-----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, MrkkbQL173JXiid6zqgIjuax79BlOdPuMv+WgtIEsiW1gDWMfBZ0uMTI6tvVuWLP 6BL1xkT7ihwjBT5QKYlLFg== 0000912057-97-032220.txt : 19971001 0000912057-97-032220.hdr.sgml : 19971001 ACCESSION NUMBER: 0000912057-97-032220 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970930 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19970930 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: 8-K SEC ACT: SEC FILE NUMBER: 000-21534 FILM NUMBER: 97688871 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 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __________ FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report: September 30, 1997 Date of Earliest Event Reported: September 24, 1997 CHILDREN'S BROADCASTING CORPORATION (Exact name of registrant as specified in its charter) MINNESOTA 0-21534 41-1663712 (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) 724 FIRST STREET NORTH MINNEAPOLIS, MINNESOTA 55401 (Address of principal executive offices, including area code) (612) 338-3300 (Registrant's telephone number, including area code) ITEM 5. OTHER EVENTS. (a) On September 25, 1997, Children's Broadcasting Corporation (the "Company") and Glenn B. Laken ("Laken") reached an agreement whereby Laken offered to sell, and the Company agreed to buy, (i) 420,000 shares of Common Stock of Harmony Holdings, Inc. ("Harmony") from Laken at $3.15 per share (the "Laken Shares"), (ii) 399,500 shares of Common Stock of Harmony from others acting together with Laken at $2.70 per share (the "Laken Control Group Shares"), and (iii) options to purchase 200,000 shares of Common Stock of Harmony from Laken (the "Options") at an exercise price of $1.50 per share, for an aggregate price of $2,731,650 (collectively, the "Transaction"). The Transaction is expected to close between September 30, 1997 and October 1, 1997. (b) The Company has also reached an agreement, attached hereto as an exhibit, for the future acquisition of up to 225,000 additional shares of Common Stock of Harmony at a price of $2.50 per share. The Company may also be obligate to by such shares, at a price of $2.50 per share, on or after January 31, 1998. (c) The stock purchase agreement between the Company and Laken, attached hereto as an exhibit, provides that neither Laken nor the Laken Control Group will acquire any securities of Harmony or the Company for a period of five years. (d) Excluding any shares which may be acquired pursuant to the agreement described in (b) above, the Company has acquired a 40.7% beneficial interest in Harmony. (e) Funds for the Transaction originated from an amended loan and security agreement (the "Financing Agreement") with Foothill Capital Corporation ("Foothill"), dated September 24, 1997, attached hereto as an exhibit. The Financing Agreement also provided the Company with an additional $2.5 million in working capital. In connection with the Financing Agreement, the Company issued a warrant to Foothill, attached hereto as an exhibit, for the purchase of 200,000 shares of the Company's Common Stock, at an exercise price of $3.76 per share, which is exercisable for a period of four years. Foothill has the right to require the company to repuchase the warrant in certain circumstancer, as described in the warrant. (f) Reference is made to the cautionary statements of the Company filed with its Annual Report on Form 10-KSB on March 31, 1997. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (c) Exhibits. 99.1 Stock Purchase Agreement between Children's Broadcasting Corporation and Glenn B. Laken, dated September 25, 1997. 99.2 Put/Call Agreement between Children's Broadcasting Corporation and Glenn B. Laken, dated September 25, 1997. 99.3 Letter Agreement between Children's Broadcasting Corporation and Foothill Capital Corporation, dated September 25, 1997. 99.4 Amendment number one the amended and restated Loan and Security Agreement between Children's Broadcasting Corporation and Foothill Capital Corporation, dated September 24, 1997. 99.5 Warrant issued by Children's Broadcasting Corporation to Foothill Capital Corporation, dated September 25, 1997. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: September 30, 1997 CHILDREN'S BROADCASTING CORPORATION /s/ James G. Gilbertson --------------------------------------- James G. Gilbertson Chief Operating Officer EXHIBIT INDEX Exhibit Number Description - ------ ----------- 99.1 Stock Purchase Agreement between Children's Broadcasting Corporation and Glenn B. Laken, dated September 25, 1997. 99.2 Put/Call Agreement between Children's Broadcasting Corporation and Glenn B. Laken, dated September 25, 1997. 99.3 Letter Agreement between Children's Broadcasting Corporation and Foothill Capital Corporation, dated September 25, 1997. 99.4 Amendment number one the amended and restated Loan and Security Agreement between Children's Broadcasting Corporation and Foothill Capital Corporation, dated September 24, 1997. 99.5 Warrant issued by Children's Broadcasting Corporation to Foothill Capital Corporation, dated September 25, 1997. EX-99.1 2 EXHIBIT 99.1 EXHIBIT 99.1 STOCK PURCHASE AGREEMENT THIS AGREEMENT is made and entered into this 25th day of September, 1997, by and among Children's Broadcasting Corporation, a Minnesota corporation ("Purchaser"), and Glenn B. Laken, a resident of the State of Illinois ("Laken"), Steven B. Nagler, a resident of the state of Illinois ("Nagler"), Donald Sliter, a resident of the State of Illinois ("Sliter"), and the individuals or entities listed in Schedule A hereto (Nagler, Sliter and the individuals listed in Schedule A hereinafter sometimes referred to as the "Control Group," and Laken and the Control Group hereinafter sometimes collectively referred to as "Seller" or individually as an "Individual Seller"). WHEREAS, Laken has represented that he is the owner of 420,000 shares (the "Laken Shares") of Harmony Holdings, Inc., a Delaware corporation ("HHI"); and WHEREAS, Laken has represented that he owns an option to purchase 200,000 shares of HHI at an exercise price of $1.50 per share (the "Laken Options"); and WHEREAS, the Control Group represents that it owns an aggregate of 399,500 shares of HHI (the "Control Group Shares"); and WHEREAS, Laken has offered to sell to Purchaser the Laken Shares and the Laken Options, and the Control Group has offered to sell to Purchaser the Control Group Shares, and Purchaser desires to accept the offers of Laken and the Control Group, subject to the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto agree as follows: 1. OWNERSHIP OF HHI SECURITIES. 1.1 LAKEN SECURITIES. Laken represents and warrants that he is the owner of the following securities of HHI: (a) the Laken Shares, consisting of 420,000 shares of HHI common stock and (b) the Laken Options consisting of an option issued by HHI to purchase 200,000 shares of HHI common stock at an exercise price of $1.50 per share the form of which options are attached hereto as Exhibit A. Laken shall execute an assignment of the Laken Options, together with option exercise letters as requested by Purchaser. Laken represents that his entire beneficial ownership and interest in the securities of HHI is set forth in Amendment No. 2 to the Laken Committee's Schedule 14A on file with the Securities and Exchange Commission (the "Schedule 14A"). 1.2 CONTROL GROUP SHARES. The Control Group severally represents and warrants that its members are the owners of 399,500 shares of common stock of HHI as follows: (a) Nagler: 9,974 shares; (b) Sliter: 180,732 shares; (c) Control Group members other than Nagler and Sliter: shares as set forth in Schedule A. Individual Sellers other than Laken severally represent and warrant that their entire ownership and interest in HHI is as set forth in the Schedule 14A or Schedule A to this Agreement. 2. SALE AND PURCHASE OF THE SHARES. Subject to the terms and conditions hereof, each Individual Seller agrees to sell to Purchaser, and Purchaser agrees to purchase, the securities described in Sections 1.1 and 1.2. 2.1 LAKEN SHARES. The purchase price payable to Laken for the Laken Shares shall be $3.15 per share, or an aggregate sum of $1,323,000. 2.2 LAKEN OPTIONS. The purchase price payable to Laken for the Laken Options shall be $1.65 per option or right, or an aggregate of $330,000. 2.3 CONTROL GROUP SHARES. The purchase price for the Control Group Shares shall be $2.70 per share, or an aggregate of $1,078,650. The amounts to be paid pursuant to Sections 2.1, 2.2 and 2.3 are hereinafter referred to as the "Purchase Price." 3. CLOSING. The closing of the purchase of the Laken Shares, the Laken Options and the Control Group Shares shall take place as soon as practicable following the wire transfer of the Purchase Price for the Shares to Norwest Bank Minnesota, ABA #091000019, for Equity Securities Trading Co., Account #48565, to further credit Children's Broadcasting Corporation #127055. Seller shall transmit the Shares to Equity Securities Trading Co., DTC #368, for the account of Children's Broadcasting Corporation, Account #127055. Upon receipt of the Purchase Price and the Shares, Seller and Purchaser shall have authorized the payment of the purchase price to Seller and the delivery of the Shares to Purchaser, pursuant to the Letter of Instructions of even date herewith. 4. REPRESENTATIONS AND WARRANTIES BY SELLERS. Each Individual Seller represents and warrants that: (a) he owns or has a beneficial interest in, and has good and marketable title to the HHI securities to be sold to Purchaser hereby, and in the case of Laken, the Laken Options, free and clear of all liens, security interests and encumbrances, of any kind or nature; (b) he has duly authorized, executed and delivered this Agreement, and that the same is the valid and binding agreement of such Seller, enforceable against such Seller in accordance with its terms, and not in violation of any agreement to which such Seller is a party; (c) he has the right, power and authority to transfer, convey and sell to Purchaser, at the Closing, or has the power to cause the transfer, conveyance and sale to Purchaser at the Closing, the securities to be sold by him as described in Sections 1.1 and 1.2 of this Agreement and, upon consummation of this Agreement, Purchaser will acquire good and marketable title to such securities, free and clear of all liens, security interests or other covenants or agreements, other than encumbrances resulting from actions of Purchaser. 5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and warrants that this Agreement has been duly authorized by all necessary action on the part of the Purchaser and is a valid and binding agreement of Purchaser, enforceable against Purchaser in accordance with its terms. 6. STANDSTILL AND RELEASE. 6.1 STANDSTILL. Each Individual Seller covenants and agrees that, for a period of five years from the date of this Agreement, unless such shall have been specifically invited in writing by the Boards of Directors, HHI or Purchaser, neither Seller nor any affiliates of Seller, or their agents or representatives will in any manner, directly or indirectly, (a) effect or seek, offer or propose (whether publicly or otherwise) to effect, or cause or participate in or in any way assist any other person to effect or seek, offer or propose (whether publicly or otherwise) to effect, or cause or participate in, (i) any acquisition of any securities (or beneficial ownership thereof) or assets of HHI or Purchaser or any of their subsidiaries; (ii) any tender or exchange offer, merger or other business combination involving HHI or Purchaser or any of their subsidiaries; (iii) any recapitalization, restructuring, liquidation, dissolution or other extraordinary transaction with respect to HHI or Purchaser or any of their subsidiaries (iv) any "solicitation" of "proxies" (as such terms are used in the proxy rules of the Securities and Exchange Commission) or consents to vote any voting securities of HHI or Purchaser or any of their subsidiaries; or (v) any communication with any employee of HHI or Purchaser or any of their subsidiaries (except that this restriction shall not apply to communications to Harvey Bibicoff on matters unrelated to HHI, its business, employees or independent contractors, or to Purchaser); (b) form, join or in any way participate in a "group" (as defined under the 1934 Act); (c) otherwise act, alone or in concert with others, to seek to control or influence the management, Board of Directors or policies of HHI or Purchaser or any of their subsidiaries; (d) take any action which might force HHI or Purchaser or any of their subsidiaries to make a public announcement regarding any of the types of matters set forth in (a) above; or (e) enter into any discussions or arrangements with any third party with respect to any of the foregoing. Seller also agrees during such period not to request HHI or Purchaser or any of their subsidiaries (or their directors, officers, employees or agents), directly or indirectly, to amend or waive any provision of this paragraph (including this sentence). Each Individual Seller covenants and agrees that he will not encourage any other shareholder of HHI to bring actions or assert claims against HHI or Purchaser. The provisions of this Section 6.1 shall survive the closing of the transactions contemplated by this Agreement. 6.2 RELEASE BY SELLER. For valuable consideration, receipt of which is hereby acknowledged, Seller jointly and severally, releases and will release HHI, its shareholders, officers and directors, and Purchaser, and its shareholders, officers and directors, and the respective agents, independent contractors and representatives of the same (collectively, the "Seller Released Parties") from and against any and all claims, costs or causes of action which Seller or any Individual Seller has or may have against the Seller Released Parties, known or unknown, now existing or hereafter arising or relating to this Agreement, or the ownership or acquisition of the securities of HHI, except such cause of action or claim as may arise subsequent to the date hereof relating to the enforcement or performance of this Agreement. 6.3 RELEASE BY PURCHASER. For valuable consideration, receipt of which is hereby acknowledged, Purchaser hereby releases and will release Seller and each Individual Seller and their respective agents, independent contractors and personal representatives (collectively, the "Purchaser Released Parties") from and against any and all claims, costs or causes of action which Purchaser may have against Seller or any Individual Seller, known or unknown, now existing or hereafter arising or relating to this Agreement, or the ownership or acquisition of the Shares or the Laken Options, except such cause of action or claim as may arise subsequent to the date hereof relating to the enforcement or performance of this Agreement. 7. MISCELLANEOUS. 7.1 CHANGES, WAIVERS, ETC. Neither this Agreement nor any provision hereof may be changed, amended, waived, discharged or terminated orally, but only by a statement in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 7.2 NOTICES. All notices, requests, consents and other communications required or permitted hereunder shall be in writing and shall be delivered, or mailed first-class postage prepaid, registered or certified mail: (a) if to Seller, to Steven B. Nagler, c/o Siegel & Capitel, Ltd., 2275 Half Day Road, Suite 320, Bannockburn, IL 60015; (b) if to Purchaser, to Christopher T. Dahl, at 724 First Street North, Minneapolis, Minnesota 55401, with a copy to Lance W. Riley, 724 First Street North, Minneapolis, Minnesota 55401, or at such other address as Purchaser may specify by written notice to Seller; and such notices and other communications shall for all purposes of this Agreement be treated as being effective or having been given if delivered personally, or, if sent by mail, when received. 7.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. All representations, warranties, covenants and agreements contained herein shall survive the execution and delivery of this Agreement, any investigation at any time made by Purchaser on their behalf, and the sale and purchase of the Shares and payment therefor. 7.4 LAW TO GOVERN; JURISDICTION. This Agreement shall be governed by, and interpreted in accordance with, the laws of the State of Minnesota without regard to principles of conflict of laws. The Seller hereby consents to jurisdiction in the State of Minnesota. 7.5 REFERENCES. Unless the content indicates otherwise, all references in the singular shall include the plural, and all references in the masculine or neuter shall include the feminine. 7.6 BINDING EFFECT. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. 7.7 COUNTERPARTS. This Agreement may be executed in any number of counterparts all of which, taken together, shall constitute one and the same Agreement, whether or not all parties hereto have executed the same instrument. 7.8 SEVERABILITY. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. IN WITNESS WHEREOF, Seller and Purchaser have caused this Agreement to be duly executed as of the date first written above. CHILDREN'S BROADCASTING CORPORATION By /s/ James G. Gilbertson ------------------------------------ James G. Gilbertson Chief Operating Officer INDIVIDUAL SELLERS /s/ Glenn B. Laken --------------------------------------- Glenn B. Laken /s/ Steven B. Nagler --------------------------------------- Steven B. Nagler /s/ Donald Sliter --------------------------------------- Donald Sliter /s/ Lane Laken, M.D. --------------------------------------- Lane Laken, M.D. /s/ Randall Berman --------------------------------------- Randall Berman /s/ Robert Toten --------------------------------------- Robert Toten /s/ Mark Lenowitz --------------------------------------- Mark Lenowitz /s/ Steven Justice --------------------------------------- Steven Justice SCHEDULE A CONTROL GROUP NUMBER OF HHI COMMON SHARES NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED ------------------------ ------------------ Steven Justice 15,374 Mark Lenowitz 9,000 Lane Laken, M.D. 47,500 Randall Berman 86,920 Robert Toten 50,000 EX-99.2 3 EXHIBIT 99.2 EXHIBIT 99.2 AGREEMENT THIS AGREEMENT is made and entered into this 25th day of September, 1997, by and among Children's Broadcasting Corporation, a Minnesota corporation ("Purchaser"), and Glenn B. Laken, nominee, a resident of the State of Illinois (hereinafter, the "Seller"). WHEREAS, Seller, as nominee and attorney-in-fact for certain individuals, has represented that such individuals are the owners of 225,000 shares of the common stock of Harmony Holdings, Inc., a Delaware corporation ("HHI"); and WHEREAS, Seller and Purchaser desire to enter into a put and call arrangement whereby Seller can require Purchaser to purchase such shares on or after January 31, 1998, and Purchaser shall have the right to purchase such shares on or before February 15, 1998, all subject to and upon the conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto agree as follows: 1. OWNERSHIP OF HHI SECURITIES. Seller's principals have a beneficial interest in 225,000 shares of the common stock of HHI. Seller does not own or have a beneficial interest in any other securities of HHI except as set forth in Amendment No. 2 to the Laken Committee's Schedule 14A on file with the Securities and Exchange Commission. For purposes of this Agreement, the "Shares" shall refer to the 225,000 shares of common stock of HHI which are owned by Seller as of the date hereof, reduced by any number of such shares sold by Seller in brokerage transactions on or after the date hereof and prior to receipt of a Call Notice (as hereinafter defined). If Seller shall dispose of any of the Shares, he shall give written notice thereof to Purchaser within five business days following such disposition. Such written notice shall specify the number of Shares in such disposition, the name of the owner making such disposition, the date of such disposition, and the name of the broker-dealer through which such disposition was made. 2. PUT AGREEMENT. On or after January 31, 1998 and prior to February 15, 1998, Seller shall have the right to require Purchaser to purchase the Shares, and Seller shall sell the Shares, upon written notice to Purchaser (the "Put Notice"), at a price of $2.50 per share (the "Purchase Price"). Upon receipt of the Put Notice, Purchaser shall purchase the Shares at the Purchase Price per Share; provided, however, that if Purchaser has not consummated the sale of its radio stations to Global Broadcasting Company, Inc. pursuant to an Asset Purchase Agreement dated July 16, 1997, Purchaser may, upon giving written notice to Seller within five (5) business days following its receipt of the Put Notice, postpone the purchase of the Shares to not later than 5:00 p.m., Minneapolis time, on March 31, 1998 (the "Extension Date"). Notwithstanding the foregoing, if at any time prior to Seller's giving the Put Notice to Purchaser, the closing sale price of a Share of common stock of HHI as quoted or published by Nasdaq, or by such other quotation system or exchange on which the common stock of HHI may be listed or published, shall equal or exceed $2.50 per Share (as adjusted for any stock splits or dividends or other recapitalization events), for at least ten consecutive trading days the right of Seller to require Purchaser to purchase the Shares pursuant to this Agreement, or otherwise, shall terminate. 3. CALL AGREEMENT. Purchaser, at any time prior to February 15, 1998, shall have the right to purchase, and Seller agrees to sell, the Shares (except to the extent Purchaser has previously been required to purchase the Shares pursuant to a Put Notice) upon giving written notice to Seller (the "Call Notice") at the Purchase Price per Share. Notwithstanding the foregoing, if at any time prior to Purchaser's giving the Call Notice to Seller, the bid price or, if there is no published bid price, the closing sale price of a Share of common stock of HHI as quoted or published by Nasdaq, or by such other quotation system or exchange on which the common stock of HHI may be listed or published, shall equal or exceed $2.50 per Share (as adjusted for any stock splits or dividends or other recapitalization events), for at least ten consecutive trading days the right of Purchaser to require Seller to sell the Shares pursuant to this Agreement, or otherwise, shall terminate. In addition, the Seller may dispose of any or all of the shares of HHI he owns prior to actual receipt of the call notice, and in such event, said call shall terminate as to such shares; provided that Seller gives notice of such sale within five (5) business days following any such transaction. 4. CLOSING. The closing of the purchase of the securities in the case of a put by Seller as specified in Section 2 of this Agreement shall take place on the fifth business day following Purchaser's receipt of the Put Notice, or, in the case of a call by Purchaser pursuant to Section 3, the closing of the purchase of the securities shall take place on the fifth business day following Seller's receipt of the Call Notice (in either case, the "Closing") as specified in Section 3. The Purchase Price per Share shall be wire-transferred by Purchaser to a broker-dealer specified by Purchaser. Seller shall deliver the Shares on the Closing Date through The Depository Trust Company ("DTC") for delivery to the broker-dealer for the account of Purchaser. The Shares shall be transferred to Purchaser by the broker-dealer, pursuant to a letter of instructions from Seller and Purchaser, upon receipt of the Purchase Price by the broker-dealer. Concurrent therewith, the broker-dealer shall pay the Purchase Price to Seller by wire transfer. 5. REPRESENTATIONS AND WARRANTIES BY SELLERS. Seller represents and warrants that: (a) he is the attorney-in-fact for the beneficial owners of the Shares; (b) he owns, or has beneficial interest in, and has good and marketable title to, the Shares to be sold to Purchaser hereby, free and clear of all liens, security interests and encumbrances, of any kind or nature; (c) he has duly authorized, executed and delivered this Agreement, and that the same is the valid and binding agreement of such Seller, enforceable against such Seller in accordance with its terms, and not in violation of any agreement to which such Seller is a party; (d) he has the right, power and authority to transfer, convey and sell to Purchaser, or to cause the same, at the Closing, the Shares to be sold by him as described in Section 1 of this Agreement and, upon consummation of this Agreement, Purchaser will acquire good and marketable title to such shares, free and clear of all liens, security interests or other covenants or agreements, other than encumbrances resulting from actions of Purchaser. 6. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and warrants that this Agreement has been duly authorized by all necessary action on the part of the Purchaser and is a valid and binding agreement of Purchaser, enforceable against Purchaser in accordance with its terms. 7. STANDSTILL AND RELEASE. 7.1 STANDSTILL. In consideration of the covenants and agreements contained herein, Seller, on behalf of each owner of the Shares, covenants and agrees that, for a period of five years from the date of this Agreement, unless such shall have been specifically invited in writing by the Boards of Directors, HHI or Purchaser, neither he nor any of his affiliates, agents or representatives, will in any manner, directly or indirectly, (a) effect or seek, offer or propose (whether publicly or otherwise) to effect, or cause or participate in or in any way assist any other person to effect or seek, offer or propose (whether publicly or otherwise) to effect, or cause or participate in, (i) any acquisition of any securities (or beneficial ownership thereof) or assets of HHI or Purchaser or any of their subsidiaries; (ii) any tender or exchange offer, merger or other business combination involving HHI or Purchaser or any of their subsidiaries; (iii) any recapitalization, restructuring, liquidation, dissolution or other extraordinary transaction with respect to HHI or Purchaser or any of their subsidiaries; (iv) any "solicitation" of "proxies" (as such terms are used in the proxy rules of the Securities and Exchange Commission) or consents to vote any voting securities of HHI or Purchaser or any of their subsidiaries; or (v) any communication with any employee of HHI or Purchaser or any of their subsidiaries (except that this restriction shall not apply to communications to Harvey Bibicoff on matters unrelated to HHI, its business, employees or independent contractors, or to Purchaser); (b) form, join or in any way participate in a "group" (as defined under the 1934 Act); (c) otherwise act, alone or in concert with others, to seek to control or influence the management, Board of Directors or policies of HHI or Purchaser or any of their subsidiaries; (d) take any action which might force HHI or Purchaser or any of their subsidiaries to make a public announcement regarding any of the types of matters set forth in (a) above; or (e) enter into any discussions or arrangements with any third party with respect to any of the foregoing. Seller also agrees during such period not to request HHI or Purchaser or any of their subsidiaries (or their directors, officers, employees or agents), directly or indirectly, to amend or waive any provision of this paragraph (including this sentence). Seller further covenants and agrees that Seller will not encourage other shareholders of HHI to bring actions or assert claims against HHI or Purchaser. The provisions of this Section 7.1 shall survive the closing of the transaction contemplated by this Agreement. 7.2 RELEASE BY SELLER. For valuable consideration, receipt of which is hereby acknowledged, Seller, as attorney-in-fact and Agent for each beneficial owner of the Shares, releases and will release HHI, its shareholders, officers and directors, and Purchaser, and its shareholders, officers and directors, and the respective agents, independent contractors and representatives of the same (collectively, the "Seller Released Parties") from and against any and all claims, costs or causes of action which any of such individual beneficial owners has or may have against the Seller Released Parties, known or unknown, now existing or hereafter arising or relating to this Agreement, or the ownership or acquisition of the securities of HHI, except such cause of action or claim as may arise subsequent to the date hereof relating to the enforcement or performance of this Agreement. 7.3 RELEASE BY PURCHASER. For valuable consideration, receipt of which is hereby acknowledged, Purchaser hereby releases and will release Seller and each of such beneficial owners and their respective agents, independent contractors and personal representatives of the same (collectively, the "Purchaser Released Parties") from and against any and all claims, costs or causes of action which Purchaser has or may have against the Purchaser Released Parties, known or unknown, now existing or hereafter arising or relating to this Agreement, or the ownership or acquisition of the Shares, except such cause of action or claim as may arise subsequent to the date hereof relating to the enforcement or performance of this Agreement. 8. MISCELLANEOUS. 8.1 CHANGES, WAIVERS, ETC. Neither this Agreement nor any provision hereof may be changed, amended, waived, discharged or terminated orally, but only by a statement in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 8.2 NOTICES. All notices, requests, consents and other communications required or permitted hereunder shall be in writing and shall be delivered, or mailed first-class postage prepaid, registered or certified mail: (a) if to Seller, to Steven B. Nagler, c/o Siegel & Capitel, Ltd., 2275 Half Day Road, Suite 320, Bannockburn, IL 60015; (b) if to Purchaser, to Christopher T. Dahl, at 724 First Street North, Minneapolis, Minnesota 55401, with a copy to Lance W. Riley, at 724 First Street North, Minneapolis, Minnesota 55401, or at such other address as Purchaser may specify by written notice to Seller; and such notices and other communications shall for all purposes of this Agreement be treated as being effective or having been given if delivered personally, or, if sent by mail, when received. 8.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. All representations, warranties, covenants and agreements contained herein shall survive the execution and delivery of this Agreement, any investigation at any time made by Purchaser on their behalf, and the sale and purchase of the Shares and payment therefor. 8.4 LAW TO GOVERN; JURISDICTION. This Agreement shall be governed by, and interpreted in accordance with, the laws of the State of Minnesota without regard to principles of conflict of laws. The Seller hereby consents to jurisdiction in the State of Minnesota. 8.5 REFERENCES. Unless the content indicates otherwise, all references in the singular shall include the plural, and all references in the masculine or neuter shall include the feminine. 8.6 BINDING EFFECT. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. 8.7 COUNTERPARTS. This Agreement may be executed in any number of counterparts all of which, taken together, shall constitute one and the same Agreement, whether or not all parties hereto have executed the same instrument. 8.8 SEVERABILITY. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 8.9 LAKEN'S AGENCY AND REPRESENTATIVE CAPACITY. Laken represents and warrants that he has the authority to execute and deliver this Agreement on behalf of certain individual owners of the Shares. 8.10 ATTORNEYS FEES. In the event of a breach of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees and costs incurred in enforcing the provisions hereof. IN WITNESS WHEREOF, Seller and Purchaser have caused this Agreement to be duly executed as of the date first written above. CHILDREN'S BROADCASTING CORPORATION By /s/ James G. Gilbertson ------------------------------------- James G. Gilbertson Chief Operating Officer /s/ Glenn B. Laken --------------------------------------- GLENN B. LAKEN, as agent and representative for and on behalf of the owners of 225,000 shares of common stock of Harmony Holdings, Inc. EX-99.3 4 EXHIBIT 99.3 EXHIBIT 99.3 Foothill Partners II, L.P. Foothill Partners III, L.P. 11111 Santa Monica Boulevard Los Angeles, California 90025 Gentlemen: This letter will confirm the agreement of Children's Broadcasting Corporation (the "Borrower") and its undersigned subsidiaries (the "Guarantors"; the Guarantors and Borrower shall be referred to individually and collectively, jointly and severally, as the "Company") that Foothill Partners II, L.P. and Foothill Partners III, L.P. (the "Funds"), in connection with its acquisition of debt of the Company, will be entitled to the following contractual rights, in addition to rights to certain non-public financial information, inspection rights and other rights specifically provided to all lenders under that certain Amended and Restated Loan and Security Agreement, dated July 1, 1997, between Foothill Capital Corporation and the Borrower, as amended by that certain Amendment Number One to Amended and Restated Loan and Security Agreement, dated September 24, 1997, between Foothill Capital Corporation and the Borrower (as further amended, restated, supplemented, or otherwise modified from time to time, the "Loan Agreement"): (1) The Funds shall be permitted to select one representative ("Representative") to consult with and advise management of the Company on significant business issues, including management's proposed annual operating plans, and management will make itself available to meet with that Representative regularly during each year by telephone and/or at the Company's facilities at mutually agreeable times, on reasonable prior written notice, for such consultation and advice and to review progress in achieving such plans. (2) In the event of any material development to or affecting the Company's business, the Company shall notify the Representative and provide the Representative with the opportunity, on reasonable prior written notice, to consult with and advise management of its views with respect thereto. (3) The Representative may examine the books and records of the Company and visit and inspect its facilities and may reasonably request information at reasonable times and intervals concerning the general status of the Company's financial condition and operations. (4) On reasonable prior written notice, the Representative may discuss the business operations, properties and financial and other condition of the Company with the Company's officers, employees and directors and with the Company's independent certified accountants and investment bankers. (5) The Funds shall be entitled to request that the Company provide it when available, with copies of (i) all financial statements, forecasts and projections provided to or approved by its Board of Directors; (ii) all notices, minutes, proxy materials, consents and correspondence and other material that it provides to its Directors and shareholders; (iii) any letter issued to the Company by its accountants with respect to the Company's internal controls; (iv) any documents filed by the Company with the Securities and Exchange Commission; (v) copies of all information, statements and reports provided to any Agent under the Loan Agreement; and/or (vi) such other business and financial data as the Representative may reasonably request in writing from time to time. The Funds agree that they will not disclose to any third party any information provided to the Funds by the Company hereunder which is not generally available to the public or which is specifically designated by the Company as confidential, except with the prior express approval of the Company or as may otherwise by required by applicable law. The rights described herein shall apply and continue for so long as the Funds continue to hold an amount of indebtedness of the Company equal to at least 25% of the indebtedness of the Company owned by the Funds on the date hereof; provided that such indebtedness shall be deemed to remain outstanding notwithstanding an exchange by the Company of such indebtedness for other indebtedness or securities unless such exchange is in connection with a public offering of the Company's securities or a merger or reorganization of the Company. Very truly yours, CHILDREN'S BROADCASTING CORPORATION, a Minnesota corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- CHILDREN'S RADIO OF LOS ANGELES, INC., a Minnesota corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- CHILDREN'S RADIO OF NEW YORK, INC., a New Jersey corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- CHILDREN'S RADIO OF MINNEAPOLIS, INC.,a Minnesota corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- CHILDREN'S RADIO OF GOLDEN VALLEY, INC., a Minnesota corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- CHILDREN'S RADIO OF MILWAUKEE, INC., a Minnesota corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- CHILDREN'S RADIO OF DENVER, INC., a Minnesota corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- CHILDREN'S RADIO OF KANSAS CITY, INC., a Minnesota corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- CHILDREN'S RADIO OF DALLAS, INC., a Minnesota corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- CHILDREN'S RADIO OF HOUSTON, INC., a Minnesota corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- CHILDREN'S RADIO OF PHILADELPHIA, INC., a Minnesota corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- CHILDREN'S RADIO OF DETROIT, INC., a Minnesota corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- CHILDREN'S RADIO OF CHICAGO, INC., a Minnesota corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- CHILDREN'S RADIO OF PHOENIX, INC., a Minnesota corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- WWTC-AM, INC., a Minnesota corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- KYCR-AM, INC., a Minnesota corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- WZER-AM, INC., a Minnesota corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- KKYD-AM, INC., a Minnesota corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- KCNW-AM, INC., a Minnesota corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- KAHZ-AM, INC., a Minnesota corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- KTEK-AM, INC., a Minnesota corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- WPWA-AM, INC., a Minnesota corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- WCAR-AM, INC., a Minnesota corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- WJDM-AM, INC., a Minnesota corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- KPLS-AM, INC., a Minnesota corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- WAUR-AM, INC., a Minnesota corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- KIDR-AM, INC., a Minnesota corporation By: /s/ James G. Gilbertson ----------------------------------- Title: Chief Operating Officer -------------------------------- AGREED AND ACCEPTED THIS 25th DAY OF SEPTEMBER, 1997. FOOTHILL PARTNERS II, L.P. By: /s/ Keith Alexander ----------------------------------------- Managing General Partner FOOTHILL PARTNERS III, L.P. By: /s/ Keith Alexander ----------------------------------------- Managing General Partner EX-99.4 5 EXHIBIT 99.4 EXHIBIT 99.4 AMENDMENT NUMBER ONE TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT THIS AMENDMENT NUMBER ONE TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT ("Amendment"), is entered into as of September 24, 1997, between FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill"), with a place of business located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333, and CHILDREN'S BROADCASTING CORPORATION, a Minnesota corporation ("Borrower"), with its chief executive office located at 724 First Street, Fourth Floor, Minneapolis, Minnesota 55401. WHEREAS, Borrower and Foothill are parties to that certain Amended and Restated Loan and Security Agreement, dated as of July 1, 1997 (the "Loan Agreement"); WHEREAS, Borrower has requested that Foothill make an additional term loan in the amount of $5,800,000 (the "Supplemental Term Loan"), and the proceeds of such Supplemental Term Loan will be used in part to pay Foothill the amendment fee described in SECTION 8(c) of this Amendment. In addition, Borrower will use an amount not to exceed $2,750,000 of the proceeds of the Supplemental Term Loan for the acquisition of more stock of Harmony; WHEREAS, Borrower and Foothill have agreed to combine the term loans previously made by Foothill to Borrower and the Supplemental Term Loan into a single term loan that will repaid by Borrower in accordance with the terms of this Amendment; and WHEREAS, Borrower and Foothill desire to amend the Loan Agreement as provided in this Amendment, it being understood that no repayment of the obligations under the Loan Agreement is being effected hereby, but merely an amendment and restatement in accordance with the terms hereof. All capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Loan Agreement. NOW, THEREFORE, in consideration of the mutual promises contained herein, Foothill and Borrower hereby agree as follows: 1. SECTION 1.1 of the Loan Agreement hereby is amended by adding the following new defined terms in alphabetical order: "ACCELERATION EVENT" means one or more of the following: (a) Borrower fails to obtain approval from the FCC, on or before December 31, 1997, of the 314 filings in connection with the application by Borrower of transfer of control of Borrower to Global, (b) Borrower fails to obtain a fairness opinion issued by a nationally recognized investment bank reasonably acceptable to Foothill of the fairness, from a financial point of view, of the consideration provided by Global in the proposed sale of Borrower to Global on or before October 31, 1997, (c) Borrower fails to prepare a proxy to its shareholders in connection with the proposed sale of Borrower to Global (the "Proxy") on or before October 31, 1997, (d) Borrower fails to submit the Proxy to the Securities and Exchange Commission on or before October 31, 1997, (e) Borrower fails to mail the Proxy to the shareholders of Borrower on or before November 30, 1997, and (f) Borrower fails to conduct a meeting of its shareholders on or before December 31, 1997, at which the shareholders of Borrower approve of the proposed sale of Borrower to Global. "AMENDMENT DATE" means the date of the making of the Supplemental Term Loan on or after the first date written above. "GLOBAL" means Global Broadcasting Company. "HARMONY STOCK VALUE" means as of the date of measurement, the average per share trading price of the common stock of Harmony of the previous thirty (30) calendar days MULTIPLIED by the number of shares of Harmony that Borrower has pledged to Foothill. "SUPPLEMENTAL TERM LOAN" shall have the meaning ascribed to such term in the recitals of this Amendment. "TERM LOAN" has the meaning ascribed to such term in SECTION 2.2(A) hereof. "TERM LOAN COMMITMENT" means $22,500,000. "THIRD WARRANT" means a warrant agreement respecting 200,000 shares of Borrower's common stock, in form and substance reasonably satisfactory to Foothill. "VCOC LETTER" means a letter agreement among Borrower, Guarantors, and Foothill's Participants that meets the Venture Capital Operating Company requirements and that is in form and substance reasonably satisfactory to Foothill. 2. SECTION 2.2 of the Loan Agreement is hereby amended and restated in its entirety as follows: 2.2 TERM LOAN. (a) Foothill previously has made the Term Loan to Borrower. As of the date hereof, Foothill has agreed to make the Supplemental Term Loan to Borrower in accordance with the terms hereof. Collectively, the Supplemental Term Loan and the prior terms loans made by Foothill to Borrower shall be known as the "Term Loan." (b) The outstanding principal balance and all accrued and unpaid interest under the Term Loan shall be due and payable upon the termination of this Agreement, whether by its terms, by prepayment, by acceleration, or otherwise. All amounts outstanding under the Term Loan shall constitute Obligations. Unless Foothill gives Borrower notice that an Acceleration Event has occurred, Borrower shall repay the Term Loan in quarterly installments and such installments shall be due and payable on the following dates in the following amounts: ---------------------- ---------------------- DATE INSTALLMENT ---------------------- 3/31/98 $ 500,000 ---------------------- 6/30/98 $5,000,000 ---------------------- 9/30/98 $2,000,000 ---------------------- 12/31/98 $2,000,000 ---------------------- 3/31/99 $2,000,000 ---------------------- 6/30/99 $2,000,000 ---------------------- 9/30/99 $2,000,000 ---------------------- 12/31/99 $2,000,000 ---------------------- 3/31/00 $2,000,000 ---------------------- 6/30/00 $2,000,000 ---------------------- 9/30/00 $1,000,000 ---------------------- ---------------------- In the event that an Acceleration Event occurs and Foothill gives notice to Borrower of the same, Borrower shall repay the Term Loan in quarterly installments and such installments shall be due and payable on the following dates in the following amounts: ---------------------- ---------------------- DATE INSTALLMENT ---------------------- 3/31/98 $ 500,000 ---------------------- 6/30/98 $5,000,000 ---------------------- 9/30/98 $4,000,000 ---------------------- 12/31/98 $3,000,000 ---------------------- 3/31/99 $2,000,000 ---------------------- 6/30/99 $2,000,000 ---------------------- 9/30/99 $2,000,000 ---------------------- 12/31/99 $2,000,000 ---------------------- 3/31/00 $1,000,000 ---------------------- 6/30/00 $ 500,000 ---------------------- 9/30/00 $ 500,000 ---------------------- ---------------------- 3. SECTION 2.6(a) of the Loan Agreement is hereby amended and restated in its entirety as follows: "Interest Rate. From and after the Amendment Date, all Obligations shall bear interest at a per annum rate of 3.75 percentage points above the Reference Rate." 4. SECTION 2.6(c) of the Loan Agreement is hereby amended and restated in its entirety as follows: "Default Rate. Upon the occurrence and during the continuation of an Event of Default, all Obligations shall bear interest at a per annum rate of 6.75 percentage points above the Reference Rate." 5. The following shall be added to the end of SECTION 4.1 of the Loan Agreement: "Notwithstanding the foregoing, in the event that Borrower wishes to dispose of an individual radio station, Foothill has established minimum release amounts for the individual radio stations as set forth on SCHEDULE 4.1. In any event, the sufficiency of consideration for an individual radio station will be determined by Foothill on a case by case basis." 6. The following SECTION 6.21 is hereby added to the Loan Agreement and shall provide in its entirety as follows: "6.21 HARMONY STOCK VALUE. Borrower shall maintain a minimum amount of Harmony stock pledged to Foothill such that the Harmony Stock Value is not less than $2,600,000, provided, however, that if Borrower fails to maintain such minimum Harmony Stock Value, Borrower may cure such condition by pledging to Foothill additional stock of Harmony or other collateral reasonably satisfactory to Foothill within twenty (20) days of the first date on which the Harmony Stock Value fell below such minimum amount." 7. The following SECTION 8.15 is hereby added to the Loan Agreement and shall provide in its entirety as follows: "8.15 If Borrower or any Guarantor fails or neglects to perform, keep, or observe any term, provision, covenant, or agreement contained in the VCOC Letter and applicable to it, if such failure or neglect continues for twenty (20) days following the date that Foothill gives notice to such Person." 8. CONDITIONS PRECEDENT TO EFFECTIVENESS OF AMENDMENT. The effectiveness of this Amendment and the obligation of Foothill to make the Supplemental Term Loan is subject to the fulfillment, to the satisfaction of Foothill and its counsel, of each of the following conditions on or before the Amendment Date: (a) Foothill shall have received executed consents and reaffirmations from each Guarantor, in form and substance satisfactory to Foothill; (b) Foothill shall have received the Third Warrant and such Third Warrant shall be duly executed, and in full force and effect; (c) Foothill shall have received an amendment fee of $350,000 which shall be earned in full and non-refundable as of the date hereof. The payment of such amendment fee shall be paid on the Amendment Date out of the proceeds of the Supplemental Term Loan; and (d) Foothill shall have received the VCOC Letter and such VCOC Letter shall be duly executed, and in full force and effect. 9. CONDITION SUBSEQUENT. As a condition subsequent to the effectiveness of this Amendment, immediately upon the acquisition or receipt of stock of Harmony and not later than twenty (20) days following the Amendment Date, Borrower shall deliver an amendment to the Stock Pledge Agreement to Foothill by which Borrower pledges 1,707,961 shares of Harmony owned by Borrower to Foothill. 10. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants to Foothill that (a) the execution, delivery, and performance of this Amendment, are within its corporate powers, have been duly authorized by all necessary corporate action, and are not in contravention of any law, rule, or regulation, or any order, judgment, decree, writ, injunction, or award of any arbitrator, court, or governmental authority, or of the terms of its charter or bylaws, or of any contract or undertaking to which it is a party or by which any of its properties may be bound or affected, and (b) the Loan Agreement, as amended by this Amendment, constitute Borrower's legal, valid, and binding obligation, enforceable against Borrower in accordance with its terms. 11. FURTHER ASSURANCES. Borrower shall execute and deliver all agreements, documents, and instruments, in form and substance satisfactory to Foothill, and take all actions as Foothill may reasonably request from time to time, to perfect and maintain the perfection and priority of Foothill's security interests in the Collateral, and to fully consummate the transactions contemplated under the Loan Agreement and this Amendment. 12. EFFECT ON LOAN AGREEMENT. The Loan Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. The execution, delivery, and performance of this Amendment shall not operate as a waiver of or, except as expressly set forth herein, as an amendment, of any right, power, or remedy of Lender under the Loan Agreement, as in effect prior to the date hereof. 13. MISCELLANEOUS. a. Upon the effectiveness of this Amendment, each reference in the Agreement to "this Agreement", "hereunder", "herein", "hereof" or words of like import referring to the Agreement shall mean and refer to the Loan Agreement as amended by this Amendment. b. Upon the effectiveness of this Amendment, each reference in the Loan Documents to the "Loan Agreement", "thereunder", "therein", "thereof" or words of like import referring to the Agreement shall mean and refer to the Loan Agreement as amended by this Amendment. c. This Amendment shall be governed by and construed in accordance with the laws of the State of California. d. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Amendment by signing any such counterpart. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above. FOOTHILL CAPITAL CORPORATION, a California corporation By /s/ Tricia McLoughlin --------------------------------------------------- Title: Senior Vice President ----------------------------------------------- CHILDREN'S BROADCASTING CORPORATION, a Minnesota corporation By /s/ James G. Gilbertson ---------------------------------------------------- Title: Chief Operating Officer ------------------------------------------------ CONSENT, RATIFICATION, AND REAFFIRMATION BY GUARANTORS Each of the undersigned Guarantors hereby consents to the execution, delivery, and performance of the foregoing Amendment Number One to Amended and Restated Loan and Security Agreement and agrees, ratifies, and reaffirms that its obligations as a guarantor with respect to the Loan Documents, as heretofore amended, and as amended by the foregoing amendment, remain in full force and effect and are not impaired, diminished, or discharged in any respect. Dated as of the date first set forth above: CHILDREN'S RADIO OF LOS ANGELES, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------- Title: Chief Operating Officer -------------------------------- CHILDREN'S RADIO OF NEW YORK, INC., a New Jersey corporation By /s/ James G. Gilbertson ------------------------------------- Title: Chief Operating Officer -------------------------------- CHILDREN'S RADIO OF MINNEAPOLIS, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------- Title: Chief Operating Officer -------------------------------- CHILDREN'S RADIO OF GOLDEN VALLEY, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------- Title: Chief Operating Officer -------------------------------- CHILDREN'S RADIO OF MILWAUKEE, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------- Title: Chief Operating Officer -------------------------------- CHILDREN'S RADIO OF DENVER, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------- Title: Chief Operating Officer -------------------------------- CHILDREN'S RADIO OF KANSAS CITY, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------- Title: Chief Operating Officer -------------------------------- CHILDREN'S RADIO OF DALLAS, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------- Title: Chief Operating Officer -------------------------------- CHILDREN'S RADIO OF HOUSTON, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------- Title: Chief Operating Officer -------------------------------- CHILDREN'S RADIO OF PHILADELPHIA, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------- Title: Chief Operating Officer -------------------------------- CHILDREN'S RADIO OF DETROIT, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------- Title: Chief Operating Officer -------------------------------- CHILDREN'S RADIO OF CHICAGO, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------- Title: Chief Operating Officer -------------------------------- CHILDREN'S RADIO OF PHOENIX, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------- Title: Chief Operating Officer -------------------------------- WWTC-AM, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------- Title: Chief Operating Officer -------------------------------- KYCR-AM, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------- Title: Chief Operating Officer -------------------------------- WZER-AM, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------- Title: Chief Operating Officer -------------------------------- KKYD-AM, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------- Title: Chief Operating Officer -------------------------------- KCNW-AM, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------- Title: Chief Operating Officer -------------------------------- KAHZ-AM, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------- Title: Chief Operating Officer -------------------------------- KTEK-AM, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------- Title: Chief Operating Officer -------------------------------- WPWA-AM, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------- Title: Chief Operating Officer -------------------------------- WCAR-AM, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------- Title: Chief Operating Officer -------------------------------- WJDM-AM, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------- Title: Chief Operating Officer -------------------------------- KPLS-AM, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------- Title: Chief Operating Officer -------------------------------- WAUR-AM, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------- Title: Chief Operating Officer -------------------------------- KIDR-AM, INC., a Minnesota corporation By /s/ James G. Gilbertson ------------------------------------- Title: Chief Operating Officer -------------------------------- EX-99.5 6 EXHIBIT 99.5 EXHIBIT 99.5 THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE DISTRIBUTED FOR VALUE UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SUCH LAWS COVERING THE SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT, OFFER, PLEDGE OR OTHER DISTRIBUTION FOR VALUE IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT AND SUCH LAWS. WARRANT TO PURCHASE 200,000 SHARES OF COMMON STOCK OF CHILDREN'S BROADCASTING CORPORATION THIS CERTIFIES THAT, for good and valuable consideration, Foothill Capital Corporation ("Foothill"), or its registered assigns, is entitled to subscribe for and purchase from Children's Broadcasting Corporation, a Minnesota corporation (the "Company"), at any time commencing September 25, 1997, up to and including November 25, 2001, Two Hundred Thousand (200,000) fully paid and nonassessable shares of the Common Stock of the Company at the price of Three and 76/100 Dollars ($3.76) per share (the "Warrant Exercise Price"), subject to the antidilution provisions of Section 5 of this Warrant. Reference is made to this Warrant in the Amended and Restated Loan and Security Agreement dated July 1, 1997, as amended by that certain Amendment Number One to Amended and Restated Loan Agreement, dated September 25, 1997 (the "Loan Agreement"), by and between the Company and Foothill. The shares which may be acquired upon exercise of this Warrant are referred to herein as the "Warrant Shares." As used herein, the term "Holder" means Foothill, any party who acquires all or a part of this Warrant as a registered transferee of Foothill, or any record holder or holders of the Warrant Shares issued upon exercise, whether in whole or in part, of the Warrant; the term "Common Stock" means and includes the Company's presently authorized Common Stock, and shall also include any capital stock of any class of the Company hereafter authorized which shall not be limited to a fixed sum or percentage in respect of the rights of the Holders thereof to participate in dividends or in the distribution of assets upon the voluntary or involuntary liquidation, dissolution, or winding up of the Company. This Warrant is subject to the following provisions, terms and conditions: 1. EXERCISE; TRANSFERABILITY. (a) The rights represented by this Warrant may be exercised by the Holder hereof, in whole or in part (but not as to a fractional share of Common Stock), by written notice of exercise (in the form attached hereto) delivered to the Company at the principal office of the Company prior to the expiration of this Warrant and accompanied or preceded by the surrender of this Warrant along with payment of the Warrant Exercise Price for such shares (a) in cash, by check or by wire transfer of federal funds, (b) to the extent permitted by law, by offset of the Obligations (as defined in the Loan Agreement), or (c) by a combination of the methods specified in clauses (a) and (b). (b) This Warrant may not be sold, transferred, assigned, hypothecated or divided except as provided in Section 7 hereof. 2. EXCHANGE AND REPLACEMENT. Subject to Sections 1 and 7 hereof, this Warrant is exchangeable upon the surrender hereof by the Holder to the Company at its office for new Warrants of like tenor and date representing in the aggregate the right to purchase the number of Warrant Shares purchasable hereunder, each of such new Warrants to represent the right to purchase such number of Warrant Shares (not to exceed the aggregate total number purchasable hereunder) as shall be designated by the Holder at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction, or mutilation of this Warrant, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and upon surrender and cancellation of this Warrant, if mutilated, the Company will make and deliver a new Warrant of like tenor, in lieu of this Warrant; provided, however, that if Foothill shall be such Holder, an agreement of indemnity by such Holder shall be sufficient for all purposes of this Section 2. This Warrant shall be promptly canceled by the Company upon the surrender hereof in connection with any exchange or replacement. The Company shall pay all expenses, taxes (other than stock transfer taxes), and other charges payable in connection with the preparation, execution, and delivery of Warrants pursuant to this Section 2. 3. ISSUANCE OF THE WARRANT SHARES. (a) The Company agrees that the shares of Common Stock purchased hereby shall be and are deemed to be issued to the Holder as of the close of business on the date on which this Warrant shall have been surrendered and the payment made for such Warrant Shares as provided herein. Subject to the provisions of the next section, certificates for the Warrant Shares so purchased shall be delivered to the Holder within a reasonable time, not exceeding fifteen (15) days after the rights represented by this Warrant shall have been so exercised, and, unless this Warrant has expired, a new Warrant representing the right to purchase the number of Warrant Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be delivered to the Holder within such time. (b) Notwithstanding the foregoing, however, the Company shall not be required to deliver any certificate for Warrant Shares upon exercise of this Warrant except in accordance with exemptions from the applicable securities registration requirements or registrations under applicable securities laws. Nothing herein, however, shall obligate the Company to effect registrations under federal or state securities laws, except as provided in Section 9. If registrations are not in effect and if exemptions are not available when the Holder seeks to exercise the Warrant, the Warrant exercise period will be extended, if need be, to prevent the Warrant from expiring, until such time as either registrations become effective or exemptions are available, and the Warrant shall then remain exercisable for a period of at least 45 calendar days from the date the Company delivers to the Holder written notice of the availability of such registrations or exemptions. The Holder agrees to execute such documents and make such representations, warranties, and agreements as may be required solely to comply with the exemptions relied upon by the Company, or the registrations made, for the issuance of the Warrant Shares. 4. COVENANTS OF THE COMPANY. The Company covenants and agrees that all Warrant Shares will, upon issuance, be duly authorized and issued, fully paid, nonassessable, and free from all taxes, liens, and charges with respect to the issue thereof. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved for the purpose of issue or transfer upon exercise of the purchase rights evidenced by this Warrant a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant. 5. ANTIDILUTION ADJUSTMENTS. The provisions of this Warrant are subject to adjustment from time to time as provided in this Section 5. (a) The Warrant Exercise Price shall be adjusted from time to time such that in case the Company shall hereafter: (i) pay any dividends on any class of stock of the Company payable in Common Stock or securities convertible into Common Stock; (ii) subdivide its then outstanding shares of Common Stock into a greater number of shares; or (iii) combine outstanding shares of Common Stock, by reclassification or otherwise; then, in any such event, the Warrant Exercise Price in effect immediately prior to such event shall (until adjusted again pursuant hereto) be adjusted immediately after such event to a price (calculated to the nearest full cent) determined by dividing (a) the number of shares of Common Stock outstanding immediately prior to such event (including the maximum number of shares of Common Stock issuable in respect of any then outstanding securities convertible into Common Stock), multiplied by the then existing Warrant Exercise Price, by (b) the total number of shares of Common Stock outstanding immediately after such event (including the maximum number of shares of Common Stock issuable in respect of any then outstanding securities convertible into Common Stock), and the resulting quotient shall be the adjusted Warrant Exercise Price per share. An adjustment made pursuant to this subsection shall become effective immediately after the record date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. If, as a result of an adjustment made pursuant to this subsection, the Holder of any Warrant thereafter surrendered for exercise shall become entitled to receive shares of two or more classes of capital stock or shares of Common Stock and other capital stock of the Company, the Board of Directors (whose determination shall be conclusive) shall determine, in good faith, which determination shall be described in a duly adopted board resolution certified by the Company's Secretary, the allocation of the adjusted Warrant Exercise Price between or among shares of such classes of capital stock or shares of Common Stock and other capital stock. All calculations under this subsection shall be made to the nearest cent or to the nearest 1/100 of a share, as the case may be. In the event that at any time as a result of an adjustment made pursuant to this subsection, the Holder of any Warrant thereafter surrendered for exercise shall become entitled to receive any shares of the Company other than shares of Common Stock, thereafter the Warrant Exercise Price of such other shares so receivable upon exercise of any Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Common Stock contained in this Section. (b) In case the Company shall issue shares of Common Stock, or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock (excluding (i) shares, rights, options, warrants, or convertible or exchangeable securities described in subparagraphs (f) or (g) of Section 11 hereof or issued in any of the transactions described in subparagraphs (a) or (d) of this Section 5, (ii) shares issued upon the exercise of such rights, options or warrants or upon conversion or exchange of such convertible or exchangeable securities, and (iii) the Warrants and any shares issued upon exercise thereof), at a price per share of Common Stock (determined in the case of such rights, options, warrants, or convertible or exchangeable securities by dividing (x) the total amount receivable by the Company in consideration of the sale and issuance of such rights, options, warrants, or convertible or exchangeable securities, plus the total minimum consideration payable to the Company upon exercise, conversion, or exchange thereof by (y) the total maximum number of shares of Common Stock covered by such rights, options, warrants, or convertible or exchangeable securities) lower than the Market Price (as such term is defined in Section 8 hereof) per share of Common Stock on the date the Company fixes the offering price of such shares, rights, options, warrants, or convertible or exchangeable securities, then the Warrant Exercise Price shall be adjusted so that it shall equal the price determined by multiplying the Warrant Exercise Price in effect immediately prior thereto by a fraction (i) the numerator of which shall be the sum of (A) the number of shares of Common Stock outstanding immediately prior to such sale and issuance plus (B) the number of shares of Common Stock which the aggregate consideration received (determined as provided below) for such sale or issuance would purchase at such Market Price per share, and (ii) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such sale and issuance. Such adjustment shall be made successively whenever such an issuance is made. For the purposes of such adjustment, the maximum number of shares of Common Stock which the holder of any such rights, options, warrants or convertible or exchangeable securities shall be entitled to subscribe for or purchase shall be deemed to be issued and outstanding as of the date of such sale and issuance and the consideration received by the Company therefor shall be deemed to be the consideration received by the Company for such rights, options, warrants, or convertible or exchangeable securities, plus the minimum consideration or premium stated in such rights, options, warrants, or convertible or exchangeable securities to be paid for the shares of Common Stock covered thereby. In case the Company shall sell and issue shares of Common Stock, or rights, options, warrants, or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock for a consideration consisting, in whole or in part, of property other than cash or its equivalent, then in determining the price per share of Common Stock and the consideration received by the Company for purposes of the first sentence of this subparagraph (b), the Board of Directors of the Company shall determine, in good faith, the fair value of said property, and such determination shall be described in a duly adopted board resolution certified by the Company's Secretary. In case the Company shall sell and issue rights, options, warrants, or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock together with one or more other securities as a part of a unit at a price per unit, then in determining the price per share of Common Stock and the consideration received by the Company for purposes of the first sentence of this subparagraph (b), the Board of Directors of the Company shall determine, in good faith, which determination shall be described in a duly adopted board resolution certified by the Company's Secretary, the fair value of the rights, options, warrants, or convertible or exchangeable securities then being sold as part of such unit. Such adjustment shall be made successively whenever such an issuance occurs, and in the event that such rights, options, warrants, or convertible or exchangeable securities expire or cease to be convertible or exchangeable before they are exercised, converted, or exchanged (as the case may be), then the Warrant Exercise Price shall again be adjusted to the Warrant Exercise Price that would then be in effect if such sale and issuance had not occurred, but such subsequent adjustment shall not affect the number of Warrant Shares issued upon any exercise of Warrants prior to the date such subsequent adjustment is made. (c) Upon each adjustment of the Warrant Exercise Price pursuant to Section 5(a) or Section 5(b) above, the Holder of each Warrant shall thereafter (until another such adjustment) be entitled to purchase at the adjusted Warrant Exercise Price the number of shares, calculated to the nearest full share, obtained by multiplying the number of shares specified in such Warrant (as adjusted as a result of all adjustments in the Warrant Exercise Price in effect prior to such adjustment) by the Warrant Exercise Price in effect prior to such adjustment and dividing the product so obtained by the adjusted Warrant Exercise Price. (d) In case of any consolidation or merger to which the Company is a party, other than a merger or consolidation in which the Company is the continuing corporation, or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, or in the case of any statutory exchange of securities with another corporation (including any exchange effected in connection with a merger of a third corporation into the Company), there shall be no adjustment under subsection (a) of this Section above but the Holder of each Warrant then outstanding shall have the right thereafter to convert such Warrant into the kind and amount of shares of stock and other securities and property which the Holder would have owned or have been entitled to receive immediately after such consolidation, merger, statutory exchange, sale, or conveyance had such Warrant been converted immediately prior to the effective date of such consolidation, merger, statutory exchange, sale, or conveyance and in any such case, if necessary, appropriate adjustment shall be made in the application of the provisions set forth in this Section with respect to the rights and interests thereafter of any Holders of the Warrant, to the end that the provisions set forth in this Section shall thereafter correspondingly be made applicable, as nearly as may reasonably be, in relation to any shares of stock and other securities and property thereafter deliverable on the exercise of the Warrant. The provisions of this subsection shall similarly apply to successive consolidations, mergers, statutory exchanges, sales or conveyances. (e) Upon any adjustment of the Warrant Exercise Price, then and in each such case, the Company shall give written notice thereof, by first-class mail, postage prepaid, addressed to the Holder as shown on the books of the Company, which notice shall state the Warrant Exercise Price resulting from such adjustment and the increase or decrease, if any, in the number of shares of Common Stock purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 6. NO VOTING RIGHTS. This Warrant shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. 7. NOTICE OF TRANSFER OF WARRANT OR RESALE OF THE WARRANT SHARES. (a) Subject to the sale, assignment, hypothecation, or other transfer restrictions set forth in Section 1 hereof, the Holder, by acceptance hereof, agrees to give written notice to the Company before transferring this Warrant or transferring any Warrant Shares of such Holder's intention to do so, describing briefly the manner of any proposed transfer. Promptly upon receiving such written notice, the Company shall present copies thereof to the Company's counsel and to counsel to the original purchaser of this Warrant. If in the opinion of each such counsel the proposed transfer may be effected without registration or qualification (under any federal or state securities laws), the Company, as promptly as practicable, shall notify the Holder of such opinion, whereupon the Holder shall be entitled to transfer this Warrant or to dispose of Warrant Shares received upon the previous exercise of this Warrant, all in accordance with the terms of the notice delivered by the Holder to the Company; provided that an appropriate legend may be endorsed on the Warrant or the certificates for such Warrant Shares respecting restrictions upon transfer thereof necessary or advisable in the opinion of counsel and satisfactory to the Company to prevent further transfers which would be in violation of Section 5 of the Securities Act of 1933, as amended (the "Act"), and applicable state securities laws; and provided further that the prospective transferee or purchaser shall execute such documents and make such representations, warranties, and agreements as may be reasonably required solely to comply with the exemptions relied upon by the Company or the Holder for the transfer or disposition of the Warrant or Warrant Shares. (b) If in the opinion of counsel referred to in this Section 7, the proposed transfer or disposition of this Warrant or such Warrant Shares described in the written notice given pursuant to this Section 7 may not be effected without registration or qualification of this Warrant or such Warrant Shares, the Company shall promptly give written notice thereof to the Holder. 8. FRACTIONAL SHARES. Fractional shares shall not be issued upon the exercise of this Warrant, but in any case where the Holder would, except for the provisions of this Section, be entitled under the terms hereof to receive a fractional share, the Company shall, upon the exercise of this Warrant for the largest number of whole shares then called for, pay a sum in cash equal to the sum of (a) the excess, if any, of the Market Price of such fractional share over the proportional part of the Warrant Exercise Price represented by such fractional share, plus (b) the proportional part of the Warrant Exercise Price represented by such fractional share. For purposes of this Section, the term "Market Price" with respect to shares of Common Stock of any class or series means the last reported sale price or, if none, the average of the last reported closing bid and asked prices on any national securities exchange, the Nasdaq National Market or Nasdaq SmallCap Market, or if not listed on a national securities exchange or quoted on Nasdaq, the average of the last reported closing bid and asked prices as reported in the "pink sheets" or other standard compilation of quotations by market makers in the over-the-counter market. 9. REGISTRATION RIGHTS. (a) If at any time after September 25, 1997 and on or before November 25, 2001, the Company proposes to register under the Act (except by a Form S-4 or Form S-8 Registration Statement or any successor forms thereto) or qualify for a public distribution under Section 3(b) of the Act, any of its equity securities or debt with equity features, it will give written notice to all Holders of this Warrant, any Warrants issued pursuant to Section 2 or Section 3(a) hereof, and any Warrant Shares of its intention to do so and, on the written request of any such Holder given within twenty (20) days after receipt of any such notice (which request shall specify the interest in such Warrants or the Warrant Shares intended to be sold or disposed of by such Holder and describe the nature of any proposed sale or other disposition thereof), the Company will use its best efforts to cause all Warrant Shares, the Holders of which shall have requested the registration or qualification thereof, to be included in such Registration Statement proposed to be filed by the Company; provided, however, that if a greater number of Warrant Shares is offered for participation in the proposed offering than in the reasonable opinion of the managing underwriter of the proposed offering can be accommodated without adversely affecting the proposed offering, then the amount of Warrants and Warrant Shares proposed to be offered by such Holders for registration, as well as the number of securities of any other selling stockholders participating in the registration, shall be proportionately reduced to a number deemed satisfactory by the managing underwriter. For purposes of this Section 9(a), the Holders who have requested registration of Warrant Shares to be acquired upon the exercise of Warrants not theretofore exercised shall furnish the Company with an undertaking that they or the underwriters or other persons to whom such Warrants will be transferred have undertaken to exercise such Warrants and to sell, transfer or otherwise dispose of the Warrant Shares received upon exercise of such Warrants in such registration. (b) Upon request made any time not earlier than February 1, 1998 and on or before November 25, 2001, by Holders of Warrants and Warrant Shares (together, the "Securities") representing at least fifty percent (50%) of the Securities then outstanding, the Company will, at its expense, promptly take all necessary steps to register or qualify all of the Warrant Shares under Section 3(b) or Section 5 of the Act and such state laws as such Holders may reasonably request and, if so requested by such Holders, the Company shall use its best efforts to cause such registration to be underwritten on a firm commitment basis; provided that the Company shall not be obligated to effect more than one (1) such registration pursuant to this Section 9(b) unless, in such initial registration, the Company shall have been unable to effect the registration of all of the Warrant Shares, the Holders of which have requested inclusion in such registration, (whether then outstanding or issuable upon the exercise of Warrants then outstanding); in which case, the Company shall be obligated to effect one (1) additional registration pursuant to this Section 9(b) when requested by Holders who have not sold all of their Warrant Shares. For purposes of this Section 9(b), the Holders who have requested registration of Warrant Shares to be acquired upon the exercise of Warrants not theretofore exercised shall furnish the Company with an undertaking that they or the underwriters or other persons to whom such Warrants will be transferred have undertaken to exercise such Warrants and to sell, transfer or otherwise dispose of the Warrant Shares received upon exercise of such Warrants in such registration. In the event of an underwritten offering pursuant to this Section 9(b), the Holders requesting registration of the Warrant Shares being registered (i) shall be entitled to select the underwriter; PROVIDED, that the underwriter so selected shall be subject to approval by the Company, which approval shall not be withheld unreasonably, and (ii) must agree to all usual and customary underwriting terms and conditions including, but not limited to, any lock-up period imposed on selling Holders (not to exceed 180 days); PROVIDED, HOWEVER, that the Company shall use its reasonable best efforts to cause each Holder of a material number of shares of Common Stock to enter into similar lock-up agreements in respect to such offering. The Company shall keep effective and maintain any registration, qualification, notification or approval specified in this paragraph for such period as may be necessary for the Holders of the Warrants and the Warrant Shares to dispose thereof and from time to time shall amend or supplement, at the Company's expense, the prospectus used in connection therewith to the extent necessary in order to comply with applicable law, provided that the Company shall not be obligated to maintain any registration for a period of more than six (6) months after effectiveness, except that a Form S-3 Registration Statement or successor thereof shall be maintained for up to twelve (12) months after effectiveness. Notwithstanding the foregoing, if a greater number of securities is offered for participation in the proposed offering pursuant to this Section 9(b) than in the reasonable opinion of the managing underwriter of the proposed offering can be accommodated without adversely affecting the proposed offering, then the securities to be included in the proposed offering shall be included as follows: first, the amount of the Warrants and Warrant Shares proposed to be offered by the Holders for registration; and second, the number of other securities of the Company and of any other selling stockholders participating in the registration shall be proportionately reduced to a number deemed satisfactory by the managing underwriter. (c) With respect to each inclusion of securities in a Registration Statement pursuant to Section 9(a) or 9(b) above, the Company shall bear the following fees, costs, and expenses: all registration, filing and NASD fees, Nasdaq fees, printing expenses, fees and disbursements of counsel and accountants for the Company, reasonable fees and disbursements for one (1) counsel for all the Holders, fees and disbursements of counsel for the underwriter or underwriters of such securities (if the offering is underwritten and the Company is required to bear such fees and disbursements), all internal expenses, the premiums and other costs of policies of insurance against liability arising out of the public offering, and legal fees and disbursements and other expenses of complying with state securities laws of any jurisdictions in which the securities to be offered are to be registered or qualified. Except as set forth in the foregoing sentence, fees and disbursements of special counsel and accountants for the selling Holders, underwriting discounts and commissions, and transfer taxes for selling Holders and any other expenses relating to the sale of securities by the selling Holders shall be borne by the selling Holders. (d) The Company hereby indemnifies each of the Holders of this Warrant and of any Warrant Shares, and the officers and directors and each other person, if any, who control such Holders, within the meaning of Section 15 of the Act, against all losses, claims, damages, and liabilities caused by (1) any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus (and as amended or supplemented if the Company shall have furnished any amendments thereof or supplements thereto), any Preliminary Prospectus or any state securities law filings; (2) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, or liabilities are caused by any untrue statement or omission contained in information furnished in writing to the Company by such Holder expressly for use therein; and each such Holder by its acceptance hereof severally agrees that it will indemnify and hold harmless the Company, each of its officers who signs such Registration Statement, and each person, if any, who controls the Company, within the meaning of Section 15 of the Act, with respect to losses, claims, damages, or liabilities which are caused by any untrue statement or omission contained in information furnished in writing to the Company by such Holder expressly for use therein. Unless otherwise required by applicable law or judicial interpretation thereof, the liability of any selling Holder hereunder shall not be greater in amount than the dollar amount of the proceeds received by such Holder upon the sale of the Securities giving rise to such indemnification obligation. (e) The Company shall not file or permit the filing of any registration or comparable statement which refers to any Holder by name or otherwise as the Holder of any securities of the Company unless such reference to such Holder is specifically required by the Act or any similar federal statute then in force. (f) In connection with the preparation and filing of each registration statement under the Act pursuant to this Section 9, the Company shall give the selling Holders under such registration statement, their underwriters, if any, and their respective counsel and accountants, the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Securities and Exchange Commission (the "Commission"), and each amendment thereof or supplement thereto, and will give each of them such access to its books and records and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the opinion of such Holders' and such underwriters' respective counsel, to conduct a reasonable investigation within the meaning of the Act. (g) If the indemnification provided for in Section 9(d) hereof from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities, or expenses referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of losses, claims, damages, liabilities, or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified party in connection with the actions which resulted in such losses, claims, damages, liabilities, or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified party, and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities, and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the proceeds received by such Holder upon the sale of the Securities giving rise to such contribution obligation. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 9(g) were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in this Section 9(g). No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. (h) The Company shall not after September 25, 1997 (the "Date of Grant"), grant additional registration rights which conflict with the rights under this Section 9. 10. RIGHT TO CONVERT WARRANT INTO COMMON STOCK; NET ISSUANCE. (a) RIGHT TO CONVERT. In addition to and without limiting the rights of the Holder under the terms of this Warrant, the Holder shall have the right to convert this Warrant or any portion thereof (the "Conversion Right") into shares of Common Stock as provided in this Section 10 at any time or from time to time during the term of this Warrant. Upon exercise of the Conversion Right and with respect to a particular number of shares subject to this Warrant (the "Converted Warrant Shares"), the Company shall deliver to the Holder (without payment by the Holder of any exercise price or any cash or other consideration) that number of shares of fully paid and nonassessable Common Stock equal to the quotient obtained by dividing (i) the value of this Warrant (or the specified portion hereof) on the Conversion Date (as defined in subsection (b) hereof), which value shall be equal to (A) the aggregate Market Price of the Converted Warrant Shares issuable upon exercise of this Warrant (or the specified portion hereof) on the Conversion Date less (B) the aggregate Warrant Exercise Price of the Converted Warrant Shares immediately prior to the exercise of the Conversion Right by (ii) the Market Price of one share of Common Stock on the Conversion Date. Expressed as a formula, such conversion shall be computed as follows: X= A - B ----- Y Where: X = the number of shares of Common Stock that may be issued to holder Y = the Market Price (FMV) of one share of Common Stock A = the aggregate FMV (i.e., FMV x Converted Warrant Shares) B = the aggregate Warrant Exercise Price (i.e., Converted Warrant Shares x Warrant Price) No fractional shares shall be issuable upon exercise of the Conversion Right, and, if the number of shares to be issued determined in accordance with the foregoing formula is other than a whole number, the Company shall pay to the holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date. For purposes of Section 9 of this Warrant, Warrant Shares issued pursuant to the Conversion Right shall be treated as if they were issued upon the exercise of this Warrant. (b) METHOD OF EXERCISE. The Conversion Right may be exercised by the Holder by the surrender of this Warrant at the principal office of the Company together with a written statement specifying that the Holder thereby intends to exercise the Conversion Right and indicating the number of shares subject to this Warrant which are being surrendered (referred to in subsection (a) hereof as the Converted Warrant Shares) in exercise of the Conversion Right. Such conversion shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the "Conversion Date"). Certificates for the shares issuable upon exercise of the Conversion Right and, if applicable, a new warrant evidencing the balance of the shares remaining subject to this Warrant, shall be issued as of the Conversion Date and shall be delivered to the holder within thirty (30) days following the Conversion Date. (c) DETERMINATION OF MARKET PRICE. For purposes of this Section 10, "Market Price" of a share of Common Stock shall have the meaning set forth in Section 8 above. 11. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to the Holder of this Warrant as follows: (a) This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and the rules of law or principles at equity governing specific performance, injunctive relief and other equitable remedies; (b) The Warrant Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable; (c) The rights, preferences, privileges and restrictions granted to or imposed upon the Common Stock and the holders thereof are as set forth in the articles of incorporation of the Company, as amended to the date of grant (as so amended, the "Articles"), a true and complete copy of which has been delivered to Foothill; (d) The execution and delivery of this Warrant are not, and the issuance of the Warrant Shares upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Articles or by-laws of the Company, do not and will not contravene, in any material respect, any governmental rule or regulation, judgment or order applicable to the Company, and do not and will not conflict with or contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration or filing with or the taking of any action in respect of or by, any Federal, state or local government authority or agency or other person, except for the filing of notices pursuant to federal and state securities laws, which filings will be effected by the time required thereby; (e) There are no actions, suits, audits, investigations or proceedings pending or, to the knowledge of the Company, threatened against the Company in any court or before any governmental commission, board or authority which, if adversely determined, will have a material adverse effect on the ability of the Company to perform its obligations under this Warrant; (f) The authorized capital stock of the Company consists of Fifty Million (50,000,000) shares of Common Stock, of which Six Million Four Hundred Twenty-Nine Thousand One Hundred Fifteen (6,429,115) shares were issued and outstanding as of the close of business on September 19, 1997, and Two Hundred Ninety Thousand Two Hundred Thirteen (290,213) shares of Preferred Stock, of which all such shares were issued and outstanding as of the Date of Grant. All such outstanding shares have been validly issued and are fully paid, nonassessable shares free of preemptive rights; (g) Except for the capital stock issuable pursuant to the 1991 Incentive Stock Option Plan, the 1994 Director Stock Option Plan, the 1994 Stock Option Plan, the 1996 Employee Stock Purchase Plan, Non-Qualified Stock Options, and any other rights, options or warrants issuable or outstanding as of the Date of Grant as disclosed in the Company's filings with the Commission, there are no subscriptions, rights, options, warrants or calls relating to any shares of the Company's capital stock, including any right of conversion or exchange under any outstanding security or other instrument; and (h) Except as disclosed in the Company's filings with the Commission, the Company is not subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital stock or any security convertible into or exchangeable for any of its capital stock. 12. PUT OPTION. (a) PUT OPTION OF THE WARRANT HOLDER. At any time on or after September 25, 1998 and during the term hereof (the "Put Exercise Period"), the holder shall have the right (but not the obligation) to require the Company to repurchase ("put") this Warrant from the holder at an aggregate purchase price, equal to the product of (i) the positive difference (if any) between (A) the Warrant Exercise Price as of September 25, 1997 PLUS Two Dollars ($2.00), subject to adjustments pursuant to Section 12(b) hereof (as adjusted from time to time, the "Put Option Per Share Price"), MINUS (B) the average Market Price of one (1) share of Common Stock for the ten (10) consecutive trading days ending on the date of the Put Notice (as defined below), MULTIPLIED BY (ii) the number of Shares issuable upon exercise of this Warrant as of the date of the Put Notice. Such put right shall be exercisable by written notice (the "Put Notice") given to the Company during the Put Exercise Period. The Company shall effect the repurchase of this Warrant pursuant to the Put Notice by paying the purchase price therefor in cash to the holder not more than five (5) business days after receipt by the Company of the Put Notice; and at such time the holder shall deliver to the Company the Warrant to be repurchased, properly endorsed for transfer. (b) ADJUSTMENT OF THE PUT OPTION PER SHARE PRICE. Upon each adjustment in the Warrant Price pursuant to Section 5 hereof, the Put Option Per Share Price shall be adjusted to that price determined by multiplying the Put Option Per Share Price in effect immediately prior to such date of adjustment, by a fraction (i) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to such adjustment, and (ii) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such adjustment. IN WITNESS WHEREOF, Children's Broadcasting Corporation has caused this Warrant to be signed by its duly authorized officer this 25th day of September, 1997. Children's Broadcasting Corporation By /s/ James G. Gilbertson ------------------------------------ Name: James G. Gilbertson Its: Chief Operating Officer -----END PRIVACY-ENHANCED MESSAGE-----