-----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, FakY9AHrmQzE2trmvTj7CBBunOJxoVRx9qA18etJw4DjkLSkDFI3TUlnBIY4O2Xv b5js6l7e2xzBGNYd3aQyXg== 0000912057-96-023271.txt : 19961021 0000912057-96-023271.hdr.sgml : 19961021 ACCESSION NUMBER: 0000912057-96-023271 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19961018 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHILDRENS BROADCASTING CORP CENTRAL INDEX KEY: 0000882160 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 411663712 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-14483 FILM NUMBER: 96645535 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 S-3 1 FORM S-3 As filed with the Securities and Exchange Commission on October ___, 1996 Registration No. 333-______ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------------- CHILDREN'S BROADCASTING CORPORATION (Exact name of registrant as specified in its charter) MINNESOTA 5961 41-1663712 (State or other Jurisdiction (Primary Standard (I.R.S. Employer of Incorporation or Industrial Classification Identification Number) Organization) Code Number) 724 FIRST STREET NORTH MINNEAPOLIS, MINNESOTA 55401 (612) 338-3300 (Address and telephone number, including area code, of registrant's principal executive offices) CHRISTOPHER T. DAHL, PRESIDENT CHILDREN'S BROADCASTING CORPORATION 724 FIRST STREET NORTH MINNEAPOLIS, MINNESOTA 55401 (612) 338-3300 (Name, address, including zip code, and telephone number, including area code, of agent for service) COPIES TO: AVRON L. GORDON, ESQ. LANCE W. RILEY, ESQ. BRIGGS AND MORGAN, P.A. CHILDREN'S BROADCASTING 2400 IDS CENTER CORPORATION MINNEAPOLIS, MINNESOTA 55402 724 FIRST STREET NORTH (612) 334-8455 MINNEAPOLIS, MINNESOTA 55401 (612) 330-9521 --------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE. --------------- If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: /x/ If the registrant elects to deliver its latest annual report to security holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1) of this Form, check the following box: / / If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: / / If this form is a post effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: / /
CALCULATION OF REGISTRATION FEE - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED SHARE(1) PRICE(1) REGISTRATION FEE - ---------------------------------------------------------------------------------------------------------------------------- COMMON STOCK ($.02 PAR VALUE) . . . . 1,125,580 $5.25 $5,909,295 $2,038 - ---------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) -------------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a) MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there by any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. SUBJECT TO COMPLETION, DATED OCTOBER__, 1996 PROSPECTUS - -------------------------------------------------------------------------------- 1,125,580 SHARES CHILDREN'S BROADCASTING CORPORATION COMMON STOCK - -------------------------------------------------------------------------------- This Prospectus relates to 1,125,580 shares of Common Stock (the "Shares"), par value $.02 per share (the "Common Stock), of Children's Broadcasting Corporation (the "Company") that may be offered for sale for the account of certain shareholders of the Company as stated herein under the heading "Selling Shareholders." No period of time has been fixed within which the Shares may be offered or sold. The Company's Common Stock is traded on the Nasdaq National Market under the symbol "AAHS." On September 30, 1996, the average of the high and low prices of the Common Stock on the Nasdaq National Market was $5.1875 per share. The Selling Shareholders have advised the Company that sales of the Shares by them, or by their pledgees, donees, transferees or other successors in interest, may be made from time to time in the over-the-counter market, through negotiated transactions or otherwise at market prices prevailing at the time of sale or at negotiated prices. The Shares may be sold by one or more of the following methods: (a) a block trade in which the broker or dealer so engaged will attempt to sell the Shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this Prospectus; and (c) ordinary brokerage transactions and transactions in which the broker solicits purchasers. Sales may be made pursuant to this Prospectus to or through broker-dealers who may receive compensation in the form of discounts, concessions or commissions from the Selling Shareholders or the purchasers of Common Stock for whom such broker-dealer may act as agent or to whom they may sell as principal, or both (which compensation as to a particular broker-dealer may be in excess of customary commissions). One or more supplemental prospectuses will be filed pursuant to Rule 424 under the Securities Act of 1933, as amended (the "Securities Act") to describe any material arrangements for the sales of the Shares when such arrangements are entered into by any of the Selling Shareholders and any other broker-dealers that participate in the sale of the Shares. The Selling Shareholders and any broker-dealers or other persons acting on their behalf in connection with the sale of the Shares may be deemed to be "underwriters" within the meaning of the Securities Act, and any commissions received by them and any profit realized by them on the resale of the Shares as principals may be deemed to be underwriting commissions under the Securities Act. As of the date hereof, there are no special selling arrangements between any broker-dealer or other person and any Selling Shareholder. The Company will not receive any part of the proceeds of any sales of Shares pursuant to this Prospectus. Pursuant to the terms of registration rights granted to the Selling Shareholders, the Company will pay all the expenses of registering the shares, except for selling expenses incurred by the Selling Shareholders in connection with this offering, including any fees and commissions payable to broker-dealers or other persons, which will be borne by the Selling Shareholders. In addition, such registration rights provide for certain other usual and customary terms, including indemnification by the Company of the Selling Shareholders against certain liabilities arising under the Securities Act. THE SHARES INVOLVE CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS. ---------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ---------------- THE DATE OF THIS PROSPECTUS IS _________________, 1996. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information filed by the Company pursuant to the Exchange Act may be inspected and copied at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the Commission located at Seven World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can also be obtained from the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site that contains reports, proxy statements and other information regarding registrants that file electronically with the Commission at http://www.sec.gov. In addition, the Company's Common Stock is quoted on the NASDAQ National Market System. Reports, proxy statements and other information concerning the Company can be inspected and copied at the Public Reference Room of the National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. The Company has filed with the Commission a registration statement on Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus does not contain all of the information, exhibits and undertakings set forth in the Registration Statement, certain parts of which are omitted as permitted by the rules and regulations of the Commission. For further information, reference is hereby made to the Registration Statement which may be inspected and copied in the manner and at the sources described above. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents previously filed by the Company with the Commission pursuant to the Exchange Act are incorporated into this Prospectus by reference: (a) The Company's Annual Report on Form 10-KSB for the year ended December 31, 1995 (File No. 0-21534) filed on March 28, 1996. (b) The Company's Quarterly Reports on Form 10-QSB for the fiscal quarters ended March 31, 1996 and June 30, 1996 (File No. 0-21534) filed on May 3, 1996 and August 12, 1996, respectively, and amended by Form 10-QSB/A for the fiscal quarter ended June 30, 1996 (File No. 0-21534) filed on October 17, 1996. (c) The description of the Company's Common Stock contained in its Registration Statement on Form S-2 (No. 33-80721) as filed with the Commission on December 21, 1995 and amended by Amendment Nos. 1, 2, 3 and 4 filed on February 1, February 20, February 27 and February 28, 1996, respectively. (d) The Company's 8-K Report filed on January 16, 1996 (File No. 0-21534), relating to the bridge loans from Special Situations Fund III, L.P. and Special Situations Cayman Fund, L.P. (e) The Company's 8-K Report filed on June 19, 1996 (File No. 0-21534), relating to acquisition of Radio Elizabeth, Inc. (f) The Company's 8-K/A Report filed on June 21, 1996 (File No. 0-21534), relating to acquisition of Radio Elizabeth, Inc. (g) The Company's 8-K Report filed on June 18, 1996 (File No. 0-21534), relating to acquisition of the assets of Radio Station WCAR-AM. 2 (h) The Company's 8-K/A Report filed on June 21, 1996 (File No. 0-21534), relating to acquisition of the assets of Radio Station WCAR-AM. (i) The Company's 8-K Report filed on July 3, 1996 (File No. 0-21534), relating to changes in the Company's certifying accountant. (j) The Company's 8-K Report filed on July 8, 1996 (File No. 0-21534), relating to the safe harbor for forward-looking statements. (k) The Company's 8-K Report filed on July 30, 1996 (File No. 0-21534), relating to ABC Radio Networks' termination of its joint operations agreement with the Company. (l) The Company's 8-K Report filed on July 31, 1996 (File No. 0-21534), relating to the Company's engagement of Southcoast Capital Corporation. (m) The Company's 8-K Report filed on October 3, 1996 (File No. 0-21534), relating to the Company filing a lawsuit in United States District Court for the District of Minnesota against The Walt Disney Company and ABC Radio Networks, Inc. (n) The Company's 8-K Report filed on October 17, 1996 (File No. 0-21534), relating to the Company filing Form 10-QSB/A regarding the write-off of a deferred warrant expense resulting from the termination by ABC RAdio Networks, Inc. of its joint operating agreement with the Company. (o) The Company's Definitive Schedule 14A (Proxy Statement) filed on August 26, 1996 (File No. 0-21534), relating to the Company's Annual Meeting of Shareholders scheduled for September 30, 1996. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the offering hereunder shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained herein or in a document all or any portion of which is incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide, without charge, to each person to whom this Prospectus is delivered, upon written or oral request of any such person, a copy of any or all of the foregoing documents (other than exhibits to such documents which are not specifically incorporated by reference in such documents). Written requests for such copies should be directed to the Company at 724 First Street North, Minneapolis, Minnesota 55401, Attention: Chief Financial Officer. Telephone requests may be directed to the office of the Chief Financial Officer of the Company at (612) 338-3300. 3 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED BY THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS APPEARING ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS GIVES EFFECT TO A ONE-FOR-TWO REVERSE STOCK SPLIT WITH RESPECT TO THE COMMON STOCK EFFECTED ON JANUARY 23, 1996. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. PURCHASERS OF THE COMPANY'S COMMON STOCK ARE CAUTIONED THAT THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE FACTORS DISCUSSED HEREIN UNDER "RISK FACTORS" AND ELSEWHERE IN THE PROSPECTUS, INCLUDING THE COMPANY'S FORM 8-K REPORT FILED JULY 8, 1996, RELATING TO THE SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS. THE COMPANY Children's Broadcasting Corporation is the only full-time national broadcaster of children's radio programming in the United States. The Company develops, produces and distributes programming that is entertaining and informative, and directed to the interests and radio listening patterns of pre-teenage children and their families. The Company's Radio AAHS-Registered Trademark-(*) format provides 24-hour programming featuring music, stories, call-in segments, quizzes and current events features. The programming varies by time of day in order to attract that component of its prospective audience most likely to be listening. The programming originates at the Company's flagship station, WWTC in Minneapolis, Minnesota and is distributed via satellite to a network of radio stations around the country, which includes stations owned or operated by the Company as well as affiliated stations owned by third parties. The Company's strategy is to acquire radio stations in the top 15 markets, thereby securing the network's presence and continuity in those key markets. Pursuant to that strategy, the Company has acquired stations serving the New York City, Los Angeles, Dallas, Detroit and Philadelphia markets and entered into a purchase agreement on September 11, 1996, to acquire radio station WAUR-AM in the Chicago market. During the nine months ended September 30, 1996, the Company has acquired or contracted to acquire radio stations covering the New York City, Detroit, Philadelphia and Chicago markets. Assuming completion of the pending acquisition of a radio station serving the Chicago market and commencement of broadcasting under the signed affiliation agreements, the Company will distribute its programming to markets representing approximately 40% of the United States' population and will have a presence in the top four markets and seven of the top ten markets in the United States. On July 26, 1996, the Company engaged Southcoast Capital Corporation ("Southcoast") to explore strategic alternatives to enhance shareholder value. Southcoast has and continues to hold discussions with various potential strategic partners with a view toward entering into a joint venture, sale or merger. There can be no assurance that the Company will be successful in completing any transaction with a prospective strategic partner. The Company seeks to attract listeners and advertisers to the Radio AAHS programming format by continually refining its content and expanding the distribution network. Elements of this strategy include (i) attracting a loyal listenership by maintaining high quality, distinctive programming directed to its target audience, (ii) reinforcing this loyalty by creating a brand identity through the creation of characters which are integrated into its programming, (iii) delivering this listenership base to national advertisers by expanding its radio network to obtain a critical mass of U.S. population coverage, and (iv) making opportunistic acquisitions of radio stations in key markets. (*) Radio AAHS is the registered Trademark of Children's Broadcasting Corporation. 4 The Company derives its revenue primarily from the sale of local and network time to advertisers. The Company believes that as its coverage of the U.S. continues to expand, it will be able to sell national advertising time in greater quantities and at significantly higher rates with no significant additional operating costs. To a large extent, the Company is already incurring the production, operating and administrative costs necessary to broadcast the network to the entire U.S. Incremental costs as the network continues to expand are expected to be minimal, excluding the costs of any station acquisitions or local marketing agreements ("LMAs") which the Company may complete or enter into. Radio AAHS is a music-driven format which was developed and is produced for pre-teens. In addition to this primary target market, the format has also been strategically designed to appeal to parents and care givers. This is accomplished through a blend of music, stories, call-in segments, interactive quiz features, interviews and current events. Approximately two-thirds of Radio AAHS programming consists of music which is a combination of children's music and a mix of popular, classical, folk, jazz and other genres of music, including adult-tested current hits and "oldies" which have also tested well with kids. Conversely, kids' music is also tested with adults. Research conducted by the Company, including focus groups and analysis of listener feedback, has shown that having music as the core element of its programming is the best way to attract and retain its target audience. The Company develops and continually conducts focus groups and written and telephonic surveys in order to enhance its understanding of its target audience and ensure that its programming is meeting the demands of both kids and their parents. Management believes that non-musical programming is appealing as well and contributes to the "personality" of the format and to its differentiation from competing formats. Prior to the Company's development of the Radio AAHS format, there were not any full-time radio formats which targeted the pre-teen market. It is estimated that over $1.0 billion in advertising dollars is directed toward children annually, yet only a small percentage of these advertising dollars are currently spent on radio. The Company believes that advertisers trying to reach children have not utilized radio due to the lack of children's programming on the radio. By providing quality programming which is appealing to both pre-teens and their parents and by pursuing vigorous sales and marketing efforts, the Company believes it will be able to attract an increasing portion of the annual advertising dollars aimed at this previously underserved market segment. The Company believes that developing a well-recognized brand identity will enhance its network's visibility and create opportunities for the Company to expand beyond the scope of its broadcast operations. The Company has created characters within its programming, including AAHSIE-TM-, the Company's animated mascot, which it has integrated into its merchandising and Internet enterprises. The characters play roles within the programming and also interact with listeners through telephone call-ins. The Company has developed and intends to continue to develop strategic relationships to assist it in its brand development efforts, and to allow the Company to exploit business opportunities without detracting from management's focus upon the Company's core business. Pursuant to this strategy, the Company recently entered into three year agreements with NetRadio Network, Inc. ("NetRadio") and Precision Tapes, Inc. which will expand the Company's interactive Internet presence and give Radio AAHS programming Internet distribution worldwide. The Company distributes the full 24-hour Radio AAHS format over the Internet pursuant to an agreement with NetRadio. The Web site at which this format can be heard is www.netradio.net. In November 1995, the Company entered into a Joint Operations Agreement (the "Operations Agreement") with ABC Radio Networks, Inc. ("ABC") pursuant to which ABC's affiliate development and national advertising sales staffs would augment the Company's efforts to market the Radio AAHS format to broadcasters and advertisers. The parties operated under the Operations Agreement until July 25, 1996, when ABC notified the Company that ABC would terminate such agreement effective October 24, 1996. At the time of such notice, ABC also indicated its intent to pursue other opportunities in children's radio. On September 26, 1996, the Company filed a lawsuit in the United States District Court for the District of Minnesota against The Walt Disney Company, which recently acquired Cap Cities/ABC, parent company of ABC, and ABC for injunctive relief and to recover damages for their alleged attempts to misappropriate the Company's 5 confidential information and trade secrets acquired through their strategic relationship with the Company in order to unfairly compete with the Company in the children's radio market. See "Risk Factors - Disney/ABC Litigation." The Company was incorporated under the Minnesota Business Corporation Act on February 7, 1990. All references to the Company herein include its subsidiaries, unless otherwise noted. The Company's executive office is located at 724 First Street North, Minneapolis, Minnesota 55401, and its telephone number is (612) 338-3300. Its World Wide Web site is www.radio-aahs.com. 6 RISK FACTORS AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, IN CONNECTION WITH AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY. WHEN USED BELOW AND ELSEWHERE IN THIS PROSPECTUS, INCLUDING DOCUMENTS INCORPORATED HEREIN BY REFERENCE, THE WORDS "BELIEVES," "ANTICIPATES," "WILL" AND "INTENDS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. 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 COMMON STOCK ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. COMPANY DEVELOPMENT; HISTORY OF OPERATING LOSSES. The Company is continuing to develop its radio network and is generally subject to the risks attendant to a new or emerging business venture. The Company has incurred net losses since its inception in 1990 and has not generated positive cash flow sufficient to fund its ongoing operations. For the three years ended December 31, 1993, 1994, 1995 and the six months ended June 30, 1996, the Company incurred net losses of $3,247,000, $4,519,000, $6,108,000 and $5,245,000 respectively, and anticipates that it will continue to operate at a loss from operations for the remainder of 1996. Due to such losses, and because the Company has not generated positive cash flow from operations, the Company has had frequent working capital shortages. Working capital requirements have been met by short-term borrowings from investors, including affiliates of the Company, and from the proceeds of public offerings of the Company's Common Stock. The Company is seeking sources of financing for its working capital needs and for acquisitions, although it has no current commitments for such financing. Such arrangements could include the leveraging of Company's radio station properties under agreements with asset-based lenders. If the Company should be unable to obtain working capital when required, its operations and prospects would be materially and adversely affected. THIRD QUARTER OPERATING RESULTS; CAPITAL REQUIREMENTS. The Company has not yet completed preparation of its financial statements as of and for the nine months ended September 30, 1996; however, the Company's anticipated results of operations for the third quarter of 1996 include projected revenues of approximately $1,400,000 and a net loss of approximately $1,600,000. The Company's liquidity, as measured by its working capital, is projected to be approximately $500,000 at the end of the third quarter. The Company paid off $1,268,000 of short term debt during the third quarter and used $820,000 cash to purchase its Philadelphia radio station property. The Company has signed a purchase agreement to acquire a radio station in the Chicago market in January 1997. This acquisition will require approximately $2,000,000 of capital at the time of closing. The Company is seeking additional capital to complete this acquisition as well as to fund additional potential acquisitions and its working capital requirements through the end of 1996 and for 1997. While the Company does own several radio properties with relatively little debt on its balance sheet, no assurance can be given that the required financing will be available, or if available, that the same will be on terms acceptable to the Company. RISKS RELATED TO ACQUISITION OF RADIO ELIZABETH. On June 4, 1996, the Company acquired all of the issued and outstanding stock of Radio Elizabeth, Inc. ("REI"), which holds a Federal Communications Commission ("FCC") license for WJDM-AM Radio Station licensed to Elizabeth, New Jersey on the 1530 kHz frequency. REI, in addition to its license for operation on 1530 kHz, presently has issued to it a special temporary authorization ("STA") for operation on 1660 kHz at 10 kw power, which provides coverage of a significant portion of the New York City market. WJDM has been broadcasting the Company's Radio AAHS programming in the nation's largest city radio market since February 1, 1996, over its 1660 kHz frequency. The STA frequency is located in a portion of the spectrum referred to as the expanded band ("Expanded Band") recently allocated by the FCC and assigned to certain AM broadcasters in order to implement Congressional policy. REI and other Expanded Band licensees are expected to be allowed to operate on both their original frequencies and the Expanded Band frequencies 7 for a period of five years, after which time the licensee must elect which frequency on which it will continue broadcasting. There can be no assurance that REI will ever receive a permanent license to an Expanded Band frequency, and failure to obtain such a license would leave the Company broadcasting from only the existing licensed frequency, which at 1 kw power does not cover the New York City market, thereby resulting in a substantial diminution of the value of the Company's investment in REI. Most radio receivers produced prior to 1990 cannot receive Expanded Band frequencies. DISNEY/ABC LITIGATION. Following the termination by ABC of the Operations Agreement, the Company filed a lawsuit in the United States District Court for the District of Minnesota against The Walt Disney Company and ABC for injunctive relief and to recover damages for their alleged attempts to misappropriate the Company's confidential information and trade secrets acquired through their strategic relationship with the Company in order to unfairly compete with the Company in the children's radio market. As a result of the termination by ABC of its Operations Agreement with the Company, the Company has had to rebuild its own affiliate development and national advertising sales staff and is in the process of rebuilding that capability. Further, there can be no assurance that the Company will prevail in the Disney/ABC litigation or recover any of the damages sought. Such litigation is costly to the Company and may require the expenditure of Company funds reducing its working capital or cause the Company to issue securities to finance the litigation which would result in dilution to the Company's present shareholders. VOLATILITY OF MARKET PRICE OF COMMON STOCK. The market price of the Company's Common Stock has been subject to significant fluctuations in response to numerous factors, including variations in the annual or quarterly financial results of the Company or its competitors, changes by financial research analysts in their estimates of the earnings of the Company or its competitors, conditions in the economy in general or in the radio industry in particular, unfavorable publicity or changes in applicable laws and regulations (or judicial or administrative interpretations thereof) affecting the Company or the radio industry. There can be no assurance that purchasers of the Shares can sell the Shares at or above the prices at which they were purchased. ADDITIONAL FINANCING REQUIREMENTS. Part of the Company's strategy for development and expansion of its network includes acquiring and/or operating radio properties in key U.S. markets. There can be no assurance that the Company will be able to complete suitable acquisitions on terms favorable or acceptable to the Company. In the event the Company purchases additional stations, the Company will require additional financing. Additional financing will be required to fund future operations and the expansion of its radio network, including the acquisition of a radio station in the Chicago market, WAUR-AM. There can be no assurance that such additional financing will be available to the Company when required, or if available, that it would be on terms acceptable or favorable to the Company. Additional financing could require the sale of equity securities, which could result in significant dilution to the Company's shareholders. ACCEPTANCE OF RADIO FORMAT. The Company produces and distributes a unique 24-hour children's radio format. There can be no assurance that the Company's programming will gain acceptance by listeners and advertisers. In addition, the Company's primary target audience is not rated by a recognized rating service. Such ratings are generally used by potential advertisers in making advertising decisions. The Company is working with ratings services to attempt to develop such ratings for the pre-teen market. However, there can be no assurance that such ratings can be developed or that the Company will be able to attract additional national advertisers. IMPACT OF SALE OF SHARES; SHARES ELIGIBLE FOR FUTURE SALE. The Company had approximately 5.6 million shares of Common Stock outstanding as of September 30, 1996 and had warrants and options to purchase additional Common Stock outstanding totaling approximately 2.6 million common shares exercisable at prices ranging from $2.20 to $13.80 per share. On July 11, 1996, the Commission declared effective the Company's Registration Statement on Form S-3 which registered for a secondary offering 1.6 million common shares. The sale of the Shares and the sale of additional Common Stock which may become eligible for sale in the public market from time to time upon exercise of warrants and stock options could have the effect of depressing the market prices for the Company's Common Stock. 8 DEVELOPMENT OF NATIONAL RADIO NETWORK. Since late 1992, the Company has been developing a network of affiliated and owned or operated radio stations to carry its satellite-transmitted programming to domestic radio markets. The Company's affiliation agreements have terms varying from one to three years. There can be no assurance that the Company will be able to retain existing affiliates or attract additional affiliates. Since the inception of the network a total of 10 former affiliate stations have discontinued their affiliation. In cases where the Company deems it appropriate, the Company intends to seek alternate affiliates by entering into affiliation agreements or LMAs, through which third-party owned stations broker broadcast time to the Company, or by acquiring stations in key markets. In addition, the Company could encounter substantial delays, expenses or other unforeseen difficulties in establishing its network. The Company also risks the potential loss of strategic alliances which it has developed in connection with its strategy to develop the Company's brand, to assist in growth of the Company's network and to pursue ancillary business opportunities. Furthermore, the signal of the Company's affiliates and of its owned and operated stations may not cover households in certain portions of the markets in which such stations broadcast. In addition, the Company's management has limited experience in the development or operation of a national radio network. The success and viability of the Company's network will depend upon its ability to generate substantial revenue from network advertisers. For the year ended December 31, 1995 and for the six months ended June 30, 1996, the Company's network, which is in a development phase, generated $1,059,000 and $607,000 in revenue, respectively. For the years ended December 31, 1993, 1994 and 1995 and for the six months ended June 30, 1996, approximately 45%, 51%, 42% and 42% respectively, of the Company's revenue was derived from its radio stations which do not carry the Radio AAHS format: KTEK-AM, Houston, Texas, KCNW-AM, Kansas City, Kansas, WZER-AM, Milwaukee, Wisconsin and KYCR-AM, Minneapolis, Minnesota. For each of the years in the three year period ended December 31, 1995 and for the six months ended June 30, 1996, the Company derived approximately 13%, 16%, 13% and 13% respectively, of its revenue from KTEK-AM; approximately 10%, 11%, 9% and 10% respectively, of its revenue from KCNW-AM; approximately 11%, 12% 11% and 9% respectively, of its revenue from WZER-AM; and approximately 11%, 12%, 9% and 10% respectively, of its revenue from KYCR-AM. If the Company converts any of these stations to the Radio AAHS format, its revenue may be negatively affected until a new advertising base is developed for the Radio AAHS format in those markets. No assurance can be given that the Company will be able to acquire additional stations in major markets or to increase the number of network affiliates to a level which would enable it to increase network advertising, even if desired additional acquisitions are made or affiliate relationships are created, or that the Company will be able to generate sufficient advertising revenue to operate profitably in the future. RELIANCE ON CURRENT MANAGEMENT. The Company is dependent on the management services of its current management team. If the Company were to lose the services of these individuals, its business could be adversely affected. None of the members of the Company's current senior management team, except Barbara A. McMahon, is subject to employment contracts with the Company. The Company does not maintain insurance on the lives of its key employees. POTENTIAL CONFLICTS OF INTEREST. The Company leases broadcast and office facilities from its President, Christopher T. Dahl, and another director, Richard W. Perkins, and the WWTC and KYCR radio transmission tower site from Mr. Dahl. The Company also shares with Community Airwaves Corporation ("CAC"), a corporation owned by the Company's President, Christopher T. Dahl, a director, Richard W. Perkins, and a shareholder, Russell Cowles II, certain management services which are provided by another entity, Radio Management Corporation ("RMC"), owned by Messrs. Dahl, Perkins and Cowles. The management services consist of administrative, legal and accounting services. Such arrangements involve potential conflicts of interest in connection with the pricing of services provided. In addition, CAC may acquire interests in additional stations. Such ownership would, under current FCC regulations, limit the number of additional radio stations which the Company may acquire. In addition, the Company has entered into an agreement with CAC whereby the Company is required to obtain the consent of CAC for any acquisition of an FM station or of an AM station located outside the largest 125 U.S. markets. Such agreement may result in conflicts of interest with members of the Company's management and could be detrimental to the Company. 9 COMPETITION. The Company currently derives the majority of its revenue from the sale of local radio advertising time on its owned and operated stations to advertisers in their respective metropolitan markets and faces substantial competition from other radio and television stations as well as other media in those markets. Factors contributing to the Company's ability to attract local advertisers include the success of a station in attracting listeners and the perceived quality of the Company's programming, There can be no assurance that the Company can successfully compete for listeners and advertising revenues with other radio and television networks and other entertainment organizations. The Company may also experience competition from developing technologies in the radio industry. In addition to the Company's current competition for local advertising, the Company also competes for network advertising. Other entertainment organizations, including but not limited to radio syndicators and radio stations, many of which have greater resources than the Company, could develop a children's radio format similar to Radio AAHS. The Walt Disney Company, which recently acquired CapCities/ABC, parent company of ABC Radio Networks, Inc. has announced its intention to test its own children's radio programming in certain markets to be announced, thereby entering into direct competition with the Company. Although radio stations must be licensed by the FCC, there are no significant impediments to the entry of new competitors into the Company's markets. While the Company continues to seek protection for its original programming, where appropriate, under applicable copyright and trademark laws, the Radio AAHS format could be imitated by others seeking to enter the children's radio field. FCC REGULATION. Although the radio broadcast licenses of the stations owned by the Company are already granted, their continuation and the continued licensing of any radio station acquired by the Company depend upon compliance with the laws, rules and regulations of the FCC. The FCC can revoke licenses for serious misconduct, subject to the right to an evidentiary hearing, or it may fail to renew a license or impose monetary fines for breach of its rules. Neither the Company nor CAC has ever been denied any FCC license or renewal, or had a fine imposed by the FCC. In recent years, a number of competing applications and formal and informal objections have been filed with respect to broadcast renewal applications. Even though the vast majority of all license renewal applications are granted, and under the Telecommunication Act of 1996 (the "1996 Act") competing applications in license renewal proceedings are no longer allowed, there can be no assurance that renewal of the Company's licenses will be granted. Furthermore, approvals are required for the transfer of ownership. Three directors and attributable shareholders of the Company have interests in AM and FM radio stations unrelated to the Company. Under current FCC regulations, these interests are attributed to the Company and may limit the markets in which the Company can acquire stations. The 1996 Act eliminated the limit upon the number of stations that can be under common ownership or control nationally. Local ownership was substantially relaxed according to market size. See "Risk Factors -- Risks Related to Acquisition of Radio Elizabeth." ANTI-TAKEOVER PROVISIONS. The Board of Directors, without any action by the Company's shareholders, has the authority to issue the remaining undesignated and unissued authorized shares and to fix the powers, preferences, rights and limitations of such shares or any class or series thereof, without shareholder approval. Persons acquiring such shares could have preferential rights with respect to voting, liquidation, dissolution or dividends over existing shareholders. The Company is subject to certain provisions of the Minnesota Business Corporation Act which limit the voting rights of shares acquired in "control share acquisitions" and restrict certain "business combinations." Such provisions, as well as the ability to issue undesignated shares, could have the effect of deterring or delaying a takeover or other change in control of the Company, deny shareholders the receipt of a premium on their Common Stock and depress the market price of the Company's Common Stock. CONTROL BY PRINCIPAL SHAREHOLDERS. Approximately 34% of the Company's outstanding Common Stock is beneficially owned by the Company's current officers and directors. Accordingly, such persons may be able to significantly influence the Company's business and affairs. This concentration of ownership may have the effect of delaying, deferring or preventing a change in control of the Company. 10 NO ASSURANCE AS TO LIQUIDITY ON THE NASDAQ NATIONAL MARKET. The Common Stock is currently listed on the Nasdaq National Market. There can be no assurance that the Common Stock will be actively traded on such market or that, if active trading does develop, it will be sustained. ABSENCE OF DIVIDENDS. The Company has not paid any cash dividends since its inception and does not anticipate paying cash dividends in the foreseeable future. The Company presently expects to retain its earnings to finance the development and expansion of its business. The declaration or payment by the Company of dividends, if any, on its Common Stock in the future is subject to the discretion of the Board of Directors and will depend on the Company's earnings, financial condition, capital requirements and other relevant factors. The Company issued 290,213 shares of convertible preferred stock in connection with its merger with a California corporation, licensee of radio station KPLS-AM, Orange, California. The convertible preferred stock ranks senior to Common Stock and all other series of preferred stock as to payment of dividends and as to distribution of assets upon liquidation, dissolution or winding up of the Company, voluntary or involuntary. 11 SELLING SHAREHOLDERS The following table sets forth, as of September 30, 1996, the name of each Selling Shareholder, certain beneficial ownership information with respect to the Selling Shareholders, and the number of Shares that may be sold from time to time by each pursuant to this Prospectus. There can be no assurance that the shares offered hereby will be sold.
SHARES SHARES PERCENTAGE OF BENEFICIALLY BENEFICIALLY OUTSTANDING SHARES OWNED SHARES OWNED UPON BENEFICIALLY OWNED PRIOR TO OFFERED COMPLETION OF THE UPON COMPLETION OF SELLING SHAREHOLDER OFFERING HEREBY OFFERING THE OFFERING - ------------------------------------ ------------ ----------- ------------------ ------------------ Christopher T. Dahl 548,252 25,000 523,252 9.4 Richard W. Perkins, Trustee UA Dated 6-14-78 FBO Richard W. Perkins 471,459 266,146 205,313 3.6 Russell Cowles II, Marguerite Cowles, and First Bank National Association as Trustees of the John Cowles Family Trust FBO Russell Cowles 214,042 214,042 0 0 Hessian, McKasy & Soderberg, P.A. 200,000 200,000 0 0 John G. Kinnard and Company, Incorporated 98,300 86,250 12,050 * Lloyd B. Roach, Inc. 79,052 79,052 0 0 Nelson Broadcasting, Inc. 75,000 75,000 0 0 Russell Cowles II 69,098 69,098 0 0 Rodney P. Burwell 68,750 25,000 43,750 * Pyramid Partners, L.P. 46,344 46,344 0 0 Mark A. Cohn 27,500 20,000 7,500 * Perkins Capital Management, Inc. Profit Sharing Plan and Trust 7,759 7,759 0 0 Fernando Niebla and Olga Niebla, Co-Trustees of the Niebla Family Trust Dated 8-30-90 7,255 7,255 0 0 Perkins Foundation 4,634 4,634 0 0
- ----------------- *Less than 1%. Christopher T. Dahl, Richard W. Perkins, Rodney P. Burwell, and Mark A. Cohn are all members of the Company's Board of Directors. Russell Cowles II is a member of the Board of Directors of the Company whose election remains contingent upon either obtaining a waiver from the FCC of the application of its cross-ownership rules or the amendment of such rules to remove existing restrictions. The Prospectus includes shares owned directly by Mr. Perkins, shares beneficially owned by Mr. Perkins through the Richard W. Perkins, Trustee UA Dated 6/14/78 FBO Richard W. Perkins, Pyramid Partners, L.P., Perkins Capital Management, Inc. Profit Sharing Plan and Trust and Perkins Foundation. This Prospectus also includes shares owned directly by Mr. Cowles and shares beneficially owned by Mr. Cowles through Russell Cowles II, 12 Marguerite Cowles, and First Bank National Association as Trustees of the John Cowles Family Trust FBO Russell Cowles. John G. Kinnard and Company, Incorporated, the underwriter of the Company's 1993 public offering, is the owner of shares included in this Prospectus. This Prospectus includes shares owned by Lloyd B. Roach, Inc. Such shares were issued to Lloyd B. Roach, Inc. in connection with its sale to the Company of radio station WPWA-AM, Chester, Pennsylvania, which closed on September 25, 1996. Lloyd B. Roach, Inc. has exercised its demand registration right with respect to such shares. This Prospectus also includes shares owned by Nelson Broadcasting, Inc. Such shares were issued to Nelson Broadcasting, Inc. on September 11, 1996 in connection with the escrow agreement associated with its pending sale to the Company of radio station WAUR-AM, Sandwich, Illinois. Up to 200,000 shares of common stock may be sold from time to time for the account of Hessian McKasy & Soderberg, P.A. ("HMSPA") pursuant to a retainer agreement with the Company. In September 1996, the Company paid 200,000 shares as a retainer to HMSPA for legal fees incurred and to be incurred in connection with the ABC/Disney Litigation. Under the retainer agreement, HMSPA will periodically invoice the Company for legal fees and costs incurred in connection with the litigation. The Company will determine at such time whether it desires to pay the billing in cash with the Company's funds or whether it will authorize HMSPA to sell shares in satisfaction of the invoice. The number of shares which may be sold will be equal to the amount of the particular billing divided by the bid price of the Company's stock on Nasdaq as of the date the Company notifies HMSPA of its authorization to pay a particular legal fee billing in shares. In the event of the sale of shares by HMSPA to satisfy billings, any shortfall in proceeds received from such sale shall be added to the Company's obligation to such firm and carried forward to a future billing. In the event the proceeds from the sale of shares by HMSPA exceed the amount of the billing for which such shares are to be sold, such excess shall be credited to future legal fees due such firm. In lieu of selling shares following the submission of a billing to the Company, HMSPA may elect to retain shares in satisfaction of a billing, in which case the market risk from the sale of such shares would be borne by the firm. Lance W. Riley, the Company's Secretary and General Counsel, has an of counsel relationship with HMSPA. The Company has agreed to bear all expenses (other than selling commissions and fees) in connection with the registration and sale of the Shares being offered by the Selling Shareholders in over-the-counter market transactions or in negotiated transactions. See "Plan of Distribution." The Company has filed with the Commission a Registration Statement on Form S-3 under the Securities Act with respect to the resale of the Shares from time to time in the over-the-counter market transactions or in negotiated transactions. This Prospectus forms a part of such Registration Statement. USE OF PROCEEDS The Shares offered hereby will be sold by the Selling Shareholders. The Company will not receive any of the proceeds from the sale of the Shares by the Selling Shareholders. See "Selling Shareholders." PLAN OF DISTRIBUTION The Shares offered hereby may be offered by the Selling Shareholders from time to time. The Company will receive no proceeds from the sale of the Shares. Sales may be effected by the Selling Shareholders in transactions on the Nasdaq Stock Market, in negotiated transactions, or in a combination of such methods of sale, at prices relating to prevailing market prices or at negotiated prices. The Selling Shareholders may effect such transactions by selling the Shares to or through broker-dealers, and such broker-dealers may receive compensation in the form of discounts or commissions from the Selling Shareholders and/or the purchasers of the Shares for whom such broker-dealers may act as agents or to whom they sell as principal, or both (which compensation as to a particular broker-dealer may be in excess of customary commissions). 13 The Selling Shareholders and any persons who participate in the sale of the Shares from time to time, may be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act. Any commissions paid or discounts or concessions allowed to any such persons and any profits received on resale of the Shares, may be deemed to be underwriting compensation under the Securities Act. In order to comply with the securities laws of certain states, if applicable, the Shares will be sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain states the Shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available. In accordance with the terms of Warrants exercisable or exercised to purchase Common Stock by certain of the Selling Shareholders, the Company has agreed to indemnify such Selling Shareholders and their control persons with respect to certain liabilities in connection with the sale of the Shares pursuant to this Prospectus, including liabilities under the Securities Act of 1933, as amended (the "Securities Act") and the Exchange Act. In addition, certain Selling Shareholders have agreed to indemnify the Company, its directors, officers, agents and control persons against certain liabilities incurred as a result of information provided by the Selling Shareholders for use in this Prospectus. Insofar as indemnification for liabilities arising under the Securities Act may be permitted pursuant to the foregoing provisions, the Company has been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. LEGAL MATTERS The validity of the Shares offered hereby and certain legal matters pertaining to the Company, including matters incorporated herein by reference relating to the regulation of the Company by the FCC and related matters, were passed upon on behalf of the Company by Lance W. Riley, Esq., Secretary and General Counsel to the Company. EXPERTS The consolidated financial statements as of December 31, 1994 and 1995 and for each of the three years in the period ended December 31, 1995 of Children's Broadcasting Corporation, incorporated by reference in this Prospectus have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon (which contain an explanatory paragraph with respect to substantial doubt about the Company's ability to continue as a going concern and management's plans described in Note 2 to the consolidated financial statements). Such consolidated financial statements are incorporated by reference herein in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The financial statements of Radio Elizabeth, Inc. as of April 30, 1994 and 1995 and for each of the three years in the period ended April 30, 1995, incorporated by reference in this Prospectus have been audited by Smolin, Lupin & Co., P.A., Certified Public Accountants, independent auditors, as set forth in their report thereon. Such financial statements are incorporated by reference herein in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The financial statements of Wolpin Broadcasting Company as of December 31, 1994 and 1995 and for each of the three years in the period ended December 31, 1995, incorporated by reference in this Prospectus, have been audited by Kleiman, Carney & Greenbaum, P.C., Certified Public Accountants, independent auditors, as set forth in their report thereon. Such financial statements are incorporated by reference herein in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. 14 NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER DESCRIBED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING SHAREHOLDERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE UNDER THIS PROSPECTUS SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR SINCE THE DATE OF ANY DOCUMENTS INCORPORATED HEREIN BY REFERENCE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES, OR AN OFFER OR SOLICITATION IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH STATE. --------------------- TABLE OF CONTENTS --------------------- Page ---- Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Incorporation of Certain Documents by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Selling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 1,125,580 SHARES CHILDREN'S BROADCASTING CORPORATION COMMON STOCK -------------------- PROSPECTUS -------------------- _______________, 1996 PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the various expenses payable by the Company in connection with the sale and distribution of the Shares being registered. All amounts shown are estimates, except the registration fee. SEC registration fee. . . . . . . . . . . . . . . . . . . . .$ 2,000 Legal fees and expenses . . . . . . . . . . . . . . . . . . . 10,000 Accounting fees and expenses. . . . . . . . . . . . . . . . . 5,000 Blue sky and related fees and expenses. . . . . . . . . . . . 2,000 Miscellaneous (including listing fees, if applicable) . . . . 5,000 ------- Total. . . . . . . . . . . . . . . . . . . . . . . . . .$24,000 ------- ------- ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Registrant is a Minnesota corporation. Reference is made to Minnesota Statutes Section 302A.521 which provides that a Minnesota business corporation shall indemnify any director, officer, employee or agent of the corporation made or threatened to be made a party to a proceeding, by reason of the former or present official capacity (as defined) of the person, against judgments, penalties, fines, settlements and reasonable expenses incurred by the person in connection with the proceeding if certain statutory standards are met. "Proceeding" means a threatened, pending or completed civil, criminal, administrative, arbitration or investigative proceeding, including one by or in the right of the corporation. Section 302A.521 contains detailed terms regarding such right of indemnification and reference is made thereto for a complete statement of such indemnification rights. Article 6.2 of the Company's Amended and Restated Bylaws, as amended, provides that directors, officers, employees and agents, past or present, of the Company, and persons serving as such of another corporation or entity at the request of the Company, shall be indemnified by the Company for such expenses and liabilities, in such manner, under such circumstances, and to such extent as permitted under Minnesota Statutes 302A.521. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 5.1 Opinion of Lance W. Riley, Esq. 10.1 Asset Purchase Agreement re WPWA-AM, Chester, Pennsylvania. 10.2 Asset Purchase Agreement re WAUR-AM, Sandwich, Illinois. 23.1 Consent of Lance W. Riley, Esq. (included in Exhibit 5.1). 23.2 Consent of Ernst & Young LLP. 23.3 Consent of Smolin, Lupin & Co., P.A. 23.4 Consent of Kleiman, Carney & Greenbaum, Certified Public Accountants. 24 Power of Attorney (included on signature page to the Registration Statement). ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes: II-1 (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; provided, however, that the undertakings set forth in paragraphs (i) and (ii) above do not apply if the information required to be included in a post- effective amendment by those paragraphs is contained in periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the provisions summarized in Item 15 above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel, the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that (1) for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance on Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective and (2) for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-2 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Minneapolis and State of Minnesota, on October 18, 1996. CHILDREN'S BROADCASTING CORPORATION By /s/ Christopher T. Dahl --------------------------------- Christopher T. Dahl, President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Lance W. Riley and James G. Gilbertson as his or her true and lawful attorney-in-fact and agent, with full powers of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons on the dates and in the capacities indicated. Signature Title Date --------- ----- ---- /s/ Christopher T. Dahl President, Chief Executive Officer October 18, 1996 - -------------------------- and Director (Principal Executive Christopher T. Dahl Officer) /s/ James G. Gilbertson Chief Operating Officer and October 18, 1996 - -------------------------- Treasurer (Principal Accounting James G. Gilbertson Officer and Principal Financial Officer) /s/ Richard W. Perkins Director October 18, 1996 - -------------------------- Richard W. Perkins /s/ Rodney P. Burwell Director October 18, 1996 - -------------------------- Rodney P. Burwell /s/ Mark A. Cohn Director October 18, 1996 - -------------------------- Mark A. Cohn EXHIBIT INDEX Number Description - -------- ---------------------------------------------------------------------- 5.1 Opinion of Lance W. Riley, Esq. 10.1 Asset Purchase Agreement re WPWA-AM, Chester, Pennsylvania. 10.2 Asset Purchase Agreement re WAUR-AM, Sandwich, Illinois. 23.1 Consent of Lance W. Riley, Esq. (included in Exhibit 5.1). 23.2 Consent of Ernst & Young LLP. 23.3 Consent of Smolin, Lupin & Co., P.A. 23.4 Consent of Kleiman, Carney & Greenbaum, Certified Public Accountants. 24 Power of Attorney (included on signature page to Registration Statement). EX-5.1 2 EXHIBIT 5.1 OPINION OF LANCE RILEY EXHIBIT 5.1 October 18, 1996 Children's Broadcasting Corporation 724 First Street North Minneapolis, Minnesota 55401 Gentlemen: I am General Counsel to Children's Broadcasting Corporation, a Minnesota corporation (the "Company"), in connection with its filing of a registration statement on Form S-3 (the "Registration Statement"), under the Securities Act of 1933, as amended, in connection with the proposed sale by the Selling Shareholders of 1,125,580 shares of common stock, $.02 par value, of the Company (the "Shares"). Certain of the Shares are issuable or were issued upon the exercise of warrants held by the Selling Shareholders. I have examined the Registration Statement and those documents, corporate records, and other instruments I deemed relevant as a basis for the opinion herein expressed. Based on the foregoing, it is my opinion that when the Registration Statement shall have been declared effective by order of the Securities and Exchange Commission, and the Shares have been sold as contemplated by the Registration Statement, the Shares will be legally and validly issued, fully- paid and nonassessable. I hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and to the reference to myself under the caption "Legal Matters" in the Prospectus included in such Registration Statement. /s/ Lance W. Riley ------------------ Lance W. Riley General Counsel Children's Broadcasting Corporation EX-10.1 3 EXHIBIT 10.1 ASSET PURCHASE AGREEMENT ART 2 EXHIBIT 10.1 ASSET PURCHASE AGREEMENT THIS AGREEMENT, dated as of June 18, 1996, is made between LLOYD B. ROACH, INC., a Pennsylvania corporation ("Seller"); LLOYD B. ROACH ("Shareholder"); CHILDREN'S BROADCASTING CORPORATION, a Minnesota corporation ("CBC"); and CHILDREN'S RADIO GROUP, INC., a Minnesota corporation ("Buyer"); and W I T N E S S E T H : THAT, WHEREAS, Seller is the Federal Communications Commission ("FCC" or "Commission") licensee of Radio Station WPWA-AM, licensed to Chester, Pennsylvania (the "Station"); and WHEREAS, Shareholder is the owner of the majority of the issued and outstanding stock of Seller; and WHEREAS, CBC is the owner of 100% of the issued and outstanding stock of Buyer; and WHEREAS, subject to and conditioned upon the consent of the FCC, Seller desires to sell and transfer and Buyer desires to purchase and acquire the Station and all of the tangible and intangible assets used or useable in connection with the operation of the Station; NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions contained herein, the parties hereto hereby agree as follows: ARTICLE 1 SALE AND TRANSFER OF ASSETS At closing of the transaction described herein ("Closing"), Seller shall sell, convey, assign, transfer and deliver to Buyer, free and clear of any lien, encumbrance, mortgage or security interest of any nature whatsoever, all the material assets of the Seller or Shareholder used or held for use in connection with the operation of the Station, specifically excluding cash on hand and including, without limitation, the following (collectively, the "Assets"): 1.1. All licenses, permits and authorizations ("Licenses") issued by the Commission for the operation of or used in connection with the operation of the Station, all of which are listed on Schedule A attached hereto; 1.2. All of Seller's real property interests including those described in Schedule B attached hereto ("Real Property"); 1.3. All tangible personal property owned by Seller used or useable in the operation of the Station including, without limitation, that listed on Schedule C attached hereto, and any replacements therefor or improvements thereof acquired or constructed prior to Closing ("Personal Property"); 1 1.4. All of Seller's rights and benefits under the business agreements, leases and contracts listed on Schedule D attached hereto, including any renewals, extensions, amendments or modifications thereof, all time sales agreements, and any additional agreements, leases and contracts made or entered into by Seller in the ordinary course of business between the date of such Schedule and the Closing approved in writing by Buyer or otherwise permitted hereunder ("Leases and Agreements"); 1.5. All other licenses, permits or authorizations issued by any government or regulatory agency other than the FCC, which are used in connection with the operation of the Station ("Permits"); 1.6. All right, title and interest of Seller in and to the use of the call letters WPWA for the Station ("Call Letters"), to the extent they can be conveyed; together with all common law property rights, goodwill, copyrights, trademarks, service marks, trade names and other similar rights used in connection with the operation of the Station, including all accretions thereto, including but not limited to those listed on Schedule E attached hereto ("General Intangibles"); and 1.7. All magnetic media, electronic data processing files, systems and programs, logs, customer contracts, public files, vendor contracts, historical billing information, record program libraries, promotional material, supplies, customer files, correspondence, maintenance records or any other business records relating to or used in connection with the operation and financial condition of the Station, but not including records pertaining to corporate affairs (including tax records) and original journals, provided copies are supplied to Buyer. Seller shall have reasonable access to all such records which might be in the possession of Buyer for a period of two (2) years following the Closing, and shall, at its own expense, have the right to make copies thereof; 1.8. All other personal assets whether tangible or intangible, not herein before mentioned, which are owned by Seller or Shareholder and used or held for use in connection with the day to day operation of the Station. Seller and Shareholder agree that the Station Assets conveyed to Buyer on the Closing Date pursuant to this Agreement will be conveyed free and clear of all liens, charges, claims and encumbrances whatsoever, excepting only those obligations from and after the Closing Date with respect to obligations of Seller expressly agreed to be assumed by Buyer hereunder. To the extent that Buyer agrees to assume any obligations under any capital leases or installment purchase agreements, the remaining balance owed under such agreements, including any purchase option costs, shall be deducted from the purchase price payable at Closing. ARTICLE 2 PURCHASE PRICE AND PAYMENTS 2.1. PURCHASE PRICE. As the purchase price for the Assets, Buyer agrees to pay to Seller the sum of One Million Three Hundred Thousand and no/100 Dollars ($1,300,000.00). 2.2. METHOD OF PAYMENT OF PURCHASE PRICE. The purchase price shall be paid as follows: 2.2.1. CBC COMMON STOCK. Five Hundred Thousand and no/100 Dollars ($500,000.00) of the purchase price shall be payable by the issuance by CBC to Seller of CBC's Common Stock (the "CBC Stock"). The number of shares of CBC Stock to be issued shall be equal to Five Hundred Thousand divided by the "Price Per Share" as hereinafter defined. Any fractional share shall be paid in cash based upon the Price Per Share. The "Price Per Share" shall be equal to the average closing price of the CBC Stock on the Nasdaq Stock Market for the fifteen trading days preceding the second business day prior to the Closing Date. Notwithstanding the foregoing, if between the date of this Agreement and the Closing Date the outstanding shares of CBC Stock are changed into a different number of shares or a different class or series, by reason of any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares, the number of 2 shares of CBC Stock described above shall be correspondingly and proportionately adjusted to reflect such stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares. 2.2.2. EARNEST MONEY ESCROW. The amount of Fifty Thousand and no/100 Dollars ($50,000.00) (the "Escrowed Funds") shall be paid into escrow contemporaneously with the execution hereof pursuant to the terms of that Escrow Agreement ("Escrow Agreement") a copy of which is attached hereto as Exhibit A. 2.2.3. CASH PAYMENT AT CLOSING. Eight Hundred Thousand and no/100 Dollars ($800,000.00) of the purchase price hereunder, including the Escrowed Funds, shall be payable in cash at Closing. 2.3. ADJUSTMENTS AND PRORATIONS. The operations of the Station and the income and expenses attributable thereto up to 12:01 A.M. on the day of the Closing (the "Adjustment Time"), shall, except as otherwise provided in this Agreement, be for the account of Seller and thereafter shall be for the account of Buyer. Expenses such as power and utility charges, lease rents, property taxes according to year of accrual, frequency discounts, annual license fees (if any), wages, commissions, payroll taxes, and other fringe benefits of employees of the Seller who enter the employment of the Buyer, and similar deferred items shall be prorated between the Seller and the Buyer. With specific reference to vacation pay or vacation time, it is understood that Seller will be responsible for paying employees any accrued vacation pay and that Buyer will not assume the obligation to provide any accrued vacation time to employees. Prepaid deposits shall not be prorated but shall remain the property of Seller. Employees' employment with Seller 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. With specific reference to payment of commissions, Buyer shall have no obligation to pay any commissions due salesmen for sales attributable to the period of time prior to Closing. All prorations shall be made and paid insofar as feasible at the Closing, with a final settlement within ninety (90) days after the Closing. 2.4 ASSUMED LIABILITIES. Except as expressly provided for in this Agreement, at the Closing Buyer shall not assume, incur or be charged with, in connection with the transactions herein contemplated, any liabilities or obligations of any nature whatsoever, contingent or otherwise. Without limitation of the foregoing, Buyer shall not assume any obligations to Seller's or the Station's employees under any employee benefit plans or employment contracts. 2.5. ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated among the Assets by Buyer and Seller as set forth in the attached Schedule F. Such allocation will be used for all purposes, including preparation and filing of IRS Form 8594 with respect to the transactions contemplated by this Agreement. ARTICLE 3 FEDERAL SECURITIES LAWS MATTERS 3.1. DEFINITIONS. As used in this Article 3, the following terms shall have the following meanings: "ACT" means the Securities Act of 1933, as amended. "ADVICE" has the meaning set forth in Section 3.3. "AFFILIATE" means, with respect to any specified person, any other person who, directly or indirectly, controls, is controlled by, or is under common control with such specified person. 3 "COMMISSION" means the Securities and Exchange Commission. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, or any successor statute, and the rules and regulations of the Commission promulgated thereunder. "HOLDER" means (i) Seller and (ii) each person (other than CBC and its Affiliates) to whom Seller transfers the Shares as provided in Section 3.6 hereof, if the person to whom the Shares are transferred acquires the Shares as Registrable Securities. "PROSPECTUS" means the prospectus included in any Registration Statement (including without limitation, a prospectus that discloses information previously omitted from a Prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any Prospectus supplement, and by all other amendments and supplements to the Prospectus, including post-effective amendments, and in each case including all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. "REGISTRABLE SECURITIES" means the Shares; PROVIDED, HOWEVER, that any Shares shall cease to be Registrable Securities when (i) a Registration Statement covering such Registrable Securities has been declared effective and such Registrable Securities have been disposed of pursuant to such effective Registration Statement, or (ii) such Registrable Securities become eligible for sale pursuant to Rule 144(k) (or any similar provision then in force) under the Act, or (iii) such Securities cease to be outstanding. "REGISTRATION STATEMENT" means any registration statement of CBC that covers any of the Registrable Securities pursuant to the provisions of this Agreement and all amendments and supplements to any such registration statement, including post-effective amendments, in each case including the Prospectus, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "SHARES" means the shares of CBC Common Stock issued to the Seller pursuant to this Agreement so long as they are owned beneficially and of record by a Holder. "SUSPENSION NOTICE" has the meaning set forth in Section 3.3. 3.2. RESALE REGISTRATION. 3.2.1. FILING, EFFECTIVENESS. If any Holder shall make a demand of CBC in writing at any time after the Closing Date of the transactions contemplated by this Agreement that it desires CBC to register all or any portion of his Registrable Securities, CBC shall use reasonable efforts to prepare and file one registration statement on Form S-3 (the "Registration Statement") under the Act covering the resale by such Holder of its Registrable Securities pursuant to Rule 415 under the Securities Act from time to time in transactions not involving any underwritten public offering and use reasonable efforts (i) to cause such Registration Statement to be declared effective by the Commission for such Registrable Securities as soon as practicable thereafter and (ii) to keep the Resale Registration Statement continuously effective until the earliest of (x) the date on which such Holder no longer holds any Registrable Securities registered under the Resale Registration Statement or (y) the third anniversary of the Closing Date, or such lesser time as may be permitted under Rule 144(k) under the Act (or any successor rule thereto) to enable Holder to sell the Registrable Securities without restriction under the Act. CBC shall not be required to cause a Registration Statement requested pursuant to this Section 3.2 to become effective prior to 90 days following the effective date of a registration statement for a publicly underwritten 4 offering of CBC Common Stock initiated by CBC if any managing underwriter named in such registration statement for the publicly underwritten offering has advised CBC in writing that the registration or sale of additional securities by stockholders of CBC within such 90-day period would have a material adverse effect on the likelihood of success of such underwritten offering; PROVIDED, HOWEVER, that CBC shall use its best efforts to achieve such effectiveness promptly following such 90-day period if the request pursuant to this Section 3.2 has been made prior to the expiration of such 90-day period. CBC may postpone the filing of any Registration Statement required hereunder for a reasonable period of time, not to exceed 60 days, if CBC has been advised by outside legal counsel that such filing would require the disclosure of a material transaction or other matter and CBC determines reasonably and in good faith that such disclosure would have a material adverse effect on CBC; PROVIDED, HOWEVER, that CBC shall (A) use reasonable efforts to disclose such material transaction or other matter as soon as in its good faith judgment it is prudent to do so and (B) may so postpone such filing only if all other persons who are named as selling securityholders under then effective registration statements filed by CBC with the Commission and all directors of CBC are advised of the fact that a material transaction or other matter is not being disclosed during the length of such postponement and of the consequences of such nondisclosure under the Act and the Exchange Act. The disclosure to any Holder of any material transaction, or of the existence thereof, pursuant to the preceding sentence shall be held in confidence by Seller or Holder until CBC or a third party not under the control of Seller or Holder has made a public disclosure thereof. 3.2.2. EFFECTIVE REGISTRATION. A registration will not be deemed to have been effected unless the Registration Statement has been declared effective by the Commission; PROVIDED, HOWEVER, that if after it has been declared effective, the offering of Registrable Securities pursuant to a Registration Statement is interfered with by any stop order, injunction or other order or requirement of the Commission or any other governmental agency or court, such Registration Statement will be deemed not to have become effective during the period of such interference until the offering of Registrable Securities pursuant to such Registration Statement may legally resume. 3.3. REGISTRATION PROCEDURES. In connection with the obligations of CBC to effect or cause the registration of any Registrable Securities pursuant to the terms and conditions of this Agreement, CBC shall use reasonable efforts to effect the registration and sale of such Registrable Securities in accordance with the intended method of distribution thereof, and in connection therewith: (a) CBC shall prepare and file with the Commission a Registration Statement on Form S-3 or other similar form under the Securities Act which permits secondary sales of securities in a "shelf registration," and use reasonable efforts to cause such Registration Statement to become effective and remain effective in accordance with the provisions of this Agreement; (b) CBC shall promptly prepare and file with the Commission such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement effective and shall timely file with the Commission all required filings under the Exchange Act as are necessary to keep the Registration Statement effective for as long as such registration is required to remain effective pursuant to the terms hereof; shall cause the Prospectus to be supplemented by any required Prospectus supplement, and, as so supplemented, to be filed pursuant to Rule 424 under the Securities Act; and shall comply with the provisions of the Securities Act applicable to it with respect to the disposition of all Registrable Securities covered by such Registration Statement during the applicable period in accordance with the intended methods of disposition by Holder set forth in such Registration Statement or supplement to the Prospectus; 5 (c) CBC shall promptly furnish to Holder such number of copies of the Prospectus (including each preliminary Prospectus) and any amendments or supplements thereto, as Holder may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities being sold by Holder; (d) CBC shall promptly notify Holder, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission or any state securities authority for amendments and supplements to a Registration Statement and Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement, (iv) of the issuance by any state securities commission or other regulatory authority of any order suspending the qualification or exemption from qualification of any of the Registrable Securities under state securities or "blue sky" laws, and (v) of the happening of any event which makes any statement made in a Registration Statement or related Prospectus untrue or which requires the making of any changes in such Registration Statement or Prospectus so that they will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. As soon as practicable following expiration of the Suspension Period (as defined below), CBC shall prepare and file with the Commission and furnish a supplement or amendment to such Prospectus so that, as thereafter deliverable to the purchasers of such Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Upon receipt of any notice (a "Suspension Notice") by Holder from CBC of the happening of any event of the kind described in Section 3.3(d), Holder shall forthwith discontinue disposition of the Registrable Securities pursuant to the Resale Registration Statement covering such Registrable Securities until such Seller's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3.3(d) or until Holder is advised in writing (the "Advice") by CBC that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the Prospectus, and, if so directed by CBC, will, or will request any broker-dealer acting as Holder's agent to, deliver to CBC (at CBC expense) all copies, other than permanent file copies then in Seller's or broker-dealer's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice; PROVIDED, HOWEVER, that in no event shall the period from the date on which Seller receives a Suspension Notice to the date on which Seller receives either the Advice or copies of the supplemented or amended Prospectus contemplated by Section 3.3(d) (the "Suspension Period") exceed 60 days. 3.4. REGISTRATION EXPENSES. CBC shall bear all expenses incurred in connection with the registration of the Registrable Shares pursuant to Section 3.2 of this Agreement. Such expenses shall include, without limitation, all printing, legal and accounting expenses incurred by CBC and all registration and filing fees imposed by the Commission, any state securities commission or the NASDAQ Stock Market. Each Holder shall be responsible for any brokerage fees or commissions and taxes of any kind (including, without limitation, transfer taxes) with respect to any disposition, sale or transfer of Registrable Securities and for any legal, accounting and other expenses incurred by such Holder. 3.5. INDEMNIFICATION AND CONTRIBUTION. 3.5.1. INDEMNIFICATION BY CBC. CBC agrees to indemnity and hold harmless, to the full extent permitted by law, each Holder from and against all losses, claims, damages, liabilities and 6 expenses (including without limitation reasonable legal fees and expenses incurred by Holder (collectively, the "Damages") to which Holder may become subject under the Securities Act or otherwise, insofar as such Damages (or proceedings in respect thereat) arise out of or are based upon any untrue statement of material fact contained in any Registration Statement (or any amendment thereto) pursuant to which Registrable Securities were registered under the Securities Act, or caused by any omission to state therein a material fact necessary to make the statements therein in light of the circumstances under which they were made not misleading, or caused by any untrue statement of a material fact contained in any Prospectus (as amended or supplemented if CBC shall have furnished any amendments or supplements thereto), or caused by any omission to state therein a material fact necessary to make the statements therein in light of the circumstances under which they were made not misleading, except insofar as such Damages arise out of or are based upon any such untrue statement or omission based upon information relating to Seller furnished in writing to CBC by Seller specifically for use therein; PROVIDED, HOWEVER, that CBC shall not be liable to Holder under this Section 3.5.1 to the extent that any such Damages were caused by the fact that Holder sold Securities to a person as to whom it shall be established that there was not sent or given, at or prior to the written confirmation of such sale, a copy of the Prospectus as then amended or supplemented if, but only if, (i) CBC has previously furnished copies of such amended or supplemented Prospectus to Holder and (ii) such Damages were caused by any untrue statement or omission contained in the Prospectus so delivered which was corrected in such amended or supplemented Prospectus. 3.5.2. INDEMNIFICATION BY THE SELLER. Holder agrees to indemnify and hold harmless CBC, its stockholders, directors, officers and each person, if any, who controls CBC within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from CBC to Holder, but only with reference to information relating to Holder furnished in writing to CBC by Holder specifically for use in any Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto); PROVIDED, HOWEVER, that Holder shall not be obligated to provide such indemnity to the extent that such Damages result from the failure of CBC to promptly amend or take action to correct or supplement any such Registration Statement or Prospectus on the basis of corrected or supplemental information provided by Seller to CBC expressly for such purpose. In no event shall the liability of Holder hereunder be greater in amount than the amount of the proceeds received by Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. 3.5.3. CONTRIBUTION. To the extent that the indemnification provided for in paragraph 3.5.1 or 3.5.2 of this Section 3.5 is unavailable to an indemnified party or insufficient in respect of any Damages, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such Damages in such proportion as is appropriate to reflect the relative fault of CBC on the one hand and Holder on the other hand in connection with the statements or omissions that resulted in such Damages, as well as any other relevant equitable considerations. The relative fault of CBC on the one hand and of Holder on the other hand shall be determined by reference to, among other things, whether the untrue statement of a material fact or the omission to state a material fact relates to information supplied by CBC or by Holder and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. If indemnification is available under paragraph 3.5.1 or 3.5.2 of this Section 3.5, the indemnifying parties shall indemnity each indemnified party to the full extent provided in such paragraphs without regard to the relative fault of said indemnifying party or 7 indemnified party or any other equitable consideration provided for in this Section 3.5.3. CBC and Holder agree that it would not be just or equitable if contribution pursuant to this Section 3.5.3 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to herein. 3.6 TRANSFER OF REGISTRATION RIGHTS. The registration rights of Seller and any Holder under this Article 3 may be transferred to any transferee of Registrable Securities that acquires at least 10,000 shares of Registrable Securities (appropriately adjusted for stock splits, stock dividends and the like). 3.7 LIMITATIONS ON MONTHLY SALES. Seller and each Holder (collectively and not severally) agree that they will not sell, or offer for sale, collectively, in any calendar month, without the prior written consent of CBC, more than an aggregate six thousand five hundred (6,500) Shares. 3.8 REPRESENTATIONS AND WARRANTIES. As a material inducement to CBC to enter into this Agreement and to consummate the transactions contemplated hereby, Seller makes to CBC the following representations and warranties: (a) Seller is acquiring the shares of CBC Common Stock to be issued to such Seller hereunder for Seller's own account for investment only and not with a view to, or with any intention of, a distribution or resale thereof, in whole or in part, in violation of the Securities Act or any rule or regulation thereunder, as amended from time to time. (b) Seller is not directly or indirectly controlled by, or acting on behalf of any person which is, an "investment company" within the meaning of the Investment Company Act of 1940 (the "1940 Act"), as amended, required to register as such under the 1940 Act. (c) Seller (i) has carefully reviewed the disclosure information provided by CBC; (ii) has requested and received such other information, as he has deemed relevant, regarding CBC for purposes of evaluating his acquisition of CBC Common Stock to be issued hereunder; (iii) is aware of the risks associated with an investment in CBC Common Stock; and (iv) has not received any form of general solicitation or advertising in connection with his decision to acquire CBC Common Stock hereunder. Seller has not relied in any way on any information with respect to the CBC Common Stock or CBC generally other than the representations of CBC contained herein or materials furnished by CBC in writing in connection herewith. (d) Seller acknowledges and understands that (i) the CBC Common Stock to be issued to Seller hereunder has not been registered under the Securities Act or any state securities laws; (ii) the CBC Common Stock to be issued to Seller hereunder will be subject to transfer restrictions under the Securities Act and applicable state securities laws and may not be transferred unless (x) subsequently registered under the Securities Act and applicable state securities laws or (y) there is delivered to CBC an opinion of counsel satisfactory to CBC that such registration is not required; and (iii) CBC will place a restrictive legend on the certificate(s) representing the CBC Common Stock to be issued to Seller hereunder, containing the following language: THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND WITHOUT REGISTRATION UNDER APPLICABLE STATE SECURITIES LAWS, IN RELIANCE UPON EXEMPTIONS CONTAINED IN THE ACT AND SUCH LAWS. NO TRANSFER OF THESE SHARES OR ANY INTEREST THEREIN MAY BE MADE EXCEPT PURSUANT TO EFFECTIVE REGISTRATION STATEMENTS UNDER SAID LAWS UNLESS THIS CORPORATION HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT THAT SUCH TRANSFER OR DISPOSITION DOES NOT REQUIRE 8 REGISTRATION UNDER SAID LAWS AND, FOR ANY SALES UNDER RULE 144 OF THE ACT, SUCH EVIDENCE AS IT SHALL REQUEST FOR COMPLIANCE WITH THAT RULE. (e) Seller (i) is able to bear the economic risks of the acquisition of shares of CBC Common Stock hereunder and has adequate means of providing for current needs and possible contingencies; (ii) either alone or with his advisors has had the opportunity to ask questions and receive answers concerning CBC and the terms and conditions of the acquisition of CBC Common Stock, as well as the opportunity to obtain any additional information necessary to verify the accuracy of information furnished in connection therewith which CBC possesses or can acquire without unreasonable effort or expense; and (iii) together with his advisors, if any, has such knowledge and experience in financial and business matters that Seller is capable of evaluating the merits and risks of this acquisition of CBC Common Stock in exchange for the Shares, and of making an informed investment decision, and has relied solely upon the advice of his own counsel, accountant and other advisors, with regard to the legal, investment, tax and other considerations regarding such acquisition. ARTICLE 4 SELLER'S AND SHAREHOLDER'S REPRESENTATIONS, WARRANTIES AND AGREEMENTS Seller and Shareholder represent, warrant and agree as follows, which representations, warranties and agreements shall be deemed to have been made again at Closing: 4.1. CORPORATE EXISTENCE AND POWERS. Seller is a corporation organized and existing in good standing under the laws of the State of Pennsylvania with full power and authority to enter into this Agreement and to enter into and complete the transactions contemplated herein; all required corporate action has been taken by Seller and Shareholder to make and carry out this Agreement; the execution of this Agreement and the completion of the transactions herein involved will not result in the violation of any order, licenses, permit, rule, judgment or decree to which Seller is subject or the breach of any contract, agreement or other commitment to which Seller is a party or by which it is bound; and no other consent of any kind is required that has not been obtained for Seller to make or carry out the terms of this Agreement, except with respect to those consents required of parties to Leases and Agreements listed on Schedule B or D, with respect to assignment and assumption of specific contract rights and obligations. Seller shall use its best efforts to obtain third party consents with respect to any leases, contracts or agreements designated by Buyer and Seller as "material", to the extent required by such documents, and, to the extent Seller is unable to obtain any such consents, Seller shall provide Buyer with alternate benefits essentially similar to those which would have been provided under such contract at the cost that Buyer would have paid by assumption of such contract. Buyer shall cooperate with Seller in obtaining all such required consents. 4.2. LICENSES. Seller is the holder of the licenses, permits and authorizations listed on Schedule A, all of which are valid, and in full force and effect. All ownership and employment reports, renewal applications, financial reports, and other reports and documents required to be filed for the Station have been properly and timely filed, and Seller will not, without Buyer's prior written consent, by an act or omission, surrender, modify, forfeit or fail to seek renewal on regular terms, of any license or authorization of the Commission, or cause the Commission to institute any proceeding for the cancellation or modification of any such license or authorization, or fail to prosecute with due diligence any pending application to the Commission. 4.3. ASSETS. The Assets to be transferred to Buyer at Closing represent all the assets necessary for, utilized in connection with or held for use in connection with the Station's current operations and 9 represents all the assets owned by Seller or used for the Station's current operations; until Closing, none of the Assets will be sold, leased or otherwise disposed of unless replaced by a similar Asset of equal or greater value, and, at Closing, all of the Assets shall be owned by and transferred by Seller to Buyer free and clear of all liens, encumbrances, interests or restrictions of any kind whatsoever excepting only those obligations, liens or encumbrances expressly assumed by Buyer hereunder and listed on Schedule B or D. The Assets will be in good working condition on the Date of Closing. 4.4. CONTRACTS, LEASES, AGREEMENTS, ETC. On the Closing Date there will be no Leases or Agreements relating to the Station (not including this Agreement) 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. 4.5. LITIGATION. To Seller's and Shareholder's knowledge, no strike, labor dispute, investigation, litigation, court or administrative proceeding is pending or threatened against Seller or Shareholder relating to the Station, its employees or any of the Assets to be conveyed hereunder which may result in any change in the business, operations, assets or financial condition of Seller or may materially affect Buyer's use and enjoyment of the Assets, or which would hinder or prevent the consummation of the transaction contemplated by this Agreement, and Seller knows of no basis for any such possible action. 4.6. INSURANCE. Until Closing, Seller shall keep the Assets insured to full insurable value against loss or damage by fire or from other causes customarily insured against by other radio stations similarly situated, and has provided Buyer with an abstract of such casualty insurance coverage. 4.7. ACCESS TO INFORMATION. Seller shall give Buyer and its representatives full access during normal business hours throughout the period prior to Closing to the operations, properties, books, accounting records, contracts, agreements, leases, commitments, programming, technical and sales records and other records of and pertaining to the Station; provided, however, such access shall not disrupt Seller's normal operation. Seller shall furnish to Buyer all information concerning the Station's affairs as Buyer may reasonably request. Buyer will maintain the confidentiality of all the information and materials delivered to it or made available for its inspection by Seller hereunder, except where such information or materials are required to be filed with the FCC in connection with the assignment application or are disclosed to partners of Buyer or lenders thereto as reasonably required to secure financing to consummate the transaction contemplated herein. In the latter event, Buyer will use reasonable efforts to cause its partners or lenders to maintain confidentiality. If for any reason the transaction contemplated herein is not consummated, Buyer will return to Seller all such materials in its possession and keep all of the foregoing information confidential. 4.8. CONDUCT OF THE STATION'S BUSINESS. Until Closing, without the written consent of Buyer, Seller shall not enter into any transaction other than those in the ordinary course of the business of the Station; no employment contract shall be entered into by Seller relating to the Station unless the same is terminable at will and without penalty; and Seller will cause the Station to be operated in compliance with its licenses, permits and all applicable laws and regulations; Seller further represents, warrants and covenants: (a) Between the date hereof and Closing, Seller shall not take any action which will prevent or impede Buyer from obtaining at the Closing the actual and immediate occupancy and possession of the Station and all of the Assets purchased hereunder, including its books and records. (b) On the Closing date, Seller will be the owner of the radio broadcast equipment and other assets purchased hereunder except such of the same replaced by suitable property of no 10 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; 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 those Assets, and that the Assets will be in good working condition; (c) Neither Seller nor Shareholder knows of any facts relating to it or the Station which would cause the Commission to deny its consent to the assignment of the Station authorization to Buyer. (d) Seller will have paid and discharged all taxes, assessments, excises, and levies known to Seller or Shareholder which have not been paid and that would interfere with Seller's assets, facilities, license or other items conveyed hereunder. 4.9. FINANCIAL INFORMATION. Any financial information relating to the Station that Seller has provided or will provide to Buyer are true and correct in all material respects. 4.10 PRE-CLOSING COVENANTS. Between the date hereof and the Closing, Seller and Shareholder covenant that : 4.10.1 FCC COMPLIANCE. Seller shall continue to operate the Station in conformity with the terms of the Station's license and in conformity in all material respects with all applicable laws, regulations, rules and ordinances, including but not limited but not limited to the rules and regulations of the FCC. Seller shall file all reports, applications and other filings required by the FCC in a timely and accurate manner. 4.10.2 CONDUCT OF BUSINESS. Seller shall operate the Station and conduct its business diligently and in the usual and ordinary course and consistent with past practices, and shall continue all practices, policies, procedures and operations relating to the Station in substantially the same manner as heretofore, including sales, promotions and maintenance of the Assets. 4.10.3 MAINTENANCE OF ASSETS. Seller shall maintain all of the Assets in a good condition and shall maintain inventories of spare parts at levels consistent with the past practices of Seller and the Station. Seller shall not sell, convey, assign, transfer or encumber any of the Assets, except for the retirement of tangible Assets consistent with the normal and customary practices of Seller and the Station. ARTICLE 5 CBC'S AND BUYER'S REPRESENTATIONS AND WARRANTIES CBC and the Buyer represent and warrant as follows, which representations and warranties shall be deemed to have been made again at Closing. 5.1. CORPORATE EXISTENCE AND POWERS. CBC and Buyer 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 enter into and complete the transactions contemplated herein; Buyer is, or will be at the time of Closing, qualified to do business in the State of Pennsylvania; all required corporate action has been taken by Buyer to make and carry out this Agreement; the execution of the Agreement 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 CBC or the Buyer is subject or the breach of any contract, 11 agreement or other commitment to which CBC or the Buyer is a party or by which it is bound; and except for the consent of the Commission, no other consent of any kind is required that has not been obtained for Seller to make or carry out the terms of this Agreement. 5.2. BUYER'S QUALIFICATIONS. At Closing, Buyer or its assignee will be legally and financially qualified to become the licensee of the Commission. Buyer does not know of any facts relating to it which would cause the Commission to deny its consent, or which would materially hinder or delay receipt of such consent, to the Licenses for the Station to Buyer. 5.3. SECURITIES AND EXCHANGE ACT OF 1934. CBC shall be in compliance with applicable reporting requirements of the Securities and Exchange Act of 1934. 5.4. CBC STOCK. At Closing, all CBC Stock to be issued hereunder will be validly issued, duly authorized, fully paid and non-assessable. ARTICLE 6 BREACH OF AGREEMENTS, REPRESENTATIONS AND WARRANTIES 6.1. BREACH OF SELLER'S OR SHAREHOLDER'S AGREEMENTS, REPRESENTATIONS AND WARRANTIES. Seller and Shareholder shall indemnify and hold harmless CBC and Buyer from and against any loss, damage, liability, claim, demand, judgment or expense, including claims of third parties arising out of ownership of the Assets or the operation of the Station by Seller prior to Closing, and including without being limited to, reasonable counsel fees and reasonable accounting fees, arising out of or sustained by CBC or Buyer by reason of any material breach of any warranty, representation, covenant or agreement of Seller or Shareholder contained herein or in the Schedules attached hereto; provided, however, that such indemnification shall be required only if written notice, with respect to any matter for which indemnification is claimed, is given. Upon receipt of such written notice, Seller shall have the right, if it involves a liability to a third party, to defend or compromise such matter at Seller's sole cost and expense, and Buyer shall cooperate fully in such defense. 6.2. BREACH OF CBC'S OR BUYER'S AGREEMENTS, REPRESENTATIONS AND WARRANTIES. CBC and Buyer shall indemnify and hold harmless Seller from and against any loss, damage, liability, claim, demand, judgment or expense, including claims of third parties arising out of ownership of the Assets or operation of the Station by Buyer after Closing, and including without being limited to, reasonable counsel fees and reasonable accounting fees, arising out of or sustained by Seller by reason of any material breach of any warranty, representation, covenant or agreement of CBC or Buyer contained herein; provided, however, that such indemnification shall be required only if written notice, with respect to any matter for which indemnification is claimed, is given. Upon receipt of such written notice, CBC and Buyer shall have the right, if it involves a liability to a third party, to defend or compromise such matter at CBC or Buyer's sole cost and expense, and Seller shall cooperate fully in such defense. 6.3. SPECIFIC PERFORMANCE AND LIQUIDATED DAMAGES. The Seller acknowledges that the Assets and property to be transferred and assigned under this Agreement are unique and not readily bought on the open market and, for that reason, among others, CBC and Buyer would be irreparably harmed by any breach or failure of the Seller 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 in a court of equity by a decree of specific performance by Buyer or CBC, and an injunction may be issued restraining any transfer or assignment of the Assets contrary to the provisions of this Agreement pending the determination of such controversy. The Seller, for itself and its successors and assigns, hereby waives the claim or defense that an adequate remedy at law exists. In the event of the failure of the contemplated transaction to close as a result of Buyer's 12 or CBC's material breach of their obligations hereunder, and assuming that neither Seller nor Shareholder are in material breach of any of their obligations hereunder, then the parties agree that the Escrowed Funds shall act as liquidated damages to Seller and Shareholder, and in no event shall Seller or Shareholder have the right to claim damages in excess of the Escrowed Funds as a result of the transaction's failure to close. ARTICLE 7 RISK OF LOSS 7.1. BUYER'S OPTIONS. The risk of any loss, damage or destruction to any of the Assets to be transferred to the Buyer hereunder from fire or other casualty or loss shall be borne by the Seller at all times prior to the Closing. Except for loss or damage affecting the broadcast transmission capabilities of the station, which is covered by the terms of Section 7.2 below, upon the occurrence of any material loss or damage to any of the Assets to be transferred hereunder as a result of fire, casualty, or other causes prior to the closing, Seller 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 Assets lost or destroyed is believed reimbursable under any insurance policy with respect thereto. Provided Seller has not repaired, restored or replaced the damaged Assets by the Closing, CBC and Buyer shall have the option (but not the obligation) exercisable at the Closing to: (i) terminate this Agreement in which case neither party shall have any further liability to the other and all escrowed funds shall be returned to Buyer, except that Seller shall have a reasonable period of time, not to exceed thirty (30) days, to effect repairs of the damaged Assets before CBC or Buyer may exercise its option under this subparagraph 7.1 (i); (ii) postpone the Closing for up to sixty (60) days to allow the property to be completely repaired, replaced or restored, at Seller's sole expense, in which event Seller shall use its best efforts to complete such repairs; or (iii) elect to consummate the Closing and accept the property in its "then" condition, in which event Seller shall assign to Buyer all rights under any insurance claim covering the loss and pay over to the Buyer all rights under any insurance claim covering the loss and pay over to the Buyer the proceeds under any such insurance policy heretofore received by Seller with respect thereto. 7.2. BROADCAST TRANSMISSION OF THE STATION PRIOR TO CLOSING. If, prior to the Closing Date, the Station incurs any unusual operating problems (including any event described below), Seller shall provide Buyer with prompt written notice of such problem and the measures being taken to correct same. If, after the date hereof and prior to the Closing Date, any event occurs which prevents the full authorized power broadcast transmission of the Station pursuant to its FCC license authority for (i) a period of 12 consecutive hours or more, (ii) three separate periods of one hour or more, or (iii) five separate occasions regardless of the duration thereof, Buyer shall have the right, by giving written notice to the Seller of its election to do so, to terminate this Agreement. ARTICLE 8 APPLICATION FOR COMMISSION APPROVAL 8.1. FILING AND PROSECUTION OF APPLICATION. Buyer and Seller shall, as soon as practicable after the date of this Agreement and in any event not later than ten days thereafter, join in an application to be filed with the Commission requesting its written consent to the assignment of the License of the 13 Station from Seller to Buyer. Each party shall prepare its own portion of the application. Buyer and Seller shall take all steps necessary to the expeditious prosecution of such application to a favorable conclusion, using their best efforts throughout. 8.2. EXPENSES. Each party shall bear its own legal, accounting and other expenses in connection with the consummation of the contemplated transaction. Any fees incurred in connection with the preparation of audited financial statements of Seller will be incurred at Buyer's direction and deemed to be Buyer's expense for the purpose of this Section 8.2. The parties shall cooperate with the preparation of the Commission application and in connection with the prosecution of such application. The filing fee shall be shared equally by the parties. 8.3. DESIGNATION FOR HEARING. If, for any reason, any application for assignment of the License is designated for hearing by the Commission prior to grant thereof, either party shall have the right by written notice within thirty (30) days of such designation for hearing, to terminate this Agreement if the allegations raised by such petition relate to the other party. Should Closing occur and upon reconsideration should the FCC designate the assignment for hearing, Buyer may elect to rescind this Agreement, and if Buyer so elects, Buyer and Seller agree to cooperate in filing an application to reassign the License to Seller, if necessary, in order to comply with any FCC order and to take all necessary actions to reverse this transaction as if Closing had not occurred. 8.4. TIME FOR COMMISSION CONSENT. If the Commission has not given its written consent to the assignment of the License set forth herein within nine (9) months from the date of acceptance for filing of the application for such assignment, either party, if not then in default, may terminate this Agreement by giving written notice to the other. Upon such termination, neither party shall have any right or liability hereunder and all escrowed funds shall be returned to Buyer promptly. 8.5. CONTROL OF STATION. Until Closing, Buyer shall not directly or indirectly, control, supervise, direct or attempt to control, supervise or direct the operation of the Station, but such operation shall be the sole responsibility of Seller, subject to and consistent with all rules, regulations and policies of the FCC. ARTICLE 9 CLOSING Subject to the terms and conditions herein stated, the parties agree as follows: 9.1. CLOSING DATE. The Closing of this Agreement shall be held at such time and date as shall be mutually agreed by Seller and Buyer; provided, however, that in any event Buyer must close no later than ten (10) days after final Commission approval of the assignment of the License ("Final Approval"). (The date scheduled, or required to be scheduled for Closing hereunder is referred to herein as the "Closing Date.") Final Approval shall be the approval of the FCC to the assignment of the Station Licenses which is no longer subject to rehearing, reconsideration or review by the Commission or to review by any court under the Communications Act of 1934, as amended. Closing shall take place at the offices of Buyer or, at the parties' option, by mail. 9.2. SELLER'S AND SHAREHOLDER'S OBLIGATIONS AT CLOSING. At Closing, Seller and Shareholder shall deliver to Buyer the following: (a) An Assignment of the Licenses described in Schedule A; an Assignment of Leases and/or Warranty Deed for the real property interests described in Schedule B conveying all of Seller's or Shareholder's interest in such real property and an Assignment and Bill of Sale, or similar instruments, including third party consents to all "material" leases, contracts and agreements, transferring to Buyer all other Assets to be transferred hereunder, free and 14 clear of all liens, encumbrances and restrictions of any kind whatsoever. The Real Estate is to be conveyed free and clear of all liens, encumbrances, and easements excepting however the following: existing building restrictions, ordinances, easements of roads, easements visible upon the ground, privileges or rights of public service companies, and those ground leases listed on the schedules attached hereto; otherwise the title to the Real Estate shall be good and marketable and such as will be insured by a reputable title insurance company at the regular rates. (b) The business records described in Section 1.8; (c) An opinion of Seller's counsel, addressed to Buyer, confirming the correctness of Seller's representations made in Section 4.1; and (d) Such other documents and instruments as might reasonably be requested by Buyer to consummate the transaction contemplated hereunder consistent with the intent expressed herein. 9.3. CBC'S AND BUYER'S OBLIGATIONS AT CLOSING. At Closing, CBC or Buyer shall deliver to Seller the following: (a) Shares of CBC Stock in an amount to be determined as set forth in Section 2.2.1; (b) A cashier's or certified check in the amount of Eight Hundred Thousand and no/100 Dollars ($800,000.00); (c) An opinion of Buyer's and CBC's counsel, addressed to Seller, confirming the correctness of Buyer's and CBC's representations made in Section 5.1. 9.4. CONDITIONS TO OBLIGATIONS OF BUYER AND CBC. The obligations of Buyer and CBC to consummate the transaction herein contemplated at Closing are subject to and conditioned on: (a) The written consent of the Commission to the assignment to Buyer or its assigns of the License of the Station that does not impose any condition that is materially adverse to Buyer or CBC, and the written consent of any other federal or state regulatory authority required in connection with the issuance of the CBC Stock; (b) The satisfaction at or before Closing of all agreements, obligations and covenants of Seller 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 Seller and Shareholder; (d) Written third party consents to all material leases, contracts and agreements where required by the terms of the lease, contract or agreement; and (e) Receipt of engineering certificate by Seller to Buyer certifying and confirming the Station's compliance with all FCC regulations and accuracy of Seller's and Shareholder's representations as to FCC and engineering compliance. (f) Either a determination that the contemplated transaction does not constitute a "significant" transaction under applicable SEC regulations or delivery of audited financial statements of Seller for the three (3) tax years prior to Closing. It is understood that Seller's financial statements are not audited, that Seller's accountants will be paid by 15 Buyer for services in connection with preparing such audits, and that the contingency referred to in this subparagraph relates to the auditability of such records of Seller. 9.5. CONDITIONS TO OBLIGATIONS OF SELLER. The obligations of Seller to consummate the transaction herein contemplated at Closing are subject to and conditioned on: (a) The written consent of the Commission to the assignment to Buyer of the License of the Station without any conditions that are materially adverse to Seller, and the written consent of any other federal or state regulatory authority required in connection with the issuance of the CBC Stock; (b) The satisfaction at or before Closing of all agreements, obligations and covenants of Buyer and CBC hereunder required to be performed or complied with by it at or before the Closing; and (c) The material accuracy of the representations and warranties made by Buyer and CBC. ARTICLE 10 MISCELLANEOUS PROVISIONS 10.1. ARBITRATION. 10.1.1. PROCEDURE. Except as specifically provided to the contrary in this Agreement, all disputes arising among the parties under this Agreement shall be resolved by arbitration under this Section 10. The parties do not intend that any matters relating to fraud or material misrepresentation shall be subject to arbitration. Any party desiring arbitration shall deliver notice to the other party and in such notice shall (i) specify in detail those matters (the "Disputed Matters") as to which such party has a claim, such party's position with respect to the Disputed Matter and the basis for such party's claim; and (ii) appoint as an arbitrator a disinterested person of recognized competence in the area at issue. Within fifteen (15) days thereafter, each party shall, by notice to the originating party, (i) specify in detail such party's position with respect to the Disputed Matters and the basis for such party's disagreement; and (ii) appoint another person similarly qualified as the additional arbitrator. Within fifteen (15) days thereafter, the arbitrators thus appointed shall appoint another person similarly qualified as an additional arbitrator, and all such arbitrators shall be directed to resolve such Disputed Matters within thirty (30) days, unless the arbitrators in good faith determine that such a deadline is impractical. The arbitrators shall resolve any Disputed Matters by adopting the position with respect thereto of one of the parties, and unless otherwise agreed by the parties, the arbitrator shall have not authority to adopt any other resolution of such Disputed matters. The determination of the majority of the arbitrators or the sole arbitrator, as the case may be, shall, to the extent permitted by law, be conclusive and binding upon the parties. Any party shall, upon such determination, have the right to enforce the determination in a court of competent jurisdiction. The arbitrator or arbitrators shall give notice to the parties stating their determination, and shall furnish to each a copy of such determination signed by them. In the event of the failure, refusal or inability of any arbitrator to act, a new arbitrator shall be appointed in his or her stead, which appointment shall be made in the same manner as hereinbefore provided for the appointment of the arbitrator so failing, refusing or unable to act. 10.1.2. ARBITRATOR APPOINTMENT DISPUTE. Notwithstanding the provisions of the prior paragraph, (i) if the additional arbitrator shall not have been appointed as aforesaid, the first arbitrator 16 shall determine such matter; and (ii) if the arbitrators appointed by the parties shall be unable to agree upon the appointment of another arbitrator within fifteen (15) days after the appointment of the lastly appointed arbitrator, they shall give written notice of such failure to agree to the parties, and, if the parties shall fail to agree upon the selection to such other arbitrator within fifteen (15) days thereafter, then within ten (10) days thereafter, any of the parties upon written notice to the other party may apply for such appointment to a local court of competent jurisdiction. 10.1.3. RULES AND PROCEDURES. (a) Any such arbitration shall be conducted in Washington, D.C., in accordance with the Commercial Arbitration Rules (the "Rules") of the American Arbitration Association ("AAA") to the fullest extent such Rules are permitted by, and to the fullest extent not inconsistent with, applicable law and the Rules set forth below, which shall be controlling to the extent they differ from the AAA Rules. (b) Each party shall be entitled to present evidence and arguments to the arbitrators. Each party hereby authorizes the arbitrators (i) to order such discovery (including third party discovery) as the arbitrators shall determine to be reasonable under the circumstances; (ii) to impose reasonable schedules and deadlines to ensure that discovery is conducted and concluded on a timely basis; (iii) to impose sanctions on any party for abuse or delay of the discovery; and (iv) to apply such Rules of evidence as the arbitrators in their sole discretion may determine. (c) Any party may elect, by notice to the other party and the arbitrators, to have the arbitration conducted on an expedited basis. In such event, the parties hereby agree that the arbitrator shall be authorized to authorize to expedite the proceedings by all reasonable means consistent with a fair hearing of the dispute. Such means may include the imposition of accelerated discovery and hearing schedules, requiring submissions within abbreviated time periods and imposing limitations on numbers of witnesses and the length of hearings. 10.1.4. COSTS AND COMPLIANCE WITH DECISION. Each party agrees to comply with any order or request of the arbitrators delivered pursuant to this Section 10. Each party will compensate the arbitrator selected by it, and the fees of the arbitrator appointed by the other arbitrators and the expenses of the proceeding will be shared equally by the parties. Subject to the foregoing sentence, each party shall bear its own expenses, including attorneys' fees, in connection with any arbitration proceedings hereunder. No party in any such arbitration, or in any action, trial or appeal thereon, shall be entitled to attorneys' fees or court, arbitration or other costs incurred, unless otherwise decreed by the court or arbitrators in the same or a separate suit. 10.2. EXECUTION OF DOCUMENTS. The parties agree to execute all applications, documents and instruments which may be necessary for the consummation of the transaction 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. 10.3. 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 when deposited in the mails, certified or registered mail, postage prepaid, return receipt requested, and shall be addressed as follows: 17 If to Seller or Shareholder: Mr. Lloyd B. Roach Lloyd B. Roach, Inc. 12 Kent Road Aston, Pennsylvania 19014 with copy to: Robert B. Famiglio, Esq. Famiglio & Massinger 201 North Jackson Street Media, Pennsylvania 19063 If to Buyer or CBC: Mr. Christopher T. Dahl Children's Broadcasting Corporation Fourth Floor 724 First Street North Minneapolis, Minnesota 55401 with copy to: Lance W. Riley, Esq. Children's Broadcasting Corporation Fourth Floor 724 First Street North Minneapolis, Minnesota 55401 10.4. 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. 10.5. ENTIRE AGREEMENT. This Agreement together with all Exhibits and Schedules referred to herein contain all of the terms and conditions agreed upon by the parties hereto with respect to the transaction contemplated hereunder. 10.6. ASSIGNABILITY. Neither party may assign their rights or obligations under this Agreement without the prior written consent of the other party, which consent will not be unreasonably denied or delayed, except that either party may make an assignment to an entity under essentially common control as the assigning entity. 10.7. 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. 10.8. 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. 10.9. 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. 10.10. GOVERNING LAW. This Agreement has been entered into in the State of Pennsylvania and shall be governed in accordance with the laws of the State of Pennsylvania. 18 10.11. BROKER COMMISSION. Seller and Buyer each represent to the other that it has engaged no broker in connection with the contemplated transaction, other than Mr. Ed McKenna, who has been engaged by and shall be paid by Seller, and agrees to indemnify and hold the other party harmless against any claims made by a broker through it in connection with the transactions contemplated hereunder. 10.12. SALES TAX. Any sales or transfer tax due upon consummation of this transaction will be computed at Closing and paid by Buyer. 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. SELLER: CBC: LLOYD B. ROACH, INC. CHILDREN'S BROADCASTING CORPORATION BY: /s/LLOYD B. ROACH BY: /s/JAMES G. GILBERTSON ------------------------- ------------------------------ LLOYD B. ROACH JAMES G. GILBERTSON ITS: PRESIDENT ITS: CHIEF OPERATING OFFICER BUYER: CHILDREN'S RADIO GROUP, INC. BY: /s/JAMES G. GILBERTSON ------------------------------ JAMES G. GILBERTSON ITS: CHIEF OPERATING OFFICER 19 EX-10.2 4 EXHIBIT 10.2 ASSET PURCHASE AGREEMENT WAUR-AM EXHIBIT 10.2 ASSET PURCHASE AGREEMENT THIS AGREEMENT, dated as of September 11, 1996, is made between NELSON BROADCASTING, INC., an Illinois corporation ("Seller"); LARRY NELSON ("Shareholder"); CHILDREN'S BROADCASTING CORPORATION, a Minnesota corporation ("CBC"); and CHILDREN'S RADIO GROUP, INC., a Minnesota corporation ("Buyer"); and W I T N E S S E T H : THAT, WHEREAS, Seller is the Federal Communications Commission ("FCC" or "Commission") licensee of Radio Station WAUR-AM, licensed to Sandwich, Illinois (the "Station"); and WHEREAS, Shareholder is the owner of a majority of the issued and outstanding stock of Seller; and WHEREAS, CBC is the owner of 100% of the issued and outstanding stock of Buyer; and WHEREAS, subject to and conditioned upon the consent of the FCC, Seller desires to sell and transfer and Buyer desires to purchase and acquire the Station and all of the tangible and intangible assets used or held for use in connection with the operation of the Station; NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions contained herein, the parties hereto hereby agree as follows: ARTICLE 1 SALE AND TRANSFER OF ASSETS At closing of the transaction described herein ("Closing"), Seller shall sell, convey, assign, transfer and deliver to Buyer, free and clear of any lien, encumbrance, mortgage or security interest of any nature whatsoever, all the material assets of the Seller or Shareholder listed herein for use in connection with the operation of the Station, specifically excluding cash on hand, accounts receivable , like cash accounts and cash value of life insurance policies, items not listed, if any, and including, the following (collectively, the "Assets"): 1.1. All licenses, permits and authorizations ("Licenses") issued by the Commission for the operation of or used in connection with the operation of the Station, all of which are listed on SCHEDULE A attached hereto; 1.2. All of Seller's real property interests described in SCHEDULE B attached hereto ("Real Property"); 1.3. All tangible personal property owned by Seller and used or held for use in connection with the operation of the Station listed on SCHEDULE C attached hereto, and any replacements therefor or improvements thereof acquired or constructed prior to Closing ("Personal Property"); 1.4. All of Seller's rights and benefits under the business agreements, leases and contracts listed on SCHEDULE D attached hereto, including any renewals, extensions, amendments or modifications 1 thereof, all time sales agreements, and any additional agreements, leases and contracts listed; Contracts made or entered into by Seller in the ordinary course of business between the date of such Schedule and the Closing approved in writing by Buyer and Seller or otherwise permitted hereunder ("Leases and Agreements"); 1.5. All other licenses, permits or authorizations issued by any government or regulatory agency other than the FCC, which are used in connection with the operation of the Station ("Permits"); 1.6. All right, title and interest of Seller in and to the use of the call letters WAUR for the Station ("Call Letters"), to the extent they can be conveyed; together with all common law property rights, goodwill, copyrights, trademarks, service marks, trade names and other similar rights used in connection with the operation of the Station, including all accretions thereto, including but not limited to those listed on SCHEDULE E attached hereto ("General Intangibles"); and 1.7. Copies or originals of (relating to WAUR) programs, logs, customer contracts, public files, vendor contracts, historical billing information, promotional material, customer files, correspondence, maintenance records or other business records relating to or used in connection with the operation and financial condition of the Station (if requested), but not including records pertaining to corporate affairs (including tax records) and journals, provided copies are supplied to Buyer if needed at Buyer's expense. Buyer shall have reasonable access to all such records which might be in the possession of Seller for a period of two (2) years following the Closing, and shall, at its own expense, have the right to make copies thereof; 1.8. Seller and Shareholder agree that the Station Assets conveyed to Buyer on the Closing Date pursuant to this Agreement will be conveyed free and clear of all liens, charges, claims and encumbrances whatsoever, excepting only those obligations from and after the Closing Date with respect to obligations of Seller expressly agreed to be assumed by Buyer hereunder. ARTICLE 2 PURCHASE PRICE AND PAYMENTS 2.1. PURCHASE PRICE. As the purchase price for the Assets, Buyer agrees to pay to Seller the sum of Three Million Nine Hundred Thousand and no/100 Dollars ($3,900,000.00). 2.2. METHOD OF PAYMENT OF PURCHASE PRICE. The purchase price shall be paid as follows: 2.2.1. CASH PAYMENT AT CLOSING. Two Million and no/100 Dollars ($2,000,000.00) of the aggregate purchase price shall be payable in cash at Closing. 2.2.2. PROMISSORY NOTE. One Million Four Hundred Thousand and no/100 Dollars ($1,400,000.00) of the aggregate purchase price shall be payable pursuant to the terms of a Promissory Note in the form attached hereto as EXHIBIT A (the "Note") to be executed by Buyer and CBC and delivered to Seller at Closing. The Note shall provide that the principal balance and interest thereon at the rate of prime (as determined and adjusted quarterly by reference to the prime rate published in the WALL STREET JOURNAL) plus 1%, be amortized over six (6) years and payable in equal quarterly payments over six (6) years or at such earlier time that Buyer or CBC is sold or upon the resale of WAUR. In the event of sale of Buyer or CBC or the resale of WAUR, the balance due of this Promissory Note will become payable in full in cash. The Note shall be secured by a lien upon the Station Assets as set forth in that Security Agreement attached hereto as EXHIBIT B. The Buyer shall have the option of delivering shares of CBC Common Stock ("CBC Stock") 2 in lieu of cash payments under the Note with the value of CBC Stock determined by the average closing sale price of CBC Stock on the NASDAQ National Market over the ten (10) trading days prior to the two (2) days prior to the date of any due date of a payment under the Note. Any CBC Stock delivered to Seller shall carry demand registration rights as more particularly described in Section 3 below, with any cost associated with such registration to be paid by CBC. Notwithstanding the foregoing, if the trading volume of CBC's stock over the thirty (30) trading days preceding any such payment date averaged less than 7,500 shares per day, then one-half of such Note payment must be made in cash, and if the average trading volume is less than 3,750 per day, then all of such Note payment shall be made in cash. If a Suspension Notice or other impediment exists which prevents registration of CBC Stock upon demand made at the time of issuance of any installment of CBC Stock, Seller shall have the right to require Buyer and CBC to make such payment in cash within 5 business days after receipt of notice from Seller. CBC shall have the option of making a maximum of two payments of cash or CBC Stock in advance during any calendar year, which prepayments shall be credited against the next installment payment or payments due under the Note. Any sale volume limitations imposed upon Seller in such event shall be adjusted proportionately so that, for instance, if two installments are being made, Seller's volume limit would be doubled. 2.2.3. NON-COMPETITION AGREEMENT. Five Hundred Thousand and no/100 Dollars ($500,000.00) of the aggregate purchase price shall be payable pursuant to the terms of a Non-Competition Agreement (the "Non-Competition Agreement") in the form attached hereto as EXHIBIT C to be executed by Shareholder and Buyer and delivered at Closing. The Non-Competition Agreement shall have a term of ten (10) years, shall cover the Eight County Chicago Metropolitan Area, and shall provide that Shareholder shall not directly or indirectly engage in the production or broadcast of a children's radio format or programming within the proscribed area during such 10-year term except in the event of default by CBC and Buyer. Equal quarterly payments shall be made by Buyer during the term of the Non-Competition Agreement. 2.3. ESCROW PROVISIONS. To secure Buyer's obligation to close hereunder, the parties agree to enter into an Escrow Agreement in the form attached hereto as EXHIBIT D (the "Escrow Agreement") contemporaneously with the execution of this Agreement. Pursuant to the terms of the Escrow Agreement, Buyer shall deliver to the Escrow Agent a certificate representing shares of CBC Stock having a Market Value (as that term is defined in the Escrow Agreement) of Three Hundred Fifty Thousand and no/100 Dollars ($350,000.00) to secure performance of CBC's and Buyer's obligations hereunder. 2.4. ADJUSTMENTS AND PRORATIONS. The operations of the Station and the expenses and income attributable thereto up to 12:01 A.M. on the day of the Closing (the "Adjustment Time"), shall, except as otherwise provided in this Agreement, be for the account of Seller and thereafter shall be for the account of Buyer. Expenses such as power and utility charges, lease rents, property taxes according to year of accrual, frequency discounts, annual license fees (if any), wages, commissions, payroll taxes, and other fringe benefits of employees of the Seller who enter the employment of the Buyer, and similar deferred items shall be prorated between the Seller and the Buyer. With specific reference to vacation pay or vacation time, it is understood that Seller will be responsible for paying employees any accrued vacation pay and that Buyer will not assume the obligation to provide any accrued vacation time to employees. Prepaid deposits shall not be prorated but shall remain the property of Seller. Employees' employment with Seller 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. All prorations shall be made and paid insofar as feasible at the Closing, with a final settlement within ninety (90) days after the Closing. 3 2.5. ASSUMED LIABILITIES. Except as expressly provided for in this Agreement, at the Closing Buyer shall not assume, incur or be charged with, in connection with the transactions herein contemplated, any liabilities or obligations of any nature whatsoever, contingent or otherwise. Without limitation of the foregoing, Buyer shall not assume any obligations to Seller's or the Station's employees under any employee benefit plans or employment contracts. 2.6. ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated among the Assets by Buyer and Seller as set forth in the attached SCHEDULE F. Such allocation will be used for all purposes, including preparation and filing of IRS Form 8594 with respect to the transactions contemplated by this Agreement. ARTICLE 3 FEDERAL SECURITIES LAWS MATTERS 3.1. DEFINITIONS. As used in this Article 3, the following terms shall have the following meanings: "ACT" means the Securities Act of 1933, as amended. "ADVICE" has the meaning set forth in Section 3.3. "AFFILIATE" means, with respect to any specified person, any other person who, directly or indirectly, controls, is controlled by, or is under common control with such specified person. "COMMISSION" means the Securities and Exchange Commission. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, or any successor statute, and the rules and regulations of the Commission promulgated thereunder. "HOLDER" means (i) Seller and (ii) each person (other than CBC and its Affiliates) to whom Seller transfers the Shares as provided in Section 3.6 hereof, if the person to whom the Shares are transferred acquires the Shares as Registrable Securities. "PROSPECTUS" means the Prospectus included in any Registration Statement (including without limitation, a Prospectus that discloses information previously omitted from a Prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any Prospectus supplement, and by all other amendments and supplements to the Prospectus, including post-effective amendments, and in each case including all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. "REGISTRABLE SECURITIES" means the Shares; PROVIDED, HOWEVER, that any Shares shall cease to be Registrable Securities when (i) a Registration Statement covering such Registrable Securities has been declared effective and such Registrable Securities have been disposed of pursuant to such effective Registration Statement, or (ii) such Registrable Securities become eligible for sale pursuant to Rule 144(k) (or any similar provision then in force) under the Act, or (iii) such Securities cease to be outstanding. "REGISTRATION STATEMENT" means any registration statement of CBC that covers any of the Registrable Securities pursuant to the provisions of this Agreement and all amendments and supplements to any such registration statement, including post-effective amendments, in each case including the Prospectus, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. 4 "SHARES" means the shares of CBC Common Stock issued to the Seller pursuant to this Agreement so long as they are owned beneficially and of record by a Holder. "SUSPENSION NOTICE" has the meaning set forth in Section 3.3. 3.2. RESALE REGISTRATION. 3.2.1. FILING, EFFECTIVENESS. If any Holder shall make a demand of CBC in writing at any time after the Closing Date of the transactions contemplated by this Agreement that it desires CBC to register all or any portion of his Registrable Securities, CBC shall use reasonable efforts to prepare and file a registration statement on Form S-3 (the "Registration Statement") under the Act covering the resale by such Holder of its Registrable Securities pursuant to Rule 415 under the Securities Act from time to time in transactions not involving any underwritten public offering and use reasonable efforts (i) to cause such Registration Statement to be declared effective by the Commission for such Registrable Securities as soon as practicable thereafter and (ii) to keep the Resale Registration Statement continuously effective until the earliest of (x) the date on which such Holder no longer holds any Registrable Securities registered under the Resale Registration Statement or (y) the third anniversary of the issuance of the Registrable Securities, or such lesser time as may be permitted under Rule 144(k) under the Act (or any successor rule thereto) to enable Holder to sell the Registrable Securities without restriction under the Act. CBC shall not be required to cause a Registration Statement requested pursuant to this Section 3.2 to become effective prior to 90 days following the effective date of a registration statement for a publicly underwritten offering of CBC Common Stock initiated by CBC if any managing underwriter named in such registration statement for the publicly underwritten offering has advised CBC in writing that the registration or sale of additional securities by stockholders of CBC within such 90-day period would have a material adverse effect on the likelihood of success of such underwritten offering; PROVIDED, HOWEVER, that CBC shall use its best efforts to achieve such effectiveness promptly following such 90-day period if the request pursuant to this Section 3.2 has been made prior to the expiration of such 90-day period. CBC may postpone the filing of any Registration Statement required hereunder for a reasonable period of time, not to exceed 60 days, if CBC has been advised by outside legal counsel that such filing would require the disclosure of a material transaction or other matter and CBC determines reasonably and in good faith that such disclosure would have a material adverse effect on CBC; PROVIDED, HOWEVER, that CBC shall (A) use reasonable efforts to disclose such material transaction or other matter as soon as in its good faith judgment it is prudent to do so and (B) may so postpone such filing only if all other persons who are named as selling securityholders under then effective registration statements filed by CBC with the Commission and all directors of CBC are advised of the fact that a material transaction or other matter is not being disclosed during the length of such postponement and of the consequences of such nondisclosure under the Act and the Exchange Act. The disclosure to any Holder of any material transaction, or of the existence thereof, pursuant to the preceding sentence shall be held in confidence by Seller or Holder until CBC or a third party not under the control of Seller or Holder has made a public disclosure thereof. 3.2.2. EFFECTIVE REGISTRATION. A registration will not be deemed to have been effected unless the Registration Statement has been declared effective by the Commission; PROVIDED, HOWEVER, that if after it has been declared effective, the offering of Registrable Securities pursuant to a Registration Statement is interfered with by any stop order, injunction or other order or requirement of the Commission or any other governmental agency or court, such Registration Statement will be deemed not to have become effective during the period of 5 such interference until the offering of Registrable Securities pursuant to such Registration Statement may legally resume. 3.3. REGISTRATION PROCEDURES. In connection with the obligations of CBC to effect or cause the registration of any Registrable Securities pursuant to the terms and conditions of this Agreement, CBC shall use reasonable efforts to effect the registration and sale of such Registrable Securities in accordance with the intended method of distribution thereof, and in connection therewith: (a) CBC shall prepare and file with the Commission a Registration Statement on Form S-3 or other similar form under the Securities Act which permits secondary sales of securities in a "shelf registration," and use reasonable efforts to cause such Registration Statement to become effective and remain effective in accordance with the provisions of this Agreement; (b) CBC shall promptly prepare and file with the Commission such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement effective and shall timely file with the Commission all required filings under the Exchange Act as are necessary to keep the Registration Statement effective for as long as such registration is required to remain effective pursuant to the terms hereof; shall cause the Prospectus to be supplemented by any required Prospectus supplement, and, as so supplemented, to be filed pursuant to Rule 424 under the Securities Act; and shall comply with the provisions of the Securities Act applicable to it with respect to the disposition of all Registrable Securities covered by such Registration Statement during the applicable period in accordance with the intended methods of disposition by Holder set forth in such Registration Statement or supplement to the Prospectus; (c) CBC shall promptly furnish to Holder such number of copies of the Prospectus (including each preliminary Prospectus) and any amendments or supplements thereto, as Holder may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities being sold by Holder; (d) CBC shall promptly notify Holder, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission or any state securities authority for amendments and supplements to a Registration Statement and Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement, (iv) of the issuance by any state securities commission or other regulatory authority of any order suspending the qualification or exemption from qualification of any of the Registrable Securities under state securities or "blue sky" laws, and (v) of the happening of any event which makes any statement made in a Registration Statement or related Prospectus untrue or which requires the making of any changes in such Registration Statement or Prospectus so that they will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. As soon as practicable following expiration of the Suspension Period (as defined below), CBC shall prepare and file with the Commission and furnish a supplement or amendment to such Prospectus so that, as thereafter deliverable to the purchasers of such Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the 6 statements therein, in light of the circumstances under which they were made, not misleading. Upon receipt of any notice (a "Suspension Notice") by Holder from CBC of the happening of any event of the kind described in Section 3.3(d), Holder shall forthwith discontinue disposition of the Registrable Securities pursuant to the Resale Registration Statement covering such Registrable Securities until such Seller's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3.3(d) or until Holder is advised in writing (the "Advice") by CBC that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the Prospectus, and, if so directed by CBC, will, or will request any broker-dealer acting as Holder's agent to, deliver to CBC (at CBC expense) all copies, other than permanent file copies then in Seller's or broker-dealer's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice; PROVIDED, HOWEVER, that in no event shall the period from the date on which Seller receives a Suspension Notice to the date on which Seller receives either the Advice or copies of the supplemented or amended Prospectus contemplated by Section 3.3(d) (the "Suspension Period") exceed 60 days. 3.4. REGISTRATION EXPENSES. CBC shall bear all expenses incurred in connection with the registration of the Registrable Shares pursuant to Section 3.2 of this Agreement. Such expenses shall include, without limitation, all printing, legal and accounting expenses incurred by CBC and all registration and filing fees imposed by the Commission, any state securities commission or the NASDAQ Stock Market. Each Holder shall be responsible for any brokerage fees or commissions and taxes of any kind (including, without limitation, transfer taxes) with respect to any disposition, sale or transfer of Registrable Securities and for any legal, accounting and other expenses incurred by such Holder. 3.5. INDEMNIFICATION AND CONTRIBUTION. 3.5.1. INDEMNIFICATION BY CBC. CBC agrees to indemnify and hold harmless, to the full extent permitted by law, each Holder from and against all losses, claims, damages, liabilities and expenses (including without limitation reasonable legal fees and expenses incurred by Holder (collectively, the "Damages") to which Holder may become subject under the Securities Act or otherwise, insofar as such Damages (or proceedings in respect thereat) arise out of or are based upon any untrue statement of material fact contained in any Registration Statement (or any amendment thereto) pursuant to which Registrable Securities were registered under the Securities Act, or caused by any omission to state therein a material fact necessary to make the statements therein in light of the circumstances under which they were made not misleading, or caused by any untrue statement of a material fact contained in any Prospectus (as amended or supplemented if CBC shall have furnished any amendments or supplements thereto), or caused by any omission to state therein a material fact necessary to make the statements therein in light of the circumstances under which they were made not misleading, except insofar as such Damages arise out of or are based upon any such untrue statement or omission based upon information relating to Seller furnished in writing to CBC by Seller specifically for use therein; PROVIDED, HOWEVER, that CBC shall not be liable to Holder under this Section 3.5.1 to the extent that any such Damages were caused by the fact that Holder sold Securities to a person as to whom it shall be established that there was not sent or given, at or prior to the written confirmation of such sale, a copy of the Prospectus as then amended or supplemented if, but only if, (i) CBC has previously furnished copies of such amended or supplemented Prospectus to Holder and (ii) such Damages were caused by any untrue statement or omission contained in the Prospectus so delivered which was corrected in such amended or supplemented Prospectus. 7 3.5.2. INDEMNIFICATION BY THE SELLER. Holder agrees to indemnify and hold harmless CBC, its stockholders, directors, officers and each person, if any, who controls CBC within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from CBC to Holder, but only with reference to information relating to Holder furnished in writing to CBC by Holder specifically for use in any Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto); PROVIDED, HOWEVER, that Holder shall not be obligated to provide such indemnity to the extent that such Damages result from the failure of CBC to promptly amend or take action to correct or supplement any such Registration Statement or Prospectus on the basis of corrected or supplemental information provided by Seller to CBC expressly for such purpose. In no event shall the liability of Holder hereunder be greater in amount than the amount of the proceeds received by Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. 3.5.3. CONTRIBUTION. To the extent that the indemnification provided for in paragraph 3.5.1 or 3.5.2 of this Section 3.5 is unavailable to an indemnified party or insufficient in respect of any Damages, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such Damages in such proportion as is appropriate to reflect the relative fault of CBC on the one hand and Holder on the other hand in connection with the statements or omissions that resulted in such Damages, as well as any other relevant equitable considerations. The relative fault of CBC on the one hand and of Holder on the other hand shall be determined by reference to, among other things, whether the untrue statement of a material fact or the omission to state a material fact relates to information supplied by CBC or by Holder and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. If indemnification is available under paragraph 3.5.1 or 3.5.2 of this Section 3.5, the indemnifying parties shall indemnity each indemnified party to the full extent provided in such paragraphs without regard to the relative fault of said indemnifying party or indemnified party or any other equitable consideration provided for in this Section 3.5.3. CBC and Holder agree that it would not be just or equitable if contribution pursuant to this Section 3.5.3 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to herein. 3.6 TRANSFER OF REGISTRATION RIGHTS. The registration rights of Seller and any Holder under this Article 3 may be transferred to any transferee of Registrable Securities that acquires at least 10,000 shares of Registrable Securities (appropriately adjusted for stock splits, stock dividends and the like). 3.7 REPRESENTATIONS AND WARRANTIES. As a material inducement to CBC to enter into this Agreement and to consummate the transactions contemplated hereby, Seller makes to CBC the following representations and warranties: (a) Seller is acquiring the shares of CBC Common Stock to be issued to such Seller hereunder for Seller's own account for investment only and not with a view to, or with any intention of, a distribution or resale thereof, in whole or in part, in violation of the Securities Act or any rule or regulation thereunder, as amended from time to time. (b) Seller is not directly or indirectly controlled by, or acting on behalf of any person which is, an "investment company" within the meaning of the Investment Company Act of 1940 (the "1940 Act"), as amended, required to register as such under the 1940 Act. 8 (c) Seller (i) acknowledges receipt of the disclosure information described on SCHEDULE G attached hereto and made a part hereof by reference; (ii) has carefully reviewed such disclosure information provided by CBC; (iii) has requested and received such other information, as he has deemed relevant, regarding CBC for purposes of evaluating his acquisition of CBC Common Stock to be issued hereunder; (iv) is aware of the risks associated with an investment in CBC Common Stock; and (v) has not received any form of general solicitation or advertising in connection with his decision to acquire CBC Common Stock hereunder. Seller has not relied in any way on any information with respect to the CBC Common Stock or CBC generally other than the representations of CBC contained herein or the disclosure materials described on Schedule G furnished by CBC in connection herewith. (d) Seller acknowledges and understands that (i) the CBC Common Stock to be issued to Seller hereunder has not been registered under the Securities Act or any state securities laws; (ii) the CBC Common Stock to be issued to Seller hereunder will be subject to transfer restrictions under the Securities Act and applicable state securities laws and may not be transferred unless (x) subsequently registered under the Securities Act and applicable state securities laws or (y) there is delivered to CBC an opinion of counsel satisfactory to CBC that such registration is not required; and (iii) CBC will place a restrictive legend on the certificate(s) representing the CBC Common Stock to be issued to Seller hereunder, containing the following language: THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND WITHOUT REGISTRATION UNDER APPLICABLE STATE SECURITIES LAWS, IN RELIANCE UPON EXEMPTIONS CONTAINED IN THE ACT AND SUCH LAWS. NO TRANSFER OF THESE SHARES OR ANY INTEREST THEREIN MAY BE MADE EXCEPT PURSUANT TO EFFECTIVE REGISTRATION STATEMENTS UNDER SAID LAWS UNLESS THIS CORPORATION HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT THAT SUCH TRANSFER OR DISPOSITION DOES NOT REQUIRE REGISTRATION UNDER SAID LAWS AND, FOR ANY SALES UNDER RULE 144 OF THE ACT, SUCH EVIDENCE AS IT SHALL REQUEST FOR COMPLIANCE WITH THAT RULE. (e) Seller (i) is able to bear the economic risks of the acquisition of shares of CBC Common Stock hereunder and has adequate means of providing for current needs and possible contingencies; (ii) either alone or with his advisors has had the opportunity to ask questions and receive answers concerning CBC and the terms and conditions of the acquisition of CBC Common Stock, as well as the opportunity to obtain any additional information necessary to verify the accuracy of information furnished in connection therewith which CBC possesses or can acquire without unreasonable effort or expense; and (iii) together with his advisors, if any, has such knowledge and experience in financial and business matters that Seller is capable of evaluating the merits and risks of this acquisition of CBC Common Stock in exchange for the Shares, and of making an informed investment decision, and has relied solely upon the advice of his own counsel, accountant and other advisors, with regard to the legal, investment, tax and other considerations regarding such acquisition. 9 ARTICLE 4 SELLER'S AND SHAREHOLDER'S REPRESENTATIONS, WARRANTIES AND AGREEMENTS Seller and Shareholder represent, warrant and agree as follows, which representations, warranties and agreements shall be deemed to have been made again at Closing: 4.1. CORPORATE EXISTENCE AND POWERS. Seller is a corporation organized and existing in good standing under the laws of the State of Illinois with full power and authority to enter into this Agreement and to enter into and complete the transactions contemplated herein; all required corporate action has been or will be taken by Closing by Seller and Shareholder to make and carry out this Agreement; the execution of this Agreement and the completion of the transactions herein involved will not result in the violation of any order, licenses, permit, rule, judgment or decree to which Seller is subject or the breach of any contract, agreement or other commitment to which Seller is a party or by which it is bound; and no other consent of any kind is required that has not been obtained for Seller to make or carry out the terms of this Agreement, except with respect to those consents required of parties to Leases and Agreements listed on Schedule B or D, with respect to assignment and assumption of specific contract rights and obligations. Seller shall use its best efforts to obtain third party consents with respect to any leases, contracts or agreements designated herein by Buyer and Seller as "material", to the extent required by such documents, and, to the extent Seller is unable to obtain any such consents, Seller shall provide Buyer with alternate benefits essentially similar to those which would have been provided under such contract at the cost that Buyer would have paid by assumption of such contract. Buyer shall cooperate with Seller in obtaining all such required consents. 4.2. LICENSES. Seller is the holder of the licenses, permits and authorizations listed on Schedule A, all of which are valid, and in full force and effect, and to the best of their knowledge and belief, all ownership and employment reports, renewal applications, financial reports, and other reports and documents required to be filed for the Station have been properly and timely filed, and Seller will not knowingly, without Buyer's prior written consent, by an act or omission, surrender, modify (except to seek extensions of existing authorizations), forfeit or fail to seek renewal on regular terms, of the broadcast license or authorization of the Commission, or cause the Commission to institute any proceeding for the cancellation or modification of any such license or authorization. The parties expressly acknowledge that FCC has issued a construction permit to Seller authorizing an increase in the Station's effective radiated operating power. The construction permit (FCC File No. BP- 940302DD, as extended by File No. BMP-951204DA), as shown on Schedule A hereto, expires August 29, 1996. Seller is in the process of diligently implementing the authorized construction and improvements, but makes no representations that construction will be completed by the Closing Date or that the FCC will authorize additional time within which to complete construction.Failure to complete such construction or any act which jeopardizes the construction permit with the FCC will be considered a breach of this Agreement. 4.3. ASSETS. The Assets to be transferred to Buyer at Closing represent all the assets necessary for the Station's current operations; until Closing, none of the Assets will be sold, leased or otherwise disposed of unless replaced by a similar Asset of equal or greater value, and, at Closing, all of the Assets shall be owned by and transferred by Seller to Buyer free and clear of all liens, encumbrances, interests or restrictions of any kind whatsoever excepting only those obligations, liens or encumbrances expressly assumed by Buyer hereunder and listed on Schedule B or D. 4.4. CONTRACTS, LEASES, AGREEMENTS, ETC. On the Closing Date there will be no Leases or Agreements relating to the Station (not including this Agreement) which will be binding on the Buyer other than 10 those specifically identified herein, including Schedule D attached hereto, or as otherwise approved in writing by Buyer. 4.5. LITIGATION. To Seller's and Shareholder's knowledge, no strike, labor dispute, investigation, litigation, court or administrative proceeding is pending or threatened against Seller or Shareholder relating to the Station, its employees or any of the Assets to be conveyed hereunder which may result in any change in the business, operations, assets or financial condition of Seller or may materially affect Buyer's use and enjoyment of the Assets, or which would hinder or prevent the consummation of the transaction contemplated by this Agreement, and Seller knows of no basis for any such possible action. 4.6. INSURANCE. Until Closing, Seller shall keep the Assets insured to full insurable value against loss or damage by fire or from other causes customarily insured against by other radio stations similarly situated, and has provided Buyer with an abstract of such casualty insurance coverage which Buyer has read and agrees is adequate. 4.7. ACCESS TO INFORMATION. Seller shall give Buyer and its representatives reasonable access during normal business hours throughout the period prior to Closing to the operations, properties, books, accounting records, contracts, agreements, leases, commitments, programming, technical and sales records and other records of and pertaining to the Station; provided, however, such access shall not disrupt Seller's normal operation. Seller shall furnish to Buyer all information concerning the Station's operations 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 Seller hereunder, except where such information or materials are required to be filed with the FCC in connection with the assignment application or are disclosed to partners of Buyer or lenders thereto as reasonably required to secure financing to consummate the transaction contemplated herein.If for any reason the transaction contemplated herein is not consummated, Buyer will return to Seller all such materials in its possession and keep all of the foregoing information confidential. Buyer and CBC shall reimburse Seller for cost incurred to Seller to comply with 4.7. 4.8. CONDUCT OF THE STATION'S BUSINESS. Until Closing, without the written consent of Buyer, Seller shall not enter into any transaction other than those in the ordinary course of the business of the Station; and Seller will cause the Station to be operated in compliance with its licenses, permits and all applicable laws and regulations; Seller further represents, warrants and covenants: (a) Between the date hereof and Closing, Seller shall not take any action which will prevent or impede Buyer from obtaining at the Closing the actual and immediate occupancy and possession of the Station and all of the Assets purchased hereunder, including its books and records of Station. (b) On the Closing date, Seller will be the owner of the radio broadcast equipment and other assets purchased hereunder except such of the same replaced by suitable 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, and at Closing the Assets will be in condition sufficient to continue the operation of the Station in compliance with its FCC licenses. (c) Neither Seller nor Shareholder knows of any facts relating to it or the Station which would cause the Commission to deny its consent to the assignment of the Station authorization to Buyer. 11 (d) Seller will have paid and discharged all taxes, assessments, excises, and levies known to Seller or Shareholder which have not been paid and that would interfere with Seller's assets, facilities, license or other items conveyed hereunder. 4.9. FINANCIAL INFORMATION. Any financial information relating to the Station that Seller has provided or will provide to Buyer are true and correct to the best of Seller's knowledge in all material respects. 4.10 PRE-CLOSING COVENANTS. Between the date hereof and the Closing, Seller and Shareholder covenant that : 4.10.1 FCC COMPLIANCE. Seller shall make all reasonable efforts to the best of Seller's knowledge and belief to continue to operate the Station in substantial conformity with the terms of the Station's license 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. Seller shall file all reports, applications and other filings required by the FCC in a timely and accurate manner. 4.10.2 CONDUCT OF BUSINESS. Seller shall operate the Station and conduct its business diligently and in the usual and ordinary course and consistent with past practices, and shall continue all practices, policies, procedures and operations relating to the Station in substantially the same manner as heretofore, including maintenance of the Assets; however, Seller may adjust staff to conduct day to day operations. 4.10.3 MAINTENANCE OF ASSETS. Seller shall maintain all of the Assets as is in a good condition and shall maintain inventories of spare parts at current levels consistent with the past practices of Seller and the Station. Seller shall not sell, convey, assign, transfer or encumber any of the Assets herein listed, except for the retirement of tangible Assets consistent with the normal and customary practices of Seller and the Station. ARTICLE 5 CBC'S AND BUYER'S REPRESENTATIONS AND WARRANTIES CBC and the Buyer represent and warrant as follows, which representations and warranties shall be deemed to have been made again at Closing. 5.1. CORPORATE EXISTENCE AND POWERS. CBC and Buyer 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 enter into and complete the transactions contemplated herein; Buyer is, or will be at the time of Closing, qualified to do business in the State of Illinois; all required corporate action has been taken by Buyer and CBC to make and carry out this Agreement; the execution of the Agreement 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 CBC or the Buyer is subject or the breach of any contract, agreement or other commitment to which CBC or the Buyer is a party or by which it is bound; and except for the consent of the Commission, no other consent of any kind is required that has not been obtained for Seller to make or carry out the terms of this Agreement. 5.2. BUYER'S QUALIFICATIONS. Buyer or its assignee are legally and financially qualified to become the licensee of the Commission and to consummate this Agreement. Buyer does not know of any facts 12 relating to it which would cause the Commission to deny its consent, or which would materially hinder or delay receipt of such consent, to the Licenses for the Station to Buyer. 5.3. SECURITIES AND EXCHANGE ACT OF 1934. CBC shall be in compliance with applicable requirements of the Securities and Exchange Act of 1934. 5.4. CBC STOCK. At Closing, all CBC Stock to be issued hereunder will be validly issued, duly authorized, fully paid and non-assessable. 5.5. LITIGATION. To Buyer's and CBC's knowledge, no strike, labor dispute, investigation, litigation, court or administrative proceeding is pending or threatened against Buyer or CBC relating to its operations, its employees or any of the responsibilities which may result in any change in the business, operations, assets or financial condition of Buyer or may materially hinder or prevent the consummation of the transaction contemplated by this Agreement, and Buyer knows of no basis for any such possible action. 5.6. ENCUMBRANCES. Neither Buyer nor CBC shall encumber any equipment, licenses, transmitter lease, or other assets listed herein. Buyer's right to encumber assets is not restricted if the encumbrance is subordinate to the security agreement(s) herein provided to Seller. 5.7. FCC CONSTRUCTION PERMIT. The parties expressly acknowledge that FCC has issued a construction permit to Seller authorizing an increase in the Station's effective radiated operating power. The construction permit (FCC File No. BP-940302DD, as extended by File No. BMP-951204DA), as shown on Schedule A hereto, expires August 29, 1996. Seller is in the process of diligently implementing the authorized construction and improvements, but makes no representations that construction will be completed by the Closing Date or that the FCC will authorize additional time within which to complete construction. Therefore, Buyer agrees to accept assignment of the Licenses subject to the extant status of the construction permit and associated construction at Closing. If construction is not complete at the time of Closing, Buyer agrees further that it will immediately continue construction of the authorized facilities after the assignment is consummated and complete construction of the upgrade of the facility. Failure to complete such construction or any act which jeopardizes the construction permit with the FCC will be considered a breach of this Agreement. ARTICLE 6 BREACH OF AGREEMENTS, REPRESENTATIONS AND WARRANTIES 6.1. BREACH OF SELLER'S OR SHAREHOLDER'S AGREEMENTS, REPRESENTATIONS AND WARRANTIES. Seller and Shareholder shall indemnify and hold harmless CBC and Buyer from and against any loss, damage, liability, claim, demand, judgment or expense, including claims of third parties arising out of ownership of the Assets or the operation of the Station by Seller prior to Closing, and including without being limited to, reasonable counsel fees and reasonable accounting fees, arising out of or sustained by CBC or Buyer by reason of any material breach of any warranty, representation, covenant or agreement of Seller or Shareholder contained herein or in the Schedules attached hereto; provided, however, that such indemnification shall be required only if written notice, with respect to any matter for which indemnification is claimed, is given. Upon receipt of such written notice, Seller shall have the right, if it involves a liability to a third party, to defend or compromise such matter at Seller's sole cost and expense, and Buyer shall cooperate fully in such defense. 6.2. BREACH OF CBC'S OR BUYER'S AGREEMENTS, REPRESENTATIONS AND WARRANTIES. CBC and Buyer shall indemnify and hold harmless Seller from and against any loss, damage, liability, claim, demand, 13 judgment or expense, including claims of third parties arising out of ownership of the Assets or operation of the Station by Buyer after Closing, and including without being limited to, reasonable counsel fees and reasonable accounting fees, arising out of or sustained by Seller by reason of any material breach of any warranty, representation, covenant or agreement of CBC or Buyer contained herein; provided, however, that such indemnification shall be required only if written notice, with respect to any matter for which indemnification is claimed, is given. Upon receipt of such written notice, CBC and Buyer shall have the right, if it involves a liability to a third party, to defend or compromise such matter at CBC or Buyer's sole cost and expense, and Seller shall cooperate fully in such defense. 6.3. SPECIFIC PERFORMANCE AND LIQUIDATED DAMAGES. The Seller acknowledges that the Assets and property to be transferred and assigned under this Agreement are unique and not readily bought on the open market and, for that reason, among others, CBC and Buyer would be irreparably harmed by any breach or failure of the Seller 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 in a court of equity by a decree of specific performance by Buyer or CBC, and an injunction may be issued restraining any transfer or assignment of the Assets contrary to the provisions of this Agreement pending the determination of such controversy. The Seller, for itself and its successors and assigns, hereby waives the claim or defense that an adequate remedy at law exists. In the event of the failure of the contemplated transaction to close as a result of Buyer's or CBC's material breach of their obligations hereunder, and assuming that neither Seller nor Shareholder are in material breach of any of their obligations hereunder, then the parties agree that the Escrow Note and payment of the amount called for to be paid thereunder shall act as liquidated damages to Seller and Shareholder, and in no event shall Seller or Shareholder have the right to claim damages in excess of the Escrow Note as a result of the transaction's failure to close. ARTICLE 7 RISK OF LOSS 7.1. BUYER'S OPTIONS. The risk of loss or damage to any of the Assets to be sold hereunder by fire or other casualty loss shall be upon Seller at all times prior to Closing. In the event that any loss or damage occurs, the proceeds of any insurance policy covering such loss may be used by Seller to repair, replace or restore any such loss prior to the Closing, Seller 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 Assets lost or destroyed is believed reimbursable under any insurance policy with respect thereto. In the event that Seller decides not to provide the additional funds or if Seller does not restore the facilities so that transmission can be resumed in the usual manner within sixty (60) days, however, if Seller has commenced to restore the facility and is making due diligent effort to restore said facility and due to circumstances beyond his control restoration can not be completed in sixty (60) days, then additional time shall be allowed Seller to complete restoration of the facility; if Seller fails to act as stated above, Buyer may either (i) terminate this Agreement, or (ii) consummate the Closing and accept the property in its "then" condition, in which event Seller shall assign to Buyer all proceeds of insurance relative to the property to be conveyed. 14 ARTICLE 8 APPLICATION FOR COMMISSION APPROVAL 8.1. FILING AND PROSECUTION OF APPLICATION. Buyer and Seller shall join in an application to be filed with the Commission requesting its written consent to the assignment of the License of the Station from Seller to Buyer. Each party shall prepare its own portion of the application. Buyer and Seller shall take all steps necessary to the expeditious prosecution of such application to a favorable conclusion, using their best efforts throughout. The parties agree that the application will be filed by September 15, 1996 at such time as their respective FCC counsel agree would result in a Closing Date as soon as practicable, not prior to January 1, 1997, subsequent to renewal of the Station's FCC licenses and authorizations. 8.2. EXPENSES. Each party shall bear its own legal, accounting and other expenses in connection with the consummation of the contemplated transaction. Any fees incurred in connection with the preparation of audited financial statements of Seller will be incurred at Buyer's direction and deemed to be Buyer's expense for the purpose of this Section 8.2 and will be prepared by Seller and Seller's CPA firm. The parties shall cooperate with the preparation of the Commission application and in connection with the prosecution of such application. The filing fee shall be shared equally by the parties. 8.3. DESIGNATION FOR HEARING. If, for any reason, any application for assignment of the License is designated for hearing by the Commission prior to grant thereof, either party shall have the right by written notice within thirty (30) days of such designation for hearing, to terminate this Agreement if the allegations raised relate to the other party. Should Closing occur and upon reconsideration should the FCC designate the assignment for hearing, Buyer may elect to rescind this Agreement, and if Buyer so elects, Buyer and Seller agree to cooperate in filing an application to reassign the License to Seller, if necessary, in order to comply with any FCC order and to take all necessary actions to reverse this transaction as if Closing had not occurred. 8.4. TIME FOR COMMISSION CONSENT. If the Commission has not given its written consent to the assignment of the License set forth herein within nine (9) months from the date of acceptance for filing of the application for such assignment, either party, if not then in default, may terminate this Agreement by giving written notice to the other. Upon such termination, neither party shall have any right or liability hereunder and all escrowed funds shall be returned to Buyer promptly. 8.5. CONTROL OF STATION. Until Closing, Buyer shall not directly or indirectly, control, supervise, direct or attempt to control, supervise or direct the operation of the Station, but such operation shall be the sole responsibility of Seller, subject to and consistent with all rules, regulations and policies of the FCC. ARTICLE 9 CLOSING Subject to the terms and conditions herein stated, the parties agree as follows: 9.1. CLOSING DATE. The Closing of this Agreement shall be held at such time and date as shall be mutually agreed by Seller and Buyer; provided, however, that in any event Buyer must close no later than ten (10) days after final Commission approval of the assignment of the License ("Final Approval"). (The date scheduled, or required to be scheduled for Closing hereunder is referred to herein as the "Closing Date.") Final Approval shall be the approval of the FCC to the assignment of the Station Licenses which is no longer subject to rehearing, reconsideration or review by the 15 Commission or to review by any court under the Communications Act of 1934, as amended. Closing shall take place at the offices of Seller's attorney in Yorkville, Illinois or, at the parties' option, another mutually agreeable location. 9.2. SELLER'S AND SHAREHOLDER'S OBLIGATIONS AT CLOSING. At Closing, Seller and Shareholder shall deliver to Buyer the following: (a) An Assignment of the Licenses described in Schedule A; an Assignment of Leases for the real property interests described in Schedule B conveying all of Seller's or Shareholder's interest in such real property and an Assignment and Bill of Sale, Estoppel Certificate or similar instruments, including third party consents to all "material" leases, contracts and agreements, transferring to Buyer all other Assets to be transferred hereunder, free and clear of all liens, encumbrances and restrictions of any kind whatsoever. (b) The business records described in Section 1.8 as requested; (c) An opinion of Seller's counsel, addressed to Buyer, confirming the correctness of Seller's representations made in Section 4.1 with respect to corporate organization and authority; (d) The Non-Competition Agreement; (e) A letter of instruction to the Escrow Agent authorizing release of the Escrow Note to Buyer; and (f) Such other documents and instruments as might reasonably be requested by Buyer to consummate the transaction contemplated hereunder consistent with the intent expressed herein. 9.3. CBC'S AND BUYER'S OBLIGATIONS AT CLOSING. At Closing, CBC or Buyer shall deliver to Seller the following: (a) A cashier's or certified check in the amount of Two Million and no/100 Dollars ($2,000,000.00); (b) The Note for One Million Four Hundred Thousand and no/100 Dollars ($1,400,000.00), together with a UCC-1 Financing Statement granting Seller a lien upon the Station Assets described in Schedules B, C, D and E, and a security agreement, together with a security agreement granting an interest in the proceeds from the sale of the license listed in Schedule A, to secure such Note; (c) Estoppel Certificate; (d) The Non-Competition Agreement; (e) An opinion of Buyer's and CBC's counsel, addressed to Seller, confirming the correctness of Buyer's and CBC's representations made in Section 5.1 with respect to corporate organization and authority; and (f) Such other documents and instruments as might reasonably be requested by Seller to consummate the transaction contemplated hereunder consistent with the intent expressed herein. 16 9.4. CONDITIONS TO OBLIGATIONS OF BUYER AND CBC. The obligations of Buyer and CBC to consummate the transactions herein contemplated at Closing are subject to and conditioned on: (a) The written consent of the Commission to the assignment to Buyer of the License of the Station that does not impose any condition that is materially adverse to Buyer or CBC; (b) The satisfaction at or before Closing of all agreements, obligations and covenants of Seller hereunder required to be performed or complied with by them on or before Closing; (c) Certificate of Seller and Shareholder confirming the material accuracy of the representations and warranties made by Seller and Shareholder; (d) Written third party consents to all material leases, contracts and agreements where required by the terms of the lease, contract or agreement; (e) Either a determination that the contemplated transaction does not constitute the sale of a business under applicable SEC regulations or delivery of audited financial statements of Seller for the three (3) tax years prior to Closing. It is understood that Seller's financial statements are not audited, that Seller's and/or Buyer's accountants will be paid by Buyer for services in connection with preparing such audits, and that the contingency referred to in this subparagraph relates to the auditability of such records of Seller. 9.5. CONDITIONS TO OBLIGATIONS OF SELLER. The obligations of Seller to consummate the transaction herein contemplated at Closing are subject to and conditioned on: (a) The written consent of the Commission to the assignment to Buyer of the License of the Station without any conditions that are materially adverse to Seller; (b) The satisfaction at or before Closing of all agreements, obligations and covenants of Buyer and CBC hereunder required to be performed or complied with by it at or before the Closing; and (c) The material accuracy of the representations and warranties made by Buyer and CBC. ARTICLE 10 MISCELLANEOUS PROVISIONS 10.1. EXECUTION OF DOCUMENTS. The parties agree to execute all applications, documents and instruments which may be necessary for the consummation of the transaction 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. 10.2. 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 when deposited in the mails, certified or registered mail, postage prepaid, return receipt requested, and shall be addressed as follows: If to Seller or Shareholder: Mr. Larry Nelson Nelson Broadcasting, Inc. One Broadcast Center Plano, Illinois 60545 17 with copy to: John Neeley, Esq. Miller & Miller Law Offices 1990 M Street, N.W. Washington, D.C. 20036 and Dallas C. Ingemunson, Esq. Ingemunson Law Offices 226 S. Bridge Street Yorkville, Illinois 60560 If to Buyer or CBC: Mr. Christopher T. Dahl Children's Broadcasting Corporation Fourth Floor 724 First Street North Minneapolis, Minnesota 55401 with copy to: Lance W. Riley, Esq. Children's Broadcasting Corporation Fourth Floor 724 First Street North Minneapolis, Minnesota 55401 10.4. 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. 10.5. ENTIRE AGREEMENT. This Agreement together with all Exhibits and Schedules referred to herein contain all of the terms and conditions agreed upon by the parties hereto with respect to the transaction contemplated hereunder and shall only be modified in writing by all parties hereto. 10.6. ASSIGNABILITY. Neither party may assign their rights or obligations under this Agreement without the prior written consent of the other party, which consent will not be unreasonably denied or delayed, except that either party may make an assignment to an entity under essentially common control as the assigning entity. 10.7. 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. 10.8. HEADINGS. The headings contained in this Agreement are for reference only and shall not effect in any way the meaning or interpretation of this Agreement. 10.9. 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. 10.10. GOVERNING LAW. This Agreement has been entered into in the State of Illinois and shall be governed in accordance with the laws of the State of Illinois. 10.11. BROKER COMMISSION. Seller and Buyer each represent to the other that it has engaged no broker in connection with the contemplated transaction and agrees to indemnify and hold the other party 18 harmless against any claims made by a broker through it in connection with the transactions contemplated hereunder. 10.12. Parties expressly agree that all representations and warranties hereunder survive the Closing of this Agreement for a period of two (2) years. 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. SELLER: CBC: NELSON BROADCASTING, INC. CHILDREN'S BROADCASTING CORPORATION BY: /s/ LARRY NELSON BY: /s/ JAMES G. GILBERTSON ------------------------- ----------------------------- LARRY NELSON JAMES G. GILBERTSON ITS: PRESIDENT ITS: CHIEF OPERATING OFFICER BUYER: CHILDREN'S RADIO GROUP, INC. BY: /s/JAMES G. GILBERTSON ----------------------------- JAMES G. GILBERTSON ITS: CHIEF OPERATING OFFICER 19 EX-23.2 5 EXHIBIT 23.2 CONSENT OF ERNST & YOUNG Exhibit 23.2 Consent of Ernst & Young LLP We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-3) of Children's Broadcasting Corporation for the registration of 1,125,580 shares of its common stock and to the incorporation by reference therein of our report dated January 31, 1996, with respect to the consolidated financial statements of Children's Broadcasting Corporation included in its Annual Report (Form 10-KSB) for the year ended December 31, 1995, filed with the Securities and Exchange Commission. Minneapolis, Minnesota October 16, 1996 /s/ ERNST & YOUNG LLP EX-23.3 6 EXHIBIT 23.3 CONSENT OF SMOLIN EXHIBIT 23.3 [Smolin, Lupin & Co., P.A. letterhead] Children's Broadcasting Corporation 724 First Street North, 4th Floor Minneapolis, Minnesota 55401 Gentlemen: We consent to the reference to our firm under the caption "Experts" and to the use of our reports for the two years ended December 31, 1994 and 1995, and the three months ended March 31, 1996, with respect to the financial statements of Radio Elizabeth, Inc. incorporated by reference in the Registration Statement (Form S-3) and related Prospectus of Children's Broadcasting Corporation for the registration of shares of its common stock. /s/SMOLIN, LUPIN & CO., P.A. - ----------------------------------- SMOLIN, LUPIN & CO., P.A. West Orange, New Jersey October 11, 1996 EX-23.4 7 EXHIBIT 23.4 CONSENT OF KLEIMAN EXHIBIT 23.4 [Kleiman, Carney & Greenbaum, P.C. letterhead] October 11, 1996 Consent of Independent Auditors We consent to the reference of our firm under the caption "Experts" and to the use of our reports dated January 19, 1996, February 2, 1996 and May 30, 1996, with respect to the financial statements of Wolpin Broadcasting Company incorporated by reference in the Registration Statement (Form S-3) and related Prospectus of Children's Broadcasting Corporation for the registration of shares of its common stock. Very truly yours, KLEIMAN, CARNEY & GREENBAUM /s/ HARRY SIEGEL --------------------------------------- HARRY SIEGEL Certified Public Accountant Farmington Hills, Michigan October 11, 1996 -----END PRIVACY-ENHANCED MESSAGE-----