-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LYoEo2DEfrZ7JXv9vKDLLfuccrsuOK1D10xBa3MKIpogV/GkJsi6Pv+v3BwjcRAG Q2vLTIIw+Uf8VbR7ETXJKQ== 0000897101-98-000593.txt : 19980518 0000897101-98-000593.hdr.sgml : 19980518 ACCESSION NUMBER: 0000897101-98-000593 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHILDRENS BROADCASTING CORP CENTRAL INDEX KEY: 0000882160 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 411663712 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-21534 FILM NUMBER: 98626164 BUSINESS ADDRESS: STREET 1: 724 1ST ST N STREET 2: 4TH FLOOR CITY: MINNEAPOLIS STATE: MN ZIP: 55401 BUSINESS PHONE: 6123383300 MAIL ADDRESS: STREET 1: 724 FIRST STREET NORTH STREET 2: FOURTH FLOOR CITY: MINNEAPOLIS STATE: MN ZIP: 55401 10QSB 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] Quarterly report under to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarterly period ended March 31, 1998 or [ ] Transition report under to section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition period from _________ to _________ Commission File No. 0-21534 Children's Broadcasting Corporation (Exact name of small business issuer as specified in its charter) Minnesota 41-1663712 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 724 First Street North-4th Floor, Minneapolis, MN 55401 (Address of principal executive office, including zip code) (612) 338-3300 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 May 13, 1998, there were outstanding 6,673,516 shares of common stock, $.02 par value, of the registrant. INDEX CHILDREN'S BROADCASTING CORPORATION PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets - March 31, 1998 and December 31, 1997. Consolidated Statements of Operations -- Three months ended March 31, 1998 and 1997. Consolidated Statements of Cash Flows -- Three months ended March 31, 1998 and 1997. Notes to Consolidated Financial Statements -- March 31, 1998. 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 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 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CHILDREN'S BROADCASTING CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31 DECEMBER 31, 1998 1997 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 664,258 $ 545,258 Accounts receivable 857,514 1,696,756 Allowance for doubtful accounts (345,691) (472,000) Accounts receivable - affiliates 123,855 142,868 Prepaid expenses 61,725 108,174 ------------ ------------ TOTAL CURRENT ASSETS 1,361,661 2,021,056 Investment in Harmony 5,808,887 6,281,728 Property & equipment, net 4,541,922 4,708,327 Broadcast license, net 19,365,869 19,679,154 Intangible assets, net 1,771,511 1,550,100 Deferred debt issue costs 1,272,275 1,173,209 ------------ ------------ TOTAL ASSETS $ 34,122,125 $ 35,413,574 ============ ============ LIABILITIES & SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,049,456 $ 1,688,832 Accrued interest 387,540 324,994 Other accrued expenses 1,269,045 1,203,331 Line of credit 356,161 453,838 Short-term debt 1,900,000 1,172,500 Long-term debt - current portion 23,800,688 22,857,386 Obligation under capital lease - current portion 28,387 26,367 ------------ ------------ TOTAL CURRENT LIABILITIES 29,791,277 27,727,248 Long-term debt - net of current portions 2,480,145 2,508,819 Obligation under capital lease 44,369 48,836 ------------ ------------ TOTAL LIABILITIES 32,315,791 30,284,903 ------------ ------------ Shareholders' equity: Common stock, $.02 par value: Authorized shares - 50,000,000 Issued & outstanding shares - voting: 6,484,475 1998 and 5,842,460-- 1997; Issued and outstaning shares - 189,041 nonvoting - 1998 and 1997 133,470 132,997 Additional paid-in capital 46,743,575 46,387,536 Stock subscription receivable (529,563) (529,563) Accumulated deficit (44,541,148) (40,862,299) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 1,806,334 5,128,671 ------------ ------------ TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 34,122,125 $ 35,413,574 ============ ============
CHILDREN'S BROADCASTING CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31 ----------------------------- 1998 1997 ----------- ----------- REVENUES Owned, Operated and LMA Stations $ 744,680 $ 944,255 Network 91,315 206,466 ----------- ----------- REVENUES $ 835,995 $ 1,150,721 OPERATING EXPENSES: Owned, Operated and LMA Stations: General and Administrative 529,376 757,640 Technical and Programming 253,579 240,273 Selling 108,264 341,515 ----------- ----------- 891,219 1,339,428 Network General and Administrative 109,758 150,820 Programming 125,101 206,980 Selling 150,912 454,588 Marketing 7,991 119,295 ----------- ----------- 393,762 931,683 Corporate 1,207,726 887,244 Depreciation & Amortization 546,891 458,563 ----------- ----------- TOTAL OPERATING EXPENSES 3,039,598 3,616,918 ----------- ----------- LOSS FROM OPERATIONS (2,203,603) (2,466,197) Equity Loss in Harmony 472,841 -- Interest Expense (Net of Interest Income) 1,002,405 313,996 ----------- ----------- NET LOSS ($3,678,849) ($2,780,193) =========== =========== NET LOSS PER SHARE ($ 0.55) ($ 0.47) =========== =========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 6,656,000 5,905,000 =========== ===========
CHILDREN'S BROADCASTING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31 ------------------------------ 1998 1997 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ($3,678,849) ($2,780,193) Adjustments to reconcile net loss to net cash from operating activities: Provision for doubtful accounts (126,309) 19,381 Depreciation & amortization 546,891 458,563 Amortization of deferred debt issue costs 176,934 -- Net barter activity 16,708 (36,102) Issuance of common stock for payment of attorney fees -- 183,184 Issuance of common stock for payment of interest 27,710 21,084 Equity loss in Harmony 472,841 -- Decrease (Increase) in: Accounts Receivable 822,534 84,164 Other Receivables 19,013 -- Prepaid Expenses 46,449 (100,810) Increase (Decrease) in: Accounts Payable 360,624 (116,459) Accrued Interest 62,546 27,720 Other Accrued Expenses 65,714 94,011 ----------- ----------- NET CASH USED IN OPERATIONS (1,187,194) (2,145,457) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Sale/Purchase of Property & Equipment (26,705) (271,014) Sale/Purchase of Intangible Assets (122,906) (1,623,080) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (149,611) (1,894,094) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of Capital Lease Obligation (2,447) (10,528) Payment of Debt (57,748) (1,359,051) Proceeds from Debt Financings 1,511,000 3,905,000 Proceeds from Issuance of Common Stock 5,000 36,119 ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 1,455,805 2,571,540 ----------- ----------- Increase (Decrease) in Cash 119,000 (1,468,011) Cash - Beginning of Period 545,258 3,370,038 ----------- ----------- CASH - END OF PERIOD $ 664,258 $ 1,902,027 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash Paid During the Period for Interest $ 762,039 $ 317,297 =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: During the three months ended March 31, 1998: The Company recognized revenues of $58,555 and expenses of $44,614 through barter activity. The Company issued 21,151 shares of common stock valued at $75,510 for the payment of a principal and interest installment due in February 1998 totaling $47,800 and $27,710 respectively, for the note payable outstanding to the seller of WAUR (AM). The Company incurred debt issuance costs aggregating $276,000 as a result of the issuance and repricing of warrants related to the Foothill financing. CHILDREN'S BROADCASTING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 1998 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 SB. 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 month period ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. 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, 1997. NOTE 2--SIGNIFICANT TRANSACTIONS DURING 1998 The following significant transactions occurred during the first three months of 1998 and are considered non-recurring: A. In January 1998, the Company received proceeds totaling $611,000 and paid debt issue costs of $39,000 through the issuance of a note payable to Harmony Holdings, Inc. ("Harmony") with a face amount of $650,000. The note payable bears interest at 15%, is unsecured and due upon demand. B. In February 1998, the Company adopted a Shareholder Rights Plan designed to enable the Company and its board to develop and preserve long-term values for shareholders and to protect shareholders in the event an attempt is made to acquire control of the Company through certain coercive or unfair tactics or without an offer of fair value to all shareholders. The plan provides for distribution of a common share purchase right to each shareholder of record of the Company's common stock on February 27, 1998. Under the plan, these rights to purchase common shares will generally be exercisable a certain number of days after a person or group acquires or announces an intention to acquire 20% or more of the Company's common stock. Each right entitles the holder, after the rights become exercisable, to receive shares of Company's common stock having a market value of two times the exercise price of the right or securities of the acquiring entity at one-half their market value at that time. C. On March 13, 1998, the Credit Agreement with Foothill Capital Corporation ("Foothill") was amended. Pursuant to the amendment, Foothill issued an additional term note payable advance of $1,000,000 of which the Company received proceeds totaling $900,000 and paid a loan fee of $100,000. The provisions of the Credit Agreement remained substantially unchanged as a result of the amendment, except that the variable interest rate was increased by 1%, a principal installment of $500,000 due March 31, 1998 was deferred until April 16, 1998, and the Company received a waiver of certain debt covenants which the Company had not met as of March 31, 1998. As additional consideration for the amendment, the Company issued Foothill an additional warrant to purchase 100,000 shares of the Company's common stock at a purchase price of $3.68 and amended the exercise price of a previously granted warrant from $5.29 per share to $3.68 per share. D. In April 1998, the Company signed a definitive purchase agreement with Catholic Radio Network, LLC ("CRN") to sell the assets of ten of its owned and operated stations including the stock of Children's Radio New York, Inc. a subsidiary of the Company for $57.0 million. The total purchase price includes $52 million in cash and a $5 million subordinated secured promissory note. The note will carry interest at the rate of 10% per annum and will be payable in two years. The Company will have the option to convert the note to equity in CRN after 18 months. CRN deposited $3 million into an escrow account, of which, $1 million was released to the Company on April 27, 1998, and $1 million is scheduled to be released on May 17, 1998 and June 17, 1998 each. The Company simultaneously entered into a pre-closing time brokerage agreement regarding the stations until the transaction is consummated. The consummation of the transaction is subject to regulatory and shareholder approvals and customary closing conditions. E. In April 1998, the Company signed a definitive purchase agreement with Salem Communications Corporation to sell the assets of two of its owned and operated stations for a total purchase price of $2.7 million cash. On April 27, 1998, $135,000 was deposited into an escrow account. The consummation of the transaction is subject to regulatory and shareholder approvals and customary closing conditions. F. In May 1998, the Company signed a definitive purchase agreement with 1090 Investments, LLC to sell the assets of WCAR(AM) in Detroit for a purchase price of $2.0 million cash. The purchase agreement requires the buyer to deposit $100,000 into an escrow account to be held until closing. The Company simultaneously entered into a pre-closing time brokerage agreement to operate WCAR(AM) until the transaction is consummated. The transaction is subject to regulatory and shareholder approvals and customary closing conditions. G. The Credit Agreement with Foothill is currently being amended effective April 17, 1998. Pursuant to the amendment, the Company will obtain an additional term note payable advance of $2,000,000, of which the Company will receive proceeds totaling $1,000,000, pay a loan origination fee of $200,000, and establish an interest reserve of $800,000 to be used for payment of future interest. Also, pursuant to the amendment, the variable interest rate will be increased by 1% on the entire outstanding loan balance, and the Company will receive a forbearance of all principal payments and certain covenant requirements through September 30, 1998. As additional consideration for the amendment, the Company will issue Foothill an additional warrant to purchase 200,000 shares of the Company's common stock. NOTE 3--INVESTMENT IN HARMONY In 1997, the Company acquired an equity interest in Harmony Holdings, Inc. ("Harmony") by purchasing 2,188,731 shares of Harmony's common stock and options to acquire an additional 750,000 shares of Harmony's common stock exercisable at $1.50 per share and expiring at various dates through October 2001. The Company's investment represents 33.7% of the outstanding common stock of Harmony at March 31, 1998. Harmony's most recent fiscal year end was June 30, 1997, and Harmony's operations are summarized as follows for the three and nine months ended March 31, 1998: Three Months Nine Months ------------ ----------- Ended 3/31/98 ended 3/31/98 Contract revenues $ 14,750,601 $ 37,470,837 Cost of production 11,861,074 30,115,564 ------------ ------------ Gross profit 2,889,526 7,355,272 Operating expenses 3,886,887 9,625,796 ------------ ------------ Income (loss) from Operations (997,361) (2,270,524) Interest income 4,466 21,717 ------------ ------------ Income (loss) before (992,896) (2,248,808) Income Taxes 23,142 Net income (loss) $ (992,896) $ (2,271,950) ------------- ------------- ITEM 2. This discussion and analysis contains certain 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 Board of Directors of Children's Broadcasting Corporation unanimously approved the sale of the Company's assets to Global Broadcasting Company, Inc. ("Global"), subject to shareholder approval for $72.5 million in cash. Shareholder approval for the sale was obtained in January 1998. However, on January 27, 1998, the Company announced that Global had failed to close on the purchase of the Company's radio stations within the time provided under the purchase agreement between the parties. On January 30, 1998, the Company discontinued operation of Aahs World Radio, its 24-hour children's radio programming, which it began broadcasting by satellite in late 1992. The primary sources of the Company's broadcast revenue, prior to the discontinuation of Aahs World Radio, were from the sale of local advertising and air time and network revenue. The cessation of such broadcasting has negatively impacted the Company's broadcast revenue. On April 20, 1998, the Company signed a definitive purchase agreement with Catholic Radio Network, LLC ("CRN") to sell the assets of ten of its owned and operated stations, including the stock of Children's Radio New York, Inc., a subsidiary of the Company, for $57.0 million. On April 29, 1998 the Company signed a definitive purchase agreement with Salem Communications Corporation to sell the assets of two additional owned and operated stations for a total purchase price of $2.7 million cash. On May 7, 1998, the Company signed a definitive purchase agreement with 1090 Investments, LLC to sell the assets of its remaining station in Detroit for a purchase price of $2.0 million cash. Radio stations frequently barter unsold advertising time for products or services, such as hotels, restaurants and other goods used principally for promotional, sales and other business activities. Barter revenues and expenses are included in the financial presentation below. The revenue and expenses related to barter do not have a material effect on the Company's operating profit in a given period. RESULTS OF OPERATIONS: THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997. Revenue: Owned, Operated and LMA Station Revenues: Total revenues from the Company's owned, operated and LMA stations decreased $199,000 or 21% from $944,000 in the first quarter of 1997 to $745,000 for the same period in 1998. This decrease in revenue can be attributed to the cessation of broadcasting the Aahs World Radio format and the reduction of sales force at various stations in anticipation of the sale of the Company's owned and operated stations. Network: Total revenues of $91,000 were produced by the network during the first quarter of 1998, a decrease of $115,000 or 56% compared to the first quarter of 1997 revenues. This decrease in network revenues was due to the cessation of broadcasting the Aahs World Radio programming on January 30, 1998. OPERATING EXPENSES: Owned, Operated and LMA Station Expenses: General and administrative expenses decreased 30% to $529,000 for the first quarter of 1998 from $758,000 in the same period of 1997. This decrease was due to the Company's reduction in staff at the stations, which eliminated not only personnel but also general office overhead expenses. Expenses will continue to diminish as stations are sold or Local Marketing Agreements ("LMA"'s) are entered into. Technical and programming expenses increased to $254,000 in the first quarter of 1998 from $240,000 during the same period in 1997, an increase of 6%. Expenses will diminish as stations are sold or LMA'd. Sales expenses totaled $108,000 in the first quarter of 1998 compared to $342,000 in the first quarter of 1997. This decrease is due to the reduction of sales personnel in anticipation of the sale of the Company's stations. Expenses will continue to diminish as stations are sold or LMA'd. Network Expenses: General and administrative expenses decreased $41,000 in the first quarter of 1998 to $110,000 as compared to $151,000 for the first quarter of 1997 due to the reduction in general overhead expenses tied to the cessation of the broadcasting of Aahs World Radio programming. Programming expenses decreased $82,000 to $125,000 in the first quarter of 1998 compared to $207,000 in the same period of 1997 because of the reduction of staff due to the discontinuation of the broadcasting of Aahs World Radio programming and in anticipation of the sale of the Company's owned and operated stations. Sales expenses decreased 67% from $455,000 in the first quarter of 1997 to $151,000 in the same period of 1998. This decrease was due to the reduction of sales personnel in conjunction with the discontinuation of broadcasting the Aahs World Radio format. Marketing expenses were $8,000 during the first quarter of 1998 compared to $119,000 in that same period in 1997, a decrease of 93% due to the elimination of the Company's marketing effort in conjunction with the cessation of the broadcasting of Aahs World Radio programming on January 30, 1998. Corporate charges were $1,208,000 in the first quarter of 1998 compared to $887,000 in the first quarter of 1997, representing an increase of 36%. This increase is attributable to the increase in legal fees incurred relating to the ABC/Disney litigation. Such litigation is anticipated to continue to utilize the Company's working capital. Further, professional services required in connection with the sale of the Company's owned and operated stations will reduce the Company's working capital. Depreciation and amortization increased to $547,000 in the first quarter of 1998 from $459,000 in that same period of 1997 due to a full quarter of depreciation and amortization on all the Company's radio broadcast licenses ("RBLS") and certain related assets. Net interest expense for the first quarter of 1998 increased $688,000 as a result of the additional interest incurred related to the financing provided in by Foothill Capital Corporation ("Foothill"). The net loss increased 32% in the first quarter of 1998 to $3,679,000 from $2,780,000 in the first quarter of 1997. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity, as measured by its working capital, was a deficit of $28,430,000 at March 31, 1998 compared to a deficit of $25,706,000 at December 31, 1997. A portion of the Company's negative net working capital position for the first quarter of 1998 and 1997 was the result of the reclassification of the long-term portion of the Foothill term loan as the Company has historically not met certain restrictive financial covenants contained in its credit agreement with Foothill. The failure to meet these covenants was principally due to the Company's continued operating losses. Foothill has waived its rights pursuant to these violations through September 30, 1998. Pursuant to generally accepted accounting principles (EITF No. 86-30), if similar restrictive covenants must be met at future interim periods, the debt must continue to be classified as current unless it is probable that the Company will satisfy the covenants in the future or if Foothill agrees to waive its rights to such potential future covenant violations. Foothill would not provide the Company with such a waiver and accordingly, the principal balances outstanding at March 31, 1998 have been entirely classified as current obligations. During the first quarter of 1998, the Company experienced a cash working capital loss of approximately $439,000. While the sale by the Company of its stations is expected to further reduce future broadcast revenue, the Company has implemented plans to decrease its expenses to offset the loss of revenue. Additionally, the Company ceased producing and distributing its full-time Aahs World Radio programming format as of January 30, 1998. Concurrent with the announcement of this termination of network programming, the Company initiated certain reductions in its workforce related to the operation of the network and the stations. In January 1998, the Company received proceeds totaling $611,000 and paid debt issue costs of $39,000 through the issuance of a note payable to Harmony Holdings, Inc. ("Harmony") with a face amount of $650,000. The note payable bears interest of 15%, is unsecured and due upon demand. The Company entered into a second amendment to its credit agreement with Foothill on March 13, 1998 pursuant to which the Company obtained $1,000,000 of additional financing. In connection with this additional financing, the rate of interest payable on all of the Company's indebtedness to Foothill was adjusted to 4.75% over prime. Additionally, the Company provided Foothill with a warrant to purchase 100,000 shares of its Common Stock at $3.68 per share and repriced a previously issued warrant to purchase 100,000 shares of Common Stock from $5.29 per share to $3.68 per share. Currently, the Credit Agreement with Foothill is being amended effective retroactively to April 17, 1998. Pursuant to the third amendment, the Company will obtain an additional term note payable advance of $2,000,000, of which the Company will receive proceeds totaling $1,000,000, pay a loan origination fee of $200,000, and establish an interest reserve of $800,000 to be used for payment of future interest (see Note G). The Company believes that the financing it received from Foothill in connection with the second and third amendments to the credit agreement and the $3 million escrow releases from CRN will be sufficient to operate the Company through September 1998. The sale of the Company's radio stations is expected to provide the Company with sufficient working capital to meet its cash requirements. If any such sale is delayed or does not occur, or the additional Foothill financing is not consummated, the Company believes it will need to obtain alternative financing. Because the credit agreement with Foothill requires the Company to grant liens and security interests on substantially all of its assets, the Company's ability to incur additional indebtedness may be limited. If the Company is not able to obtain adequate financing, or financing on acceptable terms, it could be forced to reduce or terminate its operation, curtail future acquisitions or other projects, sell or lease its current assets under unfavorable circumstances, delay certain capital projects or potentially default on obligations to creditors, all of which may be materially adverse to the Company's operation and prospects. Consolidated cash was $664,000 at March 31, 1998 and $545,000 at December 31, 1997, an increase of $119,000. Accounts receivable at March 31, 1998 decreased $713,000 from December 31, 1997, other receivables decreased $19,000, and prepaid expenses at March 31, 1998 decreased $46,000 from December 31, 1997. Accounts payable at March 31, 1998 increased $361,000 from December 31, 1997, accrued interest increased $63,000 from December 31, 1997 to March 31, 1998 and other accrued expenses increased $66,000 during that same period. The $1,187,000 cash used for operations was provided by the proceeds obtained through the Foothill financing. During the first quarter of 1998, $150,000 cash was used for investing activities. This cash was used primarily for miscellaneous studio equipment and tower projects. Cash obtained through financing activities amounted to $1,456,000 during the first quarter of 1998. This cash represents the $900,000 term loan advance from Foothill, the $611,000 loan from Harmony and $5,000 obtained through the issuance of common stock through the exercise of stock options, less the repayment of debt. SEASONALITY AND INFLATION The Company's revenues generally follow 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. 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 operation. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company's former business strategy was to derive revenue from the sale of network advertising time to national advertisers and from local advertising sales from Company-owned or operated stations. The Company's strategy, in entering into an operations agreement with ABC Radio Networks, Inc. ("ABC Radio"), was to use the resources and reputation of ABC Radio to market Aahs World Radio(SM), attract national advertising and further build the Company's network through affiliations. The Company sought out and developed strategic relationships in order to enhance and reinforce its brand, and to allow the Company to explore business opportunities at minimal cost to it and without detracting from management's focus upon the Company's core business. In 1995, the Company developed such a relationship with ABC Radio, pursuant to which ABC Radio agreed, through representations and agreements, that ABC Radio would commit its affiliate development and national advertising sales staffs and other resources to assist and augment the Company's efforts to market the Aahs World Radio format to broadcasters and advertisers. Throughout the course of its relationship with ABC Radio, the Company disclosed significant confidential proprietary business information to ABC Radio and The Walt Disney Company ("Disney")(collectively, "ABC/Disney"). In June 1996, ABC Radio announced to the Company that ABC Radio was terminating its relationship with the Company and that ABC Radio would join with Disney to immediately commence competing directly with the Company in the field of children's radio broadcasting. ABC/Disney thereupon rolled out its Radio Disney programming at several locations throughout the country. The Company filed a lawsuit in the fall of 1996 with the United States District Court for the District of Minnesota against ABC/Disney. The suit seeks injunctive relief and to recover substantial monetary damages based on alleged wrongful conduct by ABC/Disney, including acts and omissions of fraud, business interference, breach of contractual and fiduciary obligations and misappropriation of the Company's confidential and proprietary business information, trade secrets and business opportunities. In September 1997, ABC Radio asserted its own counterclaim for breach of contractual obligations, seeking to recover an unspecified amount of damages said only "to exceed $75,000.00" for an alleged failure by the Company to pay certain commissions and fees allegedly earned during the course of the parties' relationship. The Company has denied ABC Radio's counterclaim in all respects, and has moved to have the counterclaim dismissed as untimely. The ABC/Disney suit is likely to proceed to trial in late 1998. ITEM 2. CHANGES IN SECURITIES. a. NOT APPLICABLE. b. NOT APPLICABLE. c. On February 25, 1998, the Company issued 21,151 shares of common stock to Nelson Broadcasting, Inc. at an offering price of $3.57 per share. The shares were issued pursuant to a Promissory Note, dated January 25, 1997, between the Company and Nelson Broadcasting, Inc. in connection with the Company's purchase of the assets of radio station WAUR(AM), licensed to Sandwich, Illinois (the "Note"). Under the Note, the Company, at it option, is entitled to issued shares of common stock in lieu of each $75,000 quarterly payment due under the Note. On March 13, 1998, the Company issued a warrant for the purchase of an aggregate of 100,000 shares of common stock, exercisable at $3.68 per share, to its lender, Foothill Capital Corporation ("Foothill"). In addition to the foregoing, the Company repriced a warrant for the purchase of an aggregate of 100,000 shares of its common stock originally issued to Foothill on July 3, 1997 from $5.29 per share to $3.68 per share. In connection with the foregoing issuances, no broker-dealer or underwriter was involved in the transactions. No general solicitation or advertising was made and the number of offerees was limited to the parties named and did not involve a public offering. Each of the offerees is believed to be an accredited investor within the meaning of Rule 701 of Regulation D. Each of the investors acquired the securities in question for investment and not with a view to distribution, as evidenced by the written representations contained in the agreements relating to such securities and legends contained on the certificates. The Company claims that each of the issuances was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. NOT APPLICABLE. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS. a. A Special Meeting of Shareholders was held on January 6, 1998. b. NOT APPLICABLE. c. THE FOLLOWING MATTER WAS SUBMITTED TO A VOTE OF SECURITY HOLDERS AT THE COMPANY'S SPECIAL MEETING OF SHAREHOLDERS HELD ON JANUARY 6, 1998: 1. To approve the sale of substantially all of the assets of the Company to Global Broadcasting Company, Inc. for $72.5 million. 4,057,656 votes for the proposal 45,175 votes against the proposal 32,356 votes abstained on the proposal d. NOT APPLICABLE. ITEM 5. OTHER INFORMATION. a. Reference is made to the Asset Purchase Agreement, dated May 1, 1998, between and among the Registrant and 1090 Investments, L.L.C. and attached hereto as an Exhibit for the sale of one of the Registrant's AM radio broadcast license and certain related assets for a purchase price of $2.0 million. b. Reference is made to the cautionary statements of the Registrant, presented in the Registrant's Form 10-KSB for the year ended December 31, 1997, filed on March 31, 1998. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. a. Exhibits 10.1 Asset Purchase Agreement between and among Children's Broadcasting Corporation and 1090 Investments, L.L.C., dated May 1, 1998. 27 Financial Data Schedule b. Current Reports on Form 8-K The Company filed the following documents with the Commission (File No. 0-21534) during the quarter for which this report is filed: 1. The Company's Current Report on Form 8-K filed on January 7, 1998 (File No. 0-21534), relating to the Company's shareholders approving the sale of all of the Company's owned and operated radio stations to Global Broadcasting Company, Inc. for $72.5 million in cash (subject to adjustment). 2. The Company's Current Report on Form 8-K filed on January 28, 1998 (File No. 0-21534), relating to Global Broadcasting Company, Inc.'s failure to close on the purchase of the Company's stations within the time provided under the Asset Purchase Agreement. 3. The Company's Current Report on Form 8-K filed on February 20, 1998 (File No. 0-21534), relating to (i) the declaration of a dividend of one common share purchase right for each share of Common Stock outstanding as of February 27, 1998, (ii) the announcement that the Company has signed letters of intent to sell seven radio stations, and (iii) the election of a new board member. 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 thereunto duly authorized on May 15, 1998. CHILDREN'S BROADCASTING CORPORATION By: /s/ Patrick D. Grinde ------------------------ Patrick D. Grinde Its: Chief Financial Officer EXHIBIT INDEX 10.1 Asset Purchase Agreement between and among Children's Broadcasting Corporation and 1090 Investments, L.L.C., dated May 1, 1998. 27 Financial Data Schedule EX-10.1 2 ASSET PURCHASE AGREEMENT EXHIBIT 10.1 ASSET PURCHASE AGREEMENT THIS AGREEMENT, dated as of May 1, 1998, is made between and among CHILDREN'S BROADCASTING CORPORATION (referred to herein as "CBC"), CHILDREN'S RADIO OF DETROIT, INC. ("CRD"), and WCAR-AM, INC. ("WCAR- AM"), all Minnesota corporations (CBC, CRD and WCAR-AM are sometimes collectively referred to herein as the "Sellers"); and 1090 INVESTMENTS, L.L.C., a Michigan limited liability company (the "Buyer"); and W I T N E S S E T H : THAT, WHEREAS, CBC is the owner and holder of 100% of the issued and outstanding stock of CRD; and WHEREAS, CRD is the owner of all the assets of radio station WCAR(AM), licensed to Livonia, Michigan (the "Station"), except for the Federal Communications Commission (the "FCC" or the "Commission") licenses, permits or authorizations issued with respect to the Station, and is the owner and holder of 100% of the issued and outstanding stock of WCAR-AM; and WHEREAS, the WCAR-AM is the FCC licensee of the Station; and WHEREAS, subject to and conditioned upon the consent of the FCC, the Sellers desire to sell and transfer and Buyer desires to purchase and acquire the Station and certain of the tangible and intangible assets of the Sellers used or held for use in connection with the operation of the Station, all as is more fully described below. NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions contained herein, the parties hereto hereby agree as follows: ARTICLE 1 SALE AND TRANSFER OF ASSETS At closing of the transaction described herein ("Closing"), the Sellers shall sell, convey, assign, transfer and deliver to Buyer, free and clear of any lien, encumbrance, interest, reservation, restriction, mortgage or security interest of any nature whatsoever, except Permitted Encumbrances (as defined in Section 1.10 below), all the assets of the Sellers described below used or held for use in connection with the operation of the Station (except for "Excluded Assets" as described in Section 1.9 below) (collectively, the "Acquired Assets"): 1.1. All licenses, permits and authorizations ("Licenses") issued by the Commission for the operation of or used in connection with the operation of the Station, all of which are listed on Schedule A attached hereto, and all applications therefor, together with any renewals, extensions or modifications thereof and additions thereto; 1.2. All of the Sellers' owned or leased real property interests relating to the operation of the Station including that described in Schedule B attached hereto but excluding the owned and leased properties set forth in Schedule B under the heading "Excluded Properties," if any ("Real Property"); 1.3. All tangible personal property and equipment owned by the Sellers used or held for use in the operation of the Station including but not limited to the property and equipment listed on Schedule C attached hereto, and any replacements therefor or improvements thereof acquired or constructed prior to Closing ("Personal Property"); 1.4. Subject to Section 2.6 of this Agreement, all of the Sellers' rights and benefits under the business agreements, leases and contracts listed on Schedule D attached hereto, including any renewals, extensions, amendments or modifications thereof, and any additional agreements, leases and contracts made or entered into by the Sellers in the ordinary course of business between the date of such Schedule and the Closing approved in writing by Buyer or otherwise permitted hereunder ("Leases and Agreements"); 1.5. All other licenses, permits or authorizations issued by any government or regulatory agency other than the FCC, which are used in connection with the operation of the Station, all of which are listed on Schedule A ("Permits") and pending applications therefor; 1.6. All right, title and interest of the Sellers in and to the use of the call letters for the Station (referred to herein as the "Call Letters"), to the extent they can be conveyed; together with all common law property rights, goodwill, copyrights, trademarks, service marks, trade names and other similar rights used in connection with the operation of the Station, including all accretions thereto, listed on Schedule E attached hereto ("General Intangibles"); 1.7. All of the Sellers' magnetic media, electronic data processing files, systems and computer programs, logs, public files, records required by the FCC, vendor contracts, supplies, maintenance records or similar business records relating to or used in connection with the operation of the Station, but not including records pertaining to corporate affairs (including tax records) and original journals, provided copies are supplied to Buyer. The Sellers shall have reasonable access to all such records which might be in the possession of Buyer for a period of two (2) years following the Closing, and shall, at its own expense, have the right to make copies thereof; and 1.8. All rights and claims of Sellers whether mature, contingent or otherwise, against third parties relating to the Acquired Assets, whether in tort, contract, or otherwise, under or pursuant to all warranties, representations and guarantees made by manufacturers, suppliers or vendors. 1.9. "Excluded Assets" are cash on hand, accounts receivable, employee benefit plans and those assets specifically labeled and described on Schedules B through E as Excluded Assets; and 1.10. "Permitted Encumbrances" shall be limited to liens for taxes not yet due and payable, obligations of Sellers which Buyer expressly assumes hereunder or expressly agrees to accept at Closing, and with respect to Owned Real Property, Permitted Encumbrances shall include those matters disclosed on title commitments delivered to Buyer, relating to building and zoning laws, ordinances, state and federal regulations, restrictions relating to use or improvements of the property without effective forfeiture provisions, reservation of mineral rights in states, utility and drainage easements which do not interfere with existing improvements. ARTICLE 2 PURCHASE PRICE AND PAYMENTS 2.1. PURCHASE PRICE. As the purchase price for the Acquired Assets, Buyer agrees to pay to the Sellers the sum of Two Million and no/100 Dollars ($2,000,000.00), subject to adjustment as provided herein (the "Purchase Price"). 2.2. METHOD OF PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid in cash as follows: 2.2.1. ESCROW DEPOSIT. One Hundred Thousand and no/100 Dollars ($100,000.00) (the "Escrowed Funds") shall be paid into escrow contemporaneously with the execution hereof pursuant to the terms of that Escrow Agreement (the "Escrow Agreement") a copy of which is attached hereto as Exhibit A. 2.2.2. CASH AT CLOSING. The Purchase Price payable hereunder, including the Escrowed Funds, shall be payable in cash at Closing. 2.3. ADJUSTMENTS AND PRORATIONS. The operations of the Station and the income and expenses attributable thereto up to 12:01 A.M. on the day of the Closing shall, except as otherwise provided in this Agreement and in that time brokerage agreement ("TBA") to be entered into between the parties upon execution of this Agreement, be for the account of the Sellers and thereafter shall be for the account of Buyer. Expenses such as power and utility charges, lease rents, property taxes according to year of payment, frequency discounts, annual license fees (if any), wages, commissions, payroll taxes, and other fringe benefits of employees of the Sellers who enter the employment of the Buyer, and similar deferred items shall be prorated between the Sellers and the Buyer. Prepaid deposits shall also be prorated between the Sellers and the Buyer. Employees' employment with the Sellers shall be terminated as of or before the Closing Date, and Buyer shall employ employees of its choice from and after said date upon terms acceptable to Buyer and such employees. Any prorations shall be made and paid insofar as feasible at the Closing in accordance with a Schedule to be prepared and delivered at Closing, with a final settlement within ninety (90) days after the Closing. 2.4. TBA. The parties shall, contemporaneously with the execution hereof, enter into the TBA, a copy of which is attached hereto as Exhibit B. Any material breach or any default under this Agreement shall be a breach or default of the TBA by the breaching party, and any material breach or any default under the TBA shall be a breach or default of this Agreement by the breaching party. 2.5. PARTIAL CLOSING ADJUSTMENTS. Further adjustments to the purchase price payable hereunder may be made pursuant to the provisions of Sections 3.9.5 and 6.1 below. 2.6. ASSUMED LIABILITIES. Except as expressly provided for in this Agreement or the Leases and Agreements listed on the Schedules hereto, at the Closing Buyer shall not assume, incur or be charged with, in connection with the transactions herein contemplated, and shall not be responsible for any liabilities or obligations of any nature of Sellers whatsoever, contingent or otherwise. Without limitation of the foregoing, Buyer shall not assume any obligations to the Station's employees under any employee benefit plans or employment contracts. The assumption by Buyer of any of Sellers' liabilities shall in no way expand the rights or remedies of any third party against Buyer or Seller as compared to the rights and remedies which such third parties would have had against Sellers had Buyer not assumed such liabilities. Sellers shall pay all liabilities not expressly assumed by Buyer hereunder. 2.7. ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated among the Acquired Assets by Buyer and the Sellers as set forth in the attached Schedule F. Such allocation will be used for all purposes, including preparation and filing of IRS Form 8594 with respect to the transactions contemplated by this Agreement. ARTICLE 3 THE SELLERS' REPRESENTATIONS, WARRANTIES AND AGREEMENTS The Sellers, jointly and separately, represent, warrant and covenant to Buyer that the statements in this Article 3 are true, correct and complete in all respects as of the date of this Agreement and will be true, correct and complete as of the Closing Date as though made on the Closing Date: 3.1. CORPORATE EXISTENCE AND POWERS. The Sellers are corporations organized and existing in good standing under the laws of the State of Minnesota, with full power and authority to enter into this Agreement and the other Transaction Documents (as defined herein) and to enter into and complete the transactions contemplated herein and therein; CRD is, and will be at the time of Closing, qualified to do business in the State of Michigan and neither the nature of the business of the Station, nor the character of the properties owned, leased or otherwise held by Sellers for use in the business of the Station makes any qualification necessary in any other state, country, territory or jurisdiction; all required corporate actions have been taken by the Sellers to make and carry out this Agreement and the other Transaction Documents and the transactions contemplated herein and therein; this Agreement constitutes, and upon execution and delivery, each other Transaction Document will constitute a valid and binding obligation of Sellers enforceable in accordance with its terms; the execution of this Agreement and the other Transaction Documents and the completion of the transactions herein and therein involved will not result in the violation of any law, regulation, order, license, permit, rule, judgment or decree to which any of the Sellers, the Acquired Assets or the Station, is subject, or conflict with or constitute the breach of any contract, agreement or other commitment to which any of the Sellers is a party or by which they are bound or as to which any of the Acquired Assets or the Station are subject or affected, or conflict with or violate any provision of any Seller's certificate of incorporation, bylaws or other organizational documents, or will result the creation of any lien, charge or encumbrance on any of the Acquired Assets, other than Permitted Encumbrances; and, except for receipt of the Commission's Final Approval (as defined herein) with respect to the assignment of the Licenses to Buyer, no other consents of any kind are required that have not been obtained for the Sellers to make or carry out the terms of this Agreement and the other Transaction Documents, except with respect to those consents identified on Schedule B or D which are required of parties to Leases and Agreements listed on Schedule B or D or with respect to assignment and assumption of specific contract rights and obligations and the consent of CBC's shareholders. The Sellers shall use their best efforts to obtain third party consents with respect to any of the Leases and Agreements designated on Schedule B or D as "material," to the extent required by such documents. Buyer shall cooperate with the Sellers in obtaining all such required consents. As used herein, the term "Transaction Documents" refers collectively to this Agreement, the TBA, the Assignment of Licenses, the Warranty Deed, an Assignment and Bill of Sale and any other agreements to be executed and delivered by any Seller hereunder or as otherwise contemplated herein. The Board of Directors of CBC has determined to recommend to the shareholders of CBC that they approve the transactions contemplated hereby. 3.2. COMPLIANCE WITH LAWS; LICENSES AND PERMITS. Sellers are not in violation of, and have not received any notice asserting any material noncompliance by Sellers with, any applicable statute, law, rule or regulation, whether federal, state, local or otherwise, in connection with the ownership of the Acquired Assets. Sellers have complied and are in compliance in all material respects with all laws, regulations and governmental orders applicable to Sellers' operation of the Station and ownership of the Acquired Assets, except as disclosed on Schedule A. Sellers have obtained and hold all permits, licenses and approvals (other than the Licenses), none of which has been rescinded and all of which are in full force and effect, from all Governmental Authorities (as defined herein) necessary in order to conduct the operations of the Station in accordance with applicable law, as presently conducted and to own, use and maintain the Acquired Assets, all of which permits, licenses and approvals are identified on Schedule A. As used herein, "Governmental Authorities" means any agency, board, bureau, court, commission, department, instrumentality or administration of the United States government, any state government or any local or other governmental body in a state of the United States or the District of Columbia. No filing or registration with, notification to, or authorization, consent or approval of, any Governmental Authority is required in connection with the execution and delivery of this Agreement and the other Transactional Documents by any Seller or the performance by any Seller of its obligations hereunder or thereunder except compliance with any applicable requirements of the Communications Act of 1934. WCAR-AM is the holder of the Licenses indicated on Schedule A, all of which are valid, in full force and effect and which have been unconditionally issued for the full license term. The Licenses constitute all of the licenses, grants, permits, waivers and authorizations issued by the FCC and required for and/or used in the operation of the Station as they are currently being operated. CRD is fully qualified to hold its Licenses. All ownership and employment reports, renewal applications, and other reports and documents required to be filed for the Station have been properly and timely filed, except as noted on Schedule A. The Station is operating in accordance with the Licenses, and in compliance with the Communications Act of 1934, as amended, and the rules and regulations of the Commission, including, without limitation, those regulations governing the Station's equal employment opportunity practices and public files, and any other applicable laws, ordinances, rules and regulations, except as disclosed on Schedule A. Sellers have complied in all material respects with all requirements of the FCC and the Federal Aviation Administration with respect to the construction and/or alteration of Seller's antenna structures, and "no hazard" determinations for each antenna structure have been obtained. The Licenses are unimpaired by any act or omission of Sellers or their officers, directors, employees and agents and Sellers will not, without Buyer's prior written consent, by an act or omission, surrender, modify, forfeit or fail to seek renewals on regular terms, of any License, or cause the Commission or other regulatory authority to institute any proceeding for the cancellation or modification of any such License, or fail to prosecute with due diligence any pending application to the Commission. There is not now pending, or to the best of Sellers' knowledge threatened, any action by or before the Commission or other regulatory authority to revoke, cancel, rescind, modify (except as to any applications by the Sellers shown on Schedule A) or refuse to renew in the ordinary course any of the Licenses, or any investigation, order to show cause, notice of violation, notice of inquiry, notice of apparent liability or of forfeiture or complaint against the Station or Sellers, and Sellers have no knowledge of any basis for the commencement of any such proceeding in the future. Should any such action or investigation be commenced, order or notice be released, or complaint be filed, Sellers will promptly notify Buyer and take all actions necessary to protect the Station and the Licenses from any material adverse impact. All reports, statements and other documents relating to the Station filed by the Sellers or the Station with the FCC or any other Governmental Authority were true, correct and complete in all material respects when filed. 3.3. FINANCIAL STATEMENTS. CBC has delivered to the Buyer unaudited statements of operations for the twelve months ended December 31, 1996, and December 31, 1997, for the Station, and CBC's Form 10-KSB for the year ended December 31, 1997, containing CBC's audited consolidated financial statements for such period. Such financial information and the notes thereto are true, complete and accurate in all material respects and fairly present the consolidated assets, liabilities and financial condition of the Station as at the respective dates thereof, including provision for all liabilities, obligations and commitments, whether fixed or contingent, and such statements of operations and the notes thereto are true, complete and accurate in all material respects and fairly present the results of operations for the periods indicated, all in accordance with generally accepted accounting principles consistently applied throughout the periods involved. The Sellers will deliver unaudited statements of operations for each of the Stations and WJDM within fifteen (15) calendar days after their preparation. 3.4. NO UNDISCLOSED LIABILITIES. The Station has no material liabilities or obligations of any nature (absolute, accrued, contingent or otherwise) which were not fully reflected or reserved against in the 1997 Balance Sheets, except for liabilities and obligations incurred in the ordinary course of business and consistent with past practice since the date thereof (none of which liabilities and obligations is a liability for breach of contract, tort, infringement or violation of law); and the reserves reflected in the 1997 Balance Sheets are adequate, appropriate and reasonable. Sellers are not aware of any existing, proposed or threatened change which could result in a material adverse change to Sellers, the Station, the Acquired Assets or prospects of the Station. 3.5. ACQUIRED ASSETS. The Acquired Assets to be transferred to Buyer at Closing represent all the assets necessary for the Station's current and continuing operations; until Closing, none of the Acquired Assets will be sold, leased or otherwise disposed of unless replaced by a substantially similar asset of equal or greater value. Seller has good and marketable title, and, at Closing, all of the Acquired Assets shall be owned by and transferred by the Sellers to Buyer free and clear of all liens, encumbrances, interests or restrictions of any kind whatsoever, except for the Permitted Encumbrances or the Leases and Agreements listed on Schedule B or D. The Acquired Assets have been maintained in good condition, subject to normal wear and tear. Since the date of the 1997 Balance Sheets, there has not been any material adverse change in the Acquired Assets; the Sellers are not aware of any circumstance that could cause a material adverse effect in the Acquired Assets; the Sellers have conducted the business of the Station in the Ordinary Course of Business; and the Sellers have not taken any action that would be prohibited by Section 3.16. As used herein, the term "Ordinary Course of Business" means, with respect to Sellers, the ordinary course of business of the Station consistent with the past practices of Sellers and recognizing that the Sellers ended the 24- hour distribution of their Aahs World Radio(SM) format as of midnight, January 30, 1998, and have since maintained a 24-hour all-music format at the Station without significant sales of advertising time. Since then and for the period from the date hereof to Closing, Sellers have sought and intend to seek to enter into short term time brokerage, sports broadcast and similar agreements. The time may be brokered on an hourly or monthly basis, but such agreements will not survive Closing except with Buyer's prior written approval. 3.6. REAL ESTATE. 3.6.1. OWNED PROPERTIES. Schedule B sets forth a list of all real property owned by the Sellers ("Owned Real Property"). With respect to each parcel of Owned Real Property, there are no leases, subleases, licenses, concessions or other agreements, written or oral, granting any person the right of use or occupancy of any portion of such parcel and there are no outstanding actions or rights of first refusal to purchase such parcel or any portion thereof or interest therein. 3.6.2. LEASED PROPERTIES. Schedule B sets forth a list of all real property leased by the Sellers (the "Leased Real Property") and all of the leases (the "Leases") of the Leased Real Property. With respect to the Leased Real Property, (a) all obligations of the landlord or lessor under the Leases that have accrued have been performed, and no landlord or lessor is in default under or in arrears in the payment of any sum or in the performance of any obligation required of it under any Lease, and no circumstance presently exists which, with notice or the passage of time, or both, would give rise to a default by the landlord or lessor under any Lease; (b) all obligations of the tenant or lessee under the Leases that have accrued have been performed, and Sellers are not in default under or in arrears in the payment of any sum or in the performance of any obligation required of it under any Lease, and no circumstance presently exists which, with notice or the passage of time, or both, would give rise to a default by Sellers; and (c) there are no consents of any landlord or lessor required to transfer the Leased Real Property to Buyer except as set forth on Schedule B. 3.6.3. TITLE AND DESCRIPTION. Sellers hold a valid and enforceable freehold interest in the Owned Real Property and valid and enforceable leasehold interests in the Leased Real Property pursuant to the Leases as shown on Schedule B, subject only to the right of reversion of the landlord or lessor under the Leases. 3.6.4. PHYSICAL CONDITION. To Sellers' knowledge, there is no defect in the physical condition of any improvements located on or constituting a part of the Real Property. To Sellers' knowledge, the Real Property, including, without limitation, such improvements, is in good condition and repair and is adequate for the uses to which it is being put, and the Real Property is not in need of maintenance or repairs except for ordinary, routine maintenance and repairs which are not material in nature or cost. To the best of Sellers' knowledge, the soil condition of the Real Property is such that it will support all of the improvements thereon for the foreseeable life of the improvements without the need for unusual or new subsurface excavations, fill, footings, caissons or other installations. 3.6.5. UTILITIES. To the best of Sellers' knowledge, all water, sewer, gas, electric, telephone, drainage and other utility equipment, facilities and services required by law or necessary for the operation of the Real Property as it is now improved and operated are installed and connected pursuant to valid permits, are sufficient to service the Real Property and are in good operating condition except in such case as will not materially detract from the marketability or value of the Real Property and do not impair the operations of the lessee thereof. 3.6.6. COMPLIANCE WITH LAW; GOVERNMENTAL APPROVALS. Sellers have received no notice from any Governmental Authority of any violation of any zoning, building, fire, water, use, health, or other law, ordinance, code, regulation, license, permit or authorization issued in respect of any of the Real Property that has not been heretofore corrected, and know of no such violation or violations that now exist that would materially detract from the marketability or value of the Real Property or impair the operations of the occupant thereof in any material respect. To the best of Sellers' knowledge, improvements located on or constituting a part of the Real Property and the construction, installation, use and operation thereof (including, without limitation, the construction, installation, use and operation of any signs located thereon) are in compliance with all applicable municipal, state, federal or other governmental laws, ordinances, codes, regulations, licenses, permits and authorizations, including, without limitation, applicable zoning, building, fire, water, use, or health laws, ordinances, codes, regulations, licenses, permits and authorizations, and there are presently in effect all certificates of occupancy, licenses, permits and authorizations required by law, ordinance, code or regulation or by any governmental or private authority having jurisdiction over the ownership or operation of the Sellers' businesses or any of the Acquired Assets, including the Station and the Real Property or any portion thereof, or the occupancy thereof or any present use thereof, except such non-compliance as will not materially detract from the marketability or value of the Real Property and do not impair the operations of the occupant thereof in any respect. All such approvals required by law, ordinance, code, regulation or otherwise to be held by the occupant of any of the Real Property shall be transferred to Buyer at Closing, if and to the extent transferable. There is legally enforceable pedestrian and vehicular access to the Real Property. 3.6.7. REAL PROPERTY TAXES. Sellers have received no notice of any pending or threatened special assessment or reassessment of all or any portion of any of the Real Property. 3.6.8. CONDEMNATION. To Sellers' knowledge, there is no pending or threatened condemnation of all or any part of the Real Property. 3.6.9. INSURABILITY. Sellers have not received any notice from any insurance company of any material defects or inadequacies in the Real Property or any part thereof, which would materially, adversely affect the insurability of the same or of any termination or threatened termination of any policy of insurance. 3.7. CONTRACTS, LEASES, AGREEMENTS, ETC. Each of the Leases and Agreements is in full force and effect, and there are no outstanding notices of cancellation, acceleration or termination in connection therewith except as noted upon Schedule B or D. Sellers are not in breach or default in connection with any of the Leases and Agreements and, to the best of Sellers' knowledge, there is no basis for any claim, breach or default with respect to Sellers or any other party under any of said Leases and Agreements. Sellers have made available to Buyer true and correct copies of all agreements and instruments listed on Schedule D, and will make available to Buyer true and correct copies of any additional agreements, leases and contracts entered into by the Sellers in Ordinary Course of Business, as provided in Section 1.4 hereof. On the Closing Date there will be no Leases or Agreements relating to the Station (not including this Agreement and the TBA) which will be binding on the Buyer other than those specifically identified herein, including the Schedules attached hereto, as assumed by Buyer, or as otherwise approved in writing by Buyer. 3.8. LITIGATION. Except as set forth on Schedule G, no strike, labor dispute, investigation, litigation, court or administrative proceeding is pending or, to the best of Sellers' knowledge, threatened against the Sellers relating to the Station, their employees or any of the Acquired Assets which may result in any change in the business, operations, assets or financial condition of the Station or may materially affect Buyer's use and enjoyment of the Acquired Assets, or which would hinder or prevent the consummation of the transaction contemplated by this Agreement and the other Transaction Documents, and the Sellers know of no basis for any such possible action. 3.9. ENVIRONMENTAL MATTERS. 3.9.1. ENVIRONMENTAL REPRESENTATION OF SELLERS. Sellers have complied in all material respect with all laws (including rules and regulations thereunder) of all applicable federal, state, local and foreign governments, and their respective agencies, concerning the environment, public health and safety and employee health and safety, and no charge, complaint, action, suit, proceeding, hearing, investigation, claim, demand or notice has been filed or commenced against any of them alleging any failure to comply with any such law or regulation, including, limiting, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Federal Water Pollution Control Act of 1972, the Clean Air Act of 1970, the Safe Drinking Water Act of 1974, the Toxic Substances Control Act of 1976, the Refuse Act of 1989, the Emergency Planning and Community Right-to-Know Act of 1986, the Federal Resource Conservation and Recovery Act, the Michigan Natural Resources and Environmental Protection Act, each as amended, or any other law of any government or agency concerning the storage, treatment, handling, transport, disposal, or the release or threatened release of hazardous substances or hazardous materials, public health and safety or pollution or protection of the environment (collectively, the "Environmental Statutes"). Except as set forth on Schedule B, no environmental conditions have existed on the Real Property while owned or leased by Sellers, and no environmental conditions currently exist on the Real Property that violated or currently violate any Environmental Statute, where such environmental conditions will result in Buyer incurring any costs or expenses for damages fines, penalties, environmental remediation expenses or environmental removal expenses as a result of actions or proceedings by any federal, state or local environmental protection agency or department or by any third party. Except as set forth on Schedule B, there are no Hazardous Substances, as defined, currently utilized at or, currently stored at the Real Property except for those for which permits have been obtained and are in effect or are present in a manner or in quantities which do not require issuance of permits under the Environmental Statutes. Except as set forth on Schedule B, there is no contamination in soils or groundwater of or beneath the Real Property above levels that exceed remediation standards based on regulations, guidance or risk-based criteria warranting studies or remediation or both which would have any reasonable likelihood singly or in the aggregate, of materially adversely affecting the Acquired Assets or the Station. "Hazardous Substances" shall mean any material presently listed, defined, designated or classified as hazardous, toxic or radioactive, under any Environmental Statute, whether by type or by quantity, and petroleum or any derivative or by-product thereof. 3.9.2. ENVIRONMENTAL COVENANT OF SELLERS. Sellers have provided Buyer with all information, surveys and reports in each Seller's or the Station's possession or control concerning the existence or possible existence of any Hazardous Substances, underground storage tanks, polychlorinated biphenyls, asbestos or asbestos-containing materials, radon gas, radioactive materials, liquid petroleum or liquid petroleum products, or other hazardous wastes, and any other reports, studies or documents in each Seller's or the Station's possession relating to each Seller's or the Station's potential liability under applicable Environmental Laws ("Environmental Contamination"). 3.9.3. BUYER'S RIGHT TO CONDUCT DUE DILIGENCE. By May 25, 1998, Buyer shall, at its expense, conduct Phase I environmental assessment activities of the Owned Real Property, including inspecting individual sites, submitting environmental questionnaires to Sellers and the employees of the Station and reviewing existing environmental reports, correspondence, permits and related materials regarding the Owned Real Property. Phase I environmental assessment activities shall not include any sampling or intrusive testing other than hand auger soil testing, testing equipment for PCBs and testing for asbestos or asbestos-containing materials. To assist in its environmental due diligence, Buyer may retain one or more outside environmental consultants to assist in its environmental due diligence concerning the Owned Real Property, and Sellers shall cooperate with Buyer in connection with such due diligence efforts. 3.9.4. RESULTS OF ENVIRONMENTAL DUE DILIGENCE. In the event that Sellers' disclosure pursuant to Section 3.9.2 herein or the Phase I reports obtained by Buyer pursuant to Section 3.9.3 herein produces evidence that Environmental Contamination exists or may exist on any of the Owned Real Property, Buyer shall, within ten (10) business days after receiving the applicable Phase I report, notify CBC of such findings, provide CBC with copies of all reports, written assessments or other material regarding such contamination, and shall have the right to conduct Phase II environmental activities of the Owned Real Property (including, but not limited to, the taking and analysis of soil, surface water and ground water samples, testing of buildings, drilling wells and taking soil borings). The Phase II environmental activities shall be at the Buyer's expense. The Sellers agree to cooperate with the Buyer and with all third parties in permitting the Buyer to obtain in a timely manner the Phase I Reports and the Phase II Reports. 3.9.5. EFFECT OF ENVIRONMENTAL DUE DILIGENCE RESULTS. (a) Either party hereto may terminate this Agreement by written notice to the other party within fifteen (15) business days after Buyer's notification to Sellers of Environmental Contamination if: (i) the results of Buyer's environmental due diligence investigation indicate the existence of Environmental Contamination of any of the parcels of Owned Real Property; and (ii) Both parties reasonably determine (on the basis of Buyer's environmental due diligence) that responding to and fully remediating the foregoing Environmental Contamination in accordance with applicable environmental laws to a level at or below the unrestricted residential level developed pursuant to Part 201 of the Michigan Natural Resources Environmental Protection Act will exceed One Hundred Thousand and no/100 Dollars ($100,000.00) (the "Remediation Ceiling Amount") with respect to the facilities, including but not limited to the Owned Real Property, used in the operations of the Station. (b) If the results of Buyer's environmental due diligence conducted in accordance with this Section 3.9 indicate that the cost of responding to and remediating Environmental Contamination in accordance with applicable environmental laws is equal to or less than the Remediation Ceiling Amount in the aggregate for the facilities used in the operations of the Station, including but not limited to the Owned Real Property, Sellers shall, at their sole cost and expense, respond to and remediate such Environmental Contamination in accordance with applicable environmental laws on or before the Closing. 3.9.6. RADIO FREQUENCY RADIATION. Other than in compliance with the Communications Act, the operation of the Station does not cause or result in exposure of workers or the general public to levels of radio frequency radiation in excess of the "Radio Frequency Protection Guides" recommended in "American National Standard Safety Levels with Respect to Human Exposure to Radio Frequency Electromagnetic Fields 300 kHz to 100 gHz" (ANSI C95.1-1982), issued by the American National Standards Institute and FCC requirements. Renewal of the FCC Licenses would not constitute a "major action" within the meaning of Section 1.1301, et seq., of the FCC's rules. 3.10. INSURANCE. The Sellers have maintained and shall maintain in full force and effect all of their existing casualty, liability, and other insurance covering any or all of the Acquired Assets through the day following the Closing Date in amounts not less than those in effect on the date hereof, and Sellers have set forth on Schedule H an abstract of such casualty insurance coverage. Sellers represent that there has been no material breach of any of the insurance policies. Except as set forth on Schedule H, Sellers do not know of any occurence, circumstance or event which could reasonably be expected to result in any claim. 3.11. ACCESS TO INFORMATION. The Sellers shall give Buyer and its representatives reasonable access during normal business hours throughout the period prior to Closing to the operations, properties, books, accounting records, contracts, agreements, leases, commitments, programming, technical and sales records and other records of and pertaining to the Station; provided, however, such access shall not disrupt the Sellers' normal operation. The Sellers shall furnish to Buyer all information concerning the Station's affairs as Buyer may reasonably request. Buyer will maintain the confidentiality of all the information and materials delivered to it or made available for its inspection by the Sellers hereunder. Nothing shall be deemed to be confidential information that: (a) is known to Buyer at the time of its disclosure to Buyer; (b) becomes publicly known or available other than through disclosure by Buyer; (c) is received by Buyer from a third party not actually known by Buyer to be bound by a confidentiality agreement with or obligation to Sellers; or (d) is independently developed by Buyer as clearly evidenced by its records. Notwithstanding the foregoing provisions of this Section 3.11, Buyer may disclose such confidential information (x) to the extent required or deemed advisable to comply with applicable laws and regulations, (y) to its officers, directors, employees, representatives, financial advisors, attorneys, accountants, and agents with respect to the transactions contemplated hereby (so long as such parties are informed of the confidentiality of such information), and (z) to any Governmental Authority in connection with the transactions contemplated hereby. In the event this Agreement is terminated, Buyer will return to Sellers all confidential information prepared or furnished by Sellers relating to the transactions contemplated hereunder, whether obtained before or after the execution of this Agreement. 3.12. CONDUCT OF THE STATION'S BUSINESS. Until Closing, without the written consent of Buyer, the Sellers shall not enter into any transaction, agreement or understanding (whether or not in writing) other than those in the Ordinary Course of Business; no employment contract shall be entered into by the Sellers relating to the Station unless the same is terminable at will and without penalty; no material increase in compensation payable or to become payable, to any of the employees employed at the Station shall be made; no material change in personnel policies, insurance benefits or other compensation arrangements shall be made; and the Sellers will cause the Station to be operated in compliance with the Licenses and Permits and all applicable laws and regulations; the Sellers further represent, warrant and covenant: (a) Between the date hereof and Closing, the Sellers shall not take any action which will prevent or impede Buyer from obtaining at the Closing the actual and immediate occupancy and possession of the Station and all of the Acquired Assets. (b) On the Closing date, the Sellers will be the owner of the Acquired Assets except such of the same replaced by substantially similar property of no less than equivalent value in the ordinary course of business, with good and marketable title thereto, free and clear of all liens and encumbrances, except Permitted Encumbrances or liens for current taxes and assessments not yet due and payable; and that between the date of this Agreement and the Closing, there will be no more than the ordinary normal wear and tear and expendability of the Acquired Assets, and that the Acquired Assets will be in good working condition. (c) The Sellers do not know of any facts relating to them or the Station which would cause (i) the application for assignment of the Licenses to Buyer to be challenged, (ii) the Commission to deny its consent to the assignment of the Station's Licenses to Buyer, or (iii) the Commission to grant such application for assignment subject to material adverse conditions to Buyer. (d) The Sellers will have duly filed all tax returns required to be filed by such Seller on or before the Closing Date and will have paid and discharged all taxes, assessments, excises, levies, or other similar charges of every kind, character or description impose by any Governmental Authority, and any interest, penalties or additions to tax imposed thereon or in connection therewith (collectively, "Taxes") known to the Sellers which are due and payable and have not been paid and that would interfere with the Sellers' enjoyment of the Acquired Assets. There is no action, suit, proceeding, audit, investigation or claim pending or, to the Sellers' best knowledge, threatened in respect of any Taxes been proposed, asserted or threatened. (e) The Sellers shall (i) upon receiving notice or otherwise becoming aware of any violation relating to the Licenses, any violation by the Station of any rules and regulations of the FCC, or any material violations under any other applicable laws and regulations, promptly notify Buyer and, at Sellers' expense, use reasonable commercial efforts to cure all such violations prior to the Closing Date, (ii) promptly notify Buyer in writing if the Station ceases to broadcast at its authorized power for more than 48 consecutive hours; such notice shall specify the reason or reasons for such cessation and the corrective measures taken or to be taken by Sellers, and (iii) promptly inform Buyer in writing of any material variances from the representations and warranties contained in this Article 3 that become known to the Sellers or any breach of any agreement hereunder by Sellers. 3.13. COPYRIGHTS, TRADEMARKS AND SIMILAR RIGHTS. The call letters listed on Schedule E are the call letters used by Sellers during the radio broadcast operations of the Station to identify the Station to its local audience. Sellers have full right and authority from the FCC to use such call letters except as may be provided in the Leases and Agreements. Sellers have not licensed or consented to, and have no knowledge of, any other entity's or individual's use of such call letters. There is no other name, trademark, service mark, copyright, or other trade, or service right or mark currently being used in the business and operations of the Station other than those listed in Schedule E, except those of CBC in connection with its Radio AAHS(R)/Aahs World Radio(SM) children's radio format. Sellers pay no royalty to anyone for use of the General Intangibles and have the right to bring action for the infringement thereof to the extent permitted by applicable law. Sellers represent that the operations of the Station do not infringe on any trademark, service mark, copyright or other intellectual property or similar right owned by others. 3.14. EMPLOYEES. Sellers shall be solely responsible for any and all liabilities and obligations Sellers may have to the employees of the Station, including, without limitation, compensation, severance pay, incentive bonuses, health expenses, and accrued vacation time, sick leave and obligations under any of Sellers' employee benefit plans. Sellers acknowledge that Buyer has no obligation hereunder to offer employment to any employee of Sellers; however, Buyer shall have the right to hire such of the employees of the Station as Buyer may select. With respect to any employee that Buyer hires, Sellers further acknowledge that Buyer shall have no obligation for, and shall not assume as part of the transaction contemplated by this Agreement, any compensation, incentive bonuses, health expenses, or "accrued vacation" or other accrued leave time of said employees as a consequence of their being hired by Buyer. Sellers also acknowledge that with respect to such employees as may be hired by Buyer, and where any such compensation, incentive bonuses, health expenses, or accrued leave time exists for said employees, Sellers will retain the responsibility for any liability arising therefrom. The consummation of the transactions contemplated hereby will not cause Buyer to incur or suffer any liability relating to, or obligation to pay, severance, termination, or other payments to any person or entity, or any liability under any employee benefit plans of Sellers, including, without limitation, any liability under the Internal Revenue Code of 1986, as amended, or the Employee Retirement Income Security Act of 1974, as amended. Sellers shall comply with the provisions of the Worker Adjustment and Retraining and Notification Act, as amended (the "WARN Act") and similar laws and regulations, if applicable, and shall be solely responsible for any and all liabilities, penalties, fines, or other sanctions that may be assessed or otherwise due under such applicable laws and regulations on account of the dismissal or termination of the employees of the Station by Sellers. Sellers shall be responsible for ensuring that all requirements of the WARN Act are met in connection with this Agreement and the transactions contemplated by this Agreement, including but not limited to, providing proper notices to employees of Sellers and to others. Sellers also shall be responsible for all payments due its current or former employees under the WARN Act. 3.15. LABOR RELATIONS. Schedule I lists the names, dates of hire and current annual salaries of all persons employed by the Sellers directly and principally in connection with the operation of the Station. None of the Sellers is a party to or subject to any collective bargaining agreements with respect to the Station. Except as shown on Schedule I, all payments determined to be due from Sellers on account of work, health or welfare insurance under any agreement will have been paid on the Closing Date. Any such payments which cannot be determined on the Closing Date shall be paid immediately by Sellers upon determination without any liability to Buyer. Sellers have no written or oral contracts of employment with any employee of the Station, other than (i) oral employment agreements terminable at will without penalty, or (ii) those listed in Schedule D. The Sellers, in the operations of the Station, have substantially complied with all applicable laws, rules and regulations relating to the employment of labor, including those related to wages, hours, collective bargaining, occupational safety, discrimination and the payment of social security and other payroll related taxes. To the best of Sellers' knowledge, there is no representation or organizing effort pending or threatened against or involving or affecting the Sellers with respect to employees employed at the Station. 3.16. EMPLOYEE BENEFITS. Except for the employee benefit plans listed on Schedule J (collectively, the "Employee Benefit Plans"), Sellers are not parties to or bound by, and have no liability with respect to, any profit sharing, stock option, pension, severance, retirement, stock purchase, hospitalization, group or individual life, disability or health insurance, or employee welfare benefit or similar plan or agreement. True and correct copies of each Employee Benefit Plan and all documents pursuant to which the Employee Benefit Plans are maintained, administered and funded have been delivered to Buyer. Sellers shall timely pay all amounts due under or with respect to the Employee Benefit Plans, and Sellers do not, nor with they prior to the Closing Date, participate in, contribute to, nor employee any persons covered by a multiemployer plan, as defined in Section 3(37) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and have not, and will not, prior to the Closing Date incur any withdrawal liability within the meaning of Title IV of ERISA. Sellers have materially complied with, and will through and after the Closing Date, continue to materially comply with the Employee Benefit Plans and all requirements of law relating thereto and Buyer shall have no liability or responsibility whatsoever with respect to the Employee Benefit Plans. Sellers have no benefit plan (within the meaning of Section 3(2) of ERISA) that is subject to Title IV of ERISA, (II) any multiemployer plan (within the meaning of Section 3(37) of ERISA), (iii) any employee benefit plan described in Section 4063 of ERISA or Section 413(c) of the Internal Revenue Code of 1986, as amended, and Treasury regulations promulgated thereunder, or (iv) any employee benefit plan providing health, life or other welfare-type benefits to current, future or former employees, independent contractors, directors or shareholders (and/or their dependents), other than continuation coverage required pursuant to Part 6 of Subtitle B of Title I of ERISA or applicable state continuation coverage law. 3.17. PRE-CLOSING COVENANTS. Between the date hereof and the Closing, the Sellers covenant that: 3.17.1. FCC COMPLIANCE. The Sellers shall continue to operate the Station in conformity with the terms of the Station's Licenses and in conformity in all material respects with all applicable laws, regulations, rules and ordinances, including but not limited to the rules and regulations of the FCC. The Sellers shall file all reports, applications and other filings required by the FCC in a timely and accurate manner. Sellers will maintain the Licenses in full force and effect and take any action necessary before the FCC to preserve such Licenses in full force and effect without material adverse change. Sellers will not take any action that would jeopardize the Station's rightful possession of the Licenses, the potential for assignment of the Licenses to Buyer, or the unconditional renewal of the Licenses for full license terms. 3.17.2. CONDUCT OF BUSINESS. The Sellers shall conduct the business and technical operations of the Station in the Ordinary Course of Business and consistent with past practices, and shall continue all practices, policies, procedures and technical operations relating to the Station in substantially the same manner as heretofore. Sellers shall perform, pay and discharge when due all of its obligations and liabilities in all material respects other than those which Buyer has expressly agreed to assume pursuant to Section 2.6, as well as known, contingent or unknown liabilities of Sellers. 3.17.3. MAINTENANCE OF ASSETS. The Sellers shall maintain all of the Acquired Assets in a good condition and, with respect to the Personal Property, shall maintain inventories of spare parts at levels consistent with the past practices of the Sellers and the Station. The Sellers shall not sell, convey, assign, transfer or encumber any of the Acquired Assets, except for the retirement of tangible Acquired Assets consistent with the normal and customary practices of the Sellers and the Station. 3.17.4. NO SOLICITATION. (a) Sellers will immediately cease any existing discussions or negotiations with any third parties conducted prior to the date hereof with respect to any Acquisition Proposal (as defined below). Sellers shall not, directly or indirectly, through any officer, director, employee, representative or agent, or otherwise (i) solicit, initiate, continue or encourage any inquiries, proposals or offers that constitute, or could reasonably be expected to lead to, a proposal or offer for a merger, consolidation, business combination, sale of substantially all the assets or a sale of at least a majority of capital stock (including, without limitation, by way of a tender offer) (a "Fundamental Transaction") involving CRD or WCAR-AM, other than the transactions contemplated by this Agreement, or a Fundamental Transaction involving CBC conditioned upon termination of this Agreement (any of the foregoing inquiries or proposals are being referred to in this Agreement as an "Acquisition Proposal"), (ii) solicit, initiate, continue or engage in negotiations or discussions concerning, or provide any information or data to any person or entity relating to, or otherwise cooperate in any way with, or assist or participate in, or facilitate or encourage any Acquisition Proposal, or (iii) agree to, approve or recommend any Acquisition Proposal; provided, that, if shareholder approval is required for this transaction, nothing contained in this Section shall prevent CBC from, prior to the Closing, furnishing non-public information to, or entering into discussions or negotiations with, any person or entity in connection with any unsolicited Acquisition Proposal by such person or entity (including a new and unsolicited Acquisition Proposal received by CBC after the execution of this Agreement from a person or entity whose initial contact with CBC may have been solicited by CBC prior to the execution of this Agreement), and CBC may recommend such an unsolicited bona fide written Acquisition Proposal to the shareholders of CBC, if and only to the extent that (i) the Board of Directors of CBC determines in good faith (after consultation with and based upon the advice of its financial advisor and considering the effect of such Acquisition Proposal upon the employees, customers and the community) that such Acquisition Proposal would, if consummated, result in a transaction more favorable to the shareholders of CBC than this Agreement and that the person or entity making such Acquisition Proposal has the financial means, or the ability to obtain the necessary financing, to conclude such transaction (any such more favorable Acquisition Proposal is being referred to in this Agreement as a "Superior Proposal"), (ii) the Board of Directors of CBC determines in good faith (after consultation with and based upon the advice of its outside legal counsel) that the failure to take such action would be inconsistent with the fiduciary duties of such Board of Directors to its shareholders under applicable law, and (iii) prior to furnishing such non-public information to, or entering into discussions or negotiations with, such person or entity, the Board of Directors receives from such person or entity an executed confidentiality agreement. If this Agreement is terminated after the occurrence of a Triggering Event (as defined below), or CBC shall materially breach or fail to perform its obligations under this Section 3.16.4., then Sellers shall pay Buyer a non-refundable fee of One Hundred Thousand and no/100 Dollars ($100,000.00) together with an amount equal to any amounts previously paid to Sellers or incurred by Buyer under the TBA, which amount shall be payable by wire transfer of same day funds on the date of termination as and for liquidated damages (the "Fees"). (b) CBC shall reimburse the Buyer in connection with any legal or other fees incurred by the Buyer in connection with the collection of the Fee from CBC. (c) As used herein, a "Triggering Event" shall mean any of the following: (i) the Board of Directors of CBC shall have withdrawn or modified its recommendation of this Agreement or shall have resolved or publicly announced its intention to do so; or (ii) an Alternative Transaction shall have taken place or the Board of Directors of CBC shall have recommended such an Alternative Transaction to shareholders, or shall have resolved or publicly announced its intention to recommend or engage in an Alternative Transaction; or (iii) CBC shall have negotiated with, entered into any agreement with, or consummated or recommended any transaction with, any person other than Buyer or its affiliates, based on a determination regarding a "Superior Proposal" made as described herein; or (iv) the shareholders of CBC do not approve this Agreement or the transactions contemplated hereby after an Acquisition Proposal shall have been publicly announced. 3.17.5. SHAREHOLDER MEETING. CBC shall, in accordance with the requirements of applicable law, its Articles of Incorporation and its Bylaws, take all action as may be necessary, proper or advisable to duly call, give notice of and fix a record date for a meeting of shareholders (which may be a special or annual meeting) to vote on approval of this Agreement and the transactions contemplated hereby (the "Shareholders' Meeting"), to be held as promptly as practicable and in any event not later than August 30, 1998. As promptly as practicable, CBC shall prepare and file with the Securities and Exchange Commission (the "SEC") a proxy statement (the "Proxy Statement") to be used in connection with the solicitation of proxies for the Shareholders' Meeting, respond to any comments or requests from the SEC, as applicable, and mail the Proxy Statement, together with any materials required to be delivered to CBC shareholders under applicable law, to shareholders of CBC in accordance with the requirements of applicable law. CBC represents, warrants and covenants that the Proxy Statement will comply with all requirements of applicable law, including without limitation SEC Regulation 14A. Subject to its fiduciary duties in connection with a Superior Offer (as defined below), the Board of Directors of CBC shall recommend in the Proxy Statement that the shareholders of CBC approve this Agreement and the transactions contemplated hereby. 3.17.6. OTHER SELLER COVENANTS. None of the Sellers shall (a) merge or consolidate with or into any other entity; (b) do or omit to do any act (or permit such action or omission) which will cause a material breach of any of the Leases and Agreements; (c) waive any claims or rights of substantial value except in the ordinary course of business and consistent with past practice; or (d) agree, whether in writing or otherwise, to do any of the foregoing. 3.18. NO MISLEADING STATEMENTS. To Sellers' knowledge, no statement, representation or warranty made by Sellers herein and no information provided or to be provided by Sellers to Buyer pursuant to this Agreement or the other Transaction Documents or in connection with the negotiations covering the purchase and sale contemplated herein contains or will contain any untrue statement of a material fact, or omits or will omit a material fact. There are no facts or circumstances known to Sellers and not disclosed herein or in the Schedules hereto that, either individually or in the aggregate, will materially adversely affect after Closing the Acquired Assets or the condition of the Station. 3.19. CONSENTS. The Sellers shall use commercially reasonable efforts to obtain any third party consents required to assign to Buyer all Leases and Agreements. If, on the Closing Date, Sellers have not obtained any required consent for the assignment of any Lease and Agreement (other than the material Leases and Consents referred to in Section 8.4(d) hereof) to Buyer and the Closing occurs, then after the Closing Date, Sellers will continue to use commercially reasonable efforts, and the Buyer will cooperate with Sellers, to obtain any such consent and/or to remove any other impediments to the assignment of any such Lease and Agreement. From and after the Closing, until the valid assignment of all such Leases and Agreements, Sellers will take such lawful actions as are reasonably necessary to assure that Buyer shall receive the benefits of, and shall be obligated to perform the obligations of Sellers under, all such Leases and Agreements after the Closing Date to the same extent as if Buyer were a party thereunder (and Buyer agrees to cooperate with Sellers in connection with any such actions and to enter into, at the time of the Closing, any lawful arrangements in furtherance thereof (but at no additional cost to Buyer other than such costs as Buyer would incur as a party to such Leases and Agreements)). 3.20. SUPPLEMENTAL DISCLOSURE. From time to time prior to the Closing, the Sellers will promptly supplement or amend the Schedules hereto with respect to any matter hereafter arising which, if existing or occurring at the date of the Agreement, would have been required to be set forth or described in such Schedules. No supplement or amendment of any Schedule made pursuant to this section shall be deemed to cure any breach of any representation or warranty made in this Agreement unless Buyer specifically agrees thereto in writing. ARTICLE 4 BUYER'S REPRESENTATIONS AND WARRANTIES The Buyer represents, warrants and covenants to Sellers that the statements in this Article 4 are true, correct and complete in all respects as of the date of this Agreement and will be true, correct and complete as of the Closing Date as though made on the Closing Date. 4.1. CORPORATE EXISTENCE AND POWERS. Buyer is a limited liability company organized and existing in good standing under the laws of the State of Michigan with full power and authority to enter into this Agreement and the other Transaction Documents to which it is a party and enter into and complete the transactions contemplated herein and therein; Buyer is, or will be at the time of Closing, qualified to do business in the State of Michigan; all required corporate action has been taken by Buyer to make and carry out this Agreement and the other Transaction Documents to which it is a party and the transactions contemplated herein and therein; this Agreement constitutes, and upon execution and delivery, each other Transaction Document will constitute, valid and binding obligation of Buyer enforceable in accordance with its terms; the execution of the Agreement and the other Transaction Documents to which it is a party and, once the consent referred to in the next clause of this sentence is obtained, the completion of the transactions herein involved will not result in the violation of any order, license, permit, rule, judgment or decree to which Buyer is subject or the breach of any contract, agreement or other commitment to which Buyer is a party or by which it is bound or conflict with or violate any provision of Buyer's certificate of incorporation, bylaws or other organizational documents; and except for the consent of the Commission to the assignment of the Licenses to Buyer and the consents identified by the Sellers on Schedule B or D, to the Buyer's knowledge, no other consent of any kind is required that has not been obtained for Buyer to make or carry out the terms of this Agreement. 4.2. BUYER'S QUALIFICATIONS. At Closing, Buyer will be legally and financially qualified to become the licensee of the Commission. Buyer does not know of any facts relating to it which would cause the Commission to deny its consent, or which would materially hinder or delay receipt of such consent, to the assignment of the Licenses to Buyer. ARTICLE 5 BREACH OF AGREEMENTS, REPRESENTATIONS AND WARRANTIES 5.1. BREACH OF THE SELLERS' AGREEMENTS, REPRESENTATIONS AND WARRANTIES. The Sellers shall jointly and severally indemnify and hold harmless Buyer and every affiliate of Buyer and any of its or their directors, members, stockholders, officers, partners, employees, agents, consultants, representatives, transferees and assignees from and against any loss, damage, liability, claim, demand, judgment or expense, including claims of third parties, arising out of ownership of the Acquired Assets or the operation of the Station by the Sellers prior to Closing, whether such claim is brought against Buyer or the Acquired Assets prior to or after Closing, and including without being limited to, reasonable counsel fees and reasonable accounting fees, sustained by Buyer by reason of, or arising out of or relating to, (i) any material breach of any warranty, representation, covenant or agreement of the Sellers contained herein or in any other Transactional Document or in the Schedules attached hereto, (ii) any facts or circumstances described in Schedule G, or (iii) the failure to comply with any applicable bulk sales or tax notice statutes; provided, however, that such indemnification shall be required only if written notice, with respect to any matter for which indemnification is claimed, is given. 5.2. BREACH OF BUYER'S AGREEMENTS, REPRESENTATIONS AND WARRANTIES. Buyer shall indemnify and hold harmless the Sellers and every affiliate of Sellers and any of their directors, members, stockholders, officers, partners, employees, agents, consultants, representatives, transferees and assignees from and against any loss, damage, liability, claim, demand, judgment or expense, including claims of third parties arising out of ownership of the Acquired Assets or operation of the Station by Buyer after Closing, and including without being limited to, reasonable counsel fees and reasonable accounting fees, sustained by the Sellers by reason of, or arising out of or relating to, any material breach of any warranty, representation, covenant or agreement of Buyer contained herein or any other Transaction Document; provided, however, that such indemnification shall be required only if written notice, with respect to any matter for which indemnification is claimed, is given. 5.3. PERFORMANCE. Sellers acknowledge that the Acquired Assets to be transferred and assigned under this Agreement are unique and not readily bought or sold on the open market and, for that reason, among others, Buyer would be irreparably harmed by any breach or failure of the other party to consummate this Agreement, and monetary damages therefor will be highly difficult, if not wholly impossible, to ascertain. It is therefore agreed that this Agreement shall be enforceable by Buyer in a court of equity by a decree of specific performance, and an injunction may be issued restraining any transfer or assignment of the Acquired Assets contrary to the provisions of this Agreement pending the determination of such controversy. Sellers, for themselves and their successors and assigns, hereby waive the claim or defense that an adequate remedy at law exists. In the event of a suit by Buyer to obtain specific performance, Buyer shall be entitled to reimbursement by Sellers of all reasonable attorneys' fees and other out-of-pocket expenses incurred by Buyer with respect thereto. 5.4. PROCEDURES: THIRD PARTY CLAIMS. The indemnified party agrees to give written notice within a reasonable time to the indemnifying party of any claim or other assertion of liability by third parties which could give rise to a claim for indemnification hereunder (hereinafter collectively "Claims," and individually a "Claim"), it being understood that the failure to give such notice shall not affect the indemnified party's obligation to indemnify as set forth in this Agreement, unless, and then only to the extent, the indemnifying party's ability to contest, defend or settle with respect to such Claim is thereby demonstrably and materially prejudiced. The obligations and liabilities of the parties hereto with respect to their respective indemnities pursuant to this Article 5 resulting from any Claim, shall be subject to the following additional terms and conditions: (a) Provided the indemnifying party acknowledges in writing its obligation to indemnify the indemnified party with respect to the Claim and further satisfies the indemnified party as to its financial ability to satisfy such indemnification obligation, the indemnifying party shall have the right to undertake, by counsel or other representatives of its own choosing, the defense or opposition to such Claim. (b) In the event that the indemnifying party shall either (i) elect not to undertake, or shall fail to satisfy any requirements to undertake, such defense or opposition, or (ii) fail to properly elect within thirty (30) days after notice of any such Claim from the indemnified party or thereafter fail to defend or oppose such Claim, then, in either such event, the indemnified party shall have the right to undertake the defense, opposition, compromise or settlement of such Claim, by counsel or other representatives of its own choosing, on behalf of and for the account and risk of the indemnifying party. (c) Anything in this Section 5.4 to the contrary notwithstanding, (i) the indemnifying party shall not, without the indemnified party's written consent, settle or compromise any Claim or consent to entry of any judgment which includes any admission of liability or does not include as a term thereof the giving by the claimant or the plaintiff to the indemnified party of an unconditional release from all liability in respect of such Claim, and (ii) in the event that the indemnifying party undertakes defense of or opposition to any Claim, the indemnified party, by counsel or other representative of its own choosing and at its sole cost and expense, shall have the right to consult with the indemnifying party and its counsel or other representatives concerning such Claim and the indemnifying party and the indemnified party and their respective counsel or other representatives shall cooperate in good faith with respect to such Claim. ARTICLE 6 RISK OF LOSS; TERMINATION 6.1. BUYER'S OPTIONS. The risk of any loss, damage or destruction to any of the Acquired Assets to be transferred to the Buyer hereunder from fire or other casualty or loss shall be borne by the Sellers at all times prior to the Closing. Upon the occurrence of any material loss or damage to any of the Acquired Assets to be transferred hereunder as a result of fire, casualty, or other causes prior to the Closing, the Sellers shall notify the Buyer of same in writing immediately, stating with particularity the reasonable estimates of the loss or damage incurred, the cause of damage, if known, and the extent to which restoration, replacement and repair of the Acquired Assets lost or destroyed is believed reimbursable under any insurance policy with respect thereto. Provided the Sellers, at their sole expense, have not repaired, restored or replaced the damaged Acquired Assets to Buyer's reasonable satisfaction by the Closing, and if the Buyer is not then in default of this Agreement, Buyer shall have the option (but not the obligation) exercisable at the Closing to: (i) terminate this Agreement in which case none of the parties shall have any further liability to the other parties and all Escrowed Funds shall be returned to Buyer, except that the Sellers shall have a reasonable period of time, not to exceed sixty (60) days, to effect repairs of the damaged Acquired Assets before Buyer may exercise its option under this subparagraph 6.1 (i); (ii) postpone the Closing for up to one hundred eighty (180) days as necessary to allow the property to be completely repaired, replaced or restored, at the Sellers' sole expense, in which event the Sellers shall use their best efforts to complete such repairs; or (iii) elect to consummate the Closing and accept the property in its "then" condition, in which event the Sellers shall assign to Buyer all rights under any insurance claim covering the loss and pay over to the Buyer the proceeds under any such insurance policy previously received by the Sellers with respect thereto. 6.2. TERMINATION BY EITHER PARTY. This Agreement may be terminated prior to Closing as follows: (a) by mutual agreement of Buyer and Sellers at any time; (b) by Buyer by written notice to Sellers if any of the conditions specified in Section 8.4 is not satisfied in all material respects at the time of Closing or if satisfaction of any such condition is or becomes impossible, provided that in the event of a breach by any Seller of any covenant or agreement contained herein, Buyer shall first give Sellers written notice thereof, and if Sellers shall have undertaken to cure such breach within fifteen (15) days, they shall have a total of thirty (30) days to cure such breach, or if Buyer terminates the TBA upon an Event of Default (as defined therein) by Seller or in accordance with Section 6.1; (c) by Sellers by written notice to Buyer if any of the conditions specified in Section 8.5 is not satisfied in all material respects at the time of Closing or if satisfaction of any such condition is or becomes impossible, provided that in the event of a breach by Buyer of any covenant or agreement contained herein, Sellers shall first give Buyer written notice thereof, and if Buyer shall have undertaken to cure such breach within fifteen (15) days, it shall have a total of thirty (30) days to cure such breach, or if Seller terminates the TBA upon an Event of Default (as defined therein) by Buyer; and (d) by either party pursuant to the terms of Sections 7.3 and 7.4 below. 6.3. EFFECT OF TERMINATION. In the event this Agreement is terminated as provided in Section 6.2, this Agreement shall be deemed null, void and of no further force or effect, and the parties hereto shall be released from all future obligations hereunder with respect to the Station; provided that the obligations of Buyer and Sellers in Sections 3.9.5, 5.1, 5.2, 5.3, 5.4, 6.3, 7.2, 9.3, and 9.10 shall survive such termination, and provided further that the termination of this Agreement shall not relieve any party for liability for any material breach of this Agreement, and provided further that, if this Agreement is terminated pursuant to Section 6.2(c) due to material breach or default by the Buyer of this Agreement, and the Sellers are not then in material breach or default of this Agreement, the Sellers shall be paid the Escrowed Funds, together with any interest earned thereon, as liquidated damages, it being agreed that such payment shall constitute full payment for any and all damages suffered by Sellers by reason thereof and that Sellers shall have no rights to or claims for damages from Buyer other than as set forth in this Agreement. ARTICLE 7 APPLICATION FOR COMMISSION APPROVAL 7.1. FILING AND PROSECUTION OF APPLICATION. Buyer and the Sellers shall, as soon as practicable after the date of this Agreement and in any event not later than May 12, 1998, join in an application to be filed with the Commission requesting its written consent to the assignment of the Licenses of the Station from WCAR-AM to Buyer. The parties shall prepare their own portions of the application. Buyer and the Sellers shall take all steps necessary to the expeditious prosecution of such application to a favorable conclusion, using their reasonable best efforts throughout. 7.2. EXPENSES. The parties shall bear their own legal, accounting and other expenses in connection with the consummation of the contemplated transaction. The parties shall cooperate with the preparation of the Commission application and in connection with the prosecution of such application. The FCC filing fees shall be shared equally between the Sellers on the one hand and the Buyer on the other. 7.3. DESIGNATION FOR HEARING. If, for any reason, any application for an assignment of license is designated for hearing by the Commission prior to grant thereof, either of the parties shall have the right by written notice within thirty (30) days of such designation for hearing, to terminate this Agreement if the allegations raised relate to the other party. Should Closing occur and upon reconsideration should the FCC designate the assignment for hearing, Buyer may elect to rescind this Agreement, and if Buyer so elects, Buyer and the Seller agree to cooperate in filing an application to reassign the License to the Seller, if necessary, in order to comply with any FCC order and to take all necessary actions to reverse this transaction as if Closing had not occurred. 7.4. TIME FOR COMMISSION CONSENT. Subject to the provisions of Section 7.3 above, if the Commission has not given its written consent to the assignment of the Licenses set forth herein within twelve (12) months from the date of acceptance for filing of the application for such assignment, any of the parties, if not then in default, may terminate this Agreement by giving written notice to the other parties. Upon such termination, if not otherwise in material breach or default of this Agreement, none of the parties shall have any right or liability hereunder and all Escrowed Funds shall be returned to Buyer promptly. 7.5. CONTROL OF STATION. Until Closing, Buyer shall not directly or indirectly, control, supervise, direct or attempt to control, supervise or direct the operations of the Station, but such operations shall be the sole responsibility of the Sellers, subject to and consistent with all rules, regulations and policies of the FCC. On and after the Closing Date, the Sellers shall not directly or indirectly, control, supervise, direct or attempt to control, supervise or direct the operations of the Station. 7.6. SHARING INFORMATION. Each party hereto shall as promptly as possible, and in any event within two (2) business days, inform the other of any material communications between such party and the FCC or any other Governmental Authority regarding this Agreement or the transactions contemplated hereby. If any party receives a request for additional information or documentary material from any such Governmental Authority, then such party shall endeavor in good faith to make, or cause to be made, as promptly as practicable and after consultation with the other party, an appropriate response to such request. ARTICLE 8 CLOSING Subject to the terms and conditions herein stated, the parties agree as follows: 8.1. CLOSING DATE. The Closing of the transactions contemplated under this Agreement shall be held at such time and date as shall be mutually agreed by the Sellers and Buyer; provided, however, that in any event Buyer must close no later than the first day of the first month after final Commission approval of the assignment of the Licenses has become final, the finality of the assignment subject to waiver by Buyer ("Final Approval") and all other conditions to Closing shall have been satisfied in all material respects on or before the Closing Date. (The date scheduled, or required to be scheduled for Closing hereunder is referred to herein as the "Closing Date.") Final Approval shall be the approval of the FCC to the renewal and assignment of the Licenses which are no longer subject to rehearing, reconsideration or review by the Commission or to review by any court under the Communications Act of 1934, as amended, and which action is not reversed, stayed, enjoined or set aside, and with respect to which no timely request or petition for stay, reconsideration, review or rehearing or a notice of appeal is pending and the time for such filing has expired. Unless otherwise agreed by the parties in writing, the Closing shall take place at Buyer's counsel's offices in Detroit, Michigan. 8.2. THE SELLERS' OBLIGATIONS AT CLOSING. At Closing, the Sellers shall deliver to Buyer the following: (a) An Assignment of the Licenses described in Schedule A, Warranty Deeds as to the Owned Real Property described on Schedule B and an Assignment and Bill of Sale, or similar instruments, including third party consents to all "material" Leases and Agreements, transferring to Buyer all other Acquired Assets to be transferred hereunder, free and clear of all liens, encumbrances and restrictions of any kind whatsoever, other than Permitted Encumbrances; (b) The business records described in Section 1.7; (c) An opinion of the Sellers' counsel, addressed to Buyer, confirming the correctness of the Sellers' representations made in Sections 3.1 and 3.2; (d) A certificate of CBC's CEO verifying that the Sellers' representations, warranties and covenants as provided herein remain materially true and correct up to and through the Closing Date; (e) Certificates of Sellers' Secretary certifying as to Sellers' Articles of Incorporation, By-Laws, and Board of Directors approvals (all of which shall be attached thereto); (f) UCC reports of the appropriate filing officers and federal and state litigation searches dated not more than thirty (30) days prior to the Closing Date in Minnesota, Michigan and Wayne County evidencing no judgments, financing statements, or liens, other than Permitted Encumbrances, on file with respect to the Acquired Assets, and, if such report evidences that judgments, financing statements, or liens are on file with respect to any of the Acquired Assets, a termination statement or other appropriate document signed by the secured party or lienholder evidencing the release or termination of such financing statement or such lien or a pay-off letter from such secured party or lienholder indicating that such party or lienholder will provide such release or termination statement upon receipt of payment from the proceeds of the sale contemplated herein; (g) Good and valid title insurance commitments dated as of the Closing Date insuring the Sellers' title as fee owner in each parcel of Owned Real Property; in each instance, the title shall be insured by means of the preferred policy used in the location where such real estate exists, and each such policy, as to the insurer, the insured, the dollar limit and amount of coverage and the exceptions and conditions thereof shall be, in all respects, in form and substance reasonably satisfactory to the Buyer; (h) Internal Revenue Service Form 8594 completed by the Sellers in connection with the acquisition of the Acquired Assets by the Buyer; (i) A check or checks, or other evidence of payment acceptable to Buyer, with respect to the expenses payable by Sellers, if any, on the Closing Date in accordance with the Agreement; (j) Such other documents and instruments as might reasonably be requested by Buyer to consummate the transaction contemplated hereunder consistent with the intent expressed herein; (k) Escrow instructions releasing Escrowed Funds to Buyer; (l) The Acquired Assets; and (m) A tax letter from the Michigan Department of Treasury and Form 1027 from the Michigan Employment Security Administration. 8.3. BUYER'S OBLIGATIONS AT CLOSING. At Closing, Buyer shall deliver to CBC the following: (a) Delivery of the Purchase Price in the manner set forth in Section 2.2; (b) An Agreement to assume the obligations of Sellers under the Leases and Agreements with respect to periods of time from and after Closing; (c) An opinion of Buyer's counsel, addressed to the Sellers, confirming the correctness of certain of the Buyer's representations made in Section 4.1; (d) Internal Revenue Service Form 8594 completed by the Buyer in connection with the acquisition of the Acquired Assets from the Sellers; (e) A check or checks, or other evidence of payment acceptable to Sellers, with respect to the expenses payable by Buyer, if any, on the Closing Date in accordance with the Agreement; and (f) Such other documents and instruments as might reasonably be requested by Sellers to consummate the transactions contemplated hereunder consistent with the intent expressed herein. 8.4. CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of Buyer to consummate the transaction herein contemplated at Closing are subject to and conditioned upon: (a) The written consent of the Commission evidencing its Final Approval to the assignment of the Licenses to Buyer subject to the provisions of Section 7.3 above, provided that any such approvals are without any condition that is materially adverse to Buyer; (b) The satisfaction at or before Closing in all material respects of all agreements, obligations and conditions of the Sellers hereunder required to be performed or complied with by them on or before Closing; (c) The material accuracy of the representations and warranties made by the Sellers; (d) Written third party consents to all material Leases and Agreements where required by the terms of the Lease or Agreement or substitution by Sellers of substantially equivalent rights without materially adverse impact upon Buyer's enjoyment of the Acquired Assets; (e) There shall not be in effect any judgment, order, injunction or decree of any court of competent jurisdiction enjoining the consummation of the transactions contemplated hereby; (f) The TBA shall have become effective in accordance with the terms and conditions thereof and, from and after the date the TBA first becomes effective through and including the Closing Date, the TBA shall have not been terminated due to the Sellers' breach thereof; and (g) Sellers shall have complied with each and every one of its obligations set forth in Section 8.2. 8.5. CONDITIONS TO OBLIGATIONS OF THE SELLERS. The obligations of the Sellers to consummate the transaction herein contemplated at Closing are subject to and conditioned upon: (a) Subject to the provisions of Section 7.3 above, the written consent of the Commission evidencing its Final Approval to the assignment of the Licenses to Buyer, provided that any such approval is without any conditions that are materially adverse to the Sellers; (b) The satisfaction at or before Closing in all material respects of all agreements, obligations and conditions of Buyer hereunder required to be performed or complied with by it at or before the Closing; (c) The material accuracy of the representations and warranties made by Buyer; (d) There shall not be in effect any judgment, order, injunction or decree of any court of competent jurisdiction enjoining the consummation of the transactions contemplated hereby; (e) The TBA shall have become effective in accordance with the terms and conditions thereof and, from and after the date the TBA first becomes effective through and including the Closing Date, the TBA shall have not been terminated due to the Buyer's breach thereof; (f) The approval of CBC's shareholders; and (g) Buyers shall have complied with each and every one of its obligations set forth in Section 8.3. ARTICLE 9 MISCELLANEOUS PROVISIONS 9.1. SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES. The representations and warranties set forth in Sections 3 and 4 of this Agreement shall survive for a period of two (2) years after the Closing Date except that the representations and warranties contained in Sections 3.1, 3.2, 3.5 (insofar as it relates to title to the Acquired Assets), 3.18 and 4.1 shall survive the Closing Date indefinitely, the representations and warranties set forth in Section 3.9 shall survive the Closing date for a period of six (6) years, and the representations and warranties set forth in Sections 3.6.7 and 3.12(d) shall survive the Closing Date for the applicable statute of limitations period; except that such representations and warranties shall survive the Closing Date indefinitely if they relate to a tax liability of the Station that is based on misrepresentation or fraud. 9.2. INVESTIGATION. The investigation by Buyer and its employees, agents and representatives of the Acquired Assets, the Station and any other matters concerning Sellers prior to or subsequent to the Closing Date, shall not negate or diminish the representations and warranties of Sellers contained or provided for herein except to the extent Sellers can demonstrate that Buyer had actual knowledge of an inaccurate warranty or representation. 9.3. EXECUTION OF DOCUMENTS. The parties agree to execute all applications, documents and instruments which may be necessary for the consummation of the transactions contemplated hereunder, or which might be from time to time reasonably requested by any party hereto in connection therewith, whether before or after the date of Closing. 9.4. NOTICES. All notices, requests, elections, demands and other communications given pursuant to this Agreement shall be in writing and shall be duly given when delivered personally or by facsimile transmission (upon receipt of confirmation) or when deposited in the mail, certified or registered mail, postage prepaid, return receipt requested, and shall be addressed as follows: If to the Sellers (or any of them): Children's Broadcasting Corporation 724 First Street North, Fourth Floor Minneapolis, Minnesota 55401 Attention: Mr. Christopher T. Dahl Facsimile Number: (612) 338-4318 with copy to: Children's Broadcasting Corporation 724 First Street North, Fourth Floor Minneapolis, Minnesota 55401 Attention: Lance W. Riley, Esq. Facsimile Number: (612) 330-9558 If to Buyer: 1090 Investments, L.L.C. 500 North Woodward Avenue Bloomfield Hills, Michigan 48304-2964 Attention: John F. X. Browne, P.A Facsimile Number: (248) 642-6027 with copy to: Sara Kruse, Esq. One Woodward Avenue Suite 2400 Detroit, Michigan 48226 Facsimile Number: (313) 961-8358 9.5. EXHIBITS AND SCHEDULES. All Exhibits and Schedules referred to herein are incorporated into this Agreement by reference for all purposes and shall be deemed part of this Agreement. 9.6. ENTIRE AGREEMENT. This Agreement together with all Exhibits and Schedules referred to herein, and the TBA contain all of the terms and conditions agreed upon by the parties hereto with respect to the transactions contemplated hereunder. 9.7. ASSIGNABILITY. None of the parties may assign their rights or obligations under this Agreement without the prior written consent of the other parties, except that the Buyer may make an assignment to an entity under essentially common control as the assigning entity. 9.8. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the representatives, heirs, estates, successors, and assigns of the parties hereto. 9.9. HEADING. The headings contained in this Agreement are for reference only and shall not effect in any way the meaning or interpretation of this Agreement. 9.10. COUNTERPARTS. This Agreement and any other instrument to be signed by the parties hereto may be executed by the parties, together or separately, in two or more identical counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument. Notwithstanding the foregoing, facsimile and photostatic reproductions may be relied upon to the same extent as an original provided that originals are provided within five (5) days of the date thereof. 9.11. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Michigan without regard to principles of conflicts of laws. The parties hereto hereby irrevocably and unconditionally consent to submit to the exclusive jurisdiction of the courts of the State of Michigan and of the United States of America located in the State of Michigan for any actions, suits or proceedings arising out of or relating to this Agreement and the transactions contemplated hereby (and they agree not to commence any action, suit or proceeding relating thereto except in such courts) and further agree that service of any process, summons, notice or document by U.S. registered mail to the addresses set forth above shall be effective service of process for any action, suit or proceeding arising out of this Agreement, in the courts of the State of Minnesota or the United States of America located in the State of Minnesota, and hereby further irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. 9.12. BROKER COMMISSION. The Sellers and Buyer each represent to the other that they have not engaged a broker in connection with the contemplated transaction, except that CBC has engaged Star Media Group, Inc., and each party agrees to pay the respective commissions owed under such engagements and agrees to indemnify and hold the other party or parties harmless against any claims made by a broker through it or them in connection with the transactions contemplated hereunder. Buyer has no obligation to pay any brokerage fee due Star Media Group, Inc. 9.13. SALES TAX. Any sales tax, including bulk sales taxes (if applicable), due upon consummation of this transaction will be computed at Closing and paid by the Sellers and any claims or proceedings arising therefrom shall be the sole responsibility of Buyer. Sellers agree to indemnify and hold Buyer harmless against any such claims in connection with the transactions contemplated hereunder. 9.14. PUBLIC ANNOUNCEMENTS. Sellers and Buyer shall consult with each other before making any public statements with respect to this Agreement, the other Transaction Documents or the transactions contemplated herein or therein and shall not issue any such press release or make any such public statement without the prior written consent of the other party, which shall not be unreasonably withheld, conditioned or delayed; provided, however, that a party may, without the prior consultation with or written consent of the other party, issue such press release or make such public statement as may be required by applicable law if it has used all reasonable efforts to consult with the other party and to obtain such party's consent but has been unable to do so in a timely manner. 9.15. MAIL. Sellers hereby authorize and empower Buyer from and after the Closing Date (a) to receive and open mail addressed to the Station and (b) to deal with the contents thereof in any manner Buyer sees fit, provided such mail and the contents thereof relate to the Station or the Acquired Assets. Sellers agree to deliver to Buyer any mail, checks or other documents received by them pertaining to the Station or the Acquired Assets. Buyer agrees to deliver to Sellers any mail which it receives to which it is not entitled by reason of this Agreement or otherwise and to which Sellers is entitled. 9.16. CLAUSES SEVERABLE. The provisions of this Agreement are severable. If any provision of this Agreement or the application thereof to any person or circumstance is held invalid, the provision or its application shall be modified to the extent possible to reflect the expressed intent of the parties but in any event, invalidity shall not affect other provisions or applications of this Agreement which can be given effect without the invalid provision or application. 9.17. MODIFICATION. No modification of any provision of this Agreement shall be effective unless made in writing and signed by the parties hereto. 9.18. REORGANIZATION OF SUBSIDIARIES. Notwithstanding any covenant or other provision of this Agreement to the contrary, Buyer acknowledges that Sellers may be desirous of merging the License Subsidiaries into the Asset Subsidiaries or similarly reorganizing said entities prior to Closing for tax purposes, and agrees to reasonably cooperate with Sellers if necessary to accomplish such reorganization to the extent that such cooperation is necessary in the execution and delivery of appropriate amendments hereto, consents or applications to the FCC, provided, however, that nothing in this Section 12.10 shall require Buyer to take any action or amend this Agreement in any way if such action or amendment is reasonably likely to delay the Closing, cause any diminution of Buyer's enjoyment of its rights hereunder or cause any economic loss to Buyer as a result. Sellers agree to reimburse Buyer for any legal fees reasonably incurred by Buyer in connection with the fulfillment of its obligations under this Section. 9.19. FURTHER ASSURANCES. From time to time after the Closing Date, at Buyer's request and without further consideration, sellers shall execute and deliver or cause to be executed and delivered such further instruments of conveyance, assignment and transfer and shall take such other action as Buyer may reasonably request in order more effectively to convey, transfer, reduce to possession or record title to any of the Acquire Assets purchased pursuant hereto or to otherwise carry out the purpose and intent of this Agreement. Upon the request of Buyer, Sellers will cooperate and will use their best efforts to have the officers, directors and other employees of Sellers cooperate with Buyer on or after the Closing Date by furnishing information, evidence, testimony and other assistance in connection with any actions, proceedings, arrangements or disputes involving Buyer and which are based upon contracts, leases, arrangements or acts of Sellers which were in effect or occurred on or prior to the Closing Date. Buyer shall reimburse Sellers and their officers, directors and other employees for any costs incurred by them in fulfilling this covenant, except to the extent that the provisions of Section 5 are applicable. 9.20. NO THIRD PARTY BENEFICIARIES. The obligations undertaken by Buyer and Sellers in this Agreement are for the benefit of Buyer and Sellers only, and neither any creditor of Buyer or Sellers, nor any other party (other than a successor in interest to Buyer or Sellers) shall have the right to rely on or enforce the provisions of this Agreement as a third-party beneficiary or otherwise. IN WITNESS WHEREOF, the parties hereto, by their properly authorized representatives, have caused this Agreement to be executed as of the day and date first above written. CHILDREN'S BROADCASTING 1090 INVESTMENTS, L.L.C. CORPORATION BY: /s/ James G. Gilbertson BY: /s/ John Kruse ITS: COO ITS: Partner CHILDREN'S RADIO OF DETROIT, INC. WCAR-AM, INC. BY: /s/ James G. Gilbertson BY: /s/ James G. Gilbertson ITS: COO ITS: COO EXHIBIT A ESCROW AGREEMENT SEE SECTION 2.2.1 EXHIBIT B TIME BROKERAGE AGREEMENT SEE SECTION 2.4 SCHEDULE A LICENSES, PERMITS AND AUTHORIZATIONS SEE SECTION 1.1 SCHEDULE B REAL PROPERTY SEE SECTION 1.2 SCHEDULE C PERSONAL PROPERTY SEE SECTION 1.3 SCHEDULE D LEASES AND AGREEMENTS SEE SECTION 1.4 SCHEDULE E GENERAL INTANGIBLES SEE SECTION 1.6 SCHEDULE F ALLOCATION OF PURCHASE PRICE SEE SECTION 2.7 SCHEDULE G LITIGATION SEE SECTION 3.8 SCHEDULE H INSURANCE SEE SECTION 3.10 SCHEDULE I LABOR RELATIONS SEE SECTION 3.15 SCHEDULE J EMPLOYEE BENEFIT PLANS SEE SECTION 3.16 EX-27 3 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 664,258 0 857,514 (345,691) 0 1,361,661 7,071,188 2,529,266 34,122,125 29,791,277 26,353,589 0 0 133,470 1,672,864 34,122,125 835,995 835,995 0 3,039,598 1,014,416 (345,691) 1,014,416 (3,678,849) 0 (3,678,849) 0 0 0 (3,678,849) (0.55) (0.55)
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