOLVED, that in order to effect the Combination,
Article IV of the Corporation's Restated Articles of
Incorporation is amended in its entirety as follows:
ARTICLE IV
CAPITAL
The aggregate number of shares of
stock which this corporation shall have the
authority to issue is twelve million five
hundred thousand (12,500,000) shares with a
par value of two cents ($.02) per share.
FURTHER RESOLVED, that such Combination shall be effected
automatically on January 23, 1996, or such later date when the
Amendment shall be filed with the Minnesota Secretary of State
without further action by the Board of Directors or
shareholders.
FURTHER RESOLVED, that the appropriate officers are hereby
authorized and directed to prepare, execute, acknowledge and
file on the Combination Effective Date the Articles of
Amendment to the Restated Articles of Incorporation of this
Corporation together with any other document or instrument
necessary in connection with such Combination; and to request
shareholders to exchange their stock certificates representing
shares of Common Stock held prior to the Combination for new
certificates representing shares of Common Stock issued as a
result of the Combination.
FURTHER RESOLVED, that, promptly following the Combination
Effective Date, the Corporation shall furnish the shareholders
with the necessary materials and
<PAGE>
instructions to effect the exchange of their stock
certificates in accordance with the Combination.
FURTHER RESOLVED, that shareholders who after the Combination
would otherwise be entitled to receive fractional shares of
Common Stock, will, upon surrender of their stock certificates
representing shares of Common Stock owned as of the
Combination Effective Date, receive a cash payment in lieu
thereof equal to the value of such fractional shares
determined by reference to the average closing bid price of
the Common Stock for a period of ten trading days immediately
preceding the Combination Effective Date, as reported by the
Nasdaq SmallCap Market.
FURTHER RESOLVED, that certificates representing shares of
Common Stock outstanding immediately prior to the Combination
Effective Date which are subsequently presented for transfer
will not be transferred on the books and records of the
Corporation until the certificates representing such shares of
Common Stock have been exchanged of record for certificates
representing shares of Common Stock reflecting the
Combination.
FURTHER RESOLVED, that in the event any certificate
representing shares of Common Stock outstanding prior to the
Combination is not presented for exchange upon request by the
Corporation, any dividends that may be declared after the
Combination Effective Date with respect to the Common Stock
represented by such certificate will be withheld by the
Corporation until such certificate has been properly presented
for exchange.
FURTHER RESOLVED. that the appropriate officers of the
Corporation be and they hereby are authorized and directed
upon filing of the Amendment pursuant to Minnesota Statutes,
Section 302A.402, to proceed promptly to carry out the
foregoing Actions and to execute and file all documents and
instruments and to take such other actions as such officers
deem necessary and appropriate to complete the Combination in
accordance with Minnesota Statutes, Chapter 302A.
FURTHER RESOLVED, that the effective date of the above
Resolutions shall be as of January 11, 1996.
2. The foregoing amendment to Article IV of the Restated Articles of
Incorporation will not adversely affect the rights or preferences of
the holders of outstanding shares of any class or series of the
Corporation's stock and will not result in the percentage of authorized
shares that remains unissued after the Combination exceeding the
percentage of authorized shares that were unissued before the
Combination.
3. The amendment to Article IV of the Restated Articles of Incorporation
was adopted pursuant to Chapter 302A.
IN WITNESS WHEREOF, Children's Broadcasting Corporation has caused
these Articles of Amendment to be signed by its President this 18th of January,
1996.
CHILDREN'S BROADCASTING CORPORATION
By:
-------------------------------------
Christopher T. Dahl
President
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
CHILDREN'S BROADCASTING CORPORATION
The undersigned officer, on behalf of Children's Broadcasting
Corporation, a Minnesota (the "Corporation"), hereby certifies that an amendment
to the Corporation's Articles of Incorporation has been duly approved by the
Company's Board of Directors and shareholders in accordance with Sections
302A.135 and 302A.139 of the Minnesota Statutes. Accordingly, Article IV is
amended in its entirety to read as follows:
ARTICLE IV
CAPITAL
The aggregate number of shares of stock which this corporation shall
have the authority to issue is fifty million (50,000,000) shares with a par
value of two cents ($.02) per share.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to the Articles of Incorporation to be executed this 3rd day of
October, 1996.
CHILDREN'S BROADCASTING CORPORATION
By:
-------------------------------------
Its:
-------------------------------------
<PAGE>
CHILDREN'S BROADCASTING CORPORATION
CERTIFICATE OF DESIGNATION OF STOCK
The undersigned, being duly appointed Secretary of Children's
Broadcasting Corporation (the "Corporation"), hereby certifies that the Board of
Directors of the Corporation, acting pursuant to the authority contained in
Article V of the Articles of Incorporation of the Corporation and the provisions
of Chapter 302A, Minnesota Statutes, took action by unanimous resolution on
November 28, 1995, and duly adopted the following resolutions to establish and
designate 2,177,368 shares of Common Stock of the Corporation as Class A Common
Stock.
DESIGNATION OF CLASS A COMMON STOCK
RESOLVED, in accordance with Article V of the Articles of Incorporation
of the Corporation and pursuant to Minnesota Statutes, Chapter 302A,
the Board of Directors hereby establishes, designates and reserves from
the Corporation's unauthorized and unissued shares of Common Stock,
Class A Common Stock in the amount and the voting powers and other
special rights as follows:
SECTION 1. DESIGNATION AND AMOUNT. The shares of such class of Common
Stock shall be designated as "Class A Common Stock" and the number of
shares constituting such class shall be 2,177,368.
SECTION 2. ALL OTHER RIGHTS. Other than with respect to voting and
conversion as set forth in Sections 3 and 4 below, the Class A Common
Stock shall in all respects be equal and have the same rights as the
Common Stock of the Corporation.
SECTION 3. VOTING RIGHTS. Except as otherwise required by law, each
outstanding share of Class A Common Stock shall not be entitled to vote
on any matter on which the shareholders of the Corporation shall be
entitled to vote and shares of Class A Common Stock shall not be
included in determining the number of shares voting or entitled to vote
on any such matter, provided that, notwithstanding the foregoing,
holders of shares of Class A Common Stock shall be entitled to vote as
a separate class on any amendment to the Certificate of Designation of
Stock establishing such class and on any amendment, repeal or
modification of any provision of the Articles of Incorporation of the
Corporation that adversely affects the powers, preferences or special
rights of holders of Class A Common Stock. Upon a conversion to Common
Stock in accordance with Section 4 below, the holders of Class A Common
Stock shall have full voting rights with respect to the shares of
Common Stock issued by virtue of the conversion.
SECTION 4. CONVERSION.
(a Conversion Rights. Subject to the provisions of this
Section 4, each holder of Class A Common Stock shall
be entitled to convert, at any time and from time to
time, at its option, any or all of the shares of
Class A Common Stock held by such holder into an
equivalent number of shares of voting Common Stock,
provided that if pursuant
<PAGE>
to any federal law, rule, regulation or regulatory
policy such conversion would cause the broadcast or
other media interests of the holder to be attributed
to the Corporation, or the broadcast or other media
interest of the Corporation to be attributed to the
holder and, as a result of the attribution of such
broadcast or other media interests, (i) the holder
would be foreclosed from the ownership of voting
securities of the Corporation, or (ii) the
Corporation would be foreclosed from the ownership of
its broadcast or media interests or from the
acquisition of any additional broadcast or media
interests, the Class A Common Stock shall not be
convertible, except in such amount as would not cause
such broadcast or media interests to be so
attributable.
(b Conversion Procedure. Each conversion of shares of
Class A Common Stock into shares of Common Stock
shall be effected by the surrender of the certificate
or certificates representing the shares to be
converted (the "Converting Shares") at the principal
office of the Corporation (or such other office or
agency of the Corporation as the Corporation may
designate by written notice to the holders of Class A
Common Stock) at any time during its usual business
hours, together with written notice by the holder of
such Converting Shares, stating that such holder
desires to convert the Converting Shares, or a stated
number of the shares represented by such certificate
or certificates, into an equal number of shares of
Common Stock (the "Converted Shares"). Such notice
shall also state the name or names (with addresses)
and denominations in which the certificate or
certificates for Converted Shares are to be issued
and shall include instructions for the delivery
thereof. Promptly after such surrender and the
receipt of such written notice, the Corporation will
issue and deliver in accordance with the surrendering
holder's instructions the certificate or certificates
evidencing the Converted Shares issuable upon such
conversion, and the Corporation will deliver to the
converting holder a certificate (which shall contain
such legends as were set forth on the surrendered
certificate or certificates) representing any shares
which were represented by the certificate or
certificates that were delivered to the Corporation
in connection with such conversion, but which were
not converted; provided, however, that the
Corporation shall issue shares to persons other than
those indicated on the certificate or certificates
representing the Converting Shares only in compliance
with the Securities Act of 1933, as amended, and any
other applicable state or federal securities law.
Such conversion, to the extent permitted by law,
shall be deemed to have been effected as of the close
of business on the date on which such certificate or
certificates shall have been surrendered and such
notice shall have been received by the Corporation,
and at such time the rights of the holder of the
Converting Shares as such holder shall cease and the
person or persons in whose name or names the
certificate or certificates for the Converted Shares
are to be issued upon such conversion shall be deemed
to have become the holder or holders or record of the
Converted Shares.
<PAGE>
(c Reservation of Shares. The Corporation shall at all
times reserve and keep available out of its
authorized but unissued shares of Common Stock or its
treasury shares, solely for the purpose of issuance
upon the conversion of shares of Class A Common
Stock, such number of shares of Common Stock as are
then issuable upon the conversion of all outstanding
shares of Class A Common Stock.
FURTHER RESOLVED, that the President and the Secretary of the
Corporation are authorized and directed to take such further action as
shall be necessary or required to carry into effect the intent of the
foregoing resolution and they, or any of them, are authorized and
directed to file a certificate of designation pursuant to Section
302A.401, Subd. 3 of the Minnesota Business Corporation Act with the
Minnesota Secretary of State.
IN WITNESS WHEREOF, Children's Broadcasting Corporation has caused this
Certificate of Designation to be signed by Lance W. Riley, its Secretary, this
27th day of 1996.
CHILDREN'S BROADCASTING CORPORATION
-----------------------------------------
LANCE W. RILEY, SECRETARY
<TABLE> <S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,524,259
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<RECEIVABLES> 6,547,960
<ALLOWANCES> (179,664)
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0
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