-----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, U39ZqPEWw2HHsUm5k1comhLhDLD4U8mkBODjoo+EIgv3tmgHilMISFjdC1dZOMdk 9/OhFhrdhtrbwUeCxosLZQ== 0000897101-98-001141.txt : 19981118 0000897101-98-001141.hdr.sgml : 19981118 ACCESSION NUMBER: 0000897101-98-001141 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 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: 98752569 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 QUARTERLY REPORT U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarterly period ended September 30, 1998 or [ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition period from _________ to _________ Commission File No. 0-21534 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 November 13, 1998, there were outstanding 6,600,642 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 -- September 30, 1998 and December 31, 1997. Consolidated Statements of Operations -- Three and nine months ended September 30, 1998 and 1997. Consolidated Statements of Cash Flows -- Nine months ended September 30, 1998 and 1997. Notes to Consolidated Financial Statements -- September 30, 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 and Use of Proceeds Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES EXHIBIT INDEX PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CHILDREN'S BROADCASTING CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 166,641 $ 545,258 Accounts receivable 318,320 1,696,756 Allowance for doubtful accounts (186,005) (472,000) Accounts receivable - affiliates 211,619 142,868 Prepaid expenses 137,829 108,174 ------------ ------------ TOTAL CURRENT ASSETS 648,404 2,021,056 Investment in Harmony 6,035,357 6,281,728 Property & equipment, net 3,990,985 4,708,327 Broadcast license, net 17,704,703 19,679,154 Intangible assets, net 1,558,456 1,550,100 Deferred debt issue costs 1,519,194 1,173,209 ------------ ------------ TOTAL ASSETS $ 31,457,099 $ 35,413,574 ============ ============ LIABILITIES & SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,304,104 $ 1,688,832 Accrued interest 457,037 324,994 Other accrued expenses 4,445,955 1,203,331 Line of credit 672,539 453,838 Short-term debt 1,250,000 1,172,500 Long-term debt - current portion 23,908,714 22,857,386 Obligation under capital lease - current portion 30,008 26,367 ------------ ------------ TOTAL CURRENT LIABILITIES 33,068,357 27,727,248 Long-term debt - net of current portions 2,224,137 2,508,819 Obligation under capital lease 29,270 48,836 ------------ ------------ TOTAL LIABILITIES 35,321,764 30,284,903 ------------ ------------ Redeemable Convertible Preferred Stock Authorized shares - 606,061 Issued and outstanding shares - 606,061 redeemable in certain circumstances at $4.04 per share 2,312,439 -- Shareholders' equity: Common stock, $.02 par value: Authorized shares - 50,000,000 Issued & outstanding shares - voting: 6,532,601 1998 and 6,460,824-- 1997; Issued and outstaning shares - 189,041 nonvoting - 1998 and 1997 134,380 132,997 Additional paid-in capital 46,792,121 46,387,536 Stock subscription receivable (529,563) (529,563) Accumulated deficit (52,574,042) (40,862,299) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY (6,177,104) 5,128,671 ------------ ------------ TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 31,457,099 $ 35,413,574 ============ ============
CHILDREN'S BROADCASTING CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------ ------------ ------------ ------------ 1998 1997 1998 1997 ------------ ------------ ------------ ------------ REVENUES Owned, Operated and LMA Stations $ 483,974 $ 1,069,321 $ 1,768,150 $ 3,122,036 Network 47,868 612,125 203,098 1,127,043 ------------ ------------ ------------ ------------ REVENUES $ 531,842 $ 1,681,446 $ 1,971,248 $ 4,249,079 OPERATING EXPENSES: Owned, Operated and LMA Stations: General and Administrative 580,102 747,702 1,556,689 2,276,826 Technical and Programming 225,206 293,805 692,656 837,687 Selling 56,591 317,780 272,766 1,214,378 ------------ ------------ ------------ ------------ 861,899 1,359,287 2,522,111 4,328,891 Network General and Administrative 102,188 134,390 311,586 429,415 Programming 65,181 236,230 282,220 663,141 Selling 70,174 366,158 306,819 1,315,484 Marketing 2,669 (6,060) 21,078 144,996 ------------ ------------ ------------ ------------ 240,212 730,718 921,703 2,553,036 Corporate 1,413,877 1,149,382 3,941,445 3,140,578 Depreciation & Amortization 528,005 549,770 1,621,626 1,552,805 TOTAL OPERATING EXPENSES 3,043,993 3,789,157 9,006,885 11,575,310 ------------ ------------ ------------ ------------ LOSS FROM OPERATIONS (2,512,151) (2,107,711) (7,035,637) (7,326,231) Loss/(Gain) on Exchange of Assets (542,297) -- (542,297) -- Equity Loss in Harmony 877,074 169,132 1,803,871 169,132 Interest Expense (Net of Interest Income) 1,267,549 546,395 3,414,533 1,263,599 ------------ ------------ ------------ ------------ NET LOSS ($ 4,114,477) ($ 2,823,238) ($11,711,744) ($ 8,758,962) Accretion of Redeemable Convertible Preferred 544,189 -- 544,189 -- NET LOSS TO COMMON SHAREHOLDERS ($ 4,658,666) ($ 2,823,238) ($12,255,933) ($ 8,758,962) ============ ============ ============ ============ NET LOSS PER SHARE ($ 0.69) ($ 0.44) ($ 1.83) ($ 1.43) ============ ============ ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 6,728,000 6,384,500 6,692,000 6,142,500 ============ ============ ============ ============
CHILDREN'S BROADCASTING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, ------------ ------------ 1998 1997 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ($11,711,744) ($ 8,758,963) Adjustments to reconcile net loss to net cash from operating activities: Provision for doubtful accounts (285,995) -- Depreciation & amortization 1,621,626 1,552,805 Amortization of deferred debt issue costs 615,640 -- Gain on Sale of Assets (542,297) Net barter activity (8,840) 30,376 Issuance of common stock for payment of attorney fees -- -- Issuance of common stock for payment of interest 79,788 81,113 Equity loss in Harmony 1,803,871 169,132 Decrease (Increase) in: Accounts Receivable 1,387,276 (197,732) Other Receivables (68,751) -- Prepaid Expenses (29,655) (48,663) Increase (Decrease) in: Accounts Payable 615,272 769,474 Accrued Interest 132,043 96,984 Other Accrued Expenses 3,242,624 (397,862) ------------ ------------ NET CASH USED IN OPERATIONS (3,149,142) (6,703,336) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Sale/Purchase of Property & Equipment 151,783 (693,634) Investment in Harmony (1,557,500) (5,636,700) Sale/Purchase of Intangible Assets 1,452,327 (2,086,582) ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES 46,610 (8,416,916) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of Capital Lease Obligation (15,925) (23,411) Payment of Debt (2,853,859) (352,663) Proceeds from Debt Financings 3,724,449 13,720,922 Proceeds from Issuance of Convertible Preferred Stock 1,864,250 -- Proceeds from Issuance of Common Stock 5,000 115,619 ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 2,723,915 13,460,467 ------------ ------------ Increase (Decrease) in Cash (378,617) (1,659,785) Cash - Beginning of Period 545,258 3,370,038 ------------ ------------ CASH - END OF PERIOD $ 166,641 $ 1,710,253 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash Paid During the Period for Interest $ 2,628,902 $ 1,240,315 ============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: During the nine months ended September 30, 1998: The Company recognized revenues of $112,698 and expenses of $103,858 through barter activity. The Company issued 66,639 shares of common stock valued at $226,532 for the payment of a principal and interest installment due in February, May and August 1998 totaling $146,744 and $79,788 respectively, for the note payable outstanding to the seller of WAUR (AM). The Company incurred debt issuance costs aggregating $560,000 as a result of the issuance and repricing of warrants related to the Foothill financing, debt issuance cost aggregating $62,625 resulting from the issuance of warrants related to the bridge financing to purchase Harmony stock. CHILDREN'S BROADCASTING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 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 nine month period ended September 30, 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 including 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 nine 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 bore interest at 15%, was unsecured and was due upon demand. The Company paid Harmony $323,000 of the principal plus related interest on the note in May 1998, and paid the remaining $327,000 of principal plus related interest in June 1998. 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 the 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 per share and amended the exercise price of a previously granted warrant to purchase 100,000 shares of common stock 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 was to include $52.0 million in cash and a $5.0 million subordinated secured promissory note. CRN deposited $3.0 million into an escrow account, all of which was released to the Company. In October 1998, the agreement was amended to reduce the number of stations to be purchased by CRN to seven and to change the purchase price to $36.9 million, $15.0 million of which is payable to the Company in the form of a promissory note. This note has a term of 18 months and bears simple interest at a rate of 10% per annum. Per the amendment, interest only will be payable to the Company on a monthly basis with the outstanding principal due at the maturity of the note. CRN established a $1.0 million interest reserve in favor of the Company. The transaction was consummated October 30, 1998 (see exhibits 2.1, 2.2, 2.3, 10.10 and 10.11). In connection with the transaction consummation, the Company paid Foothill a fee of $200,000 and canceled warrants previously granted to Foothill for 50,000 shares of the Company's common stock exercisable at $4.40 per share. 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 Company simultaneously entered into a pre-closing time brokerage agreement regarding the stations which terminated upon consummation of the sale on October 30, 1998. F. In May 1998, the Company signed a definitive purchase agreement with 1090 Investments, LLC to sell the assets of one of its owned and operated stations for a purchase price of $2.0 million cash. Pursuant to the terms of the agreement, the buyer deposited $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) which terminated upon consummation of the sale on September 1, 1998. G. In May 1998, the Credit Agreement with Foothill was again amended effective April 17, 1998. Pursuant to the amendment, the Company obtained an additional term note payable advance of $2.0 million of which the Company received proceeds totaling $1.0 million, paid a loan origination fee of $200,000, and established an interest reserve of $800,000 to be used for payment of future interest. Also, pursuant to the amendment, the variable interest rate was increased by 1% on the entire outstanding loan balance, and the Company received a forbearance of all principal payments and certain covenant requirements through September 30, 1998. As additional consideration for the amendment, the Company issued Foothill an additional warrant to purchase 200,000 shares of the Company's common stock at $3.31 per share. H. In May 1998, the Company issued 150,000 shares of its common stock to its litigation counsel in connection with the ABC/Disney litigation. The Company also registered such shares for resale. The litigation counsel must obtain approval from the Company prior to selling any shares and using the proceeds to satisfy litigation expense. As of this filing, none of these shares have been sold by the litigation counsel. I. In February and June 1998, the Company issued an aggregate of 66,639 shares of its common stock to satisfy three principal and interest installments due, aggregating $226,531, to the seller of WAUR(AM). J. In June 1998, pursuant to a Securities Purchase Agreement, the Company issued 606,061 shares of its series B convertible preferred stock ("this Series") to three accredited investors for which it received gross proceeds of $2.0 million. From the gross proceeds, the Company paid a 6.25% commission to Pacific Continental Securities Corp. After legal and escrow fees, the transaction resulted in net proceeds to the Company of approximately $1,860,000. The shares of this series have a stated value of $3.30 per share. The holders may require the Company to redeem these shares for cash in certain circumstances between three business days and 60 days following the CRN closing. These shares may be converted into a variable number of shares of common stock of the Company incrementally over a period of time, in certain circumstances, originally commencing October 23, 1998. However, the Company may, at any time, redeem all or part of the outstanding unconverted shares of this Series through cash payments of approximately $4.04 per share. In connection with this financing, the Company issued a five-year warrant to the investors for the purchase of an aggregate of 100,000 shares of the Company's common stock at a per share exercise price of approximately $3.77 (subject to adjustment). In addition, the Company issued a five-year warrant to the investors for the purchase of an aggregate of 25,000 shares of the Company's common stock, at a per share exercise price of approximately $2.68. In October 1998, the Company and the holders of this series agreed to extend the Company's absolute right to redeem such shares through January 31, 1999. In connection with this amendment, the Company issued an aggregate of 125,000 warrants at the exercise price of approximately $2.68 per share pursuant to this June 1998 agreement and its October 22, 1998 extension agreement. The holders can exercise up to 65,000 of such warrants immediately, another 35,000 if the shares of this series have not been redeemed by December 31, 1998 and the final 25,000 if the shares of the series have not been redeemed by January 31, 1999 (see exhibit 10.6). K. In June 1998, using the proceeds of the above-referenced transaction (see Note J), the Company exercised previously held options to purchase a aggregate of 750,000 shares of common stock of Harmony at $1.50 per share and repaid the remainder of the note due Harmony (see Note A). Additionally, in July 1998, the Company made an open market purchase of 250,000 shares of common stock of Harmony at $1.73 per share. The purchase of these additional shares of Harmony's common stock resulted in an increase in the Company's actual ownership in Harmony to approximately 44.1%. The aggregate purchase price of $1,557,500 exceeded the Company's pro rata share of Harmony's net tangible assets by approximately $1 million. This excess purchase price relates to Harmony's intangible asset value, principally technical know-how, industry reputation and customer lists, and is being amortized on a straight line basis over a seven year estimated useful life. In November 1998, the Company purchased an additional 269,231 shares of common stock at a price of $1.30 per share directly from Harmony. This $350,000 purchase of Harmony's common stock increased the Company's actual ownership in Harmony to approximately 46.1%. L. In July 1997, the Company received proceeds aggregating $1.25 million in exchange for the issuance of promissory notes payable and warrants to purchase 125,000 shares of the Company's common stock to a partnership controlled by a Company director, a Company director individually and a less that five-percent shareholder. These notes payable were to mature in July 25, 1998. In June 1998, the notes were amended to be payable on October 25, 1998. In connection with the amendment, the interest rate to be received by one lender was increased to 20% per year effective July 25, 1998, and warrants to purchase an aggregate of 37,500 shares of the Company's common stock at approximately $3.06 per share were issued to the other two lenders. The Company paid these notes and the related interest in full November 3, 1998. M. In July 1998, Harmony entered into a three-year, $5.0 million revolving line of credit agreement with Heller Financial, Inc. The Company entered into an agreement to guarantee this line of credit. N. In October 1998, the Company signed a definitive purchase agreement with Radio Unica Corporation ("Radio Unica") to sell the three radio stations not being purchased by CRN for a total purchase price of $29.3 million. Radio Unica has deposited $10.0 million into escrow and paid $2.5 million to the Company as pre-payment of local marketing agreement ("LMA") fees charged at $135,000 per month for the New York station and $65,000 per month for the other stations. The consummation of the transaction is subject to receipt of Federal Communication Commission approval, Hart-Scott-Rodino clearance, and other customary conditions of closing. Radio Unica will continue to operate the Company's New York radio station and with an additional $500,000 LMA pre-payment, subject to receipt of Hart-Scott-Rodino approval, will operate the remaining two stations for two years or until closing, whichever occurs first. Any unused portion of the LMA fee paid to the Company will be credited to the purchase price of the transaction at closing, which is expected to occur in January 1999 (see exhibits 10.4 and 10.5). O. In October 1998, the Credit Agreement with Foothill was again amended. Pursuant to the amendment, the Company obtained an additional term note payable advance of up to $1.0 million. From the $1.0 million, the Company paid a loan origination fee of $100,000, and established an interest reserve of $300,000 to be used for payment of future interest. The remaining $600,000 is available to the Company as needed for working capital (see exhibit 10.12). NOTE 3--INVESTMENT IN HARMONY In 1997, the Company acquired an equity interest in 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. The Company exercised its options on June 30, 1998, purchased additional stock on the open market in July 1998, and purchased 269,231 shares directly from Harmony in November 1998 (see Note K). Currently, the Company's investment represents 46.1% of the outstanding common stock of Harmony. Harmony's most recent fiscal year end was June 30, 1998. Harmony's operations are summarized as follows for the quarter and year ended June 30, 1998: Quarter Ended Year Ended 6/30/98 6/30/98 ---------------------------- Contract revenues $15,878,713 $53,355,100 Cost of production 13,501,173 43,616,737 ----------- ----------- Gross profit 2,377,540 9,738,363 Operating expenses 4,599,249 14,230,595 ----------- ----------- Income (loss) from Operations (2.221,709) (4,492,232) Interest income 3,598 25,315 ------------ ----------- Income (loss) before Income taxes (2,218,111) (4,466,917) Income taxes (1,479) 21,663 ------------ ----------- Net income (loss) $(2,216,632) $(4,488,580) ------------ ------------ Harmony's financial information as of September 30, 1998 is not yet available. The Company has utilized an estimate of Harmony's results from operations in its computation of the equity loss in Harmony for the quarter ended September 30, 1998. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 revenue. On April 20, 1998, the Company signed a definitive purchase agreement with 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. Subsequently, this agreement was amended allowing for CRN to purchase the assets of seven of the Company's stations for $37.0 million and to effectively assign its right to purchase the three other stations. This transaction closed on October 30, 1998. On September 1, 1998, the Company sold the assets of one of its stations to 1090 Investments, LLC for total purchase price of $2.0 million. On October 30, 1998, the Company sold the assets of two additional owned and operated stations for a total purchase price of $2.7 million cash to Salem Communications Corporation. On October 26, 1998, the Company signed a definitive purchase agreement with Radio Unica to sell the assets of the three remaining stations for a total purchase price of $29.3 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 AND NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997. Revenue: Owned, Operated and LMA Station Revenues: Total revenues from the Company's owned, operated and LMA stations decreased $585,000 or 55% from $1,069,000 in the third quarter of 1997 to $484,000 in the third quarter of 1998. Revenues during the first nine months of 1998 decreased 43% from $3,122,000 in 1997 to $1,768,000 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 as well as the Local Marketing Agreements ("LMA") entered into at four of the Company's owned stations. Network: Total revenues of $48,000 were produced by the network during the third quarter of 1998 compared to revenues of $612,000, a decrease of $564,000 or 92%, compared to the third quarter of 1997 revenues. Revenues for the first nine months of 1998 decreased $924,000 or 82% compared to the same period in 1997. This decrease in network revenues was due to the cessation of broadcasting the Aahs World Radio programming on January 30, 1998 and the termination of all affiliate agreements. Operating Expenses: Owned, Operated and LMA Station Expenses: General and administrative expenses decreased 22% to $580,000 for the third quarter of 1998 from $748,000 in the same period of 1997. These expenses decreased $720,000 or 32% for the first nine months of 1998 compared to the same period in 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. Additionally, the Company has entered into Local Marketing Agreements pertaining to KTEK(AM) in Houston, KYCR(AM) in Minneapolis, WCAR(AM) in Detroit, WJDM(AM) in New York. These LMAs have substantially reduced the Company's expenses at these stations. Expenses continued to diminish as all the stations were sold or covered by LMAs. Technical and programming expenses decreased to $225,000 in the third quarter of 1998 from $294,000 during the same period in 1997, a decrease of 23%. During the first nine months of 1998, these expenses decreased 17% compared to the same period in 1997. Expenses continued to diminish as all the stations were sold or covered by LMAs. Sales expenses totaled $57,000 in the third quarter of 1998 compared to $318,000 in the third quarter of 1997. During the first nine months of 1998, these expenses decreased 78% compared to the same period in 1997. This decrease is due to the reduction revenues and the elimination of sales personnel in anticipation of the sale of the Company's stations. Expenses continued to diminish as all the stations were sold or covered by LMAs. Network Expenses: General and administrative expenses decreased $32,000 in the third quarter of 1998 to $102,000 as compared to $134,000 for the third quarter of 1997. These expensed decreased 27% during the first nine months of 1998 as compared to the same period in 1997 due to the reduction in general overhead expenses and personnel tied to the cessation of broadcasting of Aahs World Radio programming. Programming expenses decreased $171,000 to $65,000 in the third quarter of 1998 compared to $236,000 in the same period of 1997, and decreased $381,000 to $282,000 in the first nine months of 1998 from $663,000 during the first nine months of 1997. This decrease was due to the reduction of staff and elimination of production expenses due to the discontinuation of broadcasting of Aahs World Radio programming and in anticipation of the sale of the Company's owned and operated stations. Sales expenses decreased 81% from $366,000 in the third quarter of 1997 to $70,000 in the same period of 1998. These expenses decreased 77% from $1,316,000 during the first nine months of 1997 to $307,000 in the same period of 1998. This decrease was due to the reduction of sales personnel and revenues in conjunction with the discontinuation of broadcasting the Aahs World Radio format. Marketing expenses were $3,000 during the third quarter of 1998 compared to $(6,000) in the third quarter of 1997, representing an increase of $9,000. During the first nine months of 1998, marketing expenses decreased $124,000 or 85% compared to the same period of 1997, due to the elimination of the Company's marketing effort in conjunction with the cessation of broadcasting of Aahs World Radio programming on January 30, 1998. Corporate charges were $1,414,000 in the third quarter of 1998 compared to $1,149,000 in the third quarter of 1997, representing an increase of 23%. Corporate charges increased 26% in the first nine months of 1998 compared to the same period in 1997. This increase is attributable to a $921,000 increase in legal fees incurred relating to the ABC/Disney litigation during the first nine months of 1998 compared to the first nine months of 1997. Decreases in corporate charges of $120,000 were realized due to a decrease in personnel expense, outside services and travel expenses. Depreciation and amortization decreased $22,000 during the third quarter of 1998 compared to the same period in 1997. During the first nine months of 1998, these expenses increased $69,000 or 4% over the same period in 1997. The overall increase in depreciation and amortization has been minimal given the Company's discontinuation of its former business strategy to acquire radio broadcast licenses and related assets, and during the third quarter of 1998 some assets were disposed of due to the sale of WCAR(AM) in Detroit. A gain of $542,000 was realized in the third quarter of 1998 due to the sale of WCAR(AM) in Detroit to 1090 Investments, LLC for a total purchase price of $2.0 million. Net interest expense for the third quarter of 1998 was $1,268,000, an increase of $721,000 over the third quarter of 1997. Net interest expense for the first nine months of 1998 increased 170% from $1,264,000 to $3,415,000, as a result of the interest increase associated with the additional financing provided by Foothill and the interest payable to the lenders who provided $1.25 million for the purchase of stock in Harmony. The net loss increased 46% in the third quarter of 1998 to $4,114,000 from $2,823,000 in the third quarter of 1997. During the first nine months of 1998 the net loss increased $2,953,000 to $11,712,000 from $8,759,000 in the first nine months of 1997, an increase of 34%. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity, as measured by its working capital, was a deficit of $32,420,000 at September 30, 1998 compared to a deficit of $25,706,000 at December 31, 1997. During the first nine months of 1998, the Company used $3,149,000 cash for in operating activities. 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 with a face amount of $650,000. The note payable, which has subsequently been repaid, bore an interest rate of 15%, was unsecured and was due upon demand (see Note A). The Company entered into second, third, and fourth amendments to its Credit Agreement with Foothill in March, May, and October 1998, pursuant to which the Company obtained additional term note payable advances totaling $4,000,000 of which the Company received net proceeds totaling $2,500,000, paid loan origination fees of $400,000, and established an interest reserve of $1,100,000 to be used for payment of future interest (see Notes C, G, & O). In June 1998, the Company issued 606,061 shares of its Series B Convertible Preferred Stock ("this Series") to three accredited investors for which it received gross proceeds of $2,000,000. This securities purchase agreement was subsequently amended in October 1998. Net proceeds to the Company after commissions and legal fees were approximately $1,860,000. With the proceeds, the Company exercised its stock options to acquire 750,000 shares of Harmony, purchased 250,000 additional shares of Harmony common stock on the open market, and repaid the above-referenced debt obligation to Harmony. The Company current ownership in Harmony is 44.1% (see Notes J & K). In September, the Company sold its Detroit station to 1090 Investments, LLC for $2.0 million cash. Net proceeds after closing costs were used to pay interest and a portion of the principal on the Foothill term loan. Subsequent to September 30, 1998, the Company sold nine of its radio stations for $39.6 million. The transactions included (i) a sale of seven stations to CRN for $21.9 million cash and a $15.0 million, 18 month promissory note with 10% annual interest to be paid quarterly, and (ii) a sale of two radio stations to Salem Communications Corporation for $2.7 million cash. Additionally, the Company entered into an agreement to sell its remaining three stations to Radio Unica for $29.3 million. The sale is expected to occur in early January 1999. Radio Unica paid the company $2.5 million as a prepaid LMA fee with an additional payment of $500,000 due pending approval of a Hart-Scott-Rodino filing. Radio Unica also deposited $10 million into a joint escrow account. As of November 9, 1998, the Company has used the proceeds in the following manner: a) $14.0 million principal payment to Foothill, b) approximately $600,000 to purchase Harmony common stock per a put agreement, c) approximately $1.3 million to repay bridge notes and interest, d) $200,000 to repurchase a warrant previously granted to Foothill, e) approximately $2.0 million principal payment to seller notes related to the sale of the stations, f) approximately $500,000 to repurchase the Company's common stock, g) approximately $2.0 million related to closing costs of the transactions, and h) $350,000 to purchase additional shares of Harmony. Additionally, the Company used some of its proceeds to pay certain outstanding accounts payable including various legal costs associated with the ABC/Disney litigation. The Company believes its current working capital position will enable the Company to proceed through the sale of the remaining stations to Radio Unica. Upon sale of those stations, the Company will pay all remaining debt due to Foothill and other accounts payable. The Company is committed to growing its investment in Harmony as evidenced by the $350,000 purchase of Harmony's common stock it made upon receipt of proceeds from the sale of its stations. Harmony's management has determined it is in the best interest of Harmony to discontinue the operation of its Harmony Pictures division. For the year ended June 30, 1998, that division recorded revenues of $10,867,000 and an operating loss of $1,625,000. Additionally, for the quarter ended September 30, 1998, that division recorded revenues of $1,139,000 and an operating loss of $595,000. Harmony expects to incur expenses for discontinuation of the division in the second quarter ended December 31, 1998. The amount of the one time expense has not yet been determined. Consolidated cash was $167,000 at September 30, 1998 and $545,000 at December 31, 1997, a decrease of $378,000. Accounts receivable at September 30, 1998 decreased $1,092,000 from December 31, 1997, other receivables increased $69,000, and prepaid expenses at September 30, 1998 increased $30,000 from December 31, 1997. Accounts payable at September 30, 1998 increased $615,000 from December 31, 1997, accrued interest increased $132,000 from December 31, 1997 to September 30, 1998 and other accrued expenses increased $3,243,000 during that same period. The $3,149,000 cash used for operations was provided by the proceeds obtained through the Foothill financing and CRN escrow releases. During the first nine months of 1998, net cash used for investing activities was $47,000. Cash used for the additional investment in Harmony was $1,558,000 and was provided by the sale of convertible preferred stock pursuant to the Securities Purchase Agreement and the bridge loans described in notes J and L. The primary source of the $1,604,000 cash provided from investing activities was the sale of one of the Company's stations. Cash obtained through financing activities amounted to $2,724,000 during the first nine months of 1998. This cash represents the $2,500,000 cash proceeds from term loan advance from Foothill, the $1,860,000 net proceeds obtained through the issuance of convertible preferred stock pursuant to a Securities Purchase Agreement, and the $5,000 obtained through the issuance of common stock through the exercise of stock options, less the repayment of debt. YEAR 2000 COMPLIANCE The Company has made an assessment of its systems and has been advised by its computer consultant that its systems are year 2000 compliant. Additionally, management believes it will not be materially impacted by the Year 2000 compliance of third parties with which it conducts business. SEASONALITY AND INFLATION In the past, the Company's revenues generally followed retail sales trends, with the fall season (September through December) reflecting the highest revenues for the year, due primarily to back-to-school and holiday season retail advertising, and the first quarter reflecting the lowest revenues for the year. Presently, the Company has not determined the impact of seasonality on its future revenues. The Company does not believe inflation has affected the results of its operations, and does not anticipate that inflation will have an impact on its future operations. PART II - OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS On September 30, 1998, a jury in the United States District Court for the District of Minnesota ruled in favor of the Company in connection with litigation for breach of contract and misappropriation of trade secrets that the Company had commenced against The Walt Disney Company ("Disney") and ABC Radio Networks, Inc. ("ABC"). The Company is seeking to have judgment entered by the Court upon that verdict in the amount of $20 million against ABC and $10 million against Disney, as well as additional amounts for taxes, pre-judgment interest and for exemplary damages for willful and malicious misappropriation of trade secrets. The entry of judgment is currently pending before the Court. ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS Not applicable. ITEM 3 DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Company held its Annual Meeting of Shareholders on August 18, 1998. (b) Proxies for the Annual Meeting of Shareholders were solicited pursuant to Regulation 14A under the Exchange Act, there was no solicitation in opposition to the management's nominees as listed in the proxy statement, and all of such nominees were elected. (c) The following matters were voted upon at the Annual Meeting of Shareholders: (1) To elect four directors for the ensuing year and until their successors shall be elected and duly qualified. FOR AGAINST Christopher T. Dahl 6,210,451 166,417 Richard W. Perkins 6,200,101 176,767 Michael R. Wigley 6,217,751 159,117 William E. Cameron 6,217,901 158,967 (2) To consider and vote upon a proposal to approve the plan for the sale of all of the Company's owned and operated radio stations (the "Plan") pursuant to which (a) ten stations will be sold to Catholic Radio Network, LLC ("CRN") for $57.0 million (subject to adjustment), (b) two stations will be sold to Salem Communications Corporation ("Salem") for $2.7 million (subject to adjustment) and (c) one station will be sold to 1090 Investments, L.L.C. ("1090") for $2.0 million (subject to adjustment). FOR.........................................3,811,576 AGAINST........................................54,739 ABSTAIN........................................24,963 BROKER NON-VOTE.............................2,485,290 (3) To consider and vote upon a proposal to approve an amendment to the Company's 1994 Stock Option Plan (the "1994 Plan") which would permit the committee administering the 1994 Plan to suspend or discontinue it at any time and to revise or amend it in any respect; provided, however, that no revision or amendment may be made without shareholder approval that: (a) absent such shareholder approval, would cause Rule 16b-3 under the Securities Exchange Act of 1934, as amended, to become unavailable with respect to the 1994 Plan or (b) requires shareholder approval under any rules or regulations of the National Association of Securities Dealers, Inc. or any exchange that are applicable to the Company. FOR.........................................5,973,641 AGAINST.......................................314,383 ABSTAIN........................................52,223 BROKER NON-VOTE................................36,621 (4) To ratify the appointment of BDO Seidman, LLP as the Company's independent public accountants for the fiscal year ending December 31, 1998. FOR.........................................6,301,090 AGAINST........................................25,054 ABSTAIN........................................50,724 BROKER NON-VOTE.....................................0 (d) Not applicable. ITEM 5 OTHER INFORMATION THE FOLLOWING INFORMATION IS PROVIDED IN RESPONSE TO ITEM 2 OF FORM 8-K (ACQUISITION OR DISPOSITION OF ASSETS) Sale of Seven Radio Stations to Catholic Radio Network, LLC On April 17, 1998, Catholic Radio Network, LLC, a California limited liability company ("CRN"), entered into a Purchase Agreement with the Company, pursuant to which CRN agreed to purchase ten of the Company's owned and operated radio stations. CRN was formed in March 1998 for the purpose of developing and promoting by broadcast media the teachings of the Roman Catholic Church. The proposed sale of substantially all of the Company's assets, including the sale of assets to CRN, was approved by the Company's shareholders at the Annual Meeting of Shareholders held on August 18, 1998. On September 29, 1998, the parties entered into the First Amendment to the Purchase Agreement. This amendment extended the scheduled closing of the sale of assets through October 16, 1998, and provided for up to two one-week extensions upon CRN's payment to the Company of $125,000 in cash for each such extension. This delay was required in order to enable CRN to obtain an alternate source of secondary financing after Bank of America announced, upon its merger with NationsBanc, that it would no longer provide financing to broadcast entities. On October 26, 1998, the parties entered into the Second Amendment to the Purchase Agreement, attached hereto as an exhibit. Under the amended agreement, instead of purchasing ten radio stations from the Company, CRN agreed to purchase seven radio stations from the Company and CRN effectively assigned its right to purchase the other three radio stations to Radio Unica Corp. On October 30, 1998, after CRN's use of two one-week extensions, the Company completed the sale of seven of its radio stations to CRN for which CRN paid $37.0 million. Of the total paid by CRN, $18.89 million was paid in cash at closing, $3.0 million was paid in cash prior to the closing, $110,000 was withheld by CRN in connection with certain post-closing obligations of the Company, and $15.0 million will be paid pursuant to the terms of a promissory note. The note requires monthly interest payments, at the rate of 10% simple interest per annum, pending repayment of the principal, which is due in full on April 30, 2000. The Company holds a first security interest in the assets conveyed to CRN as security for the debt obligation. CRN also created a $1.0 million interest payment reserve in favor of the Company. CRN acquired radio stations KCNW(AM) licensed to Fairway, Kansas; KKYD(AM) licensed to Denver, Colorado; KPLS(AM) licensed to Orange, California; WAUR(AM) licensed to Sandwich, Illinois; WPWA(AM) licensed to Chester, Pennsylvania; WWTC(AM) licensed to Minneapolis, Minnesota; and WZER(AM) licensed to Jackson, Wisconsin. THE FOLLOWING INFORMATION IS PROVIDED IN RESPONSE TO ITEM 5 OF FORM 8-K (OTHER EVENTS) Sale of Assets to Salem Communications Corporation On April 24, 1998, Salem Communications Corporation ("Salem") entered into an Asset Purchase Agreement with the Company pursuant to which Salem agreed to purchase two of the Company's owned and operated radio stations. Salem is the leading radio broadcasting company in the United States, measured by number of stations owned and audience coverage, that focuses on serving the religious/conservative listening audience. The sale of assets to Salem was approved by the Company's shareholders at the Annual Meeting of Shareholders held on August 18, 1998. On October 30, 1998, the Company completed the sale of assets to Salem for which Salem paid $2.7 million in cash. Salem acquired radio stations KTEK(AM) licensed to Alvin, Texas, and KYCR(AM) licensed to Golden Valley, Minnesota. Sale of Assets to Radio Unica Corp. On October 26, 1998, the Company entered into an Asset Purchase Agreement with Radio Unica Corp. ("Radio Unica"), attached hereto as an exhibit, for the purchase of three radio stations not being purchased by CRN. Radio Unica agreed to purchase radio stations in the Phoenix, Dallas and New York markets for $29.25 million to be paid in cash at closing. The closing is subject to the receipt of FCC approval, Hart-Scott-Rodino clearance, and other customary closing conditions. Closing is expected to occur before the end of 1998. In connection with the purchase, Radio Unica has deposited $10.0 million into escrow accounts. Local Marketing Agreements Radio Unica currently operates the Company's WBAH(AM) radio station in the New York market pursuant to a local marketing agreement. Radio Unica has pre-paid the Company $2.5 million in fees to operate such station for two years or until closing of the sale of assets, whichever occurs first. If regulatory approval is obtained, Radio Unica will also operate the Company's radio stations in the Phoenix and Dallas markets on the same terms upon pre-payment of an additional $500,000 in fees. The Company will offset any unused portion of such fees against the purchase price which Radio Unica must pay at closing for the three stations. Repurchase of Shares The Board of Directors of the Company previously determined that the Company's common stock, in light of the Company's financial condition, the pending sale of its major assets and its prospects, was significantly undervalued and in connection therewith authorized the repurchase of up to 400,000 shares pursuant to Exchange Act Rule 10b-18. Pursuant to a resolution dated August 28, 1998, authorized the repurchase of up to 385,000 shares of common stock through a broker, which was to have made purchases of common stock in the open market in the Company's name and on its behalf. The Company subsequently determined that the broker did not follow the Company's instructions with respect to the purchase of such shares and canceled its authorization for the repurchase of shares. The broker advised the Company that it had accumulated 385,000 shares of common stock for its own account and presented the Company with the opportunity to purchase such shares, but the Company was unable to effect such purchase because of delays in connection with the closing of the sale of assets to Catholic Radio Network and restrictions placed upon the Company by its lenders. Two of the Company's directors, Christopher T. Dahl and Richard W. Perkins, with the consent of the Board, initiated negotiations with the broker to acquire the broker's shares, similarly believing that the Company's shares were undervalued, but also aware of the potential depressive effect upon the market of the Company's common stock that could result from a sale on the market of the broker's shares in a quantity or quantities far in excess of the normal trading volumes of the common stock. Messrs. Dahl and Perkins financed the acquisition of 171,000 shares of the Company's common stock from the broker for their own account and assumed all market and other risks associated therewith. Having closed on the sale of assets to Catholic Radio Network, having significantly reduced its obligations to its lender and now having available to it capital sufficient to conclude an acquisition of its common stock, the Company purchased 171,000 shares of the Company's common stock from Messrs. Dahl and Perkins at their actual cost, including financing expenses associated therewith. In connection therewith, the Company assumed the financing obligations of Messrs. Dahl and Perkins at Key Community Bank and the Company availed itself of the collateral provided by Messrs. Dahl and Perkins (to be returned to them when such financing is concluded). Series B Convertible Preferred Stock On October 22, 1998, the Company and the holders of its Series B Convertible Preferred Stock (the "Preferred Shares") entered into Amendment No. 1 to the Securities Purchase Agreement, attached hereto as an exhibit, pursuant to which the parties agreed to extend the Company's absolute right to redeem the Preferred Shares through January 31, 1999. In consideration of such extension, the Company agreed to certain future adjustments to the terms of conversion of the Preferred Shares. The Securities Purchase Agreement originally provided that the number of shares of Common Stock to be delivered upon conversion of a Preferred Share would be $3.30 divided by the lesser of (x) 110% of the average best bid price of the Common Stock for the five consecutive trading days ending on the day preceding the conversion date, or (y) 94% of the average of the three lowest closing prices of the Common Stock during the 60 calendar day period ending on the day preceding the conversion date, provided however, that such initial conversion price would be subject to adjustment from time to time in certain instances as provided therein. The original agreement further provided that if the Common Stock is not traded on the New York Stock Exchange, the American Stock Exchange, the Nasdaq National Market or the Nasdaq SmallCap Market on the conversion date, then the percentage specified in clause (y) would be 84%. The original agreement also provided that a holder could convert Preferred Shares into Common Stock, at the option of the holder, in accordance with the following schedule: Number of Days Percentage of Original Elapsed Following Issuance Preferred Stock Convertible 120 20% 150 40% 180 60% 210 80% 240 100% In connection with the amendment, the Company agreed that the percentage specified in clause (y) of the conversion formula would be 80% effective February 1, 1999 and such percentage would be 75% effective May 1, 1999. The Company also agreed to restate the conversion schedule as follows: Number of Days Percentage of Original Elapsed Following Issuance Preferred Stock Convertible 221 80% 251 100% The Company also issued the holders a five-year warrant to purchase an aggregate of up to 65,000 shares of Common Stock at an exercise price of $2.6755062 per share. Such warrant is immediately exercisable. If the Company has not redeemed all of the Preferred Shares on or before December 31, 1998, the holders will have the right to exercise additional five-year warrants to purchase an aggregate of up to 35,000 shares at an exercise price of $2.6755062 per share. If the Company has not redeemed all of the Preferred Shares on or before January 31, 1999, the holders will have the right to exercise additional five-year warrants to purchase an aggregate of up to 25,000 shares at an exercise price of $2.6755062 per share. All of these warrants are entitled to registration rights substantially in the form of the Registration Rights Agreement pursuant to which the Common Stock underlying the Preferred Shares was registered. General Reference is made to the cautionary statements of the Company, presented in its Annual Report on Form 10-KSB for the year ended December 31, 1998, filed on March 31, 1998, as amended by Form 10-KSB/A filed on June 29, 1998. THE FOLLOWING INFORMATION IS PROVIDED IN RESPONSE TO ITEM 7 OF FORM 8-K (FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS) (a) Financial Statements of Businesses Acquired Not applicable. (b) Pro Forma Financial Information The following unaudited pro forma condensed financial statements are filed with this report: Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1998 Pro Forma Condensed Consolidated Statements of Income: Year Ended December 31, 1997 Nine Months Ended September 30, 1998 This unaudited pro forma financial information sets forth the impact of the CRN transaction (Note 20) and the Company's termination of its network affiliation agreements and cessation of distribution of its 24-hour Aahs World Radio format on January 31, 1998. The transaction was consummated on October 30, 1998. The unaudited pro forma statements of operations and balance sheets do not purport to present the Company's consolidated results of operations and financial position as they might have been, or as they may be in the future, had the transaction and affiliation agreement termination occurred on the assumed dates. The Company's remaining assets, including AAHS trademarks and network production equipment, will be utilized to develop and create other business opportunities related to short form network syndication programming. The Company has not developed a revenue stream associated with these business opportunities. The company has increased its ownership position in Harmony and may choose to increase it further. The Company initially expects to utilize its core management expertise to improve and enhance the performance of Harmony. In addition to the potential investment in the business opportunities described above, the Company seeks to reposition itself through acquisitions in the television commercial production industry. The Company sold seven of its radio stations to CRN for $21.9 million cash and a $15.0 million, 18 month promissory note with 10% annual interest to be paid quarterly. The Company has used the proceeds in the following manner: a) $13.0 million principal payment to Foothill, b) approximately $1.3 million to repay bridge notes and interest, c) approximately $2.0 million principal payment to seller notes related to the sale of the stations d) approximately $2.0 million related to closing costs of the transactions. Additionally, the Company used some of its proceeds to pay certain outstanding accounts payable including various legal costs associated with the ABC/Disney litigation. The pro forma adjustments are based upon information currently available and on certain assumptions, described within the footnotes to the pro forma financial statements, that management of the Company believes are necessary and reasonable for a fair presentation of the pro forma financial information. The pro forma financial information and accompanying notes should be read in conjunction with the historical consolidated financial statements of the Company for the fiscal year ended December 31, 1997 and for the interim periods ended through September 30, 1998. The objective of the unaudited pro forma financial information is to show what the significant effects on the historical financial statements might have been had the sale of the stations occurred, for balance sheet purposes, on September 30, 1998, and, for statement of operations purposes, on January 1, 1997. However, the pro forma balance sheets are not necessarily indicative of the effects of the Company's financial position that would have been attained had the transaction occurred earlier. STATEMENTS OF OPERATIONS:
Pro Forma Adjustments Pro Forma After Children's for the CRN transaction CRN transaction Broadcasting and Termination of the and Termination of Corporation Affiliation Agreements Affiliation Agreements - ---------------------------------------------------------------------------------------------------------------------------- Nine months ended September 30, 1998: Revenues $ 1,971,248 (1,037,652)(1) 933,596 Operating Expenses 9,006,885 (3,497,386)(1) 5,509,499 ------------------------------------------------------------------ Income (loss) from operations (7,035,637) 2,459,734 (4,575,903) Gain on sale of assets 542,297 -- 542,297 Equity loss in Harmony (1,803,871) -- (1,803,871) Interest income (expense), net (3,414,533) 2,715,000(2) (699,533) ------------------------------------------------------------------ Net loss (11,711,744) 5,174,734 (6,537,010) Accretion of preferred stock 544,189 -- 544,189 ------------------------------------------------------------------ Net loss to common shareholders $ (12,255,933) $ 5,174,734 $ (7,081,199) ================================================================== Net loss per share $ (1.83) $ (1.06) ============= ============== Weighted average number of shares outstanding 6,692,000 6,692,000 ============= ==============
- -------------------------------------------------- (1) To eliminate the revenue and operating expenses related to the network, and stations sold in the CRN transaction. (2) To eliminate the interest expese totaling $1,590,000 related to the debt expected to the repaid utilizing proceeds from the CRN transaction and add interest income of $1,125,000 related to the CRN note receivable.
Pro Forma Adjustments Pro Forma After Children's for the CRN transaction CRN transaction Broadcasting and Termination of the and Termination of Corporation Affiliation Agreements Affiliation Agreements - ---------------------------------------------------------------------------------------------------------------------------- Year ended December 31, 1997 Revenues $ 5,854,441 $ (4,447,234)(1) $ 1,407,207 Operating Expenses 17,260,112 (8,302,204)(1) 8,957,908 ------------------------------------------------------------------ Income (loss) from operations (11,405,671) 3,854,970 (7,550,701) Gain on sale of assets -- -- -- Equity loss in Harmony (540,994) -- (540,994) Interest income (expense), net (2,611,688) 3,620,000(2) 1,008,312 ------------------------------------------------------------------ Net loss (14,558,353) 7,474,970 (7,083,383) Accretion of preferred stock -- -- -- ------------------------------------------------------------------ Net loss to common shareholders $ (14,558,353) $ 7,474,970 $ (7,083,383) ================================================================== Net loss per share $ (2.33) $ (1.13) ============= ============== Weighted average number of shares outstanding 6,246,000 6,246,000 ============= ==============
- -------------------------------------------------- (1) To eliminate the revenue and operating expenses related to the network, and stations sold in the CRN transaction. (2) To eliminate the interest expese totaling $2,120,000 related to the debt repaid utilizing proceeds from the CRN transaction and add interest income of $1,500,000 related to the CRN note receivable. BALANCE SHEET:
Pro Forma Adjustments Pro Forma After Children's for the CRN transaction CRN transaction Broadcasting and Termination of the and Termination of Corporation Affiliation Agreements Affiliation Agreements - ------------------------------------------------------------------------------------------------------------------------------- September 30, 1998 Current assets $ 648,404 $ -- $ 648,404 Property and equipment 3,990,985 (2,033,787)(1) 1,957,198 Broadcast licenses 17,704,703 (7,809,377)(1) 9,895,326 Investment in harmony 6,035,357 -- 6,035,357 Note receivable -- 15,000,000(2) 15,000,000 Other assets 3,077,650 (1,451,100)(1) 1,626,550 ----------------------------------------------------------------- Total assets $ 31,457,099 $ 3,705,736 $ 35,162,835 ================================================================= Current liabilities $ 33,068,357 $ (16,500,000)(3) $ 16,568,357 Long-term debt 2,253,407 -- 2,253,407 Redeemable convertible preferred stock 2,312,439 -- 2,312,439 Shareholders' equity (deficit) (6,177,104) 20,205,736 14,028,632 ----------------------------------------------------------------- Total liabiliteis and shareholders' equity (deficit) $ 31,457,099 $ 3,705,736 $ 35,162,835 =================================================================
- -------------------------------------------------- (1) To eliminate the assets of the stations sold in the CRN transaction, capitalized debt issue costs related to the repaid debt (See note 2). (2) To reflect the gross proceeds from the CRN transaction of $36.9 million (consisting of cash payments totaling $21.9 million, $3.0 million of which was received prior to September 30, 1998, and a $15.0 million note receivable), net of estimated debt repayments totalling $16.9 million and approximately $2.0 million in transaction costs. (3) To reflect payment of debt totaling $16.9 million utilizing proceeds from the CRN transaction net of approximately $400,000 of income taxes payable as a result of the CRN transaction. (c) Exhibits See Exhibit Index. ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a) See Exhibit Index. (b) The Company filed the following documents with the Securities and Exchange Commission (File No. 0-21534) during the quarter for which this report is filed: (1) Current Report on Form 8-K, filed on September 15, 1998, relating to (i) the closing of the sale of the Company's Detroit radio station to 1090 Investments and (ii) the adoption of a share repurchase program. (2) Current Report on Form 8-K, filed on October 2, 1998, relating to (i) the ABC/Disney verdict, (ii) an amendment to the purchase agreement with Catholic Radio Network, (iii) receipt of a conditional use permit for the Los Angeles radio station, (iv) redemption of Series B Convertible Preferred Stock, and (v) cancellation of share repurchase. (3) Current Report on Form 8-K, filed on July 6, 1998, relating to (i) the Company's private placement of 606,061 shares of Series B Convertible Preferred Stock and (ii) the Company's acquisition of additional shares of common stock of Harmony Holdings, Inc. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized on November 16, 1998. CHILDREN'S BROADCASTING CORPORATION By: /s/ James G. Gilbertson --------------------------- James G. Gilbertson Chief Operating Officer EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION 2.1 Purchase Agreement with Catholic Radio Network, LLC, dated April 17, 1998 (incorporated by reference to the Registrant's Definitive Schedule 14A (Proxy Statement) filed on July 8, 1998). 2.2 First Amendment to Purchase Agreement with Catholic Radio Network, LLC, dated September 29, 1998 (incorporated by reference to the Registrant's Current Report on Form 8-K filed on October 2, 1998). 2.3 Second Amendment to Purchase Agreement with Catholic Radio Network, LLC, dated October 26, 1998. 4.1 Articles of Incorporation, as amended and restated. 10.1 See Exhibit 2.1. 10.2 See Exhibit 2.2. 10.3 See Exhibit 2.3. 10.4 Asset Purchase Agreement by and between the Company and Radio Unica Corp., dated October 26, 1998. 10.5 First Amendment to Asset Purchase Agreement by and between the Company and Radio Unica Corp., dated October 27, 1998. 10.6 Amendment No. 1 to Securities Purchase Agreement by and between the Company, Talisman Capital Opportunity Fund Ltd., Dominion Capital Limited and Sovereign Partners L.P., dated October 22, 1998. 10.7 Form of Common Stock Purchase Warrant issued by the Company to Talisman Capital Opportunity Fund Ltd. (incorporated by reference to the Registrant's Current Report on Form 8-K filed on July 6, 1998). 10.8 Form of Common Stock Purchase Warrant issued by the Company to Dominion Capital Limited (incorporated by reference to the Registrant's Current Report on Form 8-K filed on July 6, 1998). 10.9 Form of Common Stock Purchase Warrant issued by the Company to Sovereign Partners LP (incorporated by reference to the Registrant's Current Report on Form 8-K filed on July 6, 1998). 10.10 Promissory Note issued by Catholic Radio Network, LLC to the Company, dated October 30, 1998. 10.11 Loan Agreement by and between the Company and CRN Broadcasting, LLC, dated October 30, 1998. 10.12 Amendment No. 4 to the Amended and Restated Loan and Security Agreement by and between the Company and Foothill Capital Corporation, dated as of October 1, 1998. 27.1 Financial Data Schedule. EX-2.3 2 AMENDMENT NO. 2 TO PURCHASE AGREEMENT EXHIBIT 2.3 SECOND AMENDMENT TO PURCHASE AGREEMENT This Second Amendment to Purchase Agreement (this "Amendment") is made this 26th day of October, 1998, by and among Catholic Radio Network, LLC, a California Limited Liability Company ("CRN"), Children's Broadcasting Corporation, a Minnesota corporation ("CBC") and the wholly-owned subsidiaries of CBC listed on the signature pages hereto (collectively, the "Subsidiaries" and collectively with CBC, the "Sellers"). WHEREAS, CRN and the Sellers are parties to that certain Purchase Agreement dated as of April 17, 1998, as amended on September 29, 1998 (the "Purchase Agreement") regarding the sale by the Sellers to CRN of substantially all of the assets of nine (9) radio stations and all of the stock of Children's Radio of New York, Inc. ("CRNY"), owner of WBAH(AM)/WJDM(AM). WHEREAS, CRN and the Sellers wish to amend the terms of the Purchase Agreement to reduce the number of Stations to be purchased by CRN and to provide for an adjustment to the amount and method of payment of the purchase price payable for the Stations. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. The Sellers, and each of them, hereby waive any and all claims they may have against CRN, its officers, directors, employees and affiliates (collectively, the "CRN Parties") regarding any alleged breach of the Purchase Agreement by the CRN Parties as of, or prior to the date of this Amendment. 2. The provisions of the Purchase Agreement are hereby amended to delete from the list of "Stations" to be sold to CRN under the Purchase Agreement the following: KAHZ(AM), Fort Worth, Texas; KIDR(AM), Phoenix, Arizona; and WBAH(AM)/WJDM(AM), Elizabeth, New Jersey (collectively, the "Excluded Stations"). The provisions of the Purchase Agreement are also hereby amended to delete all references to the Excluded Stations, the assets and liabilities of the Excluded Stations, Children's Radio of Dallas, Inc., KAHZ-AM, Inc., Children's Radio of Phoenix, Inc., KIDR-AM, Inc., Childrens' Radio of New York, Inc., WJDM-AM, Inc. and the stock of Children's Radio of New York, Inc. and WJDM-AM, Inc. 3. The Schedules attached to the Purchase Agreement are hereby amended to delete all references to information pertaining solely to the Excluded Stations. Within three (3) business days of the effective date of this Amendment, the Sellers will deliver to CRN revised Schedules acceptable to CRN, deleting all information pertaining to the Excluded Stations, with such deletion of information being the only change from the forms of Schedules delivered to CRN at the time of the execution of the Purchase Agreement. 4. CRN hereby waives its rights to purchase the Excluded Stations under the Purchase Agreement and acknowledges and agrees that the Sellers are free to contract with a third party for the sale of the Excluded Stations. CRN acknowledges and agrees that the provisions of Section 6.16.4 of the Purchase Agreement shall no longer be applicable to any actions taken by the Sellers in connection with the Excluded Stations. 5. The Sellers, and each of them, hereby expressly acknowledge that the amendment to Sections 4.1, 4.2.2 and 4.2.5 below and the payment by CRN of the additional $125,000 at Closing through a reduction of the KPLS Holdback to $110,000 will constitute payment in full of the second Extension Fee called for under Section 7 of the First Amendment to the Purchase Agreement. 6. Article 2 of the Purchase Agreement is hereby deleted in its entirety. 7. Section 4.1 of the Purchase Agreement is hereby amended and restated in its entirety as follows: 4.1 PURCHASE PRICE. As the purchase price for the Acquired Assets, Buyer agrees to pay to CBC the sum of Thirty-Seven Million Dollars ($37,000,000), subject to adjustment as provided herein (the "Purchase Price"), provided, however, that One Hundred Ten Thousand Dollars ($110,000) of the Purchase Price shall be retained by Buyer as the KPLS Holdback as provided in Section 4.2.5 below. 8. Section 4.2.2 of the Purchase Agreement is hereby amended and restated in its entirety as follows: 4.2.2 Eighteen Million Eight Hundred Ninety Dollars ($18,890,000.00) shall be paid to Sellers (or their designees to pay off outstanding liens or encumbrances on the Station Assets) in immediately available funds by wire transfer at Closing and One Hundred Ten Thousand Dollars ($110,000) shall be retained by Buyer as the KPLS Holdback; 9. Section 4.2.3 of the Purchase Agreement is hereby amended and restated in its entirety as follows: 4.2.3 Fifteen Million Dollars ($15,000,000) of the Purchase Price payable hereunder shall be payable to CBC in the form of a promissory note from CRN Broadcasting, LLC, a wholly-owned subsidiary of Buyer ("CRNB"), in form reasonably acceptable to counsel for the Sellers and Buyer (the "Note"). The Note shall have a term of eighteen (18) months, bear simple interest at a rate of 10% per annum, and be prepayable, in whole or in part, by Buyer at any time without penalty. Interest only shall be payable on a monthly basis through the term of the Note, with the outstanding principal being due at the maturity of the Note. CRNB will establish a One Million Dollar ($1,000,000) interest reserve escrow account pursuant to an Interest Reserve Escrow Agreement in form and substance reasonably acceptable to counsel for the Sellers and Buyer. CRNB's obligations under the Note shall be secured by the following in form and substance reasonably acceptable to counsel for the Sellers and -2- Buyer: (i) a Security Agreement (the "Security Agreement"); (ii) mortgages or deeds of trust on the Owned Real Property being purchased from the Sellers; (iii) UCC financing statements covering the Acquired Assets being purchased from the Sellers; and (iv) a Pledge Agreement for a pledge covering all membership interests in CRNB. 10. Section 4.2.5 of the Purchase Agreement is hereby amended and restated in its entirety as follows: 4.2.5 One Hundred Ten Thousand Dollars ($110,000) of the Purchase Price (the "KPLS Holdback") shall be retained by the Buyer as consideration for the increase in the purchase price payable for the land for the KPLS tower site (the "Vander Eyk Property"). In the event that the purchase price paid by Buyer for the Vander Eyk Property (the "Vander Eyk Purchase Price") is less than Three Million Six Hundred Eighty Thousand Eight Hundred Dollars ($3,680,800), Buyer shall remit to Sellers from the KPLS Holdback one-half of the amount that the Vander Eyk Purchase Price is less than Three Million Six Hundred Eighty Thousand Eight Hundred Dollars ($3,680,800), up to a maximum of the amount of the KPLS Holdback, and the balance of the KPLS Holdback, if any, shall remain the property of Buyer and shall be considered a reduction in the Purchase Price. In the event that the Vander Eyk Purchase Price is Three Million Six Hundred Eighty Thousand Eight Hundred Dollars ($3,680,800) or more, the entire KPLS Holdback shall remain the property of Buyer 11. The parties agree that the amount to be deposited in escrow pursuant to the terms of the Indemnity Escrow Agreement attached as Exhibit C to the Purchase Agreement will be One Million Three Hundred Thousand Dollars ($1,300,000), and that if such Indemnity Escrow is funded following the first anniversary of the Closing Date, Six Hundred and Fifty Thousand Dollars ($650,000) will be the amount of the deposit. 12. Article 5 of the Purchase Agreement is hereby amended and restated in its entirety as follows: At Closing, the parties shall enter into a Consulting and Non-Competition Agreement (the "Non-Competition Agreement") in the form attached as Exhibit 1 to the Second Amendment to the Purchase Agreement, pursuant to which Buyer shall pay to Christopher T. Dahl the sum of Seven Hundred and Fifty Thousand Dollars ($750,000) according to the terms and conditions set forth herein. 13. Section 6.19 of the Purchase Agreement is hereby deleted in its entirety. 14. The second clause of Section 7.1 of the Purchase Agreement is hereby amended and restated in its entirety as follows: Buyer, or its designee which acquires the Acquired Assets (other than the Licenses), is, or will be at the time of Closing, qualified to -3- do business in the States of California, Colorado, Illinois, Kansas, Minnesota, Pennsylvania and Wisconsin; 15. Sections 6.19, 7.3, 11.2(b) and 11.2(f), of the Purchase Agreement are hereby deleted in their entirety: Except as expressly provided herein, all of the terms and provisions of the Purchase Agreement, as amended, shall remain in full force and effect. Unless otherwise defined, all capitalized terms herein shall have the meaning ascribed to them in the Purchase Agreement IN WITNESS WHEREOF, the parties hereto, by their properly authorized representatives, have caused this Second Amendment to Purchase Agreement to be executed as of the day and date first written above. Children's Broadcasting Corporation Catholic Radio Network, LLC By: /s/ Christopher T. Dahl By: /s/ John T. Lynch -------------------------- ------------------------- Its: President & CEO Its: President & CEO -------------------------- ------------------------- Children's Radio of Chicago, Inc. WAUR-AM, Inc. By: /s/ Christopher T. Dahl By: /s/ Christopher T. Dahl -------------------------- ------------------------- Its: President & CEO Its: President & CEO -------------------------- ------------------------- Children's Radio of Dallas, Inc. KAHZ-AM, Inc. By: /s/ Christopher T. Dahl By: /s/ Christopher T. Dahl -------------------------- ------------------------- Its: President & CEO Its: President & CEO -------------------------- ------------------------- Children's Radio of Denver, Inc. KKYD-AM, Inc. By: /s/ Christopher T. Dahl By: /s/ Christopher T. Dahl -------------------------- ------------------------- Its: President & CEO Its: President & CEO -------------------------- ------------------------- Children's Radio of Kansas City, Inc. KCNW-AM, Inc. By: /s/ Christopher T. Dahl By: /s/ Christopher T. Dahl -------------------------- ------------------------- Its: President & CEO Its: President & CEO -------------------------- ------------------------- -4- Children's Radio of Los Angeles, Inc. KPLS-AM, Inc. By: /s/ Christopher T. Dahl By: /s/ Christopher T. Dahl -------------------------- ------------------------- Its: President & CEO Its: President & CEO -------------------------- ------------------------- Children's Radio of Milwaukee, Inc. WZER-AM, Inc. By: /s/ Christopher T. Dahl By: /s/ Christopher T. Dahl -------------------------- ------------------------- Its: President & CEO Its: President & CEO -------------------------- ------------------------- Children's Radio of Minneapolis, Inc. WWTC-AM, Inc. By: /s/ Christopher T. Dahl By: /s/ Christopher T. Dahl -------------------------- ------------------------- Its: President & CEO Its: President & CEO -------------------------- ------------------------- Children's Radio of New York, Inc. WJDM-AM, Inc. By: /s/ Christopher T. Dahl By: /s/ Christopher T. Dahl -------------------------- ------------------------- Its: President & CEO Its: President & CEO -------------------------- ------------------------- Children's Radio of Philadelphia, Inc. WPWA-AM, Inc. By: /s/ Christopher T. Dahl By: /s/ Christopher T. Dahl -------------------------- ------------------------- Its: President & CEO Its: President & CEO -------------------------- ------------------------- Children's Radio of Phoenix, Inc. KIDR-AM, Inc. By: /s/ Christopher T. Dahl By: /s/ Christopher T. Dahl -------------------------- ------------------------- Its: President & CEO Its: President & CEO -------------------------- ------------------------- (Signature Page for Second Amendment to Purchase Agreement) -5- EX-4.1 3 CERTIFICATE OF INCORPORATION EXHIBIT 4.1 STATE OF MINNESOTA SECRETARY OF STATE CERTIFICATE OF INCORPORATION I, Joan Anderson Growe, Secretary of State of Minnesota, do certify that: Articles of Incorporation, duly signed and acknowledged under oath, have been filed on this date in the Office of the Secretary of State, for the incorporation of the following corporation, under and in accordance with the provisions of the chapter of Minnesota Statutes listed below. This corporation is now legally organized under the laws of Minnesota. Corporate Name: CD Broadcasting Corporation of Minneapolis Corporate Charter Number: 60 568 Chapter Formed Under: 302A This certificate has been issued on 02/07/1990. /s/ Joan Anderson Growe ---------------------------------- Secretary of State STATE OF MINNESOTA See instructions on OFFICE OF THE SECRETARY OF STATE reverse side for completing this form ARCTICLES OF INCORPORATION CHAPTER 302A - -------------------------------------------------------------------------------- CORPORATE NAME CD Broadcasting Corporation of Minneapolis - -------------------------------------------------------------------------------- The undersigned incorporators, who are natural persons 18 years of age or older, in order to form a corporate entity under Minnesota Statues, Chapter 302A, adopt the following articles of incorporation: ARTICLE I The name of the corporation is: - -------------------------------------------------------------------------------- CORPORATION NAME CD Broadcasting Corporation of Minneapolis - -------------------------------------------------------------------------------- ARTICLE II The registered office of this corporation is located at: - -------------------------------------------------------------------------------- STREET ADDRESS CITY, STATE, ZIP COUNTY 5200 Willson Road, Ste. 308 Edina, MN 55424 Hennepin - -------------------------------------------------------------------------------- The registered agent at that address is (Note: The appointment of an agent is optional): - -------------------------------------------------------------------------------- NAME OF AGENT None - -------------------------------------------------------------------------------- ARTICLE III The corporation is authorized to issue an aggregate total of: NUMBER OF SHARES (The minimum number of authorized shares is one.) 1,000 ARTICLE IV The names and addresses of the incorporators are (Note: Only one incorporator is required under Section 302A.105): Name Address (may not be a post office Incorporator's Signature (All box) incorporators must sign the articles) Lance W. Riley 5200 Willson Road, Ste. 308 /s/ Lance W. Riley Edina, Mn 55424 STATE OF MINNESOTA ss County of Hennepin The foregoing instrument was acknowledged before me this 2nd day of February, 1990. /s/ Phylis Schaffer (Notary Public) (Notarial Seal) - -------------------------------------------------------------------------------- INSTRUCTIONS 1. Type or print with dark black ink. 2. Total filing fee as required by Minnesota Statues, Section 302A.011; 302.153 for valid incorporation. Filing Fee - $15.00. Incorporation Fee - $70.00 3. Make check for the total filing fee of $85 payable to the Secretary of State. 4. Mail or bring completed form to: Secretary of State Corporation Division 180 State Office Building St. Paul, MN 55155 (612) 296-2803 Note: This form is intended merely as a guide in the formation of a Minnesota business corporation under Minnesota Statutes Chapter 302A and is not intended to cover all situations anticipated by that Statute. If this form does not meet the specific needs and requirements of the corporation that is being formed, the incorporators should draft their own articles specifically listing the modifications or denials of each provision to which they wish to be subject or from which they wish to be exempt. FOR USE ONLY BY SECRETARY OF STATE STATE OF MINNESOTA See instructions on OFFICE OF THE SECRETARY OF STATE reverse side for completing this form CERTIFICATE OF CHANGE OF REGISTERED OFFICE by - -------------------------------------------------------------------------------- NAME OF CORPORATION CD BROADCASTING CORPORATION OF MINNEAPOLIS - -------------------------------------------------------------------------------- Pursuant to Minnesota Status Section 302A.123, or 317.19, the undersigned hereby certifies that the Board of Directors of the above named Minnesota corporation has resolved to change the corporation's registered office: - -------------------------------------------------------------------------------- F ADDRESS (NO. 5200 Wilson Road, Suite 308 R & STREET) O M CITY COUNTY ZIP Hennepin Edina MN 55424 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ADDRESS 5001 West 80th Street, Suite 255 T (NO. & STREET) O CITY COUNTY ZIP Hennepin Bloomington MN 55437 - -------------------------------------------------------------------------------- The effective date of the change will be the 25th day of February, 19__, or the day of filing of this certificate with the Secretary of State, whichever is later. I swear that the foregoing is true and accurate and that I have the authority to sign this document on behalf of the corporation. NAME OF OFFICER OR OTHER AUTHORIZED AGENT OF CORPORATION SIGNATURE Lance W. Riley /s/ Lance W. Riley TITLE OR OFFICE DATE Secretary March 15, 1991 STATE OF MINNESOTA ) The foregoing instrument was acknowledged )SS. before me on this 15th day of March, 1991. COUNTY OF Hennepin ) /s/ Kathleen K. Patchen (Notarial (Notary Public) Seal) - -------------------------------------------------------------------------------- Receipt Number File Data - -------------------------------------------------------------------------------- ARTICLES OF AMENDMENT OF CD BROADCASTING CORPORATION OF MINNEAPOLIS RESTATING AND AMENDING THE ARTICLES OF INCORPORATION The undersigned, President of CD Broadcasting Corporation of Minneapolis, a corporation subject to Chapter 302A, hereby certifies that the Articles of Amendment set forth below, containing the restatement of the Articles of Incorporation with amendments thereto, were adopted by unanimous written authorization of the directors and shareholders pursuant to Sections 302A.239 and 302A.441, Minnesota Statutes: ARTICLE I. NAME The name of this corporation shall be Children's Broadcasting Corporation. ARTICLE II. REGISTERED OFFICE The registered office of this corporation is located at 215 South Eleventh Street, Minneapolis, MN 55403. ARTICLE III. The names and addresses of the members of the Board of Directors at the time of the adoption of these Amended and Restated Articles are: NAME ADDRESS Christopher T. Dahl 5404 Interlachen Blvd. Edina, MN 55436 Richard W. Perkins 1485 Fox Street Orono, MN 55391 ARTICLE IV. CAPITAL The aggregate number of shares of stock which this corporation shall have the authority to issue is ten million shares with a par value of One Cent ($0.01) per share. ARTICLE V. CLASSES AND SERIES OF STOCK In addition to, and not by way of limitation of, the powers granted to the Board of Directors by Minnesota Statutes, Chapter 302A, the Board of Directors of this corporation shall have the power and authority to fix by resolution any designation, class, series, voting power, preference, right, qualification, limitation, restriction, dividend, time and price of redemption, and conversion right with respect to any stock of the corporation. Upon adoption of such resolution, a statement shall be filed with the Secretary of State in compliance with Section 302A.401, Minnesota Statutes, before the issuance of any shares for which the resolution creates rights or preferences not set forth in these Articles; provided, however, where the shareholders have received notice of the creation of shares with rights or preferences not set forth in the Articles before the issuance of the shares, the statement may be filed any time within one year after the issuance of the shares. ARTICLE VI. SHAREHOLDER VOTING No shareholder of this corporation shall be entitled to any cumulative voting rights. The shareholders of the corporation shall take action by the affirmative vote of the holders of a majority of the shares present and entitled to vote, except where a larger proportion is required by law, these Articles of Incorporation or a shareholder control agreement. The affirmative vote of a majority of the voting power of all shares entitled to vote shall be required to authorize the sale, lease, exchange or other disposition of all or substantially all of the property and assets of the corporation, including its goodwill, to amend the Articles of Incorporation, to adopt or reject an agreement of merger or to authorize the dissolution of the corporation. ARTICLE VII. PREEMPTIVE RIGHTS No shareholder of this corporation shall have any preferential, preemptive, or other rights of subscription to any shares of any class or series of stock of this corporation allotted or sold or to be allotted or sold, whether now or hereafter authorized, or to any obligations or securities convertible into any class or series of stock of this corporation. ARTICLE VIII. DIRECTOR LIABILITY A director of the corporation shall not be personally liable to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, except for (i) liability based on a breach of the duty of loyalty to the corporation or the shareholders; (ii) liability for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; (iii) liability based on the payment of an improper dividend or an improper repurchase of the corporation's stock under Minnesota Statutes, Section 302A.559, or on violations of federal or state securities laws; (iv) liability for any transaction from which the director derived an improper personal benefit; or (v) liability for any act or omission occurring prior to the date this Article becomes effective. If Minnesota Statutes, Chapter 302A, hereafter is amended to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the corporation in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by the amended Chapter 302A. Any repeal of this provision as a matter of law or any modification of this Article by the shareholders of the corporation shall be prospective only, and shall not adversely affect any limitation on the personal liability of a director of the corporation existing at the time of such repeal or modification. ARTICLE IX. BOARD OF DIRECTORS VOTE The affirmative vote of a majority of the Board of Directors of the corporation present at a meeting is required for an action of the Board. ARTICLE X. BOARD ACTION WITHOUT A MEETING Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting by written action signed by a majority of the Board of Directors then in office, except as to those matters which require shareholder approval, in which case the written action shall be signed by all members of the Board of Directors then in office. Whenever written action is taken by less than all of the directors, all directors shall be notified immediately of the text and the effective date. Failure to provide the notice to the other directors shall not invalidate the written action. The undersigned has been authorized and directed to sign and file these Articles of Amendment in the manner required by law. /s/ Christopher T. Dahl President CHILDREN'S BROADCASTING CORPORATION CERTIFICATE OF DESIGNATION OF STOCK The undersigned, being the duly appointed Secretary of Children's Broadcasting Corporation, hereby certifies that the Board of Directors of the Corporation, acting pursuant to Chapter 302A, Minnesota Statutes, took action by unanimous resolution on November 18, 1991 to designate 378,083 shares of non-voting Common Stock of the Corporation, pursuant to which resolution said stock was issued on April 16, 1992. The undersigned further certifies that the following resolution has been duly adopted by the Board of Directors of the Corporation with respect to the establishment and designation of non-voting stock: DESIGNATION OF NON-VOTING STOCK RESOLVED, in accordance with the Articles of Incorporation of the Corporation and pursuant to Minnesota Statutes, Chapter 302A, the Board of Directors hereby establishes and designates from the Corporation's unauthorized and unissued shares, 378,083 shares of common stock without voting rights (except as hereinafter provided), which shares shall in all respects, except for voting, be equal and have the same rights as, the common stock of the Corporation, such non-voting common stock hereinafter referred to as "Nonvoting Common Stock". Notwithstanding the foregoing, such non-voting stock shall have full voting rights at such time as the transfer of such shares is legally permitted pursuant to the terms of an agreement dated August 1,1991 between this Corporation, Russell Cowles II, Marguerite A. Cowles and First Bank Minneapolis, N.A., Trustees of the John Cowles Family Trust for the benefit of Russell Cowles, II. RESOLVED FURTHER, that the President and Secretary of the Corporation are authorized and directed to take such further action as shall be necessary or required to issue said Non-Voting Common Stock and they, or any of them, are authorized and directed to file a certificate of designation pursuant to Section 302A.401, Subd. 3 of the Minnesota Business Corporation Act with the Minnesota Secretary of State. I certify that I am authorized to execute this instrument and I further certify that I understand that by signing this amendment I am subject to the penalties of perjury as set forth in Section 609.48 as if I had signed this Amendment under oath. /s/ Lance W. Riley Secretary of CHILDREN'S BROADCASTING CORPORATION s CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS OF CONVERTIBLE PREFERRED STOCK SERIES 1993-A OF CHILDREN'S BROADCASTING CORPORATION Children's Broadcasting Corporation, a corporation organized and existing under the laws of Minnesota (the "Corporation"), does hereby certify: That pursuant to authority vested in it by the provisions of the Articles of Incorporation, the Board of Directors of the Corporation, at a meeting of the Board held on December 8, 1993, at which meeting a quorum of directors was present and acting throughout, did adopt the following resolution authorizing the creation and issuance of a series of Preferred Stock designated as Convertible Preferred Stock Series 1993-A: RESOLVED, that the Corporation hereby designates 290,213 shares of its authorized but unissued Preferred Stock, par value $.01, as Convertible Preferred Stock, Series 1993-A, which shall have the following designations, preferences, rights, qualifications, limitations and restrictions in addition to those set forth in the Articles of Incorporation, as amended, of the Corporation: 1. Designation: Number of Shares: Stated Value: Dividends. Two Hundred Ninety Thousand Two Hundred Thirteen (290,213) shares of Preferred Stock shall be designated Convertible Preferred Stock 1993-A (hereinafter sometimes referred to as the "Convertible Preferred Stock" or as this "Series"). Shares of this Series shall have a stated value of $10.00 per share ("Stated Value"). Except as provided herein, shares of this Series shall not be entitled to dividends or other distributions and shall be non-participating for all purposes. 2. Redemption At Option of Holders. (a) Commencing with the second day following the fifth anniversary of the date of issuance (the "Redemption Commencement Date"), the Corporation shall, subject to the requirements of the Minnesota Business Corporation Act, from time to time, redeem all shares of this Series tendered to the Corporation for redemption at the option of the holders of the Convertible Preferred Stock. The redemption price shall be the Stated Value. Such redemption shall be effected on the terms and conditions hereinafter provided. (b) Each holder of shares of this Series who elects to require the Corporation to purchase all or any of such holder's shares shall surrender to the Corporation's transfer agent (or other fiduciary designated in writing by the Corporation as agent for redemption) certificates of this Series then outstanding as soon as practicable following the Redemption Date (hereinafter defined). The "Redemption Date" shall mean a date which is eight (8) calendar months following the giving of written notice (the "Redemption Notice") by such holder to the Corporation. The Redemption Notice may be given up to eight months prior to the Redemption Commencement Date and at any time after the Redemption Commencement Date. A Redemption Notice shall contain the holder's demand for redemption and be given to the Company at its principal executive offices last set forth in the Corporation's l0-Q/l0-QSB report filed with the Securities and Exchange Commission or, if no such report has been filed, to the Corporation's registered office in the state of its incorporation, as certified to or disclosed by the secretary of state of such state. Such notice shall be deemed given if in writing and sent postage prepaid by certified or registered first class mail or by nationwide overnight courier. Once given, a Redemption Notice may not be withdrawn; however, a holder may elect to convert, in accordance with paragraph 3 hereof, any or all of the shares of this Series prior to the Redemption Date. (c) The Corporation shall, on or before the Redemption Date, deposit with its transfer agent (or such other agent for redemption selected by the Corporation) as a trust fund, a sum sufficient to redeem the shares of this Series subject to redemption, with irrevocable instructions and authority to such transfer agent or other redemption agent to give or complete the notice of redemption thereof and to pay to the respective holders of such shares, as evidenced by a list of such holders who have duly exercised such rights of redemption, certified by an officer of the Corporation, the redemption price upon surrender of their respective share certificates. Such deposit shall be deemed to constitute full payment of such shares to their holders; and from and after the date of such deposit, notwithstanding that any certificates for such shares shall not have been surrendered for cancellation by holders who have given a Redemption Notice, the shares represented thereby shall no longer be deemed outstanding, and all rights of such holders of the shares of Convertible Preferred Stock shall cease and terminate, except the right to receive the redemption price, without interest, as of the Redemption Date. 3. Conversion. (a) The holder of any shares of this Series may at any time, prior to a Redemption Date applicable to such holder, elect to convert all or any portion of the shares of this Series into fully paid and non-assessable shares of Common Stock at the initial rate of one (1) share of Common Stock for each share of this Series, subject to adjustment pursuant to the provisions of subparagraph (c) of this paragraph 3. Such right of conversion shall be exercised by the surrender of the shares so to be converted to the Corporation at any time during normal business hours at the principal executive offices of the Corporation or at the office of any agent for conversion from time to time designated by it for conversion of ("Conversion Agent") the shares of this Series accompanied by written notice of such holder's election to convert and (if so required by the Corporation or the Conversion Agent) by instruments of transfer, in form satisfactory to the Corporation and to the Conversion Agent, duly executed by the registered holder or by his duly authorized attorney, and transfer tax stamps or funds therefor, if required pursuant to subparagraph (h) of this paragraph 3. (b) As promptly as practicable after the surrender for conversion of any shares of this Series in the manner provided in subparagraph (a) of this paragraph 3 and the payment in cash of any amount required by the provisions of subparagraphs (a) and (h) of this paragraph 3, the Corporation will deliver or cause to be delivered at the principal executive offices of the Corporation or at the office of the Conversion Agent to or upon the written order of the holder of such shares, certificates representing (i) the number of full shares of Common Stock issuable upon such conversion, and (ii) if less than the full number of shares evidenced by the Convertible Preferred Stock certificate are being converted, a new certificate for the remaining number of shares thereof issued in such name or names as such holder may direct. Such conversion shall be deemed to have been immediately prior to the close of business on the date of such surrender of the shares, and all rights of the holder of such shares as a holder of such shares shall cease at such time and the person or persons In whose name or names the certificates for such shares of Common Stock are to be issued shall be treated for all purposes as having become the record holder or holders thereof at such time and such conversion shall be at the conversion rate in effect at such time; provided, however, that any such surrender and payment on any date when the stock transfer books of the Corporation shall be closed shall constitute the person or persons in whose name or names the certificates for such shares of Common Stock are to be issued as the record holder or holders thereof for all purposes immediately prior to the close of business on the next succeeding day on which such stock transfer books are opened and such conversion shall be at the conversion rate in effect at such time on such succeeding day. (c) The initial conversion rate shall be one (1) share of Common Stock per share of this Series (equivalent to a conversion price of $10.00 per share). The conversion rate shall be subject to adjustment as follows: (i) In case the Corporation shall (A) pay a dividend or make a distribution in shares of its capital stock (whether shares of Common Stock or of capital stock of any other class), (B) subdivide its outstanding shares of Common Stock, (C) combine its outstanding shares of Common Stock into a smaller number of shares, (D) issue by reclassification of its shares of Common Stock (whether by merger or consolidation or otherwise) any shares of capital stock of the Corporation or (E) take any action with the same effect as any of the foregoing, the conversion privilege and the conversion rate in effect immediately prior to such action shall be adjusted so that the holder of any shares of this Series thereafter surrendered for conversion shall be entitled to receive (subject to further adjustments pursuant to subparagraphs (c)(ii) and (c)(iii) hereof) the number of shares of capital stock of the Corporation (or of the corporation surviving or resulting from any merger or consolidation) which he would have owned immediately following such action had such share been converted immediately prior thereto. An adjustment made pursuant to this subparagraph (c)(i) shall become effective retroactively immediately after the record date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. If, as a result of an adjustment made pursuant to this subparagraph (c)(i), the holder of any shares thereafter surrendered for conversion shall become entitled to receive shares of two or more classes of capital stock of the Corporation, the Board of Directors (whose determination shall be conclusive) shall determine the allocation of the adjusted conversion rate between or among shares of such classes of capital stock. (ii) In case the Corporation shall issue rights or warrants to all holders of its Common Stock entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share (as determined pursuant to subparagraph (c)(iv) below) on the record date mentioned below, other than pursuant to a dividend reinvestment plan, the conversion rate shall be adjusted so that the same shall equal the rate determined by multiplying the conversion rate in effect immediately prior to the date of issuance of such rights or warrants by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the denominator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares in which the aggregate offering price of the total number of shares so offered would purchase at such current market price. Such adjustment shall become effective retroactively immediately after the record date for the determination of stockholders entitled to receive such rights or warrants. For the purposes of this paragraph 3(c)(ii), the issuance of rights or warrants to subscribe for or purchase stock or securities convertible into shares of Common Stock shall be deemed to be the issuance of rights or warrants to purchase the shares of Common Stock into which such stock or securities are convertible at an aggregate offering price equal to the aggregate offering price of such stock or securities plus the minimum aggregate amount (if any) payable upon conversion of such stock or securities into Common Stock. (iii) In case the Corporation shall distribute to all holders of its Common Stock evidences of its indebtedness or assets (excluding any cash dividend paid from retained earnings of the Corporation) or rights or warrants to subscribe to securities of the Corporation (excluding those referred to in subparagraph (c)(ii) above), then in each such case the conversion rate shall be adjusted so that the same shall equal the rate determined by multiplying the conversion rate in effect immediately prior to the date of such distribution by a fraction of which the numerator shall be the current market price per share (determined as provided in subparagraph (c)(iv) below) of the Common Stock on the record date mentioned below, and of which the denominator shall be such current market price per share of Common Stock less the then fair market value (as determined by the Board of Directors of the Corporation, whose determination shall be conclusive) of the portion of the assets or evidences of indebtedness so distributed or of such subscription rights or warrants applicable to one share of Common Stock. Such adjustment shall become effective retroactively immediately after the record date for the determination of stockholders entitled to receive such distribution. (iv) For the purpose of any computation under subparagraphs (c)(ii) and (c)(iii) above, the current market price per share of Common Stock on any date shall be deemed to be the average of the daily closing prices for 30 consecutive trading days commencing 45 trading days before the day in question. The "closing price" on any day shall mean the reported last sale price on such day or, in case no such reported sales takes place on such day, the average of the reported closing bid and asked prices, in each case on the New York Stock Exchange, or, if the Common Stock is not listed or admitted to trading on such exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or, if not listed or admitted to trading on any national securities exchange, then in the over-the-counter market as reported on NASDAQ or a similar reporting service, or, if no such quotations are available, the fair market price as determined by the Corporation (whose determination shall be conclusive). (v) In any case in which this subparagraph (c) shall require that an adjustment be made retroactively immediately following a record date, the Corporation may elect to defer (but only until five business days following the mailing by the Corporation of the certificate of independent public accountants described in subparagraph (c)(vii) below) issuing to the holder of any shares converted after such record date (x) the shares of Common Stock and other capital stock of the Corporation issuable upon such conversion over and above (y) the shares of Common Stock and other capital stock of the Corporation issuable upon such conversion only on the basis of the conversion rate prior to adjustment. (vi) No adjustment in the conversion rate shall be required unless such adjustment would require an increase or decrease of at least 1% in such rate; provided, however, that any adjustments which by reason of this subparagraph (c)(vi) are not required to be made shall be carried forward and taken into account in any subsequent adjustment; and, provided further, that the provisions of this paragraph 3 (other than this subparagraph (c)(vi)) not later than such time as may be required in order to preserve the tax-free nature of a distribution to the holders of shares of Common Stock. All calculations under this paragraph 3 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. Anything in this paragraph 3 to the contrary notwithstanding, the Corporation shall be entitled to make such increases in the conversion rate in addition to those required by this subparagraph (c) as it in its discretion shall determine to be advisable in order that any stock dividends, subdivision of shares, distribution of rights to purchase stock or securities, or distribution of securities convertible into or exchangeable for stock hereafter made by the Corporation to its stockholders shall not be taxable. (vii) Whenever the conversion rate is adjusted as herein provided, the Corporation shall promptly (x) file with the Conversion Agent a certificate of a firm of independent public accountants selected by the Board of Directors (who may be the regular accountants employed by the Corporation) setting forth the conversion rate after such adjustment and setting forth a brief statement of the facts requiring such adjustment, which certificate shall be conclusive evidence of the correctness of such adjustment, and (y) mail or cause to be mailed a notice of such adjustment to the holders of shares of this Series at their last addresses as they shall appear upon the books of the Corporation. (viii) The term "Common Stock" shall mean the Corporation's voting Common Stock, par value $.01 per share, as the same exists at the date of filing of this Certificate of Designation, Preferences and Rights of the Convertible Preferred Stock, or any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value or from par value to no par value, or from no par value to par value. In the event that at any time as a result of an adjustment made pursuant to subparagraph (c)(i) above, the holder of any share thereafter surrendered for conversion shall become entitled to receive any shares of the Corporation other than shares of its Common Stock, thereafter the conversion rate of such other shares so receivable upon conversion of any share shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Common Stock contained in subparagraphs (c)(i) through (c)(vii) above, and the provisions of subparagraphs (a) through (c) and subparagraphs (e) through (k) of this paragraph 4 with respect to the Common Stock shall apply on like or similar terms to any such other shares. (d) No fractional shares of stock shall be issued upon the conversion of any share or shares of this Series. If more than one such share of this Series shall be surrendered for conversion at the same time by the same holder, the number of full shares which shall be issuable upon the conversion thereof shall be computed on the basis of the aggregate number of shares so surrendered. If any fractional interest in a share of Common Stock would, except for the provisions of this subparagraph (e), be deliverable upon the conversion of any share or shares, the Corporation shall in lieu of delivering the fractional share therefor, adjust such fractional interest by payment to the holder of such surrendered share or shares of an amount in cash equal (computed to the nearest cent) to the current market value of such fractional interest on the last business day prior to the date of conversion, computed on the basis of the last reported sale price on such day or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, in each case on the New York Stock Exchange or, if the Common Stock is not listed or admitted to trading on such Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or, if not listed or admitted to trading on any national securities exchange, then in the over-the-counter market as reported by NASDAQ or a similar reporting service, or if no such quotations are available, the fair market price as determined by the Corporation (whose determination shall be conclusive). (e) If either of the following shall occur, namely: (i) any consolidation or merger to which the Corporation is a party, other than a consolidation or a merger in which consolidation or merger the Corporation is a continuing corporation and which does not result in any reclassification of, or change (other than a change in par value or from par value to no par value or from no par value to par value, or as a result of a subdivision or combination) in, outstanding shares of the Common Stock, or (ii) any sale or conveyance to another corporation of the property of the Corporation as an entirety or substantially as an entirety in consideration for property or securities of such other corporations; then the holder of each share of Convertible Preferred Stock then outstanding shall have the right to convert such share into the kind and amount of shares of stock and other securities and property receivable upon such consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock issuable upon conversion of such share immediately prior to such consolidation, merger, sale or conveyance, subject to adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this paragraph 3. In any such event, effective provision shall be made in the articles or certificate of incorporation of the resulting or surviving corporation or other corporation issuing or delivering such shares of stock or other securities or property or otherwise, so that the provisions set forth herein for the protection of the conversion rights of the Convertible Preferred Stock shall thereafter be applicable, as nearly as reasonably may be, to any such other shares of stock and other securities and property deliverable upon conversion of the Convertible Preferred Stock remaining outstanding or other convertible stock or securities received by the holders in place thereof; and any such resulting surviving corporation or other corporation issuing or delivering such shares or other securities or property shall expressly assume the obligation to deliver, upon the exercise of the conversion privilege, such shares of stock or other securities or property as the holders of the Convertible Preferred Stock remaining outstanding, or other convertible stock or securities received by the holders of the Convertible Preferred Stock remaining outstanding, or other convertible stock or securities received by the holders in place thereof, shall be entitled to receive, pursuant to the provisions hereof, and to make provision for the protection of the conversion right as above provided. In case shares, securities or other property other than Common Stock shall be issuable or deliverable upon conversion as aforesaid, then all references to Common Stock in this paragraph 3(e) shall be deemed to apply, so far as provided and as nearly as is reasonable, to any such shares of stock and other securities and property. The provisions of this subparagraph (e) shall similarly apply to successive consolidations, mergers, sales or conveyances. (f) The Corporation covenants that it will at all times reserve and keep available, solely for the purpose of issue upon conversion of the shares of this Series, such number of shares of Common Stock as shall be issuable upon the conversion of all such outstanding shares; provided, that nothing contained herein shall be construed to preclude the Corporation from satisfying its obligations in respect of the Conversion of the shares by delivery of purchased shares of Common Stock which are held in the treasury of the Corporation. For the purpose of this subparagraph (f), the full number of shares of Common Stock issuable upon the conversion of all outstanding shares of this Series shall be computed as if at the time of computation of such number of shares of Common Stock all outstanding shares of this Series were held by a single holder. The Corporation will endeavor to list the shares of Common Stock required to be delivered upon conversion of shares prior to such delivery on NASDAQ or each national securities exchange upon which the outstanding Common Stock is listed at the time of such delivery. The Corporation covenants that all shares of Common Stock which shall be issued upon conversion of the shares will upon issue be fully paid and non-assessable and not subject to any preemptive rights. (g) Before taking any action which would cause an adjustment reducing the conversion price per share of this Series below the then par value of the Common Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and non-assessable shares of Common Stock at the conversion rate as so adjusted. If as a result of conversion of the shares of this Series it becomes necessary to authorize additional shares of Common Stock, the Corporation covenants that it will take such action at such time as is necessary by amendment of the Corporation's Articles of Incorporation. (h) The Corporation shall pay any and all issue or other taxes payable in respect of any issue or delivery of shares of Common Stock upon conversion. However, if any such certificate is to be issued in a name other than that of the holder of the share or shares converted, the person or persons requesting the issuance thereof shall pay to the Corporation the amount of any tax which may be payable in respect of any transfer involved in such issuance or shall establish to the satisfaction of the Corporation that such tax has been paid. (i) Notwithstanding anything elsewhere contained in this Certificate, any funds which at any time shall have been deposited by the Corporation or on its behalf with any paying agent for the purpose of paying dividends on or the redemption price of any shares of this Series and which shall not be required for such purposes because of the conversion of such shares, as provided in this paragraph 3, shall be, upon delivery to the paying agent of evidence satisfactory to it of such conversion, after such conversion be repaid to the Corporation by the paying agent. (j) In case: (i) the Corporation shall take any action which would require an adjustment in the conversion rate pursuant to subparagraph (c) of this paragraph 3; or (ii) the Corporation shall authorize the granting to the holders of its Common Stock of rights or warrants to subscribe for or purchase any shares of stock of any class or of any other rights and notice thereof shall be given to holders of Common Stock; or (iii) there shall be any capital reorganization or reclassification of the Common Stock (other than a subdivision or combination of the outstanding Common Stock and other than a change in par value or from par value to no par value or from no par value to par value of the Common Stock), or any consolidation or merger to which the Corporation is a consolidation or merger to which the Corporation is a party and for which approval of any stockholders of the Corporation is required, or any sale or transfer of all or substantially all of the assets of the Corporation; or (iv) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation; then the Corporation shall cause to be filed with any conversion agent, and shall cause to be given to the holders of the shares of this Series at least ten business days prior to the applicable date hereinafter specified, a notice setting forth (x) the date on which a record is to be taken for the purpose of any distribution or grant to holders of Common Stock, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such distribution or grant are to be determined or (y) the date on which such reorganization, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, transfer dissolution, liquidation or winding-up. Failure to give such notice or any defect therein shall not affect the legality or validity of the proceedings described in clauses (i) through (iv) of this subparagraph (j). 4. Voting. The shares of this Series shall not have any voting powers either general or special, except as provided by law. In exercising any voting rights conferred by law, each share of Convertible Preferred Stock shall be entitled to one vote. 5. Liquidation Rights. Upon the dissolution, liquidation or winding-up of the Corporation, whether voluntary or involuntary, the holders of the shares of this Series shall be entitled to receive, before any payment or distribution of the assets of the Corporation or proceeds thereof (whether capital or surplus) shall be made to or set apart for the holders of the Common Stock or any other class or series of stock, the amount of $10.00 per share. If, upon any liquidation, dissolution or winding-up of the Corporation, the assets of the Corporation, or proceeds thereof, distributable among the holders of shares of the Convertible Preferred Stock and any other class or series of Preferred Stock ranking on a parity with the Convertible Preferred Stock as to payments upon liquidation, dissolution or winding-up shall be insufficient to pay in full the preferential amount aforesaid, then such assets or the proceeds thereof, shall be distributed among such holders ratably in accordance with the respective amounts which would be payable on such shares if all amounts payable thereon were paid in full. For the purposes of this paragraph 5, the voluntary sale, conveyance, lease, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all the property or assets of the Corporation to, or a consolidation or merger of the Corporation with, one or more other corporations (whether or not the Corporation is the corporation surviving such consolidation or merger) shall not be deemed to be a liquidation, dissolution or winding-up, voluntary or involuntary. 6. No Purchase. Retirement or Sinking Fund. The shares of this Series shall not be subject to the operation of any purchase, retirement or sinking fund. 7. Status. Shares of this Series which have been issued and reacquired in any manner by the Corporation shall, upon compliance with any applicable provisions of the Minnesota Business Corporation Act, have the status of authorized and unissued shares of Preferred Stock and may be reissued as a part of this Series or as part of a new series of Preferred Stock to be established by the Board of Directors or as part of any other series of Preferred Stock the terms of which do not prohibit such reissue; provided, however, that such shares may not be reissued as shares of this Series. 8. Priority. The Common Stock and all other series of Preferred Stock of the Corporation, now or hereafter issued, shall rank junior to the Convertible Preferred Stock as to payment of dividends and as to distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary. 9. Relative Rights of Convertible Preferred Stock. So long as any of the Convertible Preferred Stock is outstanding, the Corporation will not: (a) Declare, or pay, or set apart for payment, or make any distribution in cash or other property on any other class or series of stock of the Corporation ranking junior to the Convertible Preferred Stock either upon liquidation, dissolution or winding-up, and will not redeem, purchase or otherwise acquire any shares of any such junior class or series if at the time of making such declaration, payment, distribution, redemption, purchase or acquisition the Corporation shall be in default with respect to any obligation to redeem shares of Convertible Preferred Stock which shall have been tendered for redemption; and (b) Without the affirmative vote or consent of the holders of at least a majority of all the Convertible Preferred Stock at the time outstanding, voting separately as a class, given in person or by proxy, either in writing or by resolution adopted either at an annual meeting or special meeting called for the purpose, (i) authorize, create, or issue, or increase the authorized or issued amount, of any class or series of stock ranking on a par with or prior to the Convertible Preferred Stock, upon liquidation, dissolution or winding-up or (ii) amend, alter or repeal (whether by merger, consolidation or otherwise) any of the provisions of the Corporation's Articles of Incorporation, or of the Certificate of Designation, Preferences and Rights of the Convertible Preferred Stock, so as to materially and adversely affect the preferences, special rights, privileges or powers of the Convertible Preferred Stock; provided, however, that the creation and issuance of other series of Preferred Stock ranking junior to the Convertible Preferred Stock shall not be deemed to materially and adversely affect such preferences, rights, privileges or powers. IN WITNESS WHEREOF, CHILDREN'S BROADCASTING CORPORATION has caused its corporate seal to be hereunto affixed and this Certificate of Designation of Preferences and Rights to be signed by its President and attested by its Secretary this 21st day of August, 1994. CHILDREN'S BROADCASTING CORPORATION [Corporate Seal] By: /s/ Christopher T. Dahl Christopher T. Dahl Attest: Chief Executive Officer /s/ Lance W. Riley Lance W. Riley, Secretary ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF CHILDREN'S BROADCASTING CORPORATION The undersigned officer, on behalf of Children's Broadcasting Corporation, a Minnesota corporation (the "Corporation"), hereby certifies that an amendment to the Corporation's Articles of Incorporation has been duly approved by the Company's Board of Directors and shareholders in accordance with Sections 302A.135 and 302A.139 of the Minnesota Statutes. Accordingly, Article IV is amended in its entirety to read as follows: ARTICLE IV CAPITAL The aggregate number of shares of stock which this corporation shall have the authority to issue is twenty-five million (25,000,000) shares with a par value of one cent ($0.01) per share. IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment to the Articles of Incorporation to be executed this 31st day of October, 1994. CHILDREN'S BROADCASTING CORPORATION By: /s/ Christopher T. Dahl Its: President ARTICLES OF AMENDMENT TO RESTATED ARTICLES OF INCORPORATION OF CHILDREN'S BROADCASTING CORPORATION CHILDREN'S BROADCASTING CORPORATION, a corporation organized and existing under the laws of the State of Minnesota (herein referred to as the "Corporation"), in accordance with the provisions of Minnesota Statutes, Section 302A.139, does hereby certify that: 1. Effective as of January 11, 1996, pursuant to the authority conferred upon the Board of Directors by Minnesota Statutes, Section 302A.402, Subdivision 3, the Board of Directors authorized and adopted in writing resolutions providing for a one (1) for two (2) "Combination" and the following is a true copy of such resolutions: RESOLVED, that there is hereby declared a Reverse Stock Split or Combination, pursuant to which every two (2) shares of issued and outstanding voting or nonvoting Common Stock, $.0l par value per share, and every two (2) shares of authorized but unissued voting or nonvoting Common Stock, $.01 par value per share, existing on the Combination Effective Date, shall be converted into one (1) share of Common Stock, $.02 par value per share; and every two (2) shares of Common Stock, $.0l par value per share issuable or reserved for issuance upon conversion of convertible preferred stock, or upon exercise of outstanding stock options and stock purchase warrants, shall, as of the Combination Effective Date, be converted automatically into one (1) share of Common Stock, $.02 par value per share. FURTHER RESOLVED, that in order to effect the Combination, Article IV of the Corporation's Restated Articles of Incorporation is amended in its entirety as follows: ARTICLE IV CAPITAL The aggregate number of shares of stock which this corporation shall have the authority to issue is twelve million five hundred thousand (12,500,000) shares with a par value of two cents ($.02) per share. FURTHER RESOLVED, that such Combination shall be effected automatically on January 23, 1996, or such later date when the Amendment shall be filed with the Minnesota Secretary of State without further action by the Board of Directors or shareholders. FURTHER RESOLVED, that the appropriate officers are hereby authorized and directed to prepare, execute, acknowledge and file on the Combination Effective Date the Articles of Amendment to the Restated Articles of Incorporation of this Corporation together with any other document or instrument necessary in connection with such Combination; and to request shareholders to exchange their stock certificates representing shares of Common Stock held prior to the Combination for new certificates representing shares of Common Stock issued as a result of the Combination. FURTHER RESOLVED, that, promptly following the Combination Effective Date, the Corporation shall furnish the shareholders with the necessary materials and instructions to effect the exchange of their stock certificates in accordance with the Combination. FURTHER RESOLVED, that shareholders who after the Combination would otherwise be entitled to receive fractional shares of Common Stock, will, upon surrender of their stock certificates representing shares of Common Stock owned as of the Combination Effective Date, receive a cash payment in lieu thereof equal to the value of such fractional shares determined by reference to the average closing bid price of the Common Stock for a period of ten trading days immediately preceding the Combination Effective Date, as reported by the NASDAQ SmallCap Market. FURTHER RESOLVED, that certificates representing shares of Common Stock outstanding immediately prior to the Combination Effective Date which are subsequently presented for transfer will not be transferred on the books and records of the Corporation until the certificates representing such shares of Common Stock have been exchanged of record for certificates representing shares of Common Stock reflecting the Combination. FURTHER RESOLVED, that in the event any certificate representing shares of Common Stock outstanding prior to the Combination is not presented for exchange upon request by the Corporation, any dividends that may be declared after the Combination Effective Date with respect to the Common Stock represented by such certificate will be withheld by the Corporation until such certificate has been properly presented for exchange. FURTHER RESOLVED, that the appropriate officers of the Corporation, be and they hereby are authorized and directed, upon filing of the Amendment pursuant to Minnesota Statutes, Section 302A.402, to proceed promptly to carry out the foregoing Actions and to execute and file all documents and instruments and to take such other actions as such officers deem necessary and appropriate to complete the Combination in accordance with Minnesota Statutes, Chapter 302A. FURTHER RESOLVED, that the effective date of the above Resolutions shall be as of January 11, 1996. 2. The foregoing amendment to Article IV of the Restated Articles of Incorporation will not adversely affect the rights or preferences of the holders of outstanding shares of any class or series of the Corporation's stock and will not result in the percentage of authorized shares that remains unissued after the Combination exceeding the percentage of authorized shares that were unissued before the Combination. 3. The amendment to Article IV of the Restated Articles of Incorporation was adopted pursuant to Chapter 302A. IN WITNESS WHEREOF, Children's Broadcasting Corporation has caused these Articles of Amendment to be signed by its President this 18th day of January, 1996. CHILDREN'S BROADCASTING CORPORATION By: /s/ Christopher T. Dahl ----------------------------------- Christopher T. Dahl President ARTICLES OF AMENDMENT TO RESTATED ARTICLES OF INCORPORATION OF CHILDREN'S BROADCASTING CORPORATION CHILDREN'S BROADCASTING CORPORATION, a corporation organized and existing under the laws of the State of Minnesota (herein referred to as the "Corporation"), in accordance with the provisions of Minnesota Statutes, Section 302A.139, does hereby certify that: 1. Effective as of January 11, 1996, pursuant to the authority conferred upon the Board of Directors by Minnesota Statutes, Section 302A.402, Subdivision 3, the Board of Directors authorized and adopted "I writing resolutions providing for a one (1) for two (2) "Combination" and the following is a true copy of such resolutions: RESOLVED, that there is hereby declared a Reverse Stock Split or Combination, pursuant to which every two (2) shares of issued and outstanding voting or nonvoting Common Stock, $.01 par value per share, and every two (2) shares of authorized but unissued voting or nonvoting Common Stock, $.0l par value per share, existing on the Combination Effective Date, shall be converted into one (1) share of Common Stock, $.02 par value per share; and every two (2) shares of Common Stock, $.0l par value per share issuable or reserved for issuance upon conversion of convertible preferred stock, or upon exercise of outstanding stock options and stock purchase warrants, shall, as of the Combination Effective Date, be converted automatically into one (1) share of Common Stock, $.02 par value per share. FURTHER RESOLVED, that in order to effect the Combination, Article IV of the Corporation's Restated Articles of Incorporation is amended in its entirety as follows: ARTICLE IV CAPITAL The aggregate number of shares of stock which this corporation shall have the authority to issue is twelve million five hundred thousand (12,500,000) shares with a par value of two cents ($.02) per share. FURTHER RESOLVED, that such Combination shall be effected automatically on January 23, 1996, or such later date when the Amendment shall be filed with the Minnesota Secretary of State without further action by the Board of Directors or shareholders. FURTHER RESOLVED, that the appropriate officers are hereby authorized and directed to prepare, execute, acknowledge and file on the Combination Effective Date the Articles of Amendment to the Restated Articles of Incorporation of this Corporation together with any other document or instrument necessary in connection with such Combination; and to request shareholders to exchange their stock certificates representing shares of Common Stock held prior to the Combination for new certificates representing shares of Common Stock issued as a result of the Combination. FURTHER RESOLVED, that, promptly following the Combination Effective Date, the Corporation shall furnish the shareholders with the necessary materials and instructions to effect the exchange of their stock certificates in accordance with the Combination. FURTHER RESOLVED, that shareholders who after the Combination would otherwise be entitled to receive fractional shares of Common Stock, will, upon surrender of their stock certificates representing shares of Common Stock owned as of the Combination Effective Date, receive a cash payment in lieu thereof equal to the value of such fractional shares determined by reference to the average closing bid price of the Common Stock for a period of ten trading days immediately preceding the Combination Effective Date, as reported by the Nasdaq SmallCap Market. FURTHER RESOLVED, that certificates representing shares of Common Stock outstanding immediately prior to the Combination Effective Date which are subsequently presented for transfer will not be transferred on the books and records of the Corporation until the certificates representing such shares of Common Stock have been exchanged of record for certificates representing shares of Common Stock reflecting the Combination. FURTHER RESOLVED, that in the event any certificate representing shares of Common Stock outstanding prior to the Combination is not presented for exchange upon request by the Corporation, any dividends that may be declared after the Combination Effective Date with respect to the Common Stock represented by such certificate will be withheld by the Corporation until such certificate has been properly presented for exchange. FURTHER RESOLVED. that the appropriate officers of the Corporation be and they hereby are authorized and directed upon filing of the Amendment pursuant to Minnesota Statutes, Section 302A.402, to proceed promptly to carry out the foregoing Actions and to execute and file all documents and instruments and to take such other actions as such officers deem necessary and appropriate to complete the Combination in accordance with Minnesota Statutes, Chapter 302A. FURTHER RESOLVED, that the effective date of the above Resolutions shall be as of January 11, 1996. 2. The foregoing amendment to Article IV of the Restated Articles of Incorporation will not adversely affect the rights or preferences of the holders of outstanding shares of any class or series of the Corporation's stock and will not result in the percentage of authorized shares that remains unissued after the Combination exceeding the percentage of authorized shares that were unissued before the Combination. 3. The amendment to Article IV of the Restated Articles of Incorporation was adopted pursuant to Chapter 302A. IN WITNESS WHEREOF, Children's Broadcasting Corporation has caused these Articles of Amendment to be signed by its President this 18th of January, 1996. CHILDREN'S BROADCASTING CORPORATION By: Christopher T. Dahl ---------------------------------- Christopher T. Dahl President ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF CHILDREN'S BROADCASTING CORPORATION The undersigned officer, on behalf of Children's Broadcasting Corporation, a Minnesota (the "Corporation"), hereby certifies that an amendment to the Corporation's Articles of Incorporation has been duly approved by the Company's Board of Directors and shareholders in accordance with Sections 302A.135 and 302A.139 of the Minnesota Statutes. Accordingly, Article IV is amended in its entirety to read as follows: ARTICLE IV CAPITAL The aggregate number of shares of stock which this corporation shall have the authority to issue is fifty million (50,000,000) shares with a par value of two cents ($.02) per share. IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment to the Articles of Incorporation to be executed this 3rd day of October, 1996. CHILDREN'S BROADCASTING CORPORATION By: /s/ James G. Gilbertson Its: COO CHILDREN'S BROADCASTING CORPORATION CERTIFICATE OF DESIGNATION OF STOCK The undersigned, being duly appointed Secretary of Children's Broadcasting Corporation (the "Corporation"), hereby certifies that the Board of Directors of the Corporation, acting pursuant to the authority contained in Article V of the Articles of Incorporation of the Corporation and the provisions of Chapter 302A, Minnesota Statutes, took action by unanimous resolution on November 28, 1995, and duly adopted the following resolutions to establish and designate 2,177,368 shares of Common Stock of the Corporation as Class A Common Stock. DESIGNATION OF CLASS A COMMON STOCK RESOLVED, in accordance with Article V of the Articles of Incorporation of the Corporation and pursuant to Minnesota Statutes, Chapter 302A, the Board of Directors hereby establishes, designates and reserves from the Corporation's unauthorized and unissued shares of Common Stock, Class A Common Stock in the amount and the voting powers and other special rights as follows: SECTION 1. DESIGNATION AND AMOUNT. The shares of such class of Common Stock shall be designated as "Class A Common Stock" and the number of shares constituting such class shall be 2,177,368. SECTION 2. ALL OTHER RIGHTS. Other than with respect to voting and conversion as set forth in Sections 3 and 4 below, the Class A Common Stock shall in all respects be equal and have the same rights as the Common Stock of the Corporation. SECTION 3. VOTING RIGHTS. Except as otherwise required by law, each outstanding share of Class A Common Stock shall not be entitled to vote on any matter on which the shareholders of the Corporation shall be entitled to vote and shares of Class A Common Stock shall not be included in determining the number of shares voting or entitled to vote on any such matter, provided that, notwithstanding the foregoing, holders of shares of Class A Common Stock shall be entitled to vote as a separate class on any amendment to the Certificate of Designation of Stock establishing such class and on any amendment, repeal or modification of any provision of the Articles of Incorporation of the Corporation that adversely affects the powers, preferences or special rights of holders of Class A Common Stock. Upon a conversion to Common Stock in accordance with Section 4 below, the holders of Class A Common Stock shall have full voting rights with respect to the shares of Common Stock issued by virtue of the conversion. SECTION 4. CONVERSION. (a) Conversion Rights. Subject to the provisions of this Section 4, each holder of Class A Common Stock shall be entitled to convert, at any time and from time to time, at its option, any or all of the shares of Class A Common Stock held by such holder into an equivalent number of shares of voting Common Stock, provided that if pursuant to any federal law, rule, regulation or regulatory policy such conversion would cause the broadcast or other media interests of the holder to be attributed to the Corporation, or the broadcast or other media interest of the Corporation to be attributed to the holder and, as a result of the attribution of such broadcast or other media interests, (i) the holder would be foreclosed from the ownership of voting securities of the Corporation, or (ii) the Corporation would be foreclosed from the ownership of its broadcast or media interests or from the acquisition of any additional broadcast or media interests, the Class A Common Stock shall not be convertible, except in such amount as would not cause such broadcast or media interests to be so attributable. (b) Conversion Procedure. Each conversion of shares of Class A Common Stock into shares of Common Stock shall be effected by the surrender of the certificate or certificates representing the shares to be converted (the "Converting Shares") at the principal office of the Corporation (or such other office or agency of the Corporation as the Corporation may designate by written notice to the holders of Class A Common Stock) at any time during its usual business hours, together with written notice by the holder of such Converting Shares, stating that such holder desires to convert the Converting Shares, or a stated number of the shares represented by such certificate or certificates, into an equal number of shares of Common Stock (the "Converted Shares"). Such notice shall also state the name or names (with addresses) and denominations in which the certificate or certificates for Converted Shares are to be issued and shall include instructions for the delivery thereof. Promptly after such surrender and the receipt of such written notice, the Corporation will issue and deliver in accordance with the surrendering holder's instructions the certificate or certificates evidencing the Converted Shares issuable upon such conversion, and the Corporation will deliver to the converting holder a certificate (which shall contain such legends as were set forth on the surrendered certificate or certificates) representing any shares which were represented by the certificate or certificates that were delivered to the Corporation in connection with such conversion, but which were not converted; provided, however, that the Corporation shall issue shares to persons other than those indicated on the certificate or certificates representing the Converting Shares only in compliance with the Securities Act of 1933, as amended, and any other applicable state or federal securities law. Such conversion, to the extent permitted by law, shall be deemed to have been effected as of the close of business on the date on which such certificate or certificates shall have been surrendered and such notice shall have been received by the Corporation, and at such time the rights of the holder of the Converting Shares as such holder shall cease and the person or persons in whose name or names the certificate or certificates for the Converted Shares are to be issued upon such conversion shall be deemed to have become the holder or holders or record of the Converted Shares. (c) Reservation of Shares. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock or its treasury shares, solely for the purpose of issuance upon the conversion of shares of Class A Common Stock, such number of shares of Common Stock as are then issuable upon the conversion of all outstanding shares of Class A Common Stock. FURTHER RESOLVED, that the President and the Secretary of the Corporation are authorized and directed to take such further action as shall be necessary or required to carry into effect the intent of the foregoing resolution and they, or any of them, are authorized and directed to file a certificate of designation pursuant to Section 302A.401, Subd. 3 of the Minnesota Business Corporation Act with the Minnesota Secretary of State. IN WITNESS WHEREOF, Children's Broadcasting Corporation has caused this Certificate of Designation to be signed by Lance W. Riley, its Secretary, this 27th day of February, 1996. CHILDREN'S BROADCASTING CORPORATION /s/ Lance W. Riley ----------------------------------- LANCE W. RILEY, SECRETARY ARTICLES OF MERGER These Articles of Merger (the "Articles") are entered into this 14th day of January, 1997, between Children's Broadcasting Corporation, a Minnesota corporation ("CBC"), and Children's Radio Group, Inc., a Minnesota corporation ("CRG"). CBC and CRG hereby agree that on the Effective Date (as defined below), CBC and CRG shall merge into a single corporation on the following terms and conditions: R E C I T A L S: A. The Boards of Directors of CBC and CRG, and all of the shareholders of CRG (the "Shareholder's), have approved the merger (the "Merger") of CRG into CBC, upon the terms and subject to the conditions set forth in that certain Agreement and Plan of Merger (the "Plan") entered into as of January 14, 1997, between CBC and CRG, a copy of which Plan is attached hereto as Exhibit A. ARTICLE 1 MERGER On the Effective Date, CRG shall be merged with and into CBC (the "Merger"), and CBC shall be the surviving corporation (hereinafter called the "Surviving Corporation"). Upon the effectiveness of the Merger, the separate corporate existence of CRG shall cease, and the Surviving Corporation shall succeed, without other transfer, to all of the rights and properties of CRG and shall be subject to all the debts and liabilities of CRG in the same manner as if the Surviving Corporation had itself incurred them; and shall continue to be vested with all the rights and property of CBC and be subject to all the debts and liabilities of CBC. ARTICLE 2 EFFECTIVE DATE The Merger provided for in the Articles shall become effective on the filing by and in the office of the Secretary of State of the State of Minnesota of an executed copy of these Articles. The date and time of such filing is referred to in the Articles as the "Effective Date." ARTICLE 3 ARTICLES OF INCORPORATION; BYLAWS 3.1 ARTICLES OF INCORPORATION. Upon the effectiveness of the Merger, the Articles of Incorporation of CBC shall be the Articles of Incorporation of the Surviving Corporation, and thereafter may be amended in accordance with its terms and as provided by law. 3.2 BYLAWS. The Bylaws of CBC as in effect on the Effective Date of the Merger shall be the Bylaws of the Surviving Corporation until amended or repealed as provided therein. ARTICLE 4 CANCELLATION OF CRC SHARES Upon the effectiveness of the Merger, each share of CRG's Common Stock issued and outstanding immediately prior to the Effective Time of the Merger shall, by virtue of the Merger and without any action on the part of the holder thereof, be canceled. The Common Stock of CRG so canceled shall cease to exist as such. No shares of CBC shall be issued in respect thereto. ARTICLE 5 APPROVAL OF PLAN The Plan has been approved by CBC and CRG pursuant to Chapter 302A of Minnesota statutes. ARTICLE 6 OUTSTANDING SHARES The outstanding shares of the Surviving Corporation shall remain outstanding and are not affected by the Merger. ARTICLE 7 CHOICE OF LAW The validity, interpretation, and performance of these Articles shall be controlled by and construed under the internal laws of the State of Minnesota. ARTICLE 8 COUNTERPARTS These Articles may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, each of the parties has caused these Articles to be executed on its behalf by its duly authorized officers, all as of the day and year first above written, and caused its corporate seal to be affixed hereto. SURVIVOR: CHILDREN'S BROADCASTING CORPORATION Attest: /s/ Lance W. Riley By: /s/ Christopher T. Dahl - ------------------------------ -------------------------------- Lance W. Riley, Secretary Its: CEO ------------------------------ NON-SURVIVOR: CHILDREN'S RADIO GROUP, INC. Attest: /s/ Lance W. Riley By: /s/ Christopher T. Dahl - ------------------------------ -------------------------------- Lance W. Riley, Secretary Its: CEO ------------------------------ AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated as of this 14th day of January, 1997, by and between Children's Broadcasting Corporation, a Minnesota corporation ("CBC"), and Children's Radio Group, Inc., a Minnesota corporation ("CRG"). WHEREAS, CBC and CRG desire that CRG merge with and into CBC, and that CBC shall continue as the surviving corporation of such merger, upon the terms and subject to the conditions set forth herein and in accordance with Section 302A.601 of the Minnesota Business Corporation Act (the "MBCA"). WHEREAS, the respective Boards of Directors have approved this Agreement. NOW, THEREFORE, in consideration of the mutual agreements and covenants set forth herein, the parties hereto agree to merge as follows: ARTICLE 1 MERGER 1.1 MERGER. Subject to the terms and conditions of this Agreement, CRG shall be merged with and into CBC (the "Merger") in accordance with Section 302A.601 of the MBCA, and the separate existence of CRG shall cease and CBC shall be the surviving corporation and continue its corporate existence under the laws of the State of Minnesota. 1.2 EFFECT OF THE MERGER. At the Effective Time of the Merger (as hereinafter defined), CBC shall possess and succeed all the rights, privileges, immunities and franchises, of a public as well as of a private nature, of CRG; all property, real, personal and mixed, and all debts due on any account, including subscriptions for shares, and all other chooses in action, and every other interest of or belonging to or due to each of CRG shall vest in CBC without any further act or deed; the title to any real estate or any interest therein vested in CRG shall revert to CBC by reason of the Merger; CBC shall be responsible and liable for all the liabilities and obligations of CRG the CBC; a claim of or against or a pending proceeding by or against CRG may be prosecuted as if the Merger had not taken place, or CBC may be substituted in the place of CRG; and neither the rights of creditors nor any liens upon the property of CRG or CBC shall be impaired by the Merger. 1.3 EFFECTIVE TIME OF THE MERGER. The Merger shall become effective as of the date and time (the "Effective Time of the Merger") the Articles of Merger of CRG and CBC are filed with the Minnesota Secretary of State. ARTICLE 2 NAME, ARTICLES OF INCORPORATION, BYLAWS, DIRECTORS AND OFFICERS OF CBC 2.1 NAME OF SURVIVING CORPORATION. The name of the surviving corporation shall be "Children's Broadcasting Corporation." 2.2 ARTICLES OF INCORPORATION. The Articles of Incorporation of CBC shall be the articles of incorporation of the surviving corporation from and after the Effective Time of the Merger until amended thereafter as provided therein or by law. 2.3 BYLAWS. The Bylaws of CBC shall be the Bylaws of the surviving corporation from and after the Effective Time of the Merger until amended thereafter as provided therein or by law. 2.4 DIRECTORS AND OFFICERS. The directors and officers of CBC at the Effective Time of the Merger shall be the directors and officers, respectively, of the surviving corporation from and after the Effective Time of the Merger and shall hold office in accordance with the Articles of Incorporation and Bylaws of CBC. ARTICLE 3 CANCELLATION OF CRG SHARES 3.1 CANCELLATION OF ALL CRG SHARES. At the Effective Time of the Merger, each share of CRG's Common Stock issued and outstanding immediately prior to the Effective Time of the Merger shall, by virtue of the Merger and without any action on the part of the holder thereof, be canceled. The Common Stock of CRG so canceled shall cease to exist as such. No shares of CBC stock shall be issued in respect thereto. ARTICLE 4 GENERAL 4.1 TERMINATION AND ABANDONMENT. This Agreement may be terminated and the Merger and other transactions herein provided for abandoned at any time prior to the Effective Time of the Merger if the board of directors of CBC or CRG determine that the consummation of the transactions provided for herein would not, for any reason, be in the best interests of such corporations and their respective shareholders. 4.2 AMENDMENT. This Agreement may be amended at any time prior to the Effective Time of the Merger with the mutual consent of the Boards of Directors of CRG and CBC. 4.3 DEFERRAL. Consummation of the transactions herein provided for may be deferred by the Board of Directors of CRG and CBC, or any authorized officer thereof for a reasonable period of time if the Board of Directors of either corporation determines that such deferral would be in the best interests of CRG, CBC or their respective shareholders. 4.4 HEADINGS. The headings set forth herein are inserted for convenience or reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement. 4.5 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, and all of which, when taken together, shall constitute one and the same instrument. 4.6 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota without giving effect to the principles of conflicts of law thereof. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed on its behalf and attested by its officers hereunto duly authorized, all as of the day and year first above written. CHILDREN'S BROADCASTING CORPORATION Attest: /s/ Lance W. Riley By: /s/ Christopher T. Dahl - ------------------------------ -------------------------------- Lance W. Riley, Secretary Its: CEO ------------------------------ CHILDREN'S RADIO GROUP, INC. Attest: /s/ Lance W. Riley By: /s/ Christopher T. Dahl - ------------------------------ -------------------------------- Lance W. Riley, Secretary Its: CEO ------------------------------ CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS OF SERIES B CONVERTIBLE PREFERRED STOCK OF CHILDREN'S BROADCASTING CORPORATION I, the undersigned, Christopher T. Dahl, the President, Chief Executive Officer and Chairman of Children's Broadcasting Corporation, a Minnesota corporation subject to the Minnesota Business Corporation Act, do hereby certify that the Board of Directors of said corporation, by action duly taken in writing on June 25, 1998, did adopt the following resolution: RESOLVED that, pursuant to authority expressly granted to the Board of Directors of the Corporation by the provisions of the Articles of Incorporation of the Corporation, the Board of Directors of the Corporation hereby creates and authorizes the issuance of a series of shares of preferred stock of the Corporation (such series being hereinafter called "this Series" or the "Preferred Stock") and hereby fixes, in addition to the relative rights, voting power, preferences and restrictions stated in the Articles of Incorporation of the Corporation, the following designation and number of shares of this Series and the following voting, dividend rate, liquidation preference, redemption, conversion right and other rights, preferences and restrictions with respect to the Preferred Stock: (A) Designation: Number of Shares: Stated Value. Six Hundred Six Thousand Sixty-One (606,061) shares of Preferred Stock, shall be designated Series B Convertible Preferred Stock. The shares of this Series have a stated value of $3.30 per share (the "Stated Value"). (B) Voting. The shares of this Series shall be nonvoting. (C) Dividends. The shares of this Series shall not be entitled to dividends. (D) Other Terms of the Preferred Stock. (a) Liquidation Preference. In the event of an involuntary or voluntary liquidation or dissolution of the Corporation at any time, the holders of shares of Preferred Stock shall be entitled to receive out of the assets of the Corporation an amount equal to the Stated Value for each share of this Series (appropriately adjusted to reflect stock splits, stock dividends, reorganizations, consolidations and similar changes hereafter effected), plus dividends unpaid and accrued thereon, if any. In the event of either an involuntary or a voluntary liquidation or dissolution of the Corporation payment shall be made to the holders of shares of this Series in the amounts herein fixed before any payment shall be made or any assets distributed to the holders of the Common Stock or any other class of shares of the Corporation ranking junior to this Series with respect to payment upon dissolution or liquidation of the Corporation. If upon any liquidation or dissolution of the Corporation the assets available for distribution shall be insufficient to pay the holders of all outstanding shares of this Series the full amounts to which they respectively shall be entitled, the holders of such shares shall share pro rata in any such distribution. After payment has been made to the holders of this Series in the amounts to which they are entitled as aforesaid and to the holders of any other class or series of stock having a preference upon liquidation, in the amounts to which they are entitled as set forth in the Articles of Incorporation of the Corporation, the holders of the Preferred Stock and the Common Stock shall be entitled to receive ratably on a per share basis (based upon the number of shares of Common Stock into which each share of Preferred Stock may be then convertible) all the remaining assets of the Corporation. At any time, in the event of the merger or consolidation of the Corporation into or with another corporation or the merger or consolidation of any other corporation into or with the Corporation or a plan of exchange between the Corporation and any other corporation (in which consolidation or merger or plan of exchange any shareholders of the Corporation receive distributions of cash or securities or other property), or the sale, transfer or other disposition of all or substantially all of the assets of the Corporation, and if the shareholders of the Corporation immediately prior to such transaction hold less than a majority of the outstanding voting securities of the surviving corporation immediately following consummation of such transaction, then, subject to the provisions of this paragraph, such transaction shall be deemed, solely for purposes of determining the amounts to be received by the holders of the Preferred Stock in such merger, consolidation, plan of exchange, sale, transfer or other disposition, and for purposes of determining the priority of receipt of such amounts as among the holders of the Preferred Stock and the holders of the Common Stock, to be a liquidation or dissolution of the Corporation if the holders of a majority of the outstanding shares of Preferred Stock so elect by giving written notice thereof to the Corporation at least two days before the effective date of such transaction. If no such notice is given, the provisions of subparagraph (c)(6) below hereof shall apply. The Corporation shall give each holder of record of Preferred Stock written notice of such impending transaction not later than 14 days prior to the shareholder's meeting of the Corporation called to approve such transaction, or 14 days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the transaction and of this subparagraph (a) (including, without limiting the generality of the foregoing, a description of the value of the consideration, if any, being offered to the holders of the Preferred Stock in the transaction and the amount to which such holders would be entitled if such transaction were (as described above) to be deemed to be a liquidation or dissolution of the Corporation), and the Corporation shall thereafter give such holders prompt notice of any material changes to such terms and conditions. The transaction shall in no event take place sooner than 14 days after the mailing by the Corporation of the first notice provided for herein or sooner than ten days after the mailing by the Corporation of any notice of material changes provided for herein; provided, however, that such periods may be reduced upon the written consent of the holders of a majority of the Preferred Stock, voting together as a single class. Nothing hereinabove set forth shall affect in any way the right of each holder of shares of Preferred Stock to convert such shares in accordance with subparagraph (c) below. (b) Redemption. (1) At any time on or before the date which is 60 days following the closing of the transaction contemplated by that certain purchase agreement between the Corporation and Catholic Radio Network, LLC, dated April 17, 1998, but in no event earlier than three business days after such closing, if the holders of at least Twenty-Five Percent (25%) of the outstanding unconverted shares of this Series so elect by giving written notice thereof to the Corporation, the Corporation shall, to the extent that funds are legally available therefor, redeem all of the outstanding unconverted shares of this Series by payment in cash of the sum equal to One Hundred Twenty-Two and One Half Percent (122.5%) of the Stated Value for each outstanding unconverted share of this Series (appropriately adjusted to reflect stock splits, stock dividends, reorganizations, consolidations and similar changes hereafter effected). If at the time of any required redemption the funds legally available for such redemption shall be insufficient to redeem the number of shares of this Series specified in the immediately preceding sentence, redemptions shall be made as among the holders of such shares of this Series on a pro rata basis to the extent funds are then legally available for such redemptions. Thereafter, as and to the extent legally available funds for the redemption thereof exist from time to time, the Corporation shall redeem additional shares of this Series, pro rata as among the holders thereof until all shares of this Series required by this subparagraph (b)(1) to be redeemed have been redeemed. In the event of a redemption of less than all of the outstanding shares of Preferred Stock pursuant to this subparagraph (b)(1), redemptions as among the holders of such shares of Preferred Stock shall be on a pro rata basis. (2) If the Corporation so elects by giving written notice thereof to the holders of the outstanding unconverted shares of this Series, the Corporation may at anytime, to the extent that funds are legally available therefor, redeem all or any part of the outstanding unconverted shares of this Series, upon payment in cash of the sum equal to One Hundred Twenty-Two and One HalfPercent (122.5%) ofthe Stated Value for each outstanding unconverted share of this Series (appropriately adjusted to reflect stock splits, stock dividends, reorganizations, consolidations and similar changes hereafter effected). (3) The Corporation shall give notice by mail of redemptions to the holders of record of the shares of this Series at least 30 days prior to the date of redemption. The notice (i) shall specify the date of redemption, the number of shares to be redeemed from each shareholder and the redemption price, and (ii) shall be addressed to each shareholder at his address as shown on the records of the Corporation. On or after the date fixed for redemption, each holder of shares of this Series called for redemption shall surrender the certificate or certificates evidencing such shares to the Corporation at the place designated in such notice and shall thereupon be entitled to receive payment. If less than all of the shares represented by any such surrendered certificate or certificates are redeemed, the Corporation shall issue a new certificate for the unredeemed shares. If the Corporation deposits, on or prior to any date fixed for redemption of shares of this Series, with any bank or trust company having capital and surplus of at least $10,000,000, as a trust fund, a sufficient sum to redeem, on the date fixed for redemption thereof the shares then called for redemption, with instructions and authority to such bank or trust company to pay the redemption price on or after the date fixed for redemption or prior thereto upon the surrender of the certificates representing the shares then being redeemed, then and from and after the date of such deposit, and notwithstanding that any certificate for shares so called for redemption shall not have been surrendered for cancellation, the shares so called for redemption shall no longer be deemed to be outstanding and all rights with respect thereto shall forthwith cease and terminate, except only the right of the holders thereof to receive from such bank or trust company, at any time after the date of such deposit, the sum so deposited, without interest, and the right to convert such shares as provided in subparagraph (c) below. Any funds so deposited and unclaimed at the end of four years from such redemption date shall be released or repaid to the Corporation, after which the holders of the shares so called for redemption shall be entitled to receive payment of the redemption price only from the Corporation. (c) Conversion Right. At the option of the holders thereof at any time after the date 120 days following the Initial Closing Date, the shares of this Series shall, subject to subparagraph (c)(l), be convertible, into fully paid and nonassessable shares (calculated as to each conversion to the nearest 1/100th of a share) of Common Stock of the Corporation, at the conversion price determined as hereinafter provided, in effect at the time of conversion, each share of this Series being deemed to have the Stated Value for the purpose of such conversion. The number of shares of Common Stock to be delivered upon conversion of a share of this Series shall be the Stated Value, divided by the lesser of(x) One Hundred Ten (110%) of the average best bid price of the Common Stock for the five (5) consecutive trading days ending on the day preceding the Conversion Date (the "Fixed Strike Price"), or (y) Ninety-Four Percent (94%) of the average of the three lowest closing prices of the Common Stock during the 60 calendar day period ending on the day preceding the Conversion Date (herein called the "conversion price"), provided however, that such initial conversion price shall be subject to adjustment from time to time in certain instances as hereinafter provided. The number of shares so issuable upon conversion shall be multiplied by the number of shares of this Series to be converted, and the product thereof shall be delivered to the holder. Notwithstanding the foregoing, if the Common Stock is not traded on the New York Stock Exchange, the American Stock Exchange, the Nasdaq National Market or the Nasdaq SmallCap Market on the Conversion Date, then the percentage specified in clause (y) above shall be Eighty-Four Percent (84%). (1) The Preferred Stock may be converted, at the option of the holder, in accordance with the following schedule: Number of Days Percentage of Original Elapsed Following Issuance Preferred Stock Convertible -------------------------- --------------------------- 120 20% 150 40% 180 60% 210 80% 240 100% In the case of the call for redemption of any shares of this Series, such right of conversion shall cease and terminate as to the shares designated for redemption on the day such shares are actually redeemed by the Corporation; provided, however, that the holder may, upon giving a Conversion Notice to the Company within ten (10) business days after receipt of the Company's notice of redemption, convert such number of shares of this Series as such holder would have been entitled to convert had such notice of redemption not been given by the Company. In the event that any shares of this Series have not been redeemed or converted into Common Stock on or before June 15, 2002, such shares shall automatically be converted in accordance with the provisions of subparagraph (c)(2). (2) In order to convert shares of this Series, the holder thereof shall (j) surrender at the office of the Corporation the certificate or certificates therefor, duly endorsed (signature guaranteed) to the Corporation or in blank, and give written notice (the "Conversion Notice") to the Corporation at such office that such holder elects to convert such shares or (ii) telecopy prior to 5:00 p.m. (Minneapolis time) to the office of the Corporation the Conversion Notice and deliver within three (3) business days thereafter the original Conversion Notice by express courier, together with the certificate or certificates for the Preferred Stock duly endorsed (signature guaranteed) to the Corporation or in blank. The Conversion Notice shall specify the number of shares of this series to be converted. Shares of this Series shall be deemed to have been converted immediately prior to the close of business on the day (which must be a business day) of the surrender of such shares for conversion as herein provided (the "Conversion Date"), and the person entitled to receive the shares of Common Stock of the Corporation issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock at such time. As promptly as practicable on or after the Conversion Date, the Corporation shall issue and deliver or cause to be issued and delivered at such office a certificate or certificates for the number of shares of Common Stock of the Corporation issuable upon such conversion. (3) The conversion price shall be subject to adjustment from time to time as hereinafter provided. Upon each adjustment of the conversion price each holder of shares of this Series shall thereafter be entitled to receive the number of shares of Common Stock of the Corporation obtained by multiplying the conversion price in effect immediately prior to such adjustment by the number of shares issuable pursuant to conversion immediately prior to such adjustment and dividing the product thereof by the conversion price resulting from such adjustment. (4) In case the Corporation shall (j) declare a dividend upon the Common Stock payable in Common Stock (other than a dividend declared to effect a subdivision of the outstanding shares of Common Stock, as described in subparagraph (c)(5)) or convertible securities, or distribute to the holders of its Common Stock any rights or options to purchase Common Stock or convertible securities, or (ii) declare any other dividend or make any other distribution upon the Common Stock payable otherwise than out of earnings or earned surplus, then thereafter each holder of shares of this Series upon the conversion thereof will be entitled to receive the number of shares of Common Stock into which such shares of this Series have been converted, and, in addition and without payment therefor, each dividend described in clause (i) above and each dividend or distribution described in clause (ii) above which such holder would have received by way of dividends or distributions if continuously since such holder became the record holder of such shares of this Series such holder (j) had been the record holder of the number of shares of Common Stock then received, and (ii) had retained all dividends or distributions in stock or securities (including Common Stock or convertible securities, and any rights or options to purchase any Common Stock or convertible securities) payable in respect of such Common Stock or in respect of any stock or securities paid as dividends or distributions and originating directly or indirectly from such Common Stock. For the purposes of the foregoing a dividend or distribution other than in cash shall be considered payable out of earnings or earned surplus only to the extent that such earnings or earned surplus are charged an amount equal to the fair value of such dividend or distribution as determined by the Board of Directors of the Corporation. (5) In case the Corporation shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the conversion price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Common Stock of the Corporation shall be combined into a smaller number of shares, the conversion price in effect immediately prior to such combination shall be proportionately increased. (6) If any capital reorganization or reclassification of the capital stock of the Corporation, or consolidation or merger of the Corporation with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, and subject to subparagraph (a) above, lawful and adequate provision shall be made whereby the holders of this Series shall thereafter have the right to receive upon the basis and upon the terms and conditions specified herein and in lieu of the shares of the Common Stock of the Corporation immediately theretofore receivable upon the conversion of this Series, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore receivable upon the conversion of this Series had such reorganization, reclassification, consolidation, merger or sale not taken place, plus all dividends unpaid and accumulated or accrued thereon to the date of such reorganization, reclassification, consolidation, merger or sale, and in any such case appropriate provision shall be made with respect to the rights and interests of the holders of this Series to the end that the provisions hereof (including without limitation provisions for adjustments of the conversion price and of the number of shares receivable upon the conversion of this Series) shall thereafter be applicable, as nearly as may be in relation to any shares of stock, securities or assets thereafter receivable upon the conversion of this Series. The Corporation shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof the successor corporation (if other than the Corporation) resulting from such consolidation or merger or the corporation purchasing such assets shall assume by written instrument executed and majied to the registered holders of this Series, at the last addresses of such holders appearing on the books of the Corporation, the obligation to deliver to such holders such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holders may be entitled to receive. (7) Upon any adjustment of the conversion price, then and in each case the Corporation shall give written notice thereof by first-class mail, postage prepaid, addressed to the registered holders of this Series, at the addresses of such holders as shown on the books of the Corporation, which notice shall state the conversion price resulting from such adjustment and the increase or decrease, if any, in the number of shares receivable at such price upon the conversion of this Series, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. (8) In case at any time: (i) the Corporation shall declare any cash dividend on its Common Stock at a rate in excess of the rate of the last cash dividend theretofore paid; (ii) the Corporation shall pay any dividend payable in stock upon its Common Stock or make any distribution (other than regular cash dividends) to the holders of its Common Stock; (iii) the Corporation shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights; (iv) there shall be any capital reorganization, or reclassification of the capital stock of the Corporation, or consolidation or merger of the Corporation with, or sale of all or substantially all of its assets to, another corporation; or (v) There shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation; then, in any one or more of said cases, the Corporation shall give written notice, by first-class mail, postage prepaid, addressed to the registered holders of Preferred Stock at the addresses of such holders as shown on the books of the Corporation, of the date on which (a) the books of the Corporation shall close or a record shall be taken for such dividend, distribution or subscription rights, or (b) such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up shall take place, as the case may be. Such notice shall also spevify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding up, as the case may be. Such written notice shall be given at least 20 days prior to the action in question and not less than 20 days prior to the record date or the date on which the Corporation's transfer books are closed in respect thereto. (9) If any event ovcurs as to whjvh jn the opinion of the Board of Directors of the Corporation the other provisions of this subparagraph (c) are not strictly applicable or if strictly applicable would not fairly protect the rights of the holders of Preferred Stock in accordance with the essential intent and principles of such provisions, then the Board of Directors shall make an adjustment in the application of such provisions, in accordance with such essential intent and principles, so as to protect such rights as aforesaid. (10) As used in this subparagraph (c) the term "Common Stock" shall mean and include the Corporation's presently authorized Common Stock and shall also include any capital stock of any class of the Corporation hereafter authorized which shall not be limited to a fixed sum or percentage in respect of the rights of the holders thereof to participate in dividends or in the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation; provided that the shares receivable pursuant to conversion of shares of this Series shall include shares designated as Common Stock of the Corporation as of the date of issuance of such shares of this Series, or, in case of any reclassification of the outstanding shares thereof the stock, securities or assets provided for in subparagraph (c)(6) above. (11) No fractional shares of Common Stock shall be issued upon conversion, but, instead of any fraction of a share which would otherwise be issuable, the Corporation shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the market price per share of Common Stock as of the close of business on the day of conversion. "Market price" shall mean if the Common Stock is traded on a securities exchange or on the Nasdaq National Market, the closing price of the Common Stock on such exchange or the Nasdaq National Market, or, if the Common Stock is otherwise traded in the over-the-counter market, the best bid price, in each case averaged over a period of 20 consecutive trading days ending on the date preceding the day as of which omarket priceo is being determined. If at any time the Common Stock is not traded on an exchange or the Nasdaq National Market, or otherwise traded in the over-the-counter market, the "market price" shall be deemed to be the higher of (i) the book value thereof as determined by any firm of independent public accountants of recognized standing selected by the Board of Directors of the Corporation as of the last day of any month ending within 60 days preceding the date as of which the determination is to be made, or (ii) the fair value thereof determined in good faith by the Board of Directors of the Corporation as of a date which is within 15 days of the date as of which the determination is to be made. (12) The Corporation will take all steps necessary to be in a position to issue shares of Common Stock on conversion of the Preferred Stock without violating Nasdaq Rule 4310(v)(25)(H)(i)(d)(2) (the "Cap Regulations"). If despite taking such steps, the Corporation still cannot issue such shares of Common Stock without violating the Cap Regulations, the holder of Preferred Stovk which cannot be converted as a result of the Cap Regulations (each suvh share, an "Unconverted Share") shall have the option, exercisable in such holder's sole and absolute discretion, to elevt either of the following remedies: (i) require the Corporation to issue shares of Common Stock in accordance with such holder's notice of conversion at a conversion purchase price equal to the average of the best bid price of a share of Common Stock for the five (5) consecutive trading days (subject to certain equitable adjustments for certain events occurring during each period) ending on the day preceding the date of notice of conversion or exercise; or (ii) require the Corporation to redeem each Unconverted Share for an amount in cash equal to One Hundred Fifteen Pervent (115%) of the Fixed Strike Price of an Unconverted Share. IN WITNESS WHEREOF, I have subscribed my name hereto this 25th day of June, 1998. /s/ Christopher T. Dahl ---------------------------------------------------- Christopher T. Dahl President, Chief Executive Officer and Chairman State of Minnesota Office of the Secretary of State See instructions on reverse side for completing this form. NOTICE OF CHANGE OF REGISTERED OFFICE - REGISTERED AGENT OR BOTH BY - -------------------------------------------------------------------------------- NAME OF CORPORATION CHILDREN'S BROADCASTING CORPORATION - -------------------------------------------------------------------------------- Pursuant to Minnesota Statutes, Section 302A.123, 303.10, or 317.19 the undersigned hereby certifies that the Board of Directors of the above named Corporation has resolved to change the corporation's registered office or agent: - -------------------------------------------------------------------------------- Agent's (Fill in this box only if you already have an agent. Do not Name list the corporate name in this box.) F R O M Address 215 South Eleventh Street (No. & Street) City County MN Zip Minneapolis, Hennepin 55403 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Agent's (Fill in this box only if you already have an agent. Do not Name list the corporate name in this box.) T O (You may not list a P.O. Box, but you may list a rural route and box number.) Address 5501 Excelsior Boulevard (No. & Street) City County MN Zip Saint Louis Park Hennepin 55416 - -------------------------------------------------------------------------------- The new address may not be a post office box. It must be a street address, pursuant to Minnesota Statutes, Section 302A.011, Subd. 3 This change is effective on the day it is filed with the Secretary of State, unless you indicate another date, no later than 30 days after filing with the Secretary of State, in this box: ------------------------- ------------------------- I certify that I am authorized to execute this certificate and I further certify that I understand that by signing this certificate I am subject to the penalties of perjury as set forth in section 609.48 as if I had signed this certificate under oath. - -------------------------------------------------------------------------------- Name of Officer or Other Authorized Signature Agent of Corporation Christopher T. Dahl /s/ Christopher T. Dahl - -------------------------------------------------------------------------------- Title or Office President - -------------------------------------------------------------------------------- Do not write below this line. For Secretary of State's use only - -------------------------------------------------------------------------------- Receipt Number File Data - -------------------------------------------------------------------------------- EX-10.4 4 ASSET PURCHASE AGREEMENT EXHIBIT 10.4 ASSET PURCHASE AGREEMENT THIS AGREEMENT, dated as of October 26, 1998, is made between and among CHILDREN'S BROADCASTING CORPORATION (referred to herein as "CBC"), CHILDREN'S RADIO OF DALLAS, INC., a Minnesota corporation ("CR Dallas"), CHILDREN'S RADIO OF PHOENIX, INC., a Minnesota corporation ("CR Phoenix"), and CHILDREN'S RADIO OF NEW YORK, INC., a New Jersey corporation ("CR New York") (CR Dallas, CR Phoenix and CR New York are sometimes collectively referred to herein as the "Asset Subsidiaries"); KAHZ-AM, INC., a Minnesota corporation ("KAHZ-AM"), KIDR-AM, INC., a Minnesota corporation ("KIDR-AM"), and WJDM-AM, INC., ("WJDM-AM"), a Minnesota corporation (KAHZ-AM, KIDR-AM and WJDM-AM are sometimes collectively referred to herein as the "License Subsidiaries"; the Asset Subsidiaries and the License Subsidiaries are sometimes collectively referred to herein as the "Subsidiaries"; and CBC and the Subsidiaries are sometimes collectively referred to herein as the "Sellers"); and RADIO UNICA CORP., a Delaware corporation (the "Buyer"); and W I T N E S S E T H : THAT, WHEREAS, CBC is the owner and holder of 100% of the issued and outstanding stock of the Asset Subsidiaries; and WHEREAS, each of the Asset Subsidiaries is the owner of all the assets of the radio station indicated below licensed to the community listed below (collectively referred to herein as the "Stations"), except for the Federal Communications Commission (the "FCC" or the "Commission") licenses, permits or authorizations issued with respect to the Stations, and are the owners and holders of 100% of the issued and outstanding stock of the License Subsidiary designated by the respective Station's call letters: CR Dallas KAHZ(AM) Fort Worth, Texas 1360 kHz CR Phoenix KIDR(AM) Phoenix, Arizona 740 kHz CR New York WJDM(AM) Elizabeth, New Jersey 1530 kHz CR New York WBAH(AM) Elizabeth, New Jersey 1660 kHz WHEREAS, the License Subsidiaries are the FCC licensees and/or permittees of the Stations indicated above; and WHEREAS, Sellers have previously entered into a purchase agreement with Catholic Radio Network, LLC ("CRN"), dated April 17, 1998, as amended (the "CRN Agreement") and the parties are desirous of entering into this agreement subject to the rights of CRN and CBC to close upon the CRN Agreement; and WHEREAS, subject to and conditioned upon the consent of the FCC, the termination of CRN's right to acquire the Stations under the CRN Agreement or amendment of the CRN Agreement to exclude the Stations and the other conditions set forth herein, the Sellers desire to sell and transfer and Buyer desires to purchase and acquire the Stations and certain of the tangible and intangible assets of the Sellers used or held for use in connection with the operation of the Stations, 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 2 Buyer acknowledges that Sellers have entered into the CRN Agreement. Buyer further acknowledges that the CRN Agreement is in full force and effect as of the date of execution hereof, and that the First Amendment to the CRN Agreement provides, among other things that the transaction will close on October 16, 1998, subject to CRN's right to extend the closing date until October 30, 1998, upon payment of a fee to Sellers no later than October 19, 1998 (the "First Extension Fee") and October 26, 1998 (the "Second Extension Fee"). Accordingly, Buyer acknowledges that Sellers' obligations under this Agreement are subject to Sellers' and CRN's rights and obligations under the CRN Agreement. Sellers agree that if at the close of business on October 19, 1998, all of the conditions to CRN's obligations to close under the CRN Agreement have been satisfied and CRN has not paid to Sellers the First Extension Fee, Sellers will immediately terminate the CRN Agreement. Further, Sellers agree that if at the close of business on October 26, 1998, all of the conditions to CRN's obligations to close under the CRN Agreement have been satisfied and CRN has not paid to Sellers the Second Extension Fee, Sellers will immediately terminate the CRN Agreement. Further, Sellers agree that if CRN has paid the First Extension Fee and the Second Extension Fee, and all of the conditions to CRN's obligations to close have been fulfilled, Sellers will grant no further extensions of the closing date under the CRN Agreement beyond November 5, 1998, and will terminate the CRN Agreement if all the conditions to CRN's obligations to close have been fulfilled. 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 for Excluded Assets (as defined below), and except as otherwise expressly provided herein, all the assets of the Sellers described below, including the business and goodwill, used or held for use in connection with the operation of the Stations and including all replacements and additions thereto between October 8, 1998, and the Closing Date (as hereinafter defined) (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 Stations, 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 Stations including that described in Schedule B attached hereto; 1.3. All tangible personal property owned by the Sellers used or held for use in the operation of the Stations including but not limited to the property listed on Schedule C attached hereto, and any 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 3 of business between October 8, 1998 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 Stations, 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 Stations (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 Stations, including all additions thereto, listed on Schedule E attached hereto ("General Intangibles"); 1.7. All of the Subsidiaries' magnetic media, electronic data processing files, systems and computer programs, logs, public files, records required by the FCC, vendor contracts, supplies, maintenance records or similar business records relating to or used in connection with the operation of the Stations, 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" means cash on hand, accounts receivable and the office lease with Lincoln Building Associates. 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 Twenty-Nine Million Two Hundred Fifty Thousand and no/100 Dollars ($29,250,000.00), subject to adjustment as provided herein (the "Purchase Price"). 2.2. METHOD OF PAYMENT OF PURCHASE PRICE. The Purchase Price shall be payable as follows: 2.2.1. ESCROW DEPOSIT. Contemporaneously with the earlier of (i) the termination of the CRN Agreement or (ii) the termination of CRN's right to acquire the Stations by amendment or waiver of the CRN Agreement (the "Effective Time"), Buyer and Sellers shall enter into an escrow agreement substantially in the form attached hereto as Exhibit 1-A with such changes as First Union National Bank may in its 4 discretion reasonably require,, pursuant to which Buyer will deposit into escrow the sum of Two Million Nine Hundred Twenty-Five Thousand and no/100 Dollars ($2,925,000.00) (the "Damages Escrow Funds"). At Closing, the Damages Escrow Funds, including any interest thereon, shall be delivered to Sellers and shall be a credit to Buyer against the Purchase Price subject to the provisions governing the release and delivery of the Damages Escrow Funds contained in Article 6 hereof. In addition to entering into the escrow agreement in the form attached hereto as Exhibit 1-A, at the Effective Time Buyer and Sellers shall enter into a second escrow agreement substantially in the form attached hereto as Exhibit 1-B with such changes as First Union National Bank may in its reasonable discretion require, pursuant to which Buyer will deposit into escrow the sum of Seven Million Seventy-Five Thousand and No/100 Dollars ($7,075,000.00) (the "Purchase Price Escrow Funds"). At Closing, the Purchase Price Escrow Funds, including any interest thereon, shall be delivered to Sellers and shall be a credit to Buyer against the Purchase Price. Further provisions governing release and delivery of the Purchase Price Escrow Funds shall be as set forth in Article 6 hereof. 2.2.2. At Closing, Buyer shall also receive a credit against the Purchase Price in an amount equal to the portion of the LMA Deposit, as defined in Section 2.4 below, which is allocable to periods of time after the Closing, together with interest on one-half of the LMA Deposit at the rate of 5.5% per annum from the date hereof until Closing. 2.2.3. The balance of the Purchase Price payable hereunder shall be paid in cash by the Buyer on the Closing Date by wire transfer of immediately available funds to such bank or other financial institution as shall be designated by Sellers at least one (1) business day prior to the Closing Date. 2.3. ADJUSTMENTS AND PRORATIONS. The operations of the Stations 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 local marketing agreement ("LMA") to be entered into between the parties in the form attached hereto as Exhibit 2 at the time the Effective Time, 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 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, with a final settlement within ninety (90) days after the Closing. 5 2.4. LMA. Any material breach or any default under this Agreement shall be a breach or default of the LMA by the breaching party, and any material breach or any default under the LMA shall be a breach or default of this Agreement by the breaching party. At the Effective Time, the Buyer shall pay to Sellers the sum of Two Million Five Hundred Thousand and no/100 Dollars ($2,500,000.00) as a prepayment of payments called for under the LMA with respect to radio station WBAH(AM), and upon approval of the HSR Filing (as defined in Section 7.7 below), Buyer shall pay to Seller the additional sum of Five Hundred Thousand and no/100 Dollars ($500,000.00) as a prepayment of payments called for under the LMA with respect to radio stations KAHZ(AM) and KIDR(AM) (as initially funded and subsequently increased, the "LMA Deposit"). 2.5. NON-COMPETITION AGREEMENT. On the Closing Date, the Buyer shall enter into a non-competition agreement with Christopher T. Dahl ("Dahl") the form attached hereto as Exhibit 3 (the "Non-Competition Agreement"), pursuant to which Dahl will agree not to own, operate or be employed by a radio station broadcasting from a site within 100 miles of any site from which any of the Stations broadcast for a period of two (2) years, and Buyer, in consideration thereof, shall make a lump sum payment to Dahl in the amount of Seven Hundred Fifty Thousand and no/100 Dollars ($750,000.00) on the Closing Date. 2.6. PARTIAL CLOSING ADJUSTMENTS. Further adjustments to the purchase price payable hereunder may be made pursuant to the provisions of Sections 6.1 and 7.3 below. 2.7. 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, any liabilities or obligations of any nature whatsoever, contingent or otherwise. Without limitation of the foregoing, Buyer shall not assume any obligations to the Stations' employees under any employee benefit plans or employment contracts. 2.8. 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. The values of the Acquired Assets with respect to each of the Stations are set forth with an aggregate allocation value as to all Acquired Assets associated with the operation of each of the Stations set out thereon as the station aggregate value (the "Station Aggregate Value") for each of the Stations. 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. 2.9. SECURITY AGREEMENT AND INTERCREDITOR AGREEMENT. At the Effective Time, and upon Buyer's funding of the Escrow Deposit and the LMA Deposit, Sellers agree to execute and deliver to Buyer a Security Agreement in the form attached hereto as Exhibit 4, and Buyer agrees to execute and deliver to Sellers' lender, Foothill Capital Corporation, an Intercreditor Agreement in the form attached hereto as Exhibit 5. 6 ARTICLE 3 THE SELLERS' REPRESENTATIONS, WARRANTIES AND AGREEMENTS The Sellers represent, warrant and agree as follows, which representations and warranties shall be deemed to have been made again at Closing and which agreements shall remain in effect from the date hereof until the Closing or such later time specified herein: 3.1. CORPORATE EXISTENCE AND POWERS. The Sellers, except CR New York, 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 without shareholder approval; CR New York is a corporation organized and existing in good standing under the laws of the State of New Jersey, with full power and authority to enter into this Agreement and the other Transaction Documents (as defined herein) and to enter into and complete the transactions contemplated herein and therein; CR Dallas is, and will be at the time of Closing, qualified to do business in the State of Texas; and CR Phoenix is, and will be at the time of Closing, qualified to do business in the State of Arizona and neither the nature of the business of the Stations, nor the character of the properties owned, leased or otherwise held by Sellers for use in the business of the Stations 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 Stations, 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 Stations are subject or affected, or conflict with or violate any provision of any of the respective Sellers' certificates of incorporation, bylaws or other organizational documents; and, except for receipt of the Commission's Consent (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. 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 LMA, the Assignment of Licenses, the Warranty Deeds, an Assignment and Bill of Sale and any 7 other agreements to be executed and delivered by any Seller hereunder or as otherwise contemplated herein. 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 Stations 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 Stations 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 as amended, (the "Communications Act") and the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR"). Each of the License Subsidiaries 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 Stations as they are currently being operated. Each License Subsidiary is fully qualified to hold its Licenses. All ownership and employment reports, renewal applications, and other reports and documents required to be filed for the Stations have been properly and timely filed, except as noted on Schedule A. The Stations are operating in accordance with the Licenses, and in compliance with the Communications Act, and the rules and regulations of the Commission, including, without limitation, those regulations governing the Stations' 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 8 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 Stations 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 Stations and the Licenses from any material adverse impact. All reports, statements and other documents relating to the Stations filed by the Sellers or the Stations with the FCC or any other Governmental Authority were true, correct and complete in all material respects when filed. 3.3. FINANCIAL STATEMENTS. The Sellers have delivered to the Buyer unaudited balance sheets dated December 31, 1996, and December 31, 1997 (the latter of which are referred to herein as the "1997 Balance Sheets") and unaudited statements of operations for the twelve months ended December 31, 1996, and December 31, 1997, for each of the Stations, other than KIDR(AM), as to which no 1996 financial statements have been delivered. Such balance sheets and the notes thereto are true, complete and accurate in all material respects and fairly present the consolidated assets, liabilities and financial condition of the Stations as at the respective dates thereof, and such statements of operations and the notes thereto are true, complete and accurate in all material respects and fairly present the results of operations for the periods indicated, all in accordance with generally accepted accounting principles consistently applied throughout the periods involved. 3.4. NO UNDISCLOSED LIABILITIES. None of the Stations has any 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. 3.5. ACQUIRED ASSETS. The Acquired Assets to be transferred to Buyer at Closing represent all the assets necessary for the Stations' 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, 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 excepting only those obligations, liens or encumbrances expressly provided to be assumed by Buyer herein 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 9 the Acquired Assets; the Sellers have conducted the business of the Stations 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 Stations consistent with the past practices of Sellers and recognizing that the Sellers ended the 24-hour distribution of their Aahs World RadioK format as of midnight, January 30, 1998, and have since maintained a 24-hour all-music format at the Stations without any sales of advertising time, except with respect to WBAH-AM, which has been programmed by Buyer. 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, except as disclosed on Schedule B, 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, except as disclosed on Schedule B, (a) all obligations of the landlord or lessor under the Leases that have accrued have been performed, and no landlord or lessor is in default under or in arrears in the payment of any sum or in the performance of any obligation required of it under any Lease, and no circumstance presently exists 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. 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 and those rights of third parties disclosed on Schedule B. 3.6.4. PHYSICAL CONDITION. There is no defect in the physical condition of any improvements located on or constituting a part of the Real Property. The Real Property, including, without limitation, such improvements, is in good condition 10 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. 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. 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. Sellers' 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 Stations 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. 11 3.6.8. CONDEMNATION. There is no pending or, to Sellers' knowledge, 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 are 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 Stations (not including this Agreement and the LMA) 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 Stations, their employees or any of the Acquired Assets which may result in any change in the business, operations, assets or financial condition of the Stations 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 are in compliance in all material respects with all applicable federal, state and local laws and regulations relating to pollution or protection of human health or the environment ("Environmental Laws") (which compliance includes, but is not limited to, the possession by such Sellers of any permits and other governmental authorizations required under applicable Environmental Laws and compliance with the terms and conditions thereof) with respect to the Real Property and the business of the stations. None of Sellers has received any communication (written or oral), whether from a Governmental Authority, citizens' group, employee or otherwise, alleging that Sellers are not in such compliance, and to the Sellers' knowledge, there are no past or present actions, activities, circumstances, conditions, covenants or incidents that may prevent or interfere with such compliance in the 12 future. Sellers have not participated in nor approved, nor has there occurred, to the best of their knowledge, except as disclosed on Schedule B, any production, disposal or storage on the Real Property of any hazardous waste or toxic substance, nor does such waste or substance exist on the Owned Real Property (above or beneath the surface), nor is there any proceeding or inquiry, by any governmental authority (federal or state) with respect to the presence of such waste or substance on the Real Property to the best of the Sellers' knowledge, nor are there any underground storage tanks on the Owned Real Property, to the best of Sellers' knowledge. There is no Environmental Claim (as defined below) pending, or to the knowledge of Sellers, threatened against any Seller with respect to the Owned Real Property or the business of the Stations or, to the best of the Sellers' knowledge, against any Person whose liability for any Environmental Claim any Seller has or may have retained or assumed either contractually or by operation of law. To the best of the Sellers' knowledge, there are no past or present actions, activities, circumstances, conditions, events or incidents with respect to the Owned Real Property, any Seller or the business of the Stations that could form the bases of any Environmental Claim against any Seller or against any Person whose liability for any Environmental Claim any Seller has or may have retained or assumed either contractually or by operation of law. As used herein, "Environmental Claim" means any claim, action, cause of action, investigation or notice (written or oral) by any Person alleging potential liability arising out of, based on or resulting from (a) the presence or release of any hazardous waste at any location, whether or not owned or operated by the Seller or (b) circumstances forming the basis of any violation of any Environmental Law. "Hazardous waste" shall consist of the substances defined as "hazardous substances", "hazardous materials", or "toxic substances" in the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, 42 USCss.9601, et seq., or in the Hazardous Materials Transportation Act, 49 USCss.1801, et seq., or in the Resources Conservation and Recovery Act, 42 USCss.6901, et seq., and all substances defined as "hazardous waste" under the Statutes of the States of New Jersey, Texas and Arizona or any regulations adopted pursuant to those statutes. 3.9.2. ENVIRONMENTAL COVENANT OF SELLERS. Sellers have provided Buyer with all information, surveys and reports in each Seller's or each Station's possession or control concerning the existence or possible existence of any underground storage tanks, polychlorinated biphenyls, asbestos or asbestos-containing materials, radon gas, radioactive materials, liquid petroleum or liquid petroleum products, or other hazardous wastes, and any other reports, studies or documents in each Seller's or each Station's possession relating to each Seller's or each Station's potential liability under applicable Environmental Laws ("Environmental Contamination"). 3.9.3. RADIO FREQUENCY RADIATION. Other than in compliance with the Communications Act, the operation of the Stations does not cause or result in exposure of workers or the general public to levels of radio frequency radiation in excess of the "Radio 13 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. 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 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. Such coverage is for replacement value against risks commonly insured against in the radio broadcast industry and Sellers are not in default under any such policies. Sellers have not received any notice from any issuer of such policies of its intention to cancel, terminate or refuse to renew any policy issued by it to Sellers. 3.11. ACCESS TO INFORMATION AND CONFIDENTIALITY. 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 Stations; provided, however, such access shall not disrupt the Sellers' normal operation. The Sellers shall furnish to Buyer all information concerning the Stations' 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 STATIONS' 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 Stations unless the same is terminable at will and without penalty; no material increase in compensation payable or to become 14 payable, to any of the employees employed at the Stations shall be made; no material change in personnel policies, insurance benefits or other compensation arrangements shall be made; and the Sellers will cause the Stations 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 Stations 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 liens for current taxes and assessments not yet due and payable or to secure obligations to be assumed by Buyer hereunder pursuant to the Leases and Agreements; 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 Stations which would cause (i) the applications for assignment of the Licenses to Buyer to be challenged, (ii) the Commission to deny its consent to the assignments of the Stations' Licenses to Buyer, or (iii) the Commission to grant such applications for assignment subject to material adverse conditions to Buyer. (d) The Sellers will have duly filed all tax returns required to be filed by each of the Sellers on or before the Closing Date and will have paid and discharged all taxes, assessments, excises, levies, or other similar charges of every kind, character or description imposed by any Governmental Authority, and any interest, penalties or additions to tax imposed thereon or in connection therewith (collectively, "Taxes") 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 any of the Stations 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 15 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 Stations to identify each of the respective Stations 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 Stations other than those listed in Schedule E. 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 Stations 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 Stations, 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 Stations 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 and similar laws and regulations, if applicable, and shall be solely responsible for any and all liabilities, penalties, fines, or other sanctions that may be assessed or otherwise due under such applicable laws and regulations on account of the dismissal or termination of the employees of the Stations by Sellers. 16 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 Stations. None of the Sellers is a party to or subject to any collective bargaining agreements with respect to any of the Stations. Sellers have no written or oral contracts of employment with any employee of the Stations, 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 Stations, 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 any of the Stations. 3.16. PRE-CLOSING COVENANTS. Between the date hereof and the Closing, the Sellers covenant that: 3.16.1. FCC COMPLIANCE. The Sellers shall continue to operate the Stations in conformity with the terms of the Stations' 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 License Subsidiaries' 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. Sellers shall continue to prosecute any pending applications before the FCC in the ordinary course. 3.16.2. CONDUCT OF BUSINESS. The Sellers shall conduct the business and technical operations of the Stations in the Ordinary Course of Business and consistent with past practices, and shall continue all practices, policies, procedures and technical operations relating to the Stations in substantially the same manner as heretofore. 3.16.3. 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 Stations. 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 Stations. 3.17. 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 17 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 Stations. 3.18. 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)). 3.19. 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. 3.20 UNWIND AGREEMENTS. In the event that a Closing occurs hereunder prior to the receipt of a Final Order (as defined below), and upon the receipt of an FCC order requiring Buyer to return the Acquired Assets (including any Licenses issued by the FCC) to Sellers as a result of Sellers' failure to comply with the Communications Act or the rules and regulations of the FCC, Sellers agree that upon Sellers receipt of the Acquired Assets (including any Licenses issued by the FCC), Sellers shall return the Purchase Price to Buyer. In such event, Sellers and Buyer agree to cooperate to return the Acquired Assets to Sellers, the Purchase Price to Buyer and to otherwise place the parties in the same positions as they were in immediately prior to the Closing and to ensure that neither party has been otherwise economically damaged. The term "Final Order" as used herein shall mean an FCC order or action as to which the time for filing a request for administrative or judicial review, or for instituting administrative review sua sponte, shall have expired without any such filing having been made or notice of such review having been issued; or in the event of such filing or review sua sponte, as to which such filing or review shall have been 18 disposed of favorably to the grant and the time for seeking further relief with respect thereto shall have expired without any request for such further relief having been filed. ARTICLE 4 BUYER'S REPRESENTATIONS AND WARRANTIES The Buyer represents and warrants as follows, which representations and warranties shall be deemed to have been made again at Closing. 4.1. CORPORATE EXISTENCE AND POWERS. Buyer is a corporation organized and existing in good standing under the laws of the State of Delaware 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 States of New York, New Jersey, Texas and Arizona; 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 consents, or which would materially hinder or delay receipt of such consents, to the assignments 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 19 of ownership of the Acquired Assets or the operation of the Stations by the Sellers prior to 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 error contained in any statement, report, certificate or other instrument delivered to Buyer by Sellers pursuant to this Agreement, (iii) any failure by Sellers to pay or discharge any liability relating to the Stations that is not expressly assumed by Buyer hereunder, (iv) any facts or circumstances described in Schedule G, or (v) 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 Stations 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. THRESHOLD. Neither Buyer nor Seller shall be liable to the other for indemnification until the aggregate of all indemnification claims of the party seeking indemnification exceeds $25,000.00, but after such threshold is exceeded, the applicable party shall be entitled to indemnification for all claims. 5.4. SPECIFIC 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, and if Buyer shall prevail in such action, Buyer shall be entitled to reimbursement by Sellers of all reasonable attorneys' fees and other out-of-pocket expenses incurred by Buyer with respect thereto. 20 5.5. 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 5.5 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. (d) The indemnifying party hereby agrees to pay the amount of any established Claim within fifteen (15) days after the establishment thereof. The amount of established Claims shall be paid in cash. Any amounts for such Claims not paid when due under this Article shall bear interest at a rate equal to 15% per annum until paid. 5.6. Sellers covenant that, upon the initiation by CBC of any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation, or similar proceeding relating to it under any jurisdiction (a "Liquidation Announcement"), Sellers 21 shall enter into an escrow agreement with Buyer and a mutually agreeable esrow agent (the "Indemnity Escrow Agreement"). Sellers further covenant that, in the event an Indemnity Escrow Agreement is executed by the parties, the balance of the escrow fund contemplated by the Indemnity Escrow Agreement shall be One Million and no/100 Dollars ($1,000,000.00) during the first twelve months following the execution of this Agreement and Five Hundred Thousand and no/100 Dollars ($500,000.00) during the second twelve months following the execution of this Agreement regardless of the date on which a Liquidation Announcement is made and that such balance shall be applied to payment of any indemnification obligations owed by Sellers to Buyer under this Article V. 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 Escrow Funds shall be returned to Buyer, except that the Sellers shall have a reasonable period of time, not to exceed one hundred (100) 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 and provided that Buyer's election to proceed with the Closing under this Section 6.1(iii) shall not relieve Sellers of any of the indemnification obligations under Article 5 hereof with respect to damaged Acquired Assets or in any other respect. 22 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, if not otherwise in material default or breach of this Agreement, 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 for Commission consent as provided in Section 7.4 hereof 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 LMA upon an Event of Default (as defined therein) by Seller or in accordance with Section 6.1; (c) by Sellers, if not otherwise in material default or breach of this Agreement, 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 for Commission consent as provided in Section 7.4 hereof 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 LMA upon an Event of Default (as defined therein) by Buyer; or 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 Stations; provided that the obligations of Buyer and Sellers in Sections 2.2.1, 3.9.5, 5.1, 5.2, 5.3, 5.5, 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 Damages Escrow Funds in accordance with and subject to the terms of Section 1.2 of the escrow agreement attached as Exhibit 1-B hereto and this Section 6.2(c), 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. Sellers acknowledge and expressly agree that their right to receive the Damages Escrow Funds as liquidated damages shall be Sellers' sole and exclusive remedy (for damages or otherwise) under this Agreement in the event that it is terminated pursuant to Section 6.2(c) hereof, or in the event that the Closing does not occur due to a material breach or default by the Buyer of this Agreement (occurring when the Sellers are not in material breach or default of this Agreement) except that Sellers shall be entitled to recover 23 its costs and legal fees incurred in any successful effort to collect the Damages Escrow Funds. Notwithstanding any other provision of this Agreement, Sellers and Buyer acknowledge and expressly agree that (i) until the satisfaction of all the conditions to Buyer's obligations to close under this Agreement and actual occurrence of the Closing. Sellers shall neither have nor be deemed to have any legal or equitable right, title or interest in the Purchase Price Escrow Funds or right to delivery thereof, (ii) Buyer shall retain all legal and equitable rights, title and interest in and to the Purchase Price Escrow Funds as the exclusive property of Buyer pending actual occurrence of the Closing and (iii) in any event, if this Agreement is earlier terminated for any reason, the Buyer shall be entitled to immediate return and delivery of the Purchase Price Escrow Funds free and clear of all claims of Sellers. Sellers and Buyer further acknowledge and agree that (i) Sellers shall neither have nor be deemed to have any legal or equitable right, title or interest in or to the Damages Escrow Funds or right to delivery thereof until either (x) a court of competent jurisdiction determines and finds by final order (that is not subject to appeal, review or rehearing, and as to which no appeal or petition for review or rehearing was filed or, if filed, remains pending) that the Closing did not occur as the proximate result of a material breach or default by Buyer of this Agreement (occurring when Sellers were not in material breach or default of the Agreement) or (y) all -- the conditions to Buyer's obligations to close under this Agreement are satisfied and the Closing actually occurs; (ii) Buyer shall retain all legal and equitable rights, title and interests in and to the Damages Escrow Funds as the exclusive property of Buyer unless Sellers' rights to delivery of the Damages Escrow Funds mature in accordance with the preceding "(i)" of this sentence; and (iii) in the event that this Agreement is earlier terminated (except pursuant to Section 6.2(c) due to a material breach or default by the Buyer of this Agreement, and the Sellers are not then in material breach or default of this Agreement), Buyer shall be entitled to immediate return and delivery of the Damages Escrow Funds free and clear of all claims of Sellers. ARTICLE 7 APPLICATION FOR COMMISSION AND HSR APPROVAL 7.1. FILING AND PROSECUTION OF FCC APPLICATION. Buyer and the Sellers shall, not later than five (5) days after the Effective Time, join in applications to be filed with the Commission requesting its written consents to the assignments of the Licenses of the Stations from the License Subsidiaries to Buyer (or such other entity under common control with Buyer as Buyer may designate). The parties shall prepare their own portions of the applications. Buyer and the Sellers shall take all steps necessary to the expeditious prosecution of such applications 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 applications and in connection with the prosecution of such applications. The filing fees shall be shared equally between the Sellers on the one hand and the Buyer on the other. 24 7.3. DESIGNATION FOR HEARING. If, for any reason, any application for an assignment of any of the Licenses is designated for hearing by the Commission prior to grant thereof, the Buyer shall have the right by written notice within thirty (30) days of such designation for hearing, to exclude from the Acquired Assets those assets associated with the operation of the Station affected, and the Purchase Price payable hereunder shall be reduced by an amount equal to the Station Aggregate Value of the affected Station. 7.4. TIME FOR COMMISSION CONSENT. Subject to the provisions of Section 7.3 above, if the Commission has not given its written consents to the assignments of the Licenses set forth herein within five (5) months from the date of acceptance for filing of the applications for such assignments, 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 Escrow Funds shall be returned to Buyer promptly. 7.5. CONTROL OF STATIONS. Until Closing, Buyer shall not directly or indirectly, control, supervise, direct or attempt to control, supervise or direct the operations of the Stations, 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 Stations. 7.6. SHARING INFORMATION. Each party hereto shall as promptly as possible, and in any event within five (5) 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. 7.7 HSR APPLICATION. Within five (5) days of the Effective Time, the parties shall complete any filing that may be required pursuant to HSR (the "HSR Filing"). Sellers and Buyer shall diligently take, or fully cooperate in the taking of, all necessary and proper steps, and provide any additional information reasonably requested in order to comply with the requirements of HSR. Buyer and Sellers shall each pay half of any necessary HSR filing fees, and each party shall be responsible for its own counsel fees. 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 five business (5) days 25 after the Commission grants its consent to the assignments of the Licenses 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.") Unless otherwise agreed by the parties in writing, the Closing shall take place at Buyer's counsel's offices in Washington, D.C. 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 and 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, except as expressly provided for in this Agreement or in the Leases and Agreements; (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 dated not more than thirty (30) days prior to the Closing Date of the appropriate filing officers in the jurisdictions specified in Schedule J evidencing no judgments, financing statements, or liens 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 ALTA 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, 26 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; and (k) Escrow instructions releasing the Damages Escrow Funds to Buyer. (l) The Non-Competition Agreement executed by Dahl. 8.3. BUYER'S OBLIGATIONS AT CLOSING. At Closing, Buyer shall deliver to CBC the following: (a) The Purchase Price in the manner set forth in 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 consents of the Commission to the assignments 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; 27 (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 LMA shall have become effective in accordance with the terms and conditions thereof and, from and after the date the LMA first becomes effective through and including the Closing Date, the LMA shall have not been terminated due to the Sellers' breach thereof; and (g) Receipt of approval to the HSR Filing. 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 consents of the Commission evidencing its Final Approvals to the assignments 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 LMA shall have become effective in accordance with the terms and conditions thereof and, from and after the date the LMA first becomes effective through and including the Closing Date, the LMA shall have not been terminated due to the Buyer's breach thereof; 28 (f) The termination of the CRN Agreement; and. (g) Receipt of approval to the HSR Filing. 29 ARTICLE 9 MISCELLANEOUS PROVISIONS 9.1. SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES. All representations, warranties and covenants of Sellers contained in this Agreement shall survive for a period of twenty-four (24) months after the Closing Date. 9.2. 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. 9.3. NOTICES. All notices, requests, elections, demands and other communications given pursuant to this Agreement shall be in writing and shall be duly given when delivered personally or by facsimile transmission (upon receipt of confirmation) or when deposited in the mail, certified or registered mail, postage prepaid, return receipt requested, and shall be addressed as follows: If to the Sellers (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: Radio Unica Corp. 8400 N.W. 52nd Street, Suite 101 Miami, Florida 33166 Attention: Mr. Joaquin F. Blaya Facsimile Number (305) 463-5001 30 with copy to: Mr. Andrew Goldman 4 Miller Circle Armonk, NY 10504 Facsimile Number (914) 273-0885 and to: Skadden, Arps, Slate, Meagher & Flom LLP 1440 New York Avenue, N.W. Washington, D.C. 20005 Attention: John C. Quale, Esq. Facsimile Number: (202) 371-7475 9.4. EXHIBITS AND SCHEDULES. All Exhibits and Schedules referred to herein are incorporated into this Agreement by reference for all purposes and shall be deemed part of this Agreement. 9.5. ENTIRE AGREEMENT. This Agreement together with all Exhibits and Schedules referred to herein, and the LMA contain all of the terms and conditions agreed upon by the parties hereto with respect to the transactions contemplated hereunder. No modification or amendment to any provision in this Agreement shall be effective unless made in writing and signed by the parties hereto. 9.6. ASSIGNABILITY. None of the parties may assign their rights or obligations under this Agreement without the prior written consent of the other parties, except that the Buyer may make an assignment to an entity under essentially common control as the assigning entity. 9.7. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the representatives, heirs, estates, successors, and assigns of the parties hereto. 9.8. HEADING. The headings contained in this Agreement are for reference only and shall not effect in any way the meaning or interpretation of this Agreement. 9.9. 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. 9.10. GOVERNING LAW; ARBITRATION. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. Any dispute arising under or related to this Agreement shall be resolved by binding arbitration in Wilmington, Delaware in accordance with the then existing Rules of Practice and Procedure of Judicial Arbitration & Mediation Services, Inc., and any judgment upon any award rendered by the arbitrator(s) may be entered by any State or Federal court having jurisdiction thereof. The prevailing party shall be awarded all of its legal fees, disbursements and costs of arbitration. 31 9.11. 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 Buyer has engaged Ted Hepburn Company 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. 9.12. 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 Seller and any claims or proceedings arising therefrom shall be the sole responsibility of Sellers. Sellers agree to indemnify and hold Buyer harmless against any such claims in connection with the transactions contemplated hereunder. 9.13. 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. 9.14. MAIL. Sellers hereby authorize and empower Buyer from and after the Closing Date (a) to receive and open mail addressed to the Stations and (b) to deal with the contents thereof in any manner Buyer sees fit, provided such mail and the contents thereof relate to the Stations or the Acquired Assets. Sellers agree to deliver to Buyer any mail, checks or other documents received by them pertaining to the Stations 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. 9.15. 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. [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] 32 IN WITNESS WHEREOF, the parties hereto, by their properly authorized representatives, have caused this Agreement to be executed as of the day and date first above written. CHILDREN'S BROADCASTING CORPORATION RADIO UNICA CORP. BY: /s/ James G. Gilbertson BY: /s/ Joaquin F. Blaya ----------------------------- --------------------------- ITS: COO ITS: President ----------------------------- --------------------------- CHILDREN'S RADIO OF DALLAS, INC. KAHZ-AM, INC. BY: /s/ James G. Gilbertson BY: /s/ James G. Gilbertson ----------------------------- --------------------------- ITS: COO ITS: COO ----------------------------- --------------------------- CHILDREN'S RADIO OF PHOENIX, INC. KIDR-AM, INC. BY: /s/ James G. Gilbertson BY: /s/ James G. Gilbertson ----------------------------- --------------------------- ITS: COO ITS: COO ----------------------------- --------------------------- CHILDREN'S RADIO OF NEW YORK, INC. WJDM-AM, INC. BY: /s/ James G. Gilbertson BY: /s/ James G. Gilbertson ----------------------------- --------------------------- ITS: COO ITS: COO ----------------------------- --------------------------- 33 EX-10.5 5 AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT EXHIBIT 10.5 FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT THIS FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT (the "First Amendment"), dated as of October 27, 1998, is between and among Children's Broadcasting Corporation, a Minnesota corporation ("CBC"), Children's Radio of Dallas, Inc., a Minnesota corporation, Children's Radio of Phoenix, Inc., a Minnesota corporation, Children's Radio of New York, a New Jersey corporation (collectively, the "Asset Subsidiaries"), KAHZ-AM, Inc., a Minnesota corporation, KIDR-AM, Inc., a Minnesota corporation, WJDM-AM, Inc., a Minnesota corporation (the "License Subsidiaries", and together with the Asset Subs and CBC, the "Sellers") and Radio Unica Corp. (the "Buyer"). W I T N E S S E T H: WHEREAS, the parties hereto are also parties to that certain Asset Purchase Agreement, dated as of October 26, 1998 (the "APA") pursuant to which the Buyer has agreed to purchase from Sellers radio broadcast stations KAHZ (AM), Fort Worth, Texas, KIDR (AM), Phoenix, Arizona, WJDM (AM), Elizabeth, New Jersey, and WBAH (AM), Elizabeth, New Jersey (the "Stations"); WHEREAS, Sellers previously entered into a purchase agreement with Catholic Radio Network, LLC ("CRN"), dated April 17, 1998, as amended (the "CRN Agreement") pursuant to which Sellers agreed to sell to CRN, among other things, the Stations; WHEREAS, Sellers and CRN have entered into a second amendment to the CRN Agreement, dated as of October 26, 1998 (the "Second Amendment"), pursuant to which CRN has terminated its rights to acquire the Stations; and WHEREAS, the Effective Time (as defined in the APA) has occurred as a consequence of the Second Amendment and Sellers and Buyer desire to remove certain conditions to the obligations of the parties to the APA relating to the termination of CRN's rights to acquire the Stations and the CRN Agreement. 2 NOW, THEREFORE, in consideration of the mutual promises and agreements contained herein and other valuable consideration, receipt of which is hereby acknowledged, Sellers and Buyer agree as follows: 1. The first paragraph in Article 1 (Sale and Transfer of Assets) of the APA is hereby deleted in its entirety. 2. Section 8.5(f) (regarding the termination of the CRN Agreement) is hereby deleted in its entirety. 3. Except where inconsistent with the express terms of this First Amendment, all provisions of the APA as originally entered into shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed as of the day and year first written above. RADIO UNICA CORP. By: /s/ Joaquin F. Blaya ------------------------------- Name: Joaquin F. Blaya Title: Chairman & CEO CHILDREN'S BROADCASTING CORPORATION By: /s/ Christopher T. Dahl ------------------------------- Name: Christopher T. Dahl Title: President & CEO CHILDREN'S RADIO OF DALLAS, INC. By: /s/ Chistopher T. Dahl ------------------------------- Name: Christopher T. Dahl Title: President & CEO 3 CHILDREN'S RADIO OF PHOENIX, INC. By: /s/ Christopher T. Dahl ------------------------------- Name: Christopher T. Dahl Title: President & CEO CHILDREN'S RADIO OF NEW YORK, INC. By: /s/ Christopher T. Dahl ------------------------------- Name: Christopher T. Dahl Title: President & CEO KAHZ-AM, INC. By: /s/ Christopher T. Dahl ------------------------------- Name: Christopher T. Dahl Title: President & CEO KIDR-AM, INC By: /s/ Christopher T. Dahl ------------------------------- Name: Christopher T. Dahl Title: President & CEO WJDM-AM, INC. By: /s/ Christopher T. Dahl ------------------------------- Name: Christopher T. Dahl Title: President & CEO EX-10.6 6 AMENDMENT NO. 1 TO SECURITIES PURCHASE AGREEMENT EXHIBIT 10.6 AMENDMENT NO. 1 TO SECURITIES PURCHASE AGREEMENT THIS AMENDMENT is entered into as of this 22nd day of October, 1998, by and among CHILDREN'S BROADCASTING CORPORATION, a Minnesota corporation (the "Company"), TALISMAN CAPITAL OPPORTUNITY FUND LTD. ("Talisman"), DOMINION CAPITAL LIMITED ("Dominion") and SOVEREIGN PARTNERS L.P. ("Sovereign") (Talisman, Dominion and Sovereign are collectively referred to herein as the "Buyers"). RECITALS: WHEREAS, the Company and the Buyers entered into a Securities Purchase Agreement, dated June 25, 1998 (the "Agreement"), pursuant to which the Buyers acquired an aggregate of 606,061 shares of Series B Convertible Preferred Stock of the Company (the "Preferred Shares"); WHEREAS, the Company provided notice to the Buyers on September 22, 1998 of the Company's intent to redeem all of the Preferred Shares pursuant to the Agreement on October 22, 1998; WHEREAS, the Company is unable to redeem all of the Preferred Shares as of October 22, 1998; and WHEREAS, the Company seeks alter the conversion schedule of the Preferred Shares to extend its absolute right to redeem the Preferred Shares and the Buyers have agreed to such modification on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Notwithstanding the terms of the Certificate of Designation of Preferences and Rights of Series B Preferred Stock of Children's Broadcasting Corporation (the "Certificate of Designation"), the first paragraph of Section (D)(c)(1) of the Certificate of Designation and the conversion schedule immediately following such paragraph shall be restated in their entirety as follows: At the option of the holders thereof at any time after the date 221 days following the Initial Closing Date, the shares of this Series shall, subject to subparagraph (c)(1), be convertible, into fully paid and nonassessable shares (calculated as to each conversion to the nearest 1/100th of a share) of Common Stock of the Corporation, at the conversion price determined as hereinafter provided, in effect at the time of conversion, each share of this Series being deemed to have the Stated Value for the purpose of such conversion. The number of shares of Common Stock to be delivered upon conversion of a share of this Series shall be the Stated Value, divided by the lesser of (x) One Hundred Ten (110%) of the average best bid price of the Common Stock for the five (5) consecutive trading days ending on the day preceding the Conversion Date (the "Fixed Strike Price"), or (y) Ninety-Four Percent (94%) of the average of the three lowest closing prices of the Common Stock during the 60 calendar day period ending on the day preceding the Conversion Date (herein called the "conversion price"), provided however, that such initial conversion price shall be subject to adjustment from time to time in certain instances as hereinafter provided. The number of shares so issuable upon conversion shall be multiplied by the number of shares of this Series to be converted, and the product thereof shall be delivered to the holder. If any of the Preferred Stock remains outstanding as of February 1, 1999 then the percentage specified in clause (y) above shall be Eighty Percent (80%) effective February 1, 1999 and such percentage shall be Seventy Five Percent (75%) effective May 1, 1999. (1) The Preferred Stock may be converted, at the option of the holder, in accordance with the following schedule: Number of Days Percentage of Original Elapsed Following Issuance Preferred Stock Convertible -------------------------- --------------------------- 221 (Feb. 1, 1999) 80% 251 (March 1, 1999) 100% 2. The Buyers agree that the Company may file a certificate of designation and perform other acts which may be necessary or advisable to reflect the agreement of the parties expressed in paragraph 1 above. 3. Concurrent with the execution of this Amendment, the Company agrees to issue to the Buyers stock purchase warrants entitling the Buyers to purchase an aggregate of up to 65,000 shares of Common Stock (the "Additional Warrant"). The Additional Warrant shall bear an exercise price per share of Common Stock equal to the lesser of (i) 100% of the average closing price of a share of Common Stock for the five (5) consecutive trading days ending on the day preceding the Closing Date, or (ii) 80.77% of the closing price of a share of Common Stock on September 30, 1998. The Additional Warrant shall be exercisable immediately upon issuance, and for a period of five (5) years thereafter. Upon issuance of the Additional Warrant, the Additional Warrant Shares shall be entitled to registration rights substantially in the form of the Registration Rights Agreement. 4. If the Company has not redeemed 100% of the outstanding Preferred Shares on or prior to December 31, 1998, the Company agrees to issue to the Buyers stock purchase warrants entitling the Buyers to purchase an aggregate of up to 35,000 shares of Common Stock (the "Second Additional Warrant"). The Second Additional Warrant, if issued, shall bear an exercise price per share of Common Stock equal to the lesser of (i) 100% of the average closing price of a share of Common Stock for the five (5) consecutive trading days ending on the day preceding the Closing Date, or (ii) 80.77% of the closing price of a share of Common Stock on September 30, 1998. The Additional Second Warrant shall be exercisable immediately upon issuance, and for a period of five (5) years thereafter. Upon issuance of the Additional Second Warrant, the Additional Warrant Shares shall be entitled to registration rights substantially in the form of the Registration Rights Agreement. . 5. If the Company has not redeemed 100% of the outstanding Preferred Shares on or prior to January 31, 1999, the Company agrees to issue to the Buyers stock purchase warrants entitling the Buyers to purchase an aggregate of up to 25,000 shares of Common Stock (the "Third Additional Warrant"). The Third Additional Warrant, if issued, shall bear an exercise price per share of Common Stock equal to the lesser of (i) 100% of the average closing price of a share of Common Stock for the five (5) consecutive trading days ending on the day preceding the Closing Date, or (ii) 80.77% of the closing price of a share of Common Stock on September 30, 1998. The Additional Third Warrant shall be exercisable immediately upon issuance, and for a period of five (5) years thereafter. Upon issuance of the Additional Third Warrant, the Additional Warrant Shares shall be entitled to registration rights substantially in the form of the Registration Rights Agreement. . 6. Except as otherwise modified or amended herein, the parties hereto ratify and affirm the terms of the Agreement and the Certificate of Designation. IN WITNESS WHEREOF, this Amendment has been duly executed by the parties hereto as of the date first above written. CHILDREN'S BROADCASTING CORPORATION By /s/ James G. Gilbertson ---------------------------------------- James G. Gilbertson Chief Operating Officer TALISMAN CAPITAL OPPORTUNITY FUND LTD. By /s/ Brian Ladin ---------------------------------------- Brian Ladin Vice President DOMINION CAPITAL LIMITED By /s/ Terez S. Curry/Carol M. O'Connell ---------------------------------------- SOVEREIGN PARTNERS LP By /s/ Stephen Hicks ---------------------------------------- EX-10.10 7 TERM PROMISSORY NOTE EXHIBIT 10.10 TERM PROMISSORY NOTE $15,000,000.00 Minneapolis, Minnesota Due: April 30, 2000 October 30, 1998 FOR VALUE RECEIVED, the undersigned, CRN BROADCASTING, LLC (the "Borrower"), promises to pay to the order of CHILDREN'S BROADCASTING, LLC (the "Lender"), at its offices in Minneapolis, Minnesota, on or before April 30, 2000 (the "Maturity Date"), the sum of FIFTEEN MILLION and NO/100 DOLLARS ($15,000,000.00) or such lesser sum as may actually be owing under borrowings made pursuant to that certain Loan Agreement, dated October 30, 1998, by and between the Borrower and the Lender, as the same may be amended, modified, restated or supplemented from time to time hereafter (the "Loan Agreement"), together with interest on the unpaid principal balance from the date hereof until paid in full at the rate or rates per annum provided for in the Loan Agreement. This Note shall be payable in monthly installments of accrued interest only payable on the last day of each month, commencing November 30, 1998, and on the last day of each month thereafter until the Maturity Date, on which date the entire outstanding principal balance plus accrued interest shall be due and payable in full. This Note is the "Note" issued under the terms and provisions of the Loan Agreement. The holder hereof is entitled to all the benefits provided for in the Loan Agreement, or referred to therein, to which Loan Agreement reference is made for a statement of the terms and conditions under which the indebtedness evidenced hereby was incurred and is to be repaid. The provisions of the Loan Agreement are incorporated by reference herein with the same force and effect as if fully set forth herein. All payments on this Note shall be applied first to the payment of fees and charges payable under the Loan Agreement, next to the payment of accrued interest and thereafter to the outstanding principal balance. This Note may be prepaid from time to time in whole or in part without premium or penalty. Presentment, demand for payment, notice of dishonor, protest and notice of protest are hereby waived. The Borrower agrees to pay all costs of collection including, but not limited to, reasonable attorneys' fees, whether or not suit is commenced. TERM PROMISSORY NOTE Page 2 $15,000,000.00 Minneapolis, Minnesota Due: April 30, 2000 October 30, 1998 This Note shall be governed by and construed in accordance with the laws of the State of Minnesota. The Borrower consents to the personal jurisdiction of the federal and state courts located in the State of Minnesota, waives any argument that such a forum is not convenient, and agrees that any litigation relating to this Note initiated by it or on its behalf shall be venued in either the District Court of Hennepin County, Minnesota or the Federal District Court, District of Minnesota, Fourth Division. Any provision of this Note, the Loan Agreement or any other document relating to the loan evidenced hereby to the contrary notwithstanding (the "Loan Documents"), Borrower may from time to time offset against any sums due hereunder an amount equal to the amount of any "Claims" of the Borrower against the Lender pursuant to Article 8 of that certain Purchase Agreement dated April 17, 1998, as amended through the Second Amendment to Purchase Agreement, by and between Lender, Lender's wholly-owned subsidiaries and Catholic Radio Network, LLC. Any provision of Loan Documents to the contrary notwithstanding, all payments and prepayments of principal hereunder shall be paid directly into the escrow established pursuant to that certain Indemnity Escrow Agreement by and between CRN Operations, LLC and Lender in substantially the form attached as Exhibit B to the Closing Agreement between Lender and Borrower dated of even date herewith, up to the full amount of the sums to be so deposited therein. CRN BROADCASTING, LLC /s/ John T. Lynch ------------------------------------------------ By John T. Lynch Its President and Chief Executive Officer EX-10.11 8 LOAN AGREEMENT EXHIBIT 10.11 LOAN AGREEMENT BY AND BETWEEN CHILDREN'S BROADCASTING CORPORATION, AS LENDER AND CRN BROADCASTING, LLC, AS BORROWER DATED AS OF OCTOBER 30, 1998 TABLE OF CONTENTS Page(s) 1. DEFINITIONS AND CONSTRUCTION..........................................1 1.1 Definitions..................................................1 1.2 Accounting Terms............................................11 1.3 Construction................................................11 1.4 Schedules and Exhibits......................................11 2. TERM LOAN AND TERMS OF PAYMENT.......................................11 2.1 Term Loan...................................................11 2.2 Interest: Rates, Payments, and Calculations................12 3. CONDITIONS; TERM OF AGREEMENT........................................13 3.1 Conditions Precedent to the Term Loan.......................13 3.2 Additional Conditions Precedent to the Term Loan............16 3.3 Condition Subsequent........................................16 3.4 Term........................................................17 4. REPRESENTATIONS AND WARRANTIES.......................................17 4.1 Corporate Existence.........................................17 4.2 Subsidiaries................................................17 4.3 Corporate Power and Authority...............................17 4.4 Ownership...................................................18 4.5 Validity of Obligations.....................................18 4.6 Financial Statements........................................18 4.7 Liens.......................................................18 4.8 Litigation..................................................19 4.9 Accuracy of Information.....................................19 4.10 Tax Returns; Audits.........................................19 4.11 Corporate Takeovers.........................................19 4.12 Investment Company Act......................................19 4.13 Consents, etc...............................................19 4.14 ERISA.......................................................19 4.15 No Events of Default........................................20 4.16 Solvency....................................................20 4.17. Licenses and Permits........................................20 5. REPRESENTATIONS AND WARRANTIES OF LENDER.............................20 5.1 Corporate Existence.........................................21 5.2 Corporate Power and Authority...............................21 5.3 Validity of Obligations.....................................21 6. AFFIRMATIVE COVENANTS................................................21 6.1 Maintain Assets.............................................22 6.2. Accounting System...........................................22 6.3. Insurance...................................................22 6.4. Financial Statements........................................22 6.5. Access to Records...........................................23 6.6. Taxes, Assessments and Charges..............................23 6.8. Notification of Changes.....................................24 6.9. Existence...................................................24 6.10. Conduct of Business.........................................24 6.11. Books and Records...........................................24 6.12 Vander Eyk Agreement........................................24 6.13. Survival of Representations, Etc............................25 6.14. Costs and Expenses..........................................25 7. NEGATIVE COVENANTS...................................................25 7.1. Liens and Encumbrances......................................25 7.2. Indebtedness................................................26 7.3. Default on Other Obligations................................27 7.4. Change in Control, Merge, Consolidate or Sell...............27 7.6. Sale and Leaseback..........................................27 7.7. Loans.......................................................27 7.8. Guaranties, Etc.............................................27 7.9. Dividends...................................................28 7.10. Capital Expenditures........................................28 7.11. Investments.................................................28 7.12. Payment on Subordinated Indebtedness........................29 7.13. Transactions with Affiliates................................29 7.14. Financial Covenants.........................................29 8. EVENTS OF DEFAULT....................................................30 9. LENDER'S RIGHTS AND REMEDIES.........................................31 9.1 Rights and Remedies.........................................31 9.2 Remedies Cumulative.........................................31 10. WAIVERS; INDEMNIFICATION.............................................32 10.1 Demand; Protest; etc........................................32 10.2 Indemnification.............................................32 11. NOTICES..............................................................32 12. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER...........................33 13. GENERAL PROVISIONS...................................................34 13.1 Effectiveness...............................................34 13.2 Successors and Assigns......................................34 13.3 Section Headings............................................34 13.4 Interpretation..............................................34 13.5 Severability of Provisions..................................35 13.6 Amendments in Writing.......................................35 13.7 Counterparts; Telefacsimile Execution.......................35 13.8 Revival and Reinstatement of Obligations....................35 13.9 Integration.................................................35 13.10 Purchase Agreement..........................................35 LOAN AGREEMENT THIS LOAN AGREEMENT (this "Agreement"), is entered into and shall be effective as of October 30, 1998, between CRN BROADCASTING, LLC, a Delaware limited liability company ("Borrower"), with its chief executive office located at 8910 University Lane, Suite 130, San Diego, California 92122 and CHILDREN'S BROADCASTING CORPORATION, a Minnesota corporation ("Lender"), with its chief executive office located at 724 First Street, Fourth Floor, Minneapolis, Minnesota 55401. RECITALS: FIRST: Catholic Radio Network, LLC, Lender and certain wholly-owned subsidiaries of the Lender are parties to that certain Purchase Agreement, dated April 17, 1998, as amended by that certain First Amendment to Purchase Agreement, dated September 29, 1998, and by that certain Second Amendment to Purchase Agreement, dated October 30, 1998 (collectively, the "Purchase Agreement"), pursuant to which Catholic Radio Network, LLC agreed to purchase substantially all of the assets of seven (7) radio stations currently owned by the Lender or by certain wholly-owned subsidiaries of the Lender; SECOND: Pursuant to the Purchase Agreement, Catholic Radio Network, LLC has requested the Lender to make an eighteen month term loan to the Borrower in the original principal amount of $15,000,000 ("Term Loan"), the proceeds of which will be used to finance, in part, the purchase of such radio stations; THIRD: Lender has agreed to such request, in accordance with and subject to the terms contained herein. AGREEMENT NOW THEREFORE, in consideration of the premises and the terms and conditions contained herein, and to induce the Lender to make the Term Loan to the Borrower, the parties hereto agree as follows: 1. DEFINITIONS AND CONSTRUCTION. 1.1 DEFINITIONS. As used in this Agreement, the following terms shall have the following definitions: "Accounts" means all currently existing and hereafter arising accounts, contract rights, and all other forms of obligations owing to an Obligor arising out of the sale or lease of goods or the 1 rendition of services by an Obligor, irrespective of whether earned by performance, and any and all credit insurance, guaranties, or security therefor. "Acquisition" means any purchase or other acquisition by the Borrower of the assets or stock of any other Person, other than the purchase of inventory or equipment in the ordinary course of business. "Additional Subordinated Indebtedness" means any Indebtedness of Borrower (other than Initial Subordinated Indebtedness) which is subordinated to the Note, in a manner and to an extent which the Lender has determined to be satisfactory, as evidenced either (a) by a writing sent to the Borrower prior to the creation of such Indebtedness, which consent will not be unreasonably denied or delayed or (b) by the lapse of ten (10) Business Days without objection of the Lender following the delivery to the Lender in writing of a request for such consent together with the form of agreement setting forth the manner and extent of the proposed subordination. "Affiliate" means, as applied to any Person, any other Person who directly or indirectly controls, is controlled by, is under common control with or is a director or governor or an officer or manager of such Person. For purposes of this definition, "control" means the possession, directly or indirectly, of the power to vote 5% or more of the securities having ordinary voting power for the election of directors or governors or the direct or indirect power to direct the management and policies of a Person, whether through ownership of securities, membership interests, by contract or otherwise. "Agreement" means this Loan Agreement, as the same may be amended, modified, supplemented or restated from time to time. "Asset Disposition" means the disposition of the following, whether by sale, lease, transfer, loss, damage, destruction, condemnation or otherwise: any or all of the assets of the Borrower provided that "Asset Disposition" shall not include (a) the sale of inventory in the ordinary course of business, (b) the disposition of obsolete equipment sold or disposed of in the ordinary course of business, (c) disposition of instruments and other rights to the payment of money in the ordinary course of business in the course of collection or deposit thereof, or (d) the transfer of casualty property to an insurance company upon prepayment of policy proceeds with respect to such property. "Assets" shall have the meaning usually given that term in accordance with GAAP, except that investments in or monies due from any Affiliate shall be excluded therefrom. "Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C. ss. 101 et seq.), as amended, and any successor statute. 2 "Benefit Plan" means a "defined benefit plan" (as defined in Section 3(35) of ERISA) for which Borrower, any Subsidiary of Borrower, or any ERISA Affiliate has been an "employer" (as defined in Section 3(5) of ERISA) within the past six years. "Borrower" has the meaning set forth in the preamble to this Agreement. "Borrower Pledge Agreements" has the meaning assigned to it in Section 3.1(b)(4). "Borrower Security Agreement" has the meaning assigned to it in Section 3.1(b)(2). "Broadcast System" means all of the properties and operating rights constituting a complete, fully integrated system for transmitting radio signals from a transmitter licensed by the FCC, together with any sub-system which is ancillary to any system referred to above. "Business Day" means any day that is not a Saturday, Sunday, or other day on which national banks are authorized or required to close in Minneapolis, Minnesota. "Capital Expenditures" shall mean all expenditures for any fixed assets or improvements, or for replacements, substitutions or additions thereto, which have a useful life of more than one year, including, but not limited to, the direct or indirect acquisition of such assets by way of increased product or service charges, offset items or otherwise, and shall include capitalized lease payments. "Capitalized Lease" means, at the time any determination thereof is to be made, any lease of property, real or personal, in respect of which the present value of the minimum rental commitment is capitalized on the balance sheet of the lessee in accordance with GAAP. "Capitalized Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a Capitalized Lease which would at such time be required to be capitalized on the balance sheet of the lessee in accordance with GAAP. "Change of Control" shall be deemed to have occurred at such time as (a) Borrower shall cease to own and control, beneficially, directly, and of record, all of the issued and outstanding capital stock of CRNO or CRNL, or (b) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) other than CRNH becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of more than 10% of the membership interest of the Borrower. "Closing Date" means October 30, 1998. "Code" means the Minnesota Uniform Commercial Code. 3 "Collateral" shall mean all real and personal property and all interests in real and personal property now owned or hereafter acquired by any of the Obligors in or upon which a security interest, Lien or Mortgage is granted to the Lender, whether under this Agreement or the other Loan Documents or under any other documents, instruments or writings executed by any of the Obligors and delivered to the Lender, including, without limitation, Accounts, General Intangibles, Inventory, Intellectual Property, Fixtures, Equipment and Real Property (each as defined herein). "Collateral Access Agreement" means a landlord waiver, mortgagee waiver, bailee letter, or acknowledgement agreement of any warehouseman, processor, lessor, consignee, or other Person in possession of, having a Lien upon, or having rights or interests in equipment or inventory, in each case, in form and substance reasonably satisfactory to Lender. "Collateral Assignments of Key Leases" means one or more collateral assignments, mortgages, or deeds of trust, in form and substance reasonably satisfactory to Lender, between one or more of the Obligors (including Borrower) and Lender respecting the hypothecation of such Obligor's rights under the Key Leases. "Collateral Assignments of Tower Leases" means one or more collateral assignments, mortgages, or deeds of trust, in form and substance reasonably satisfactory to Lender, between one of the Obligors and Lender respecting the hypothecation of such Obligor's rights under the Tower Leases. "Collections" means all cash, checks, notes, instruments, and other items of payment (including, insurance proceeds, proceeds of cash sales, rental proceeds, and tax refunds). "CRN" means Catholic Radio Network, LLC, a California limited liability company. "CRN Guaranty" has the meaning assigned to it in Section 3.1(b)(7). "CRNH" means Catholic Radio Network Holdings, a Delaware limited liability company. "CRNH Guaranty" has the meaning assigned to it in Section 3.1(b)(8). "CRNL" means CRN Licenses, LLC, a Delaware limited liability company. "CRNL Security Agreement" has the meaning assigned to it in Section 3.1(b)(15). "CRNO" means CRN Operations, LLC, a Delaware limited liability company. "CRNO Guaranty" has the meaning assigned to it in Section 3.1(b)(9). "CRNO Security Agreement" has the meaning assigned to it in Section 3.1(b)(13). 4 "Cumulative Operating Income" has the meaning assigned to such term on Schedule D-1. "Default" means an event, condition, or default that, with the giving of notice, the passage of time, or both, would be an Event of Default. "Dollars or $" means United States dollars. "Equipment" means all of the Obligors' present and hereafter acquired machinery, machine tools, motors, equipment, furniture, furnishings, fixtures, vehicles (including motor vehicles and trailers), tools, parts, goods (other than consumer goods, farm products, or Inventory), wherever located, including, (a) any assets acquired by the Borrower pursuant to the Purchase Agreement, and (b) all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, 29 U.S.C. ss.ss. 1000 et seq., amendments thereto, successor statutes, and regulations or guidance promulgated thereunder. "ERISA Affiliate" means (a) any corporation subject to ERISA whose employees are treated as employed by the same employer as the employees of Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA whose employees are treated as employed by the same employer as the employees of Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any organization subject to ERISA that is a member of an affiliated service group of which Borrower is a member under IRC Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any party subject to ERISA that is a party to an arrangement with Borrower and whose employees are aggregated with the employees of Borrower under IRC Section 414(o). "ERISA Event" means (a) a Reportable Event with respect to any Benefit Plan or Multiemployer Plan, (b) the withdrawal of Borrower, any of its Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan year in which it was a "substantial employer" (as defined in Section 4001(a)(2) of ERISA), (c) the providing of notice of intent to terminate a Benefit Plan in a distress termination (as described in Section 4041(c) of ERISA), (d) the institution by the PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan, (e) any event or condition (i) that provides a basis under Section 4042(a)(1), (2), or (3) of ERISA for the termination of, or the appointment of a trustee to administer, any Benefit Plan or Multiemployer Plan, or (ii) that may result in termination of a Multiemployer Plan pursuant to Section 4041A of ERISA, (f) the partial or complete withdrawal within the meaning of Sections 4203 and 4205 of ERISA, of Borrower, any of its Subsidiaries or ERISA Affiliates from a Multiemployer Plan, or (g) providing any security to any Plan under Section 401(a)(29) of the IRC by Borrower or its Subsidiaries or any of their ERISA Affiliates. "Event of Default" has the meaning set forth in Section 8. 5 "FCC" means the United States Federal Communications Commission (or any successor agency, commission, bureau, department, or other political subdivision of the United States). "FCC License" means any license, permit, certificate of compliance, franchise, approval, or authorization, rented or issued by the FCC for the operation of a Broadcast System, including the stations. "FEIN" means Federal Employer Identification Number. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States, consistently applied. "General Intangibles" means all of the Obligors' present and future general intangibles and other personal property (including contract rights, rights arising under common law, statutes, or regulations, choses or things in action, goodwill, patents, trade names, trademarks, servicemarks, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements (including all FCC Licenses)), infringement claims, computer programs, information contained on computer disks or tapes, literature, reports, catalogs, deposit accounts, insurance premium rebates, tax refunds, and tax refund claims). "Guarantors" means Catholic Radio Network, LLC, a California limited liability company, Catholic Radio Network Holdings, LLC, a Delaware limited liability company, and CRNO. "Hazardous Materials" means the substances defined as "hazardous substances," "hazardous substances," "hazardous materials," or "toxic substances" int eh Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, 42 USC ss. 9601, et seq., or in the Hazardous Materials Transportation Act, 49 USC ss.1801, et seq., or in the Resources Conservation and Recovery Act, 42 USC ss. 6901, et seq., and all substances defined as "hazardous waste" under the Statutes of the States of California, Colorado, Illinois, Kansas, Minnesota, Pennsylvania and Wisconsin (with respect to Real Property located in such states) or any regulations adopted pursuant to those statues, including, but not limited to, asbestos and asbestos containing materials. "Indebtedness" shall mean at a particular time, (i) indebtedness for borrowed money or for the deferred purchase price of property or services in respect of which any Borrower is liable, contingently or otherwise, as obligor or otherwise or any commitment by which any Borrower assures a creditor against loss, including contingent reimbursement obligations with respect to letters of credit, (ii) indebtedness guaranteed in any manner by any Borrower, including guarantees in the form of an agreement to repurchase or reimburse; provided, however, that the amount of indebtedness represented by any guarantee of limited recourse shall be the lesser of the amount of indebtedness so guaranteed or the value of the asset to which the recourse of such indebtedness is limited to, (iii) Capitalized Lease Obligations, (iv) any unfunded obligation of any Borrower to a "multiemployer plan" as such term is defined under the Employee Retirement Income Security Act 6 of 1974, as amended ("ERISA"), and (v) all accounts payable of any Borrower, which are not being contested in good faith by appropriate proceedings and which are more than 90 days past due. "Initial Subordinated Indebtedness" means the Indebtedness not exceeding $15,000,000 described in Schedule 7.13, including all renewals and refinancings thereof. "Insolvency Proceeding" means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief. "Intellectual Property" shall mean each Obligor's present and future designs, patents, patent rights and applications therefor, trademarks and registrations or applications therefor, trade names, inventions, copyrights and all applications and registrations therefor, software or computer programs, license rights, trade secrets, methods, processes, know-how, drawings, specifications, descriptions, and all memoranda, notes, and records with respect to any research and development, and any interest of any Obligor in the foregoing, whether now owned or hereafter acquired by such Obligor and proceed s of all the foregoing, including, without limitation, proceeds of insurance policies thereon. "Interest Reserve Escrow Agreement" means that certain Interest Reserve Escrow Agreement of even date herewith between Borrower and Lender. "Inventory" shall mean all of the inventory of each Obligor of every kind and description, now or at any time hereafter owned by or in the custody or possession, actual or constructive, of such Borrower, wherever located, including, but not limited to, all merchandise, raw materials, parts, supplies, work-in-process and finished goods intended for sale, together with all the containers, packing, packaging, shipping and similar materials related thereto, and including such inventory as is temporarily out of such Obligor's custody or possession, including inventory on the premises of others and items in transit, and including any returns and repossessions upon any accounts, documents, instruments or chattel paper relating to or arising from the sale of inventory, and all substitutions and replacements therefor, and all additions and accessions thereto, and all ledgers, books of account, records, computer printouts, computer runs, and other computer-prepared information relating to any of the foregoing, and any and all proceeds of any of the foregoing, including, without limitation, proceeds of insurance policies thereon. "IRC" means the Internal Revenue Code of 1986, as amended, and the regulations thereunder. "Key Leases" has the meaning assigned to such term in the Purchase Agreement. "Lender Expenses" means all: reasonable actual costs or expenses (including taxes and insurance premiums) required to be paid by any Obligor under any of the Loan Documents that are 7 paid or incurred by Lender; reasonable fees or charges paid or incurred by Lender in connection with the Term Loan, all reasonable fees or charges for photocopying, notarization, couriers and messengers, tax lien, litigation, and UCC searches, filing, recording, publication, and real estate title policies and endorsements; actual costs and expenses incurred by Lender in the disbursement of funds to Borrower (by wire transfer or otherwise); actual charges paid or incurred by Lender resulting from the dishonor of checks; reasonable costs and expenses paid or incurred by Lender to correct any default or enforce any provision of the Loan Documents, including any extension fees advanced by the Lender pursuant to Section 9.1(c); or in gaining possession of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale, or advertising to sell the Collateral, or any portion thereof, irrespective of whether a sale is consummated; and Lender's reasonable attorneys fees and expenses incurred in advising, structuring, drafting, reviewing, administering, amending, terminating, enforcing (including attorneys fees and expenses incurred in connection with a "workout," a "restructuring," or an Insolvency Proceeding concerning any Obligor), defending, or concerning the Loan Documents, irrespective of whether suit is brought, provided however, that if any party commences a proceeding for the interpretation, reformation, enforcement or rescission of this Agreement, the prevailing party shall be entitled to recover from the other parties reasonable attorneys' fees and court and other litigation costs incurred, including but not limited to service of process, filing fees, court and court reporter costs, investigative costs, expert witness fees, and the cost of any bonds, whether taxable or not, and that such reimbursement shall be included in any judgment or final order issued in that proceeding. The "prevailing party" means the party determined by the court to most nearly prevail and not necessarily the one in whose favor a judgment is rendered. "Lien" means any interest in property securing an obligation owed to, or a claim by, any Person other than the owner of the property, whether such interest shall be based on the common law, statute, or contract, whether such interest shall be recorded or perfected, and whether such interest shall be contingent upon the occurrence of some future event or events or the existence of some future circumstance or circumstances, including the lien or security interest arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, security agreement, adverse claim or charge, conditional sale or trust receipt, or from a lease, consignment, or bailment for security purposes and also including reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases, and other title exceptions and encumbrances affecting Real Property. "Loan Documents" means this Agreement, the Note, the Mortgages, the Collateral Assignments of Key Leases, the Collateral Assignments of Tower Leases, the CRN Guaranty, the CRNH Guaranty, the Interest Reserve Escrow Agreement, the Borrower Security Agreement, the Borrower Pledge Agreements, the CRNO Security Agreement, the CRNO Limited Guaranty, the CRNL Security Agreement, and any other agreement entered into now or in the future, in connection with this Agreement. "Material Adverse Occurrence" means, with respect to any Obligor, (a) a material adverse change in the business, prospects, operations, results of operations, assets, liabilities or condition 8 (financial or otherwise) of such Obligor, (b) the material impairment of such Obligor's ability to perform its obligations under the Loan Documents to which it is a party or of Lender to enforce the Obligations or realize upon that Obligor's Collateral, or (c) a material impairment of the priority of Lender's Liens with respect to that Obligor's Collateral. "Maturity Date" has the meaning set forth in Section 3.4. "Mortgages" means one or more mortgages, deeds of trust, or deeds to secure debt, executed by an Obligor in favor of Lender, the form and substance of which shall be satisfactory to Lender. "Multiemployer Plan" means a "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) to which Borrower, any of its Subsidiaries, or any ERISA Affiliate has contributed, or was obligated to contribute, within the past six years. "Obligations" means all obligations of Borrower to Lender under the Note (including any interest that, but for the provisions of the Bankruptcy Code, would have accrued), and the other Loan Documents, and all Lender Expenses (including any fees or expenses that, but for the provisions of the Bankruptcy Code, would have accrued). "Obligors" means Borrower, CRNO and CRNL, or any of them. "PBGC" means the Pension Benefit Guaranty Corporation as defined in Title IV of ERISA, or any successor thereto. "Permitted Liens" means Liens set forth on Schedule P-1. "Permitted Protest" means the right of an Obligor to protest any Lien other than any such Lien that secures the Obligations, tax (other than payroll taxes or taxes that are the subject of a United States federal tax lien), or rental payment, provided that (a) a reserve with respect to such obligation is established on the books of the applicable Obligor in an amount that is reasonably satisfactory to Lender, (b) any such protest is instituted and diligently prosecuted by such Obligor in good faith, and (c) Lender is reasonably satisfied that, while any such protest is pending, there will be no impairment of the enforceability, validity, or priority of any of the Liens of Lender in and to the Collateral. "Person" means and includes natural persons, corporations, limited liability companies, limited partnerships, general partnerships, limited liability partnerships, joint ventures, trusts, land trusts, business trusts, or other organizations, irrespective of whether they are legal entities, and governments and agencies and political subdivisions thereof. "Plan" means any employee benefit plan, program, or arrangement maintained or contributed to by Borrower or with respect to which it may incur liability. 9 "Purchase Agreement" has the meaning assigned to it in the Recitals. "Real Property" means any estates or interests in real property now owned or hereafter acquired by any of the Obligors. "Reportable Event" means any of the events described in Section 4043(c) of ERISA or the regulations thereunder other than a Reportable Event as to which the provision of 30 days notice to the PBGC is waived under applicable regulations. "Solvent" means, with respect to any Person on a particular date, that on such date (a) at fair valuations, all of the properties and assets of such Person are greater than the sum of the debts,including contingent liabilities, of such Person, (b) the present fair salable value of the properties and assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person is able to realize upon its properties and assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (d) such Person does not intend to, and does not believe that it will, incur debts beyond such Person's ability to pay as such debts mature, and (e) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's properties and assets would constitute unreasonably small capital after giving due consideration to the prevailing practices in the industry in which such Person is engaged. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount that, in light of all the facts and circumstances existing at such time, represents the amount that reasonably can be expected to become an actual or matured liability. "Stations" means the radio stations listed on Schedule S-1. "Subordinated Indebtedness" means Initial Subordinated Indebtedness together with Additional Subordinated Indebtedness, if any. "Subsidiary" of a Person means a corporation, partnership, limited liability company, or other entity in which that Person directly or indirectly owns or controls the shares of stock or other ownership interests having ordinary voting power to elect a majority of the board of directors (or appoint other comparable managers) of such corporation, partnership, limited liability company, or other entity. "Term Loan" has the meaning set forth in the Recitals. "Term Loan Commitment" means $15,000,000. "Tower Leases" has the meaning assigned to such term in the Purchase Agreement. "Unrestricted Cash Balances" has the meaning set forth in Schedule D-1 hereto. 10 "Vander Eyk Agreement" means certain Agreement for Purchase and Sale of Real Property and Escrow Instructions, made and entered into as of August 20, 1997, by and between Cornelius Vander Eyk, Sr. and Nellie Vander Eyk, husband and wife ("Seller") and Lender with respect to approximately sixty-seven (67) acres in San Bernardino County, State of California, as amended, which Agreement for Purchase and Sale of Real Property and Escrow Instructions has been assigned to the Borrower pursuant to the terms of the Purchase Agreement. "Voidable Transfer" has the meaning set forth in Section 15.8. 1.2 ACCOUNTING TERMS. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. When used herein, the term "financial statements" shall include the notes and schedules thereto. Whenever the term "Borrower" is used in respect of a financial covenant or a related definition, it shall be understood to mean Borrower on a consolidated basis unless the context clearly requires otherwise. 1.3 CONSTRUCTION. Unless the context of this Agreement clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the term "including" is not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. An Event of Default shall "continue" or be "continuing" until such Event of Default has been waived in writing by Lender. Section, subsection, clause, schedule, and exhibit references are to this Agreement unless otherwise specified. Any reference in this Agreement or in the Loan Documents to this Agreement or any of the Loan Documents shall include all alterations, amendments, changes, extensions, modifications, joinders, renewals, replacements, substitutions, and supplements, thereto and thereof, as applicable. 1.4 SCHEDULES AND EXHIBITS. All of the schedules and exhibits attached to this Agreement shall be deemed incorporated herein by reference. 2. TERM LOAN AND TERMS OF PAYMENT. 2.1 TERM LOAN. (a) As of the date hereof, Lender agrees to make the Term Loan to Borrower. (b) The Term Loan shall be repaid in monthly installments of accrued interest only. Each such installment shall be due and payable on the last day of each month commencing on November 30, 1998 and continuing on the last day of each succeeding month until and including April 30, 2000, when the remaining unpaid principal balance plus accrued interest of the Term Loan shall be due and payable in full. The outstanding principal balance and all accrued and unpaid interest under the Term Loan shall be due and payable upon the termination of 11 this Agreement, whether by its terms, by prepayment, by acceleration, or otherwise. All amounts outstanding under the Term Loan shall constitute Obligations. (c) The Lender is hereby authorized and directed to advance the entire proceeds of the Term Loan directly to the Lender and its wholly-owned subsidiaries for application against the Purchase Price, as that term is defined in the Purchase Agreement. Borrower acknowledges receipt of the loan proceeds of the Term Loan. 2.2 INTEREST: RATES, PAYMENTS, AND CALCULATIONS. (a) Interest Rate. So long as no Event of Default has occurred and is continuing, the outstanding principal balance of the Note as well as all other outstanding and unpaid Obligations shall bear interest at a fixed rate per annum equal to ten percent (10.0%). (b) Default Rate. Upon the occurrence and during the continuation of an Event of Default, the outstanding principal balance of the Note as well as all other outstanding and unpaid Obligations shall bear interest at a per annum rate equal to four and one-half percent (4.5%) above the rate of interest otherwise applicable thereto. (c) Payments. Interest payable hereunder shall be due and payable, in arrears, on the last day of each month during the term hereof. All payments and prepayments by the Borrower on the Term Note shall be made in immediately available funds to the Bank at its main office in Minneapolis, Minnesota, not later than 2:00 p.m. (Minneapolis time) on the day such payment is due. Funds received after such hour shall be deemed to have been received by the Bank on the next Business Day. Borrower hereby authorizes Lender, at its option, without prior notice to Borrower, to charge such interest due under the Term Note to the Interest Reserve Escrow Agreement, in the manner provided for therein. The Term Note may be prepaid from time to time in whole or in part without penalty or premium. (d) Computation. All interest and fees chargeable under the Loan Documents shall be computed on the basis of a 365/366 day year. (e) Excess Interest. It is the intention of the Lender and the Borrower to comply with the laws of the State of Minnesota, and notwithstanding any provision to the contrary contained herein or in the other Loan Documents, the Borrower shall not be required to pay, and the Lender shall not be permitted to collect any amount in excess of, the maximum amount of interest permitted by law ("Excess Interest"). If any Excess Interest is provided for or determined to have been provided for by a court of competent jurisdiction in this Agreement or in any of the other Loan Documents, then in such event (A) the provisions of this subparagraph shall govern and control; (B) neither the Borrower nor any guarantor or endorser shall be obligated to pay any Excess Interest; (C) any Excess Interest that the Lender may have received hereunder shall be, at the Lender's option, (1) applied as a credit against the outstanding principal balance of the Obligations or accrued and unpaid interest (not to exceed the maximum amount permitted by law), (2) refunded 12 to the payor thereof, or (3) any combination of the foregoing; (D) the interest rate(s) provided for herein shall be automatically reduced to the maximum lawful rate allowed under applicable law, and this Agreement and the other Loan Documents shall be deemed to have been, and shall be, reformed and modified to reflect such reduction; and (E) neither the Borrower nor any Guarantor shall have any action against the Lender for any damages arising out of the payment or collection of any Excess Interest. 3. CONDITIONS; TERM OF AGREEMENT. 3.1 CONDITIONS PRECEDENT TO THE TERM LOAN. The obligation of Lender to make the Term Loan is subject to the fulfillment, to the satisfaction of Lender and its counsel, of each of the following conditions on or before the Closing Date: (a) the Closing Date of the Purchase Agreement shall have occurred; (b) Lender shall have received each of the following documents, duly executed, and each such document shall be in full force and effect: (1) a Term Promissory Note, of even date herewith executed by the Borrower and payable to the order of the Lender in the original principal amount of $15,000,000 ("Note"); (2) a Borrower Security Agreement of even date herewith, whereby the Borrower grants to the Lender a Lien in and to all of Borrower's now owned or hereafter acquired Accounts, Chattel Paper, Contracts, Documents, Equipment, General Intangibles, Inventory, and other personal property together with proceeds of the foregoing ("Borrower Security Agreement"); (3) UCC-1 Financing Statements, listing Borrower, as debtor, and Lender, as secured party, and containing a description of the collateral set forth in the Borrower Security Agreement for filing with the Secretaries of State of California, Colorado, Illinois, Kansas, Minnesota, Pennsylvania and Wisconsin and such other offices as the Lender deems necessary to protect its Lien in such collateral; (4) a Membership Interest Pledge Agreement, of even date herewith, executed by the Borrower in favor of Lender, with respect to the Borrower's membership interest in CRNO and a duly executed Membership Interest Pledge Agreement, of even date herewith, executed by the Borrower in favor of the Lender, with respect to the Borrower's membership interest in CRNL (collectively, the "Borrower Pledge Agreements"); 13 (5) UCC-1 Financing Statements, listing Borrower, as debtor and Lender, as secured party and containing a description of the collateral set forth in the Borrower Pledge Agreements, for filing with the Secretaries of State of Delaware and California and such other offices as the Lender deems necessary to protect its Lien in such collateral; (6) an Assignment Instruction, of even date herewith, executed by the Borrower and acknowledged by CRNO with respect to the Borrower's membership interest in CRNO and an Assignment Instruction, of even date herewith, executed by the Borrower and acknowledged by CRNL with respect to Borrower's membership interest in CRNL; (7) a Guaranty of the Note, executed by CRN ("CRN Guaranty"); (8) a Guaranty of the Note, executed by CRNH ("CRNH Guaranty"); (9) a Guaranty of the Note, executed by CRNO ("CRNO Guaranty"); (10) each of the Mortgages; (11) each of the Collateral Assignments of Key Leases, together with an appropriate consent to hypothecation from the lessor under the relevant Key Lease, except to the extent Lender permits one or more of such consents to be delivered after the Closing Date pursuant to Section 3.3 hereof; (12) the Collateral Assignments of Tower Leases, together with an appropriate consent to hypothecation from the lessor under the relevant Tower Lease, except to the extent Lender permits one or more of such consents to be delivered after the Closing Date pursuant to Section 3.3; (13) a Security Agreement, of even date herewith, executed by CRNO in favor of the Lender ("CRNO Security Agreement"); (14) duly executed UCC-1 Financing Statements listing CRNO, as debtor, and Lender, as secured party, and containing a description of the collateral set forth in the CRNO Security Agreement, for filing with the Secretaries of State of California, Colorado, Illinois, Kansas, 14 Minnesota, Pennsylvania and Wisconsin and such other offices as the Lender deems necessary to protect its Lien in such collateral; (15) a Security Agreement, of even date herewith, executed by CRNL in favor of the Lender ("CRNL Security Agreement"); (16) duly executed UCC-1 Financing Statements listing CRNL, as debtor, and Lender, as secured party, and containing a description of the collateral set forth in the CRNL Security Agreement, for filing with the Secretaries of State of Delaware and California and such other offices as the Lender deems necessary to protect its Lien in such collateral; (17) duly executed Interest Reserve Escrow Agreement, executed by the Borrower and CRN; (18) secured transaction and tax lien searches against each of the Obligors on such dates as the Lender shall request. (c) Lender shall have received a certificate from the Secretary of each Obligor attesting to the resolutions of such Obligor's Board of Governors authorizing its execution, delivery, and performance of the Loan Documents to which such Obligor is a party and authorizing specific officers of such Obligor to execute the same; (d) Lender shall have received copies of each Obligor's Governing Documents, as amended, modified, or supplemented to the Closing Date, certified by the Secretary of the applicable Obligor; (e) Lender shall have received a certificate of status with respect to each Obligor, dated within 10 days of the Closing Date, such certificate to be issued by the appropriate officer of the jurisdiction of organization of such Obligor, which certificate shall indicate that such Obligor is in good standing in such jurisdiction; (f) Lender shall have received a certificate of insurance, together with the endorsements thereto, as are required by Section 6.3, the form and substance of which shall be satisfactory to Lender and its counsel, except to the extent Lender permits one or more of the same to be delivered after the Closing Date pursuant to Section 3.3 hereof; (g) Lender shall have received balance sheet information in form reasonably acceptable to Lender, as of September 30, 1998, for each Obligor; (h) Lender shall have received an opinion of Borrower's counsel in form and substance satisfactory to Lender in its sole discretion; 15 (i) Lender shall have received mortgagee title insurance policies (or marked commitments to issue the same) for the Real Property Collateral issued by a title insurance company satisfactory to Lender (each a "Mortgage Policy" and, collectively, the "Mortgage Policies") in amounts satisfactory to Lender assuring Lender that the Mortgages are valid and enforceable first priority mortgage Liens, free and clear of all defects and encumbrances except Permitted Liens, and the Mortgage Policies shall otherwise be in form and substance reasonably satisfactory to Lender; in each case, except to the extent Lender permits one or more of the same to be delivered after the Closing Date pursuant to Section 3.3 hereof; (j) Lender shall have received payment of the Lender Expenses as provided for in Section 6.14; (k) all other documents and legal matters in connection with the transactions contemplated by this Agreement shall have been delivered, executed, or recorded and shall be in form and substance reasonably satisfactory to Lender and its counsel. 3.2 ADDITIONAL CONDITIONS PRECEDENT TO THE TERM LOAN. The following shall be conditions precedent to the obligation of the Lender to make the Term Loan hereunder: (a) the representations and warranties contained in this Agreement and the other Loan Documents shall be true and correct in all material respects on and as of the date of such extension of credit, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date); (b) no Default or Event of Default shall have occurred and be continuing on the date of such extension of credit, nor shall either result from the making thereof; and (c) no injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the extending of such credit shall have been issued and remain in force by any governmental authority against Borrower, Lender, or any of their Affiliates. 3.3 CONDITION SUBSEQUENT. As conditions subsequent to closing hereunder, Borrower shall: 3.3.1 (a) within thirty (30) days of the Closing Date, deliver to Lender the certified copies of the policies of insurance, together with the endorsements thereto, as are required by Section 6.3, the form and substance of which shall be satisfactory to Lender and its counsel. (b) within 30 days following the Closing Date, deliver to Lender each of the Mortgage Policies to the extent the same were not required by Lender to be delivered on or before the Closing Date under Section 3.1. 16 3.3.2 use its good faith efforts to perform or cause to be performed each of the following, provided Borrower shall not be required to incur any additional monetary or other obligations to lessors in connection therewith: (a) within days following the Closing Date, deliver to Lender an appropriate consent to hypothecation from the lessor under each of the Key Leases described in the Collateral Assignments of Key Leases. (b) within 30 days following the Closing Date, deliver to Lender an appropriate consent to hypothecation from the lessor under each of the Tower Leases described in the Collateral Assignments of Tower Leases. (c) within 30 days following the Closing Date, deliver to Lender the Collateral Access Agreements. 3.4 TERM. This Agreement shall become effective upon the execution and delivery hereof by Borrower and Lender and shall continue in full force and effect for a term ending on the date that is 18 months from the Closing Date (the "Maturity Date"), unless sooner terminated pursuant to the terms hereof. 4. REPRESENTATIONS AND WARRANTIES. In order to induce Lender to enter into this Agreement, Borrower makes the following representations and warranties which shall be true, correct, and complete in all respects as of the date hereof, and shall be true, correct, and complete in all respects as of the Closing Date (except to the extent that such representations and warranties relate solely to an earlier date) and such representations and warranties shall survive the execution and delivery of this Agreement: 4.1 CORPORATE EXISTENCE. The Borrower and each of the other Obligors is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, has the requisite power and authority to own its property and to transact the business in which it is now engaged, and both Borrower and CRNO are duly qualified and authorized to do business in California and in each other jurisdiction in which the nature of its business or properties makes such qualification necessary, except where the failure to so qualify would not result in Material Adverse Occurrence. The FEINs for each of the Obligors are as set forth on Schedule 4.1. 4.2 SUBSIDIARIES. Except as listed on Schedule 4.2, the Borrower has no Subsidiaries and has no other interest in any other corporation, limited liability company partnership, joint venture, trust, unincorporated organization or other entity. 4.3 CORPORATE POWER AND AUTHORITY. The Borrower has full power, right and authority to execute and deliver the Loan Documents, to borrow the funds herein provided for, and 17 to perform and observe each and all of the matters and things provided for in said Loan Documents. The execution, delivery and performance by the Borrower of the Loan Documents to which it is a party and the borrowings from time to time hereunder have been duly authorized by all necessary corporate action and do and will not (i) require any consent or approval of the members of the Borrower, or any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, except as disclosed in writing to the Lender on Schedule 4.3, (ii) violate any provision of any law, rule or regulation or of any order, writ, injunction or decree presently in effect having applicability to the Borrower or of the Governing Documents of the Borrower, (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement (other than the Purchase Agreement), lease (other than the Key Leases or the Tower Leases) or instrument to which the Borrower is a party or by which it or its properties may be bound or affected, or (iv) result in or require the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance of any nature (other than the Borrower Security Agreement and the Borrower Pledge Agreements) upon or with respect to any of the properties now owned or hereafter acquired by the Borrower. 4.4 OWNERSHIP. CRNH is the sole member of the Borrower and no other Person has any rights, options, warrants, conversion or exchange rights, with respect thereto. Borrower is the sole member of CRNO and CRNL and no other Person has any rights, options, warrants, conversion or exchange rights, with respect thereto. 4.5 VALIDITY OF OBLIGATIONS. This Agreement and each of the other Loan Documents to which the Borrower is a party are the legal, valid and binding obligation of the Borrower, enforceable against the Borrower, in accordance with their respective terms, subject only to bankruptcy, insolvency, reorganization, moratorium or similar laws at the time in effect affecting the enforceability of rights of creditors generally and to general principles of equity. 4.6 FINANCIAL STATEMENTS. The Borrower's unaudited, interim financial statements as of September 30, 1998, copies of which have been furnished to the Lender, present fairly the financial condition of the Borrower as at such date and the result of its operations for the period then ended, but subject to other year-end audit adjustments, and there has been no material adverse change in said financial condition. The Borrower has no contingent obligations, liabilities for taxes or other outstanding financial obligations which are material in the aggregate, which are not otherwise disclosed in the financial statements referred to above. 4.7 LIENS. Except as listed on Schedule P-1 and Liens existing on the Closing Date on assets acquired by the Borrower from the Lender pursuant to the Purchase Agreement, the Borrower has good and marketable title to all of its properties and assets, which properties and assets are not subject to any mortgage, pledge, title retention lien, or other lien, encumbrance or security interest. 18 4.8 LITIGATION. Except as listed on Schedule 4.8, as of the date of this Agreement, there is no action, suit or proceeding at law or equity, or before or by any federal, state, local or other governmental departments, commission, board, bureau, agency or instrumentality, domestic or foreign, pending, or to the knowledge of any officer of Borrower threatened, against the Borrower and its respective businesses, operations, properties, assets, or financial conditions which, if determined adversely would constitute a Material Adverse Occurrence; and the Borrower is not in default with respect to any final judgment, writ, injunction, decree, rule or regulation of any court or federal, state, local or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which, if determined adversely, would be a Material Adverse Occurrence. 4.9 ACCURACY OF INFORMATION. All factual information heretofore or contemporaneously furnished by or on behalf of the Borrower, any Subsidiary or the Guarantors to the Lender for purposes of or in connection with this Agreement or any transaction contemplated hereby (other than the transfer of assets pursuant to the Purchase Agreement), is and all other such factual information hereafter furnished by or on behalf of the Borrower to the Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified and not incomplete by omitting to state any material fact necessary to make such information not misleading on such date. 4.10 TAX RETURNS; AUDITS. The Borrower has filed all federal and state income tax returns which, to the knowledge of Borrower, are required to be filed, and has paid all taxes as shown on said returns and on all assessments received by them to the extent that such taxes have become due. The Borrower has no knowledge of any objections to or claims for additional taxes by federal, state or local taxing authorities for subsequent years. 4.11 CORPORATE TAKEOVERS. No proceeds of the Note will be used to acquire any security in any transaction which is subject to Section 13 or 14 to the Securities and Exchange Act of 1934, including without limitation Sections 13(d) and 14(d) thereof. 4.12 INVESTMENT COMPANY ACT. The Borrower is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 4.13 CONSENTS, ETC. No consent, approval, authorization of, or registration, declaration or filing with any governmental authority is required on the part of the Borrower in connection with the execution and delivery of this Agreement or the other Loan Documents or the performance of or compliance with the terms, provisions and conditions hereof, except as described on Schedule 4.3. 4.14 ERISA. None of Borrower, any of its Subsidiaries, or any of their ERISA Affiliates maintains or contributes to any Benefit Plan, other than those listed on Schedule 4.14. Neither a Reportable Event nor a Prohibited Transaction has occurred and is continuing with respect to any Plan; no notice of intent to terminate a Plan has been filed, nor has any Plan been terminated; 19 no circumstances exist which constitute grounds entitling the PBGC to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings; neither the Borrower nor any commonly controlled Entity has completely or partially withdrawn from a Multiemployer Plan; the Borrower and each Commonly Controlled Entity have met their minimum funding requirements under ERISA with respect to all of their Plans, and the present value of all vested benefits under each Plan does not exceed the fair market value of all Plan assets allocable to such benefits, as determined on the most recent valuation date of the Plan and in accordance with the provisions of ERISA; and neither the Borrower nor any commonly Controlled Entity has incurred any liability to the PBGC under ERISA. 4.15 NO EVENTS OF DEFAULT. No Default and no Event of Default has occurred and is continuing as of the date hereof. 4.16 SOLVENCY. (a) Borrower is Solvent. No transfer of property is being made by Borrower and no obligation is being incurred by Borrower in connection with the transactions contemplated by this Agreement or the other Loan Documents with the intent to hinder, delay, or defraud either present or future creditors of Borrower. (b) Each of the other Obligors is Solvent. No transfer of property is being made by such Obligor and no obligation is being incurred by such Obligor in connection with the transactions contemplated by this Agreement or the other Loan Documents with the intent to hinder, delay, or defraud either present or future creditors of such Obligor. 4.17. LICENSES AND PERMITS. All material licenses, permits, and consents and similar rights (other than licenses, permits and consents acquired from the Lender pursuant to the Purchase Agreement) required from any Federal, state, or local governmental body for the ownership, construction, use, and operation of the Stations and other properties now owned and operated by any of the Obligors, have been validly issued and are in full force and effect and each Obligor is in compliance, in all material respects, with all of the provisions thereof and none of such licenses, permits, or consents is the subject of any pending or, to the best of Borrower's knowledge and belief, threatened proceeding for the revocation, cancellation, suspension, or non-renewal thereof. As of the Closing Date, Schedule 4.17 is a complete and accurate list of all such licenses, permits, and consents, and such schedule identifies the date by which an application for the renewal of such license, permit, or consent must be filed and describes the status of each such pending application. Each of the Obligors owns or possesses all material patents, trademarks, trade names, copyrights, and other similar rights necessary for the conduct of its business as now carried on, without any known conflict of the rights of others. 5. REPRESENTATIONS AND WARRANTIES OF LENDER In order to induce Borrower to enter into this Agreement, Lender makes the following representations and warranties which shall be true, correct, and complete in all respects as of the date hereof, and shall be true, correct, and complete in all respects as of the Closing Date (except 20 to the extent that such representations and warranties relate solely to an earlier date) and such representations and warranties shall survive the execution and delivery of this Agreement. 5.1 CORPORATE EXISTENCE. Lender is a corporation organized, validly existing and in good standing under the laws of the State of Minnesota, and has the requisite power and authority to enter into this Agreement and to enter into and complete the transactions contemplated herein. Lender is duly qualified and authorized to do business in each other jurisdiction in which the nature of its business or properties makes such qualification necessary. 5.2 CORPORATE POWER AND AUTHORITY. Lender has full power, right and authority to execute and deliver the Loan Documents to be executed by Lender, to lend the funds herein and therein provided for, and to perform and observe each and all of the matters and things provided for in said Loan Documents to be performed and observed by Lender. The execution, delivery and performance by Lender of the Loan Documents to which it is a party and the transactions contemplated thereunder have been duly authorized by all necessary corporate action and do and will not (i) require any consent or approval of the shareholders of Lender, or any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign except as has already been obtained, (ii) violate any provision of any law, rule or regulation or of any order, writ, injunction or decree presently in effect having applicability to Borrower, (iii) violate or result in a breach of or constitute a default under the Articles of Incorporation, Bylaws or other governing documents of Lender, (iv) result in a breach of or constitute a default under any indenture, loan agreement, or other instrument or document to which Lender is a party or by which it or its properties may be bound or affected, or (v) result in or require the creation or imposition of any mortgage, deed or trust, pledge, lien, security interest or other charge or encumbrance of any nature upon and with respect to any of the properties now owned or hereafter acquired by Lender. 5.3 VALIDITY OF OBLIGATIONS. This Agreement and each of the other loan documents to which Lender is a party are the legal, valid and binding obligation of Lender, enforceable against Lender in accordance with their respective terms, subject only to bankruptcy, insolvency, reorganization, moratorium or similar laws at the time in effect affecting the enforceability of rights of creditors generally and to general principles of equity. 6. AFFIRMATIVE COVENANTS. Borrower hereby covenants and agrees with the Lender that for so long as any amount remains unpaid on the Term Note or on any other amount payable by the Borrower to the Lender hereunder or under any Loan Document, Borrower will, unless the Lender shall otherwise consent in writing: 6.1 MAINTAIN ASSETS. Other than certain post-closing obligations of the Lender described in the Purchase Agreement, maintain, keep and preserve, and cause each subsidiary to maintain, keep and preserve all of its assets, properties and equipment necessary or useful in the 21 proper conduct of its business in good repair, working order and condition, ordinary wear and tear excepted, and from time to time make or cause to be made all needed renewals, replacements and repairs so that at all times such businesses can be operated efficiently. 6.2. ACCOUNTING SYSTEM. Maintain, and cause each Subsidiary to maintain, a standard and modern system of accounting that enables Borrower and each of the other Obligors to produce financial statements in accordance with GAAP, and maintain records pertaining to the Collateral that contain information as from time to time may be requested by Lender. 6.3. INSURANCE. Maintain, and cause each Subsidiary to maintain, in addition to the insurance required by the Mortgages, the Borrower Security Agreement, the CRNO Security Agreement and the CRNC Security Agreement, workers' compensation, liability insurance and property insurance on all of its properties, assets and businesses with financially sound and reputable insurance companies or associations in such amounts and covering such risks as are usually carried by companies engaged in the same or a similar business and similarly situated, which insurance may provide for reasonable deductibility from coverage thereof, and furnish to the Lender upon request appropriate evidence of the carrying of such insurance. Borrower and each Subsidiary will obtain loss payable endorsements on applicable insurance policies in favor of the Borrower or Subsidiary and the Lender as their interests appear. Borrower shall cause each insurer to provide the Lender with thirty (30) days prior written notice of cancellation or nonrenewable. 6.4. FINANCIAL STATEMENTS. Furnish to the Lender: 6.4.1. ANNUAL. As soon as available and in any event within 120 days after the close of each of Borrower's fiscal years, the audited balance sheet of the Borrower and its Subsidiaries as at the end of such year and the audited statement of income and retained earnings for Borrower and its Subsidiaries for such year, prepared by an independent certified public accountants of recognized standing selected by Borrower and acceptable to the Lender. Such statement shall be accompanied by the written statement of such accountants that in making the examination necessary for their certification of such financial statements that they have obtained no knowledge of any default by Borrower (or the continuance thereof) in the performance of any of the financial covenants contained in this Agreement, or if such accountants shall have obtained knowledge of any such default or the continuance thereof, they shall disclose in such statement such default or defaults or the continuance thereof, it being understood that such accountants shall not be liable for failure to obtain knowledge of any such default or the continuance thereof. 6.4.2. MONTHLY. As soon as available and in any event within thirty (30) days after the end of each month, Borrower's internally prepared balance sheet as of the end of such month and statement of income and retained earnings for the portion of the fiscal year then ended (such financial statement to be in a format substantially similar to that of internally prepared financial statements previously delivered to the Lender), all in reasonable detail 22 but subject to year-end audit adjustments and certified as accurate by the Borrower's Chief Financial Officer or Controller. 6.4.3. TAX RETURNS. As soon as available and in any event within thirty (30) days after their filing, the federal and state tax returns (together with all schedules and attachments) of the Borrower, CRNO and CRNL for each fiscal year. 6.4.4 GOVERNMENT AUTHORIZATIONS. As soon as practicable, and in any event within ten (10) days after the receipt by any Obligor from the FCC or any other governmental agency having jurisdiction over the operations of any Obligor or filing or receipt thereof by any Obligor, (i) copies of any order or notice of the FCC or such other agency or court of competent jurisdiction which designates any material FCC License or other material franchise, permit, or other governmental operating authorization of any Obligor, or any application therefor, for a hearing or which refuses renewal or extension of, or revokes or suspends the authority of any Obligor to construct or operate a Communications System (or portion thereof), (ii) a copy of any competing application filed with respect to any such FCC License or other authorization, or application therefor, of any Obligor, or any citation, notice of violation, or order to show cause issued by the FCC or other agency or any complaint filed by the FCC or other agency which is available to any Obligor, and (iii) a copy of any notice or application by any Obligor requesting authority to or notifying the FCC of its intent to cease broadcasting on any broadcast station for any period in excess of ten (10) days. 6.4.5. OFF-THE-AIR REPORTS. Promptly deliver notice of each occurrence of a period of twenty-four (24) consecutive hours or more during which any Station owned or operated by any Obligor was not broadcasting. 6.4.6. OTHER. From time to time such other material information pertaining to Borrower, any Subsidiary and the Guarantors and their respective financial condition as the Lender may reasonably request. 6.5. ACCESS TO RECORDS. At any reasonable time and from time to time, upon seven days prior notice, permit the Lender or any agent or representative thereof, to examine and make copies of and abstracts from the records and books of account of Borrower, and to discuss the affairs, finances, and accounts of Borrower with the Borrower's Chief Executive Officer or Chief Financial Officer during normal business hours. 6.6. TAXES, ASSESSMENTS AND CHARGES. Promptly pay over to the appropriate authorities all sums for taxes deducted and withheld from wages as well as the employer's contributions relating thereto and promptly pay all taxes, assessments and other governmental charges imposed upon or asserted against Borrower's income, profits, properties and activities and all claims for labor, materials, supplies, rental charges or otherwise which are or might become a lien charged upon Borrower's properties, unless the same are being contested in good faith by 23 appropriate proceedings and adequate reserves shall have been established on Borrower's books with respect hereto. 6.7 COMPLIANCE WITH LAW. Comply, and cause each of its Subsidiaries to comply, in all material respects, with all applicable laws, rules, regulations and orders, including all applicable provisions of ERISA and the regulations and published interpretations thereunder, except to the extent that Lender has undertaken the obligation to so comply pursuant to the Purchase Agreement. 6.8. NOTIFICATION OF CHANGES. Promptly notify the Lender in writing of: (i) Any litigation which might materially and adversely affect Borrower and any of the properties of Borrower; (ii) The occurrence of any disposal or release of any Hazardous Materials on, from or under any property owned, operated or controlled by the Borrower, except as may have occurred in compliance with applicable environmental laws. 6.9. EXISTENCE. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its corporate existence and good standing in the jurisdiction of its incor poration and continue in compliance in all material respects with all applicable statutes, laws, rules and regulations. 6.10. CONDUCT OF BUSINESS. Continue to engage in a business of the same general type as that now being conducted by Borrower on the date of this Agreement, provided, however, that nothing contained in this Section shall prevent Borrower from discontinuing any part of the business of Borrower, if the discontinuance is, in the opinion of the Board of Governors of Borrower, in the best interests of Borrower, and such discontinuance shall not be disadvantageous to the Lender. 6.11. BOOKS AND RECORDS. Keep true and accurate records and books of accounts, in accordance with GAAP. 6.12 VANDER EYK AGREEMENT. Pursuant to the terms of the Vander Eyk Agreement, take all steps necessary and pay all sums required to purchase the Property, as defined in the Vander Eyk Agreement, by not later than January 12, 1999, including, without limitation, the payment of such extension fees as may be required under the terms of the Vander Eyk Agreement to extend the scheduled Close of Escrow, as defined in the Vander Eyk Agreement, through such date at least five (5) Business Days prior to the date such extension fee payment would otherwise be due under the terms of the Vander Eyk Agreement, and to provide the Lender within two (2) Business Days thereafter with written evidence of the payment of such extension fees. 24 6.13. SURVIVAL OF REPRESENTATIONS, ETC. All representations and warranties by Borrower herein shall survive delivery of the Term Note and any investigation at any time made by or on behalf of Lender shall not diminish Lender's right to rely upon such representations and warranties. 6.14. COSTS AND EXPENSES. The Borrower agrees to pay on demand all Lender Expenses, provided however, that Borrower and Lender have agreed to share equally the costs related to the Mortgage Policies and the fees in connection with the Interest Reserve Escrow Agreement and provided further however, that Lender's actual attorneys' fees and disbursements for the preparation and negotiation of the Loan Documents shall not exceed $25,000. 7. NEGATIVE COVENANTS. Borrower hereby covenants and agrees with the Lender that so long as any amount shall remain unpaid on the Term Note or any amount payable by the Borrower to the Lender hereunder or under any other Loan Document, Borrower will not, without the written consent of the Lender: 7.1. LIENS AND ENCUMBRANCES. Create, assume, incur or suffer to exist any pledge, mortgage, assignment or other Lien or encumbrance of any kind, of or upon any of its prop erty of any kind, whether now owned or hereafter acquired, or of or upon the income or profits therefrom except for: 7.1.1. Liens for taxes, assessments and other governmental charges which are not delinquent or which are being contested in good faith by appropriate proceedings diligently conducted, against which required reserves have been set up; 7.1.2. Liens incurred or deposits made in the ordinary course of business in connection with worker's compensation, unemployment insurance or other similar laws or to secure the performance of statutory obligations of a like nature (exclusive of obligations for the payment of money borrowed); 7.1.3. Liens imposed by law in connection with transactions in the ordinary course of business, such as liens of carriers, warehousemen, mechanics and materialmen for sums not yet due or being contested in good faith and by appropriate proceedings diligently conducted, against which adequate reserves have been set up; 7.1.4. Landlords' liens under real estate leases to which Borrower is a party; 7.1.5. First priority purchase money mortgages, liens, or security interests (which term for purposes of this subsection shall include conditional sale agreements or other title retention agreements and leases in the nature of title retention agreements) upon or in real property or Equipment acquired after the date hereof incurred solely to secure the financing, and any refinancings from time to time thereof, of any such real property or Equipment, or 25 mortgages, liens or security interests existing in such property at the time of acquisition thereof, provided that no such mortgage, lien or security interest extends or shall extend to or cover any property of the Borrower, other than the real property or Equipment then being acquired and Lender hereby agrees to release or subordinate its Lien in any such real property or Equipment as requested by the purchase money lienholder thereof; 7.1.6. Easements, rights-of-way, restrictions and other similar encumbrances which, in the aggregate, do not materially interfere with the occupation, use, and enjoyment by Borrower of the property or assets encumbered thereby in the normal course of its business or materially impair the value of the property subject thereto; 7.1.7. Liens that may arise in connection with Capitalized Leases permitted by Section 7.2, provided no such Lien shall extend to or cover any assets other than the assets subject to such Capitalized Lease; 7.1.8. Liens described on Schedule P-1 hereto; 7.1.9. Liens existing on the date hereof in the assets obtained by the Borrower from the Lender pursuant to the Purchase Agreement; and 7.1.10. Liens to secure Acquisition Related Indebtedness permitted under Section 7.4(3). 7.2. INDEBTEDNESS. Create, incur, assume, contract, waive, having outstanding, suffer to exist, or otherwise become, directly or indirectly, liable in respect to any Debt, except: 7.2.1. Indebtedness arising out of this Agreement, the Note and the other Loan Documents; 7.2.2. Trade payables arising in the ordinary course of Borrower's business; 7.2.3. Indebtedness incurred in connection with Liens permitted under Schedule P-1 or Sections 7.1.1, 7.1.2 or 7.1.5; 7.2.4. Acquisition Related Indebtedness permitted under Section 7.4(3); 7.2.5. Indebtedness (other than Subordinated Indebtedness) existing on the date hereof as described on Schedule 7.2, but no extension or renewal thereof; 7.2.6. Capital Lease Obligations incurred in connection with Capital Expenditures permitted by Section 7.10. 7.2.7. Subordinated Indebtedness. 26 7.3. DEFAULT ON OTHER OBLIGATIONS. Default upon or fail to pay any of its other material debts or obligations as the same mature unless adequate reserves for the payment thereof have been established on Borrower's books with respect hereto. 7.4. CHANGE IN CONTROL, MERGE, CONSOLIDATE OR SELL. Cause, permit or suffer directly or indirectly, any change in control, wind up, liquidate or dissolve itself, reorganization, merge or consolidate with or into, or convey, sell, assign, transfer, lease, or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to any Person, or acquire all or substantially all of the assets or the business of any Person, or permit any Subsidiary to do so, except that (1) any Subsidiary may merge into or transfer assets to the Borrower, (2) any Subsidiary may merge into or consolidate with or transfer assets to any other Subsidiary, or (3) the Borrower may merge into or acquire all or substantially all of the assets or securities of any other Person provided, however, that notwithstanding any other language in this Agreement to the contrary, to the extent that the payment of any Indebtedness incurred by the Borrower in connection with such merger or acquisition ("Acquisition Related Indebtedness") is to be secured with assets of the Borrower or its Subsidiaries, the Borrower has, prior to the creating of such Acquisition Related Indebtedness, either (a) obtained the Lender's written consent to such merger or acquisition, or (b) funded the Interest Reserve Escrow Agreement with such additional monies so that at the date of the creation of such Acquisition Related Indebtedness, the aggregate balance of the Interest Reserve Escrow is at least equal to the aggregate total remaining interest payments due on the Note until the Maturity Date. In the event the Borrower funds the Interest Reserve Escrow Agreement as provided above, the Borrower's obligation to maintain Unrestricted Cash Balances under Section 7.14(b) shall cease. 7.5. INCONSISTENT AGREEMENTS. Enter into any agreement containing any provision which would be violated or breached by any borrowing by Borrower hereunder or by the performance by Borrower of its obligations hereunder or under any Instrument executed pursuant hereto. 7.6. SALE AND LEASEBACK. Sell, transfer, or otherwise dispose of any personal property to any entity and thereafter directly or indirectly lease back the same or similar property. 7.7. LOANS. Make or permit to exist any loans advances or intercompany transfers to or investments in any Person, entity, firm or corporation, other than: 7.7.1. The purchase and sale of negotiable instruments; 7.7.2. Loans by CRNO to Borrower to enable Borrower to repay the Term Loan; and 7.7.3. Loans by Borrower to CRNH to enable CRNH to repay the Initial Subordinated Indebtedness. 27 7.8. GUARANTIES, ETC. Except for guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, assume, guarantee, endorse, or otherwise be or become directly or contingently responsible or liable (including, but not limited to, an agreement to purchase any obligation, stock, assets, goods, or services, or to supply or advance any funds assets, goods, or services, or to maintain or cause such person to maintain a minimum working capital or net worth, or otherwise to assure the creditors of any entity or individual against loss) for obligations of any entity or individual except for (a) guaranties in favor of the Lender and (b) guaranties issued by the Borrower in connection with the acquisition as assets by its Subsidiaries. 7.9. DIVIDENDS. Other than for the purposes described in Sections 7.7.2 and 7.7.3, declare or pay any distributions or dividends; or purchase, redeem, retire, or otherwise acquire for value any of its membership interest now or hereafter outstanding; or make any distribution of assets to its members as such whether in cash, assets, or obligations of the Borrower; or allocate or otherwise set apart any sum for the payment of any dividend or distribution on, or for the purchase, redemption, or retirement of any membership interest; or make any other distribution by reduction of capital or otherwise in respect of any membership interest; or permit any of its Subsidiaries to purchase or otherwise acquire for value any stock of the Borrower or another Subsidiary. 7.10. CAPITAL EXPENDITURES. Other than Capital Expenditures not exceeding $1,000,000 expended in connection with Borrower's compliance with Section 6.12 and the build-out of the property so acquired, create, incur, assume or make any Capital Expenditure for capital improvements or capital assets, including Capital Lease Obligations, in any fiscal year in excess of $400,000, provided however, that upon the occurrence of an Event of Default, Borrower shall immediately cease making capital expenditures of any type until such Event of Default is cured to the reasonable satisfaction of the Lender. 7.11. INVESTMENTS. The Borrower will not, nor will it permit any Subsidiary to, purchase or hold beneficially any stock or other securities or evidences of indebtedness of, make or permit to exist any loans or advances to, or make any investment or acquire any interest whatsoever in, any other Person, except with the prior written consent of the Lender in their sole discretion and except: (a) investments in direct obligations or money market funds holding the obligations of the United States of America or any agency or instrumentality thereof whose obligations constitute full faith and credit obligations of the United States of America having a maturity of one year or less, commercial paper issued by U.S. corporations rated "A1" or "A2" by Standard & Poor's Corporation or "P1" or "P2" by Moody's Investors Service, or certificates of deposit or Lenders' acceptances having a maturity of one year or less issued by members of the Federal Reserve System having deposits in excess of $200,000,000; (b) travel advances to officers and employees of the Borrower; 28 (c) advances in the form of progress payments, prepaid rent or security deposits; (d) existing investments in Borrower's Subsidiaries described in Schedule 7.4, as the value attributed to such investments under GAAP may be increased as a result of earnings of such Subsidiaries; (e) loans and distributions permitted by Sections 7.7.2 and 7.7.3.; and (f) acquisitions permitted under Section 7.4(3). 7.12. PAYMENT ON SUBORDINATED INDEBTEDNESS. Make any payment of principal or interest on any Subordinated Indebtedness, amend or cancel the subordination provisions relating to such Subordinated Indebtedness, take or omit to take any action whereby the subordination of such Subordinated Indebtedness or any part thereof to the Note might be terminated, impaired or adversely affected or omit to give the Lender prompt notice of any notice received from any holder of Subordinated Indebtedness of any default under any agreement or instrument relating to any Subordinated Indebtedness by reason whereof such Indebtedness might become or be declared to be due and payable; provided however, that the Borrower may make regularly scheduled payments on Subordinated Indebtedness so long as no Default exists either prior to or immediately following such payment. 7.13. TRANSACTIONS WITH AFFILIATES. The Borrower will not, nor will it permit any Subsidiary, to enter into any transaction with any Affiliate upon terms and conditions less favorable to the Borrower or such Subsidiary than the terms and conditions which would apply in a similar transaction with a person other than such Affiliate. 7.14. FINANCIAL COVENANTS. Fail to maintain: (a) Cumulative Operating Income Requirement. Cumulative Operating Income, as measured on a fiscal quarter-end basis, of at least the amount set forth below: ================================================================================ Qtr/Yr Minimum Cumulative Operating Income - -------------------------------------------------------------------------------- Q4/1998 ($1,161,000) - -------------------------------------------------------------------------------- Q1/1999 ($1,432,000) - -------------------------------------------------------------------------------- Q2/1999 ($1,073,000) - -------------------------------------------------------------------------------- Q3/1999 ($ 804,000) - -------------------------------------------------------------------------------- Q4/1999 ($ 204,000) - -------------------------------------------------------------------------------- Q1/2000 ($ 37,000) ================================================================================ 29 (b) Unrestricted Cash Balances. Unrestricted Cash Balances measured on a fiscal quarter-end basis, of at least $500,000. 8. EVENTS OF DEFAULT. Any one or more of the following events shall constitute an event of default (each, an "Event of Default") under this Agreement: 8.1 (a) The Borrower shall fail to make any payment (a) of principal of, or interest on, the Note or (b) of the Lender Expenses, within three (3) Business Days after the same become due and payable; or 8.2 The Borrower shall fail to perform or observe any term, covenant or agreement contained in Section 6.12; or 8.3 Any Obligor shall fail to perform or observe any other term, covenant or agreement contained in any Loan Document on its part to be performed or observed and such failure remains unremedied for thirty (30) consecutive calendar days after the Lender has given such Obligor written notice of the occurrence thereof, or if such failure cannot be cured within said thirty (30) day period, then such greater period of time as is reasonably required to effect such cure provided the Borrower diligently commences and pursues the same; 8.4 The Borrower shall fail to pay any principal of, premium or interest on or any other amount payable in respect to any Indebtedness that is outstanding in a principal amount of at least $1,000,000 (but excluding Indebtedness outstanding under the Note), when the same shall become due and payable, whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), unless the same is being contested by the Borrower in good faith with adequate reserves established; 8.5 Any order for the payment of money in excess of $250,000 (other than such a judgment or order which is fully covered by insurance for which the appropriate insures has acknowledged responsibility in writing) shall be issued against any Obligor and either (a) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (b) there shall be a period of forty-five (45) consecutive calendar days during which a stay of enforcement of such judgment or order, by reason or a pending appeal or otherwise, shall not be in effect; or 8.6 Any material provision of any Loan Document after delivery thereof shall for any reason cease to be valid and binding on or enforceable against any Obligor which is party to it, or any Obligor shall so state in writing; or 8.7 An Insolvency Proceeding is commenced by any Obligor; 30 8.8 An Insolvency Proceeding is commenced against any Obligor and any of the following events occur: (a) such Obligor consents to the institution of the Insolvency Proceeding against it; (b) the petition commencing the Insolvency Proceeding is not timely controverted; (c) the petition commencing the Insolvency Proceeding is not dismissed within 45 calendar days of the date of the filing thereof; (d) an interim trustee is appointed to take possession of all or a substantial portion of the properties or assets of, or to operate all or any substantial portion of the business of, any Obligor; or (e) an order for relief shall have been issued or entered therein; 8.9 An Obligor makes any payment on account of Subordinated Indebtedness, except to the extent such payment is permitted by the terms of the subordination provisions applicable to such Subordinated Indebtedness; 8.10 The obligation of any Guarantor is limited or terminated by operation of law or by such Guarantor thereunder, or any Guarantor becomes the subject of an Insolvency Proceeding; or 8.11 A Change of Control occurs. 9. LENDER'S RIGHTS AND REMEDIES. 9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the continuation, of an Event of Default, Lender may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower (and hereby caused by Borrower to be authorized by each of the other Obligors): (a) Declare all Obligations, whether evidenced by this Agreement, the Note, any of the other Loan Documents, or otherwise, immediately due and payable in each case without presentment, demand, protest or other notice of any kind; (b) Terminate this Agreement and any of the other Loan Documents as to any future liability or obligation of Lender, but without affecting Lender's rights under the Loan Documents and without affecting the Obligations; (c) Cure any failure of Borrower to comply with the requirements contained in Section 6.12, including the payment of any extension fees required under the Vander Eyk Agreement or purchase price or the receipt of delivery of a deed in Lender's name for the Property; (d) Pursue any remedies provided herein or in any other Loan Document, or law or in equity. 9.2 REMEDIES CUMULATIVE. Lender's rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Lender shall have all other 31 rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Lender of one right or remedy shall be deemed an election, and no waiver by Lender of any Event of Default shall be deemed a continuing waiver. No delay by Lender shall constitute a waiver, election, or acquiescence by it. 10. WAIVERS; INDEMNIFICATION. 10.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at any time held by Lender on which Borrower or any other Obligor may in any way be liable. 10.2 INDEMNIFICATION. (a) The Borrower agrees to indemnify and hold harmless the Lender, and its respective officers, directors, employees, agents and advisors (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities and expense (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of, in connection with the preparation for a defense of, any investigation, litigation or proceeding arising out of, related to or in connection with (i) a breach by Borrower of its obligations under the Loan Documents, or, (ii) any acquisition or proposed acquisition or similar business combination or proposed business combination by the Borrower or any of its Subsidiaries of all or any portion of the shares of capital stock or substantially all of the property and assets of any other Person, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from any Indemnified Party's gross negligence or willful misconduct. 11. NOTICES. Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other Loan Document shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by registered or certified mail (postage prepaid, return receipt requested), overnight courier, or telefacsimile to Borrower or to Lender, as the case may be, at its address set forth below: IF TO BORROWER: CRN Broadcasting, LLC 8910 University Center Lane, Suite 130 San Diego, California 92122 Attn: John T. Lynch Fax: 619.784.6910 32 WITH COPIES TO: Gray, Cary, Ware & Freidenrich 4365 Executive Drive Suite 1100 San Diego, California 92121 Attn: Jeffrey T. Baglio Fax: 619.677.1477 IF TO LENDER: CHILDREN'S BROADCASTING CORPORATION 724 First Street, Fourth Floor Minneapolis, Minnesota 55401 Attn: Mr. James G. Gilbertson Fax No. 612.338.4318 WITH COPIES TO: CHILDREN'S BROADCASTING CORPORATION 724 First Street, Fourth Floor Minneapolis, Minnesota 55401 Attn: Lance W. Riley, Esq. Fax No. 612.330.9558 The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other. 12. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN AN ANOTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF HENNEPIN, STATE OF MINNESOTA OR, AT THE SOLE OPTION OF LENDER, IN ANY OTHER COURT IN WHICH LENDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF BORROWER (FOR ITSELF AND ON BEHALF OF EACH OF THE OTHER OBLIGORS) AND LENDER WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE 33 DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 11. BORROWER (FOR ITSELF AND ON BEHALF OF EACH OF THE OTHER OBLIGORS) AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH OF BORROWER (FOR ITSELF AND ON BEHALF OF EACH OF THE OTHER OBLIGORS) AND LENDER REPRESENTS THAT IT HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 13. GENERAL PROVISIONS. 13.1 EFFECTIVENESS. This Agreement shall be binding and deemed effective when executed by Borrower and Lender. 13.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties; provided, however, that Borrower may not assign this Agreement or any rights or duties hereunder without Lender's prior written consent and any prohibited assignment shall be absolutely void. No consent to an assignment by Lender shall release Borrower from its Obligations. Lender may assign this Agreement and the other Loan Documents and its rights and duties hereunder and thereunder and no consent or approval by Borrower or any other Obligor is required in connection with any such assignment. Lender reserves the right to sell, assign, transfer, negotiate, or grant participations in all or any part of, or any interest in Lender's rights and benefits hereunder and under the other Loan Documents. In connection with any such assignment or participation, Lender may disclose all documents and information which Lender now or hereafter may have relating to any Obligor or any Obligor's business. To the extent that Lender assigns its rights and obligations hereunder or under any other Loan Document to a third Person, Lender thereafter shall be released from such assigned obligations to the relevant Obligor and such assignment shall effect a novation between the relevant Obligor and such third Person. 13.3 SECTION HEADINGS. Headings and numbers have been set forth herein for convenience only. Unless the contrary is compelled by the context, everything contained in each section applies equally to this entire Agreement. 13.4 INTERPRETATION. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against Lender or Borrower or any other Obligor, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by 34 all parties (including Borrower for itself and on behalf of each of the other Obligors) and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of all parties hereto. 13.5 SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 13.6 AMENDMENTS IN WRITING. This Agreement can only be amended by a writing signed by both Lender and Borrower. 13.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. Delivery of an executed counterpart of this Agreement by telefacsimile shall be equally as effective as delivery of an original executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by telefacsimile also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. The foregoing shall apply to each other Loan Document MUTATIS MUTANDIS. 13.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence or payment of the Obligations by Borrower or any Guarantor of the Obligations or the transfer by either or both of such parties to Lender of any property of either or both of such parties should for any reason subsequently be declared to be void or voidable under any state or federal law relating to creditors' rights, including provisions of the Bankruptcy Code relating to fraudulent conveyances, preferences, and other voidable or recoverable payments of money or transfers of property (collectively, a "Voidable Transfer"), and if Lender is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that Lender is required or elects to repay or restore, and as to all reasonable costs, expenses, and attorneys fees of Lender related thereto, the liability of Borrower or such Guarantor automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made. 13.9 INTEGRATION. This Agreement, together with the other Loan Documents, reflects the entire understanding of the parties with respect to the transactions contemplated hereby 35 and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof. 13.10 PURCHASE AGREEMENT. Nothing in this Agreement is intended to modify, change or abridge the respective representations, warranties, rights, duties and remedies under the Purchase Agreement parties. 36 IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be executed in Minneapolis, Minnesota, the day and year first above written. CHILDREN'S BROADCASTING CORPORATION, a Minnesota corporation By___________________________________________________ Christopher T. Dahl Title: Chief Executive Officer CRN BROADCASTING, LLC, a Delaware limited liability company By___________________________________________________ John T. Lynch Title: President and Chief Financial Officer 37 SCHEDULES AND EXHIBITS Schedule D-1 Definitions for Financial Covenants Schedule P-1 Permitted Liens Schedule S-1 Stations Schedule 4.20 Licenses and Permits and Renewals thereof Schedule 4.1 FEINs Schedule 4.2 Subsidiaries Schedule 4.3 Required Consents Schedule 4.8 Litigation Schedule 4.14 ERISA Benefit Plans Schedule 4.17 Licenses Other than Acquired Schedule 7.2 Existing Indebtedness Schedule 7.13 Initial Subordinated Indebtedness 38 SCHEDULE D-1 FINANCIAL COVENANT DEFINITIONS "CUMULATIVE OPERATING INCOME" means the net income of the Borrower and its Subsidiaries plus provisions for income taxes, interest expense, depreciation, amortization and extraordinary charges or credits. "UNRESTRICTED CASH BALANCES" means all cash and cash equivalents (i.e., certificates of deposit, money market accounts) of the Borrower and its Subsidiaries which are not subject to any Lien. 39 EX-10.12 9 AMENDMENT NO. 4 TO LOAN AND SECURITY AGREEMENT EXHIBIT 10.12 AMENDMENT NUMBER FOUR TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT This AMENDMENT NUMBER FOUR TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT ("Amendment"), is entered into as of October 1, 1998, between FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill"), with a place of business located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333, and CHILDREN'S BROADCASTING CORPORATION, a Minnesota corporation ("Borrower"), with its chief executive office located at 724 First Street, Fourth Floor, Minneapolis, Minnesota 55401. WHEREAS, Borrower and Foothill are parties to that certain Amended and Restated Loan and Security Agreement, dated as of July 1, 1997, as amended by that certain Amendment Number One to Amended and Restated Loan and Security Agreement dated as of September 24, 1997, by that certain Amendment Number Two to Amended and Restated Loan and Security Agreement dated as of March 13, 1998, and by that certain Amendment Number Three to Amended and Restated Loan and Security Agreement dated as of May 21, 1998 (as so amended, the "Loan Agreement"); WHEREAS, Borrower has requested that Foothill make an additional term loan in the approximate amount of $1,000,000 (the "Supplemental Term Loan No. 4") such that the aggregate outstanding amount under the Term Loan as of the Amendment Date shall be $25,000,000, and the proceeds of which shall be used in part (a) to repay the existing Overadvance outstanding under the revolving credit facility provided for in Section 2.1 of the Loan Agreement, (b) to establish the supplemental interest payment reserve described in Section 2.2 as amended by this Amendment, and (c) to pay Foothill the amendment fee due in connection with this Amendment as described in described in Section 2.2 as amended by this Amendment. Upon repayment of the Overadvance outstanding under Section 2.1 of the Loan Agreement from the proceeds of Supplemental Term Loan No. 4, Borrower shall be permitted to use the balance of amounts available under Section 2.1 for general working capital purposes; WHEREAS, Foothill has agreed to make Supplemental Term Loan No. 4 in accordance with the terms of this Amendment; and WHEREAS, Borrower and Foothill desire to amend the Loan Agreement as provided in this Amendment, it being understood that no repayment of the obligations under the Loan Agreement is being effected hereby, but merely an amendment and restatement in accordance with the terms hereof. All capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Loan Agreement. NOW, THEREFORE, in consideration of the mutual promises contained herein, Foothill and Borrower hereby agree as follows: 1. Section 1.1 of the Loan Agreement hereby is amended by (a) deleting the following defined terms in their entireties: "Amendment Date," "Loan Documents," and "Term Loan Commitment", and (b) inserting following defined terms in alphabetical order: "Amendment Date" means the date of the making of the Supplemental Term Loan No. 4 on or after the first date written above. "Loan Documents" means this Agreement as amended by the Fourth Amendment, and as otherwise amended, supplemented, modified, or revised from time to time prior to the Amendment Date, the Disbursement Letter, the Concentration Account Agreement, the Mortgages, the Collateral Assignments of Key Leases, the Collateral Assignments of Tower Leases, the Guaranty, the Guarantor Security Agreement, the Guarantor Stock Pledge Agreement, the Control Agreements, the Stock Pledge Agreement, the Trademark Security Agreement, (if and when executed and delivered pursuant hereto) the Copyright Security Agreement, any note or notes executed by Borrower and payable to Foothill, and any other agreement entered into, now or in the future, in connection with this Agreement. "Term Loan Commitment" means $25,000,000. 2. Section 1.1 of the Loan Agreement hereby is amended by inserting following additional defined terms in alphabetical order: "Supplemental Term Loan No. 4" shall have the meaning ascribed to such term in the recitals of Amendment Number Four. "Fourth Amendment" means Amendment Number Four to Loan and Security Agreement, dated as of October 1, 1998, entered into between Borrower and Foothill. 3. Paragraph (d) of Section 2.1 of the Loan Agreement is hereby amended and restated in its entirety as follows: (d) Amounts borrowed pursuant to this Section 2.1 may be repaid and, subject to the terms and conditions of this Agreement, reborrowed at any time during the term of this Agreement. 4. Section 2.2 of the Loan Agreement is hereby amended and restated in its entirety as follows: 2.2 Term Loan. (a Foothill previously has made the Term Loan to Borrower. As of the Amendment Date, Foothill has agreed to make the Supplemental Term Loan No. 4 to Borrower in accordance with the terms hereof (less the aggregate amount of any reserves to be established in connection therewith pursuant to the provisions of Section 2.2(c)). 2 Collectively, the Supplemental Term Loan No. 4 and the prior term loans made by Foothill to Borrower shall be known as the "Term Loan." (b) The outstanding principal balance and all accrued and unpaid interest under the Term Loan shall be due and payable upon the termination of this Agreement, whether by its terms, by prepayment, by acceleration, or otherwise. All amounts outstanding under the Term Loan shall constitute Obligations. Unless sooner terminated as provided herein, Borrower shall repay the Term Loan in quarterly installments and such installments shall be due and payable on the following dates in the following amounts: Date Installment ---- ----------- 9/30/98 -0- 10/31/98 $8,000,000 12/31/98 $3,000,000 3/31/99 $3,000,000 6/30/99 $2,000,000 9/30/99 $2,000,000 12/31/99 $2,000,000 3/31/00 $2,000,000 6/30/00 $2,000,000 9/30/00 $1,000,000 (c) Anything to the contrary contained in Section 2.2(a) above notwithstanding, it is hereby agreed among the parties hereto that Foothill shall establish a supplementary interest payment reserve against the Term Loan in the aggregate amount of $300,000, such reserve to be applied to reduce the amount of proceeds of Supplemental Term Loan No. 4 otherwise available on the Amendment Date by $300,000 to provide for the payment of a portion of the estimated interest payments to be due Foothill on Borrower's Obligations as of the end of each month from the Amendment Date through the earlier of October 31, 1998 or the date on which such supplementary interest payment reserve is exhausted, such interest payment reserve to be effective and commence as of the Amendment Date. On the first day of each month following the Amendment Date until all amounts contained in the supplementary interest payment reserve are exhausted, additional proceeds an amount equal to the amount of interest due on Obligations shall be advanced under Supplemental Term Loan No. 4, reducing the amount of the supplementary interest payment reserve by a corresponding amount, and shall be applied to the Loan Account as payment of interest due on the Obligations in excess of the aggregate amount of Collections received and applied by Foothill with respect to interest due on the Obligations in the corresponding period. 3 5. Section 7.17 of the Loan Agreement is hereby amended to delete the proviso at the end of such Section, and to replace such proviso with the following: ; provided, however, that in no event shall any advance under the Supplemental Term Loan No. 4 be used to finance, in whole or in part, directly or indirectly, (1) any Permitted Unrestricted Subsidiary Acquisition, or (2) to advance, by way of loan, investment or guaranty, or otherwise, any monies or credit to or for the benefit, directly or indirectly, of Harmony. 6. Conditions Precedent to Effectiveness of Amendment. The effectiveness of this Amendment and the obligation of Foothill to make the Supplemental Term Loan No. 3 is subject to the completion, to the satisfaction of Foothill and its counsel, of each of the following conditions on or before the Amendment Date: (a) Foothill shall have received executed consents and reaffirmations from each Guarantor, in form and substance satisfactory to Foothill; (b) Foothill shall have received an amendment fee of $100,000 which shall be earned in full and non-refundable as of the date hereof. The payment of such amendment fee shall be paid on the Amendment Date out of the proceeds of the Supplemental Term Loan No. 4. 7. Forbearance. Foothill and Borrower hereby acknowledge that certain Events of Default previously disclosed to Foothill by Borrower (including without limitation those certain Events of Default acknowledged and disclosed Foothill by Borrower in those certain letters from Borrower to Foothill, dated as of March 3, 1998 and May 8, 1998) have occurred and are continuing under the Loan Agreement (the "Current Defaults"). Foothill hereby agrees to forebear from taking any action or exercising any of its remedies under the Loan Agreement with respect to the Current Defaults during the period from October 1, 1998, through and including October 31, 1998; provided, however, that such forbearance shall apply only to the Current Defaults, shall not apply to any other Event of Default continuing as of the Amendment Date, or to any Event of Default that may occur after the Amendment Date. Further, this forbearance shall not constitute a waiver by Foothill of any of its rights or remedies under the Loan Agreement, but shall only constitute a limited forbearance. Furthermore, nothing contained in this letter shall diminish, prejudice or waive any of Foothill's rights or remedies under the Loan Agreement or applicable law, and Foothill hereby reserves all such rights and remedies. Anything contained in the foregoing to the contrary notwithstanding, Foothill's continued forbearance with respect to the Current Defaults shall be contingent on Borrower's successful consummation of the sale of certain of Borrower's radio stations to Catholic Radio Network, LLC ("CRN") pursuant to the transactions contemplated in the proxy statement with respect to the sale of such radio stations to CRN (the "Proxy"), in accordance with the approvals obtained from the holders of Borrower's Stock for such sale requested from the holders in connection with the Proxy, on or before October 31, 1998, and Borrower's failure to achieve the foregoing on or before the date set forth above shall terminate Foothill's agreement to the forgoing forbearance from and after the date of such failure. 4 8. Representations and Warranties. Borrower hereby represents and warrants to Foothill that (a) the execution, delivery, and performance of this Amendment, are within its corporate powers, have been duly authorized by all necessary corporate action, and are not in contravention of any law, rule, or regulation, or any order, judgment, decree, writ, injunction, or award of any arbitrator, court, or governmental authority, or of the terms of its charter or bylaws, or of any contract or undertaking to which it is a party or by which any of its properties may be bound or affected, and (b) the Loan Agreement, as amended by this Amendment, constitute Borrower's legal, valid, and binding obligation, enforceable against Borrower in accordance with its terms. 9. Further Assurances. Borrower shall execute and deliver all agreements, documents, and instruments, in form and substance satisfactory to Foothill, and take all actions as Foothill may reasonably request from time to time, to perfect and maintain the perfection and priority of Foothill's security interests in the Collateral, and to fully consummate the transactions contemplated under the Loan Agreement and this Amendment. 10. Effect on Loan Documents. The Loan Agreement, as amended hereby, and the other Loan Documents shall be and remain in full force and effect in accordance with their respective terms and each hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of or as an amendment of any right, power, or remedy of Foothill under the Loan Agreement or any other Loan Document, as in effect prior to the date hereof. This amendment shall be deemed a part of and hereby is incorporated into the Loan Agreement. 11. Miscellaneous. (a) Upon the effectiveness of this Amendment, each reference in the Agreement to "this Agreement", "hereunder", "herein", "hereof" or words of like import referring to the Agreement shall mean and refer to the Loan Agreement as amended by this Amendment. (b) Upon the effectiveness of this Amendment, each reference in the Loan Documents to the "Loan Agreement", "thereunder", "therein", "thereof" or words of like import referring to the Agreement shall mean and refer to the Loan Agreement as amended by this Amendment. (c) This Amendment shall be governed by and construed in accordance with the laws of the State of California. (d) This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Amendment by signing any such counterpart. Delivery of an executed counterpart of this Amendment by telefacsimile shall be equally as effective as delivery of an original executed counterpart of this Amendment. Any party delivering an executed counterpart of this Amendment by telefacsimile also shall deliver an original executed counterpart of this Amendment but the failure to deliver an original executed counterpart shall not affect the 5 validity, enforceability, and binding effect of this Amendment.[Remainder of page intentionally omitted.] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above. FOOTHILL CAPITAL CORPORATION, a California corporation By /s/ Thomas Signrdson --------------------------------------------------- Title: Vice President ----------------------------------------------- CHILDREN'S BROADCASTING CORPORATION, a Minnesota corporation By /s/ James G. Gilbertson --------------------------------------------------- Title: COO ----------------------------------------------- 6 CONSENT, RATIFICATION, AND REAFFIRMATION BY GUARANTORS Each of the undersigned Guarantors hereby consents to the execution, delivery, and performance of the foregoing Amendment Number Four to Amended and Restated Loan and Security Agreement and agrees, ratifies, and reaffirms that its obligations as a guarantor with respect to the Loan Documents, as heretofore amended, and as amended by the foregoing amendment, remain in full force and effect and are not impaired, diminished, or discharged in any respect. Dated as of the date first set forth above: CHILDREN'S RADIO OF LOS ANGELES, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------------------ Title: COO -------------------------------------------- CHILDREN'S RADIO OF NEW YORK, INC., a New Jersey corporation By /s/ James G. Gilbertson ------------------------------------------------ Title: COO -------------------------------------------- CHILDREN'S RADIO OF MINNEAPOLIS, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------------------ Title: COO -------------------------------------------- 7 CHILDREN'S RADIO OF GOLDEN VALLEY, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------------------ Title: COO -------------------------------------------- CHILDREN'S RADIO OF MILWAUKEE, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------------------ Title: COO -------------------------------------------- CHILDREN'S RADIO OF DENVER, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------------------ Title: COO -------------------------------------------- CHILDREN'S RADIO OF KANSAS CITY, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------------------ Title: COO -------------------------------------------- 8 CHILDREN'S RADIO OF DALLAS, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------------------ Title: COO -------------------------------------------- CHILDREN'S RADIO OF HOUSTON, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------------------ Title: COO -------------------------------------------- CHILDREN'S RADIO OF PHILADELPHIA, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------------------ Title: COO -------------------------------------------- CHILDREN'S RADIO OF CHICAGO, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------------------ Title: COO -------------------------------------------- 9 CHILDREN'S RADIO OF PHOENIX, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------------------ Title: COO -------------------------------------------- WWTC-AM, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------------------ Title: COO -------------------------------------------- KYCR-AM, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------------------ Title: COO -------------------------------------------- WZER-AM, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------------------ Title: COO -------------------------------------------- 10 KKYD-AM, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------------------ Title: COO -------------------------------------------- KCNW-AM, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------------------ Title: COO -------------------------------------------- KAHZ-AM, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------------------ Title: COO -------------------------------------------- KTEK-AM, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------------------ Title: COO -------------------------------------------- 11 WPWA-AM, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------------------ Title: COO -------------------------------------------- WCAR-AM, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------------------ Title: COO -------------------------------------------- WJDM-AM, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------------------ Title: COO -------------------------------------------- KPLS-AM, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------------------ Title: COO -------------------------------------------- 12 WAUR-AM, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------------------ Title: COO -------------------------------------------- KIDR-AM, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------------------ Title: COO -------------------------------------------- 13 EX-27 10 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1998 SEP-30-1998 166,641 0 318,320 (186,005) 0 648,404 6,835,025 2,844,040 31,457,099 33,068,357 28,114,668 0 2,312,439 134,380 (6,311,484) 31,457,099 1,971,248 1,971,248 0 3,443,814 10,781,475 (186,005) 3,414,533 (11,711,744) 0 (11,711,744) 0 0 0 (11,711,744) (1.83) 0
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