-----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, EzeIizMhka+OZPPb5y3dVMFndBkWXmSQMc1YYJvyB7kd0v2JGm4nHOugJyfYTJe3 8pngQwkKwJx83mnCwM0kig== 0001047469-98-026466.txt : 19980707 0001047469-98-026466.hdr.sgml : 19980707 ACCESSION NUMBER: 0001047469-98-026466 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980630 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980706 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: 98660849 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 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 JUNE 30, 1998 Date of report (Date of earliest event reported) CHILDREN'S BROADCASTING CORPORATION (Exact Name of Registrant as Specified in Charter) MINNESOTA 0-21534 41-1663712 (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification Number) 724 FIRST STREET NORTH, MINNEAPOLIS, MINNESOTA 55401 (Address of Principal Executive Offices, including Zip Code) (612) 338-3300 (Registrant's Telephone Number, including Area Code) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ ITEM 5 OTHER EVENTS (A) PRIVATE PLACEMENT OF SERIES B CONVERTIBLE PREFERRED STOCK On June 30, 1998, Children's Broadcasting Corporation (the "Company") closed on the transaction contemplated by its Securities Purchase Agreement with Talisman Capital Opportunity Fund Ltd., Dominion Capital Limited and Sovereign Partners LP, dated June 25, 1998. Pursuant to such agreement, the Company issued 606,061 shares of its Series B Convertible Preferred Stock ("this Series") to three accredited investors for which it received gross proceeds of $2,000,000. From the gross proceeds, the Company paid a 6.25% commission to Pacific Continental Securities Corp. The transaction resulted in net proceeds to the Company of approximately $1,850,000. The shares of this Series have a stated value of $3.30 per share (the "Stated Value") and are redeemable for cash in certain circumstances. At any time on or before the date which is 60 days following the closing of the transaction contemplated by the Purchase Agreement between the Company and Catholic Radio Network, LLC, dated April 17, 1998 (the "CRN Closing"), but in no event earlier than three business days after the CRN Closing, if the holders of at least 25% of the outstanding unconverted shares of this Series so elect, the Company shall, to the extent that funds are legally available therefor, redeem all of the outstanding unconverted shares of this Series by payment in cash of the sum equal to 122.5% of the Stated Value for each outstanding unconverted share of this Series (appropriately adjusted to reflect stock splits, stock dividends, reorganizations, consolidations and similar changes). If the Company so elects, it may at any time, to the extent that funds are legally available therefor, redeem all or any part of the outstanding unconverted shares of this Series, upon payment in cash of the sum equal to 122.5% of the Stated Value for each outstanding unconverted share of this Series (appropriately adjusted to reflect stock splits, stock dividends, reorganizations, consolidations and similar changes). The shares of this Series may also be converted into shares of Common Stock of the Company in certain circumstances. At the option of the holder, at any time after the date 120 days following the closing date, the shares of this Series shall, subject to the schedule presented in the following paragraph, be convertible, into fully paid and nonassessable shares of Common Stock, at the conversion price in effect at the time of conversion, each share of this Series being deemed to have the Stated Value for the purpose of such conversion. The number of shares of Common Stock to be delivered upon conversion of a share of this Series shall be the Stated Value, divided by the lesser of (x) 110% of the average best bid price of the Common Stock for the five consecutive trading days ending on the day preceding the conversion date, or (y) 94% of the average of the three lowest closing prices of the Common Stock during the 60 calendar day period ending on the day preceding the conversion date; provided, however, that such initial conversion price shall be subject to adjustment from time to time in certain instances. The number of shares so issuable upon conversion shall be multiplied by the number of shares of this Series to be converted, and the product thereof shall be delivered to the holder. Notwithstanding the foregoing, if the Common Stock is not traded on the New York Stock Exchange, the American Stock Exchange, the Nasdaq National Market or the Nasdaq SmallCap Market on the conversion date, then the percentage specified in clause (y) above shall be 84%. 2 The shares of this Series may be converted, at the option of the holder, in accordance with the following schedule:
Number of Days Percentage of Original Elapsed Following Issuance Preferred Stock Convertible -------------------------- --------------------------- 120 20% 150 40% 180 60% 210 80% 240 100%
In the case of the call for redemption of any shares of this Series, such right of conversion shall cease and terminate as to the shares designated for redemption on the day such shares are actually redeemed by the Company; provided, however, that the holder may, upon giving a conversion notice to the Company within ten business days after receipt of the Company's notice of redemption, convert such number of shares of this Series as such holder would have been entitled to convert had such notice of redemption not been given by the Company. In the event that any shares of this Series have not been redeemed or converted into Common Stock on or before June 15, 2002, such shares shall automatically be converted. In connection with the above-referenced financing, the Company issued a five-year warrant to the investors for the purchase of an aggregate of 100,000 shares of the Company's Common Stock, at a per share exercise price of $3.7734375. In addition, if the CRN Closing does not occur on or prior to September 30, 1998, the Company has agreed to issue a five-year warrant to the investors for the purchase an aggregate of 25,000 shares of the Company's Common Stock, at a per share exercise price of the lesser of (i) $3.7734375 or (ii) 80.77% of the closing price of a share of Common Stock on September 30, 1998. All of the above issuances were made in reliance upon the exemption provided in Section 4(2) of the Securities Act of 1933, as amended (the "Act"), which provides an exemption for transactions not involving a public offering. The purchasers of the securities described above acquired them for their own accounts and not with a view to any distribution thereof to the public. At their issuance, the foregoing securities were restricted as to sale or transfer, unless registered under the Act, and certificates representing such securities contained restrictive legends stating that the securities were not to be offered, sold or transferred other than pursuant to an effective registration statement under the Act, or an exemption from such registration. In addition, the recipients of such securities received or had access to material information concerning the Company, including but not limited to the Company's reports on Form 10-KSB, Form 10-QSB and Form 8-K, as filed with the Securities and Exchange Commission. 3 (B) ACQUISITION OF ADDITIONAL SECURITIES OF HARMONY HOLDINGS, INC. On June 30, 1998, the Company exercised options to purchase an aggregate of 750,000 shares of Common Stock of Harmony Holdings, Inc. ("Harmony") at $1.50 per share (the "Option Exercise"). On July 1, 1998, the Company purchased an aggregate of 250,000 shares of Common Stock of Harmony at $1.73 per share, including a $0.05 per share commission paid to Brookstreet Securities (the "Share Purchase"). The Company obtained funds for the Option Exercise and the Share Purchase pursuant to the Securities Purchase Agreement described in Item 5(A) above. The Company reserves the right to purchase additional shares of Common Stock, on the open market or through direct purchases from Harmony, if it deems such action to be in its best interest. ITEM 7 FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (c) Exhibits 10.1 Securities Purchase Agreement by and between Children's Broadcasting Corporation, Talisman Capital Opportunity Fund Ltd., Dominion Capital Limited and Sovereign Partners LP, dated June 25, 1998. 10.2 Registration Rights Agreement by and between Children's Broadcasting Corporation, Talisman Capital Opportunity Fund Ltd., Dominion Capital Limited and Sovereign Partners LP, dated June 25, 1998. 10.3 Common Stock Purchase Warrant issued by Children's Broadcasting Corporation to Talisman Capital Opportunity Fund Ltd., dated June 26, 1998. 10.4 Common Stock Purchase Warrant issued by Children's Broadcasting Corporation to Dominion Capital Limited, dated June 26, 1998. 10.5 Common Stock Purchase Warrant issued by Children's Broadcasting Corporation to Sovereign Partners LP, dated June 26, 1998. 4 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized on July 6, 1998. CHILDREN'S BROADCASTING CORPORATION By: /s/ James G. Gilbertson ------------------------------- James G. Gilbertson Chief Operating Officer 5 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - ------ ----------- 10.1 Securities Purchase Agreement by and between Children's Broadcasting Corporation, Talisman Capital Opportunity Fund Ltd., Dominion Capital Limited and Sovereign Partners LP, dated June 25, 1998. 10.2 Registration Rights Agreement by and between Children's Broadcasting Corporation, Talisman Capital Opportunity Fund Ltd., Dominion Capital Limited and Sovereign Partners LP, dated June 25, 1998. 10.3 Common Stock Purchase Warrant issued by Children's Broadcasting Corporation to Talisman Capital Opportunity Fund Ltd., dated June 26, 1998. 10.4 Common Stock Purchase Warrant issued by Children's Broadcasting Corporation to Dominion Capital Limited, dated June 26, 1998. 10.5 Common Stock Purchase Warrant issued by Children's Broadcasting Corporation to Sovereign Partners LP, dated June 26, 1998. 6 EX-10.1 2 EXHIBIT 10.1 EXHIBIT 10.1 SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT, dated as of June 25, 1998, is entered into by and between CHILDREN'S BROADCASTING CORPORATION, a Minnesota corporation, with headquarters located at 724 First Street North, Fourth Floor, Minneapolis, Minnesota 55401 (the "Company"), and the undersigned (collectively, the "Buyer"). W I T N E S S E T H: WHEREAS, the Company and Buyer are executing and delivering this Agreement in accordance with and in reliance upon the exemption from securities registration afforded, inter alia, by Rule 506 under Regulation D ("Regulation D") as promulgated by the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933 Act"), and/or Section 4(2) of the 1933 Act; and WHEREAS, the Buyer wishes to purchase, upon the terms and subject to the conditions of this Agreement, Series B Convertible Preferred Stock, $0.02 par value per share (the "Preferred Stock"), of the Company which will be convertible into shares of Common Stock, $0.02 par value per share, of the Company (the "Common Stock" or "Conversion Shares"), upon the terms and subject to the conditions of such Preferred Stock, and subject to acceptance of this Agreement by the Company; NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. AGREEMENT TO PURCHASE; PURCHASE PRICE (a) PURCHASE; CERTAIN DEFINITIONS. (i) Buyer hereby agrees to purchase from the Company 606,061 shares of Preferred Stock at $3.30 per share in the denominations set forth on the signature page of this Agreement (the "Preferred Stock"), for total consideration of $2,000,000. The Preferred Stock shall have the terms and conditions set forth in the Certificate of Designation of the Company attached hereto as Annex I (the "Certificate of Designation"). The purchase price for the Preferred Stock (the "Purchase Price") shall be payable in United States Dollars. (ii) The names, addresses and employer identification/social security numbers of the Buyer are set forth in Schedule A to this Agreement. (iii) As used herein, the term "Preferred Stock" means the Preferred Stock, together with all shares, if any, of Preferred Stock issued as dividends thereon, unless the context otherwise requires. (iv) As used herein, the term "Securities" means the Preferred Stock and the Common Stock issuable upon conversion of the Preferred Stock. (b) FORM OF PAYMENT. Buyer shall pay the Purchase Price for the Preferred Stock by delivering immediately available good funds to the escrow agent (the "Escrow Agent") identified in the Joint Escrow Instructions attached hereto as Annex II (the "Joint Escrow Instructions"). No later than the Closing Date (as defined below), the Company shall deliver one or more certificates representing the Preferred Stock duly executed on behalf of the Company (collectively, the "Certificate") to the Escrow Agent. By signing this Agreement, Buyer and the Company each agree to all of the terms and conditions of, and becomes a party to, the Joint Escrow Instructions, all of the provisions of which are incorporated herein by this reference as if set forth in full. (c) METHOD OF PAYMENT. Payment into escrow of the Purchase Price for the Preferred Stock shall be made by Buyer by wire transfer of funds to: First Union Bank of Connecticut For Deposit to JOSEPH B. LAROCCO, ESQUIRE Trustee Account ABA # 021101108 Swift # FUNBUS33 Account # 2000020722984 Not later than 1:00 p.m., New York time, on the date which is one New York Stock Exchange trading day after the Company shall have accepted this Agreement and returned a signed counterpart of this Agreement to the Escrow Agent by facsimile, Buyer shall deposit with the Escrow Agent the Purchase Price for the Preferred Stock. Time is of the essence with respect to such payment, and failure by the Buyer to make such payment shall allow the Company to cancel this Agreement. (d) ESCROW PROPERTY. The Purchase Price and the Certificate(s) delivered to the Escrow Agent are hereinafter referred to as the "Escrow Property." 2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION; INDEPENDENT INVESTIGATION. The Buyer represents and warrants to, covenants and agrees with, the Company as follows: (a) Without limiting Buyer's right to sell the Common Stock pursuant to the Registration Statement (as that term is defined in the Registration Rights Agreement defined below), Buyer represents that it is purchasing the Preferred Stock and will be acquiring the shares of Common Stock issuable upon conversion of the Preferred Stock (the "Converted Shares") for its own account for investment or as Agent for other "accredited investors," and not with a view towards the public sale or distribution thereof and not with a view to or for sale in connection with any distribution thereof. (b) The Buyer is (i) an "accredited investor" as that term is defined in Rule 501 of the General Rules and Regulations under the 1933 Act by reason of Rule 501(a)(3), (ii) experienced in making investments of the kind described in this Agreement and the related documents, (iii) able, by reason of the business and financial experience of its officers (if an entity) and professional advisors (who are not affiliated with or compensated in any way by the Company or any of its affiliates or selling agents), to protect its own interests in connection with the transactions described in this Agreement, and the related documents, and (iv) able to afford the entire loss of its investment in the Securities. (c) All subsequent offers and sales of the Preferred Stock and the shares of Common Stock representing the Converted Shares (such Common Stock sometimes referred to as the "Shares") by the Buyer shall be made pursuant to registration of the Shares under the 1933 Act or pursuant to an exemption from registration. (d) The Buyer understands that the Preferred Stock is being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer's compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Preferred Stock. (e) The Buyer and its purchaser representative represent and acknowledge that Buyer is an "institutional purchaser," and has been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Preferred Stock which have been requested by the Buyer, including Annex V hereto. The Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company and have received complete and satisfactory answers to any such inquiries. Without limiting the generality of the foregoing, the Buyer has also had the opportunity to obtain and to review the Company's (i) annual report on Form 10-KSB and 10-KSB/A for the year ending December 31, 1997, (ii) the Company's quarterly report on Form 10-QSB and 10-QSB/A for the quarterly period ending March 31, 1998 , (iii) Preliminary Proxy Materials pursuant to Section 14A filed May 29, 1998; (iv) Form S-3 filed May 21, 1998, as amended, (v) Form 8-A filed February 20, 1998, and (vi) Forms 8-K, filed June 5, 1998, May 7, 1998; April 22, 1998; February 20, 1998; January 28, 1998 and January 7, 1998 (collectively the "SEC Reports"); and the Buyer understands that its investments in the Preferred Stock involves a high degree of risk; (f) The Buyer understands that its investment in the Company is speculative and that there can be no assurance that the Preferred Stock can be sold, or if converted, that the Common Stock issued upon conversion can be sold, at or above the Purchase Price or the conversion price. (g) The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities. (h) This Agreement has been duly and validly authorized, executed and delivered on behalf of the Buyer and is a valid and binding agreement of the Buyer enforceable in accordance with its terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium and other similar laws affecting the enforcement of creditors' rights generally. (i) Notwithstanding the provisions hereof or of the Preferred Stock, in no event, except (i) with respect to an automatic conversion of the Preferred Stock as provided in the Certificate of Designation or (ii) if the Company is in default of any of its obligations under the Preferred Stock or any of the Transaction Agreements (as defined below), shall the holder be entitled to convert any Preferred Stock to the extent that, after such conversion, the sum of (1) the number of shares of Common Stock beneficially owned by the Buyer and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Preferred Stock), and (2) the number of shares of Common Stock issuable upon the conversion of the Preferred Stock with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Buyer and its affiliates of more than 9.9% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act"), except as otherwise provided in clause (1) of such proviso. For the purposes of such proviso, however, each individual Buyer shall be treated as a separate beneficial owner and not as a part of a group. 3. COMPANY REPRESENTATIONS, ETC. The Company represents and warrants to the Buyer that: (a) CONCERNING THE PREFERRED STOCK AND THE SHARES. The Preferred Stock has been duly authorized and, when issued, will be duly and validly issued, fully paid and non-assessable and will not subject the holder thereof to personal liability by reason of being such holder. There are no preemptive rights of any shareholder of the Company, as such, to acquire the Preferred Stock or the Common Stock, except for such antidilution rights as may exist under outstanding options, warrants, or rights existing under the Company's Shareholder Rights Plan. (b) COMPANY STATUS. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have a material adverse effect on the business, operations or prospects or condition (financial or otherwise) of the Company and its subsidiaries, taken as a whole. The Company has registered its Common Stock pursuant to Section 12 of the 1934 Act, and the Common Stock is listed and traded on the Nasdaq National Market. Except as set forth in Annex V, the Company has received no notice, either oral or written, with respect to the continued eligibility of the Common Stock for such listing, and the Company has maintained all requirements for the continuation of such listing. (c) AUTHORIZED SHARES. The Company had at May 15, 1998, 6,673,516 shares of Common Stock outstanding, and has sufficient authorized and unissued Shares as may be reasonably necessary to effect the conversion of the Preferred Stock and exercise of the Warrants (as defined in Section 4(h) in accordance with the Certificate of Designation on the Initial Closing Date or the Effective Date of the Registration Statement. The Common Stock has been duly authorized and, when issued upon conversion of the Preferred Stock in accordance with its terms, will be duly and validly issued, fully paid and non-assessable and will not subject the holder thereof to personal liability by reason of being such holder. (d) REGISTRATION RIGHTS AGREEMENT AND STOCK. This Agreement and the Registration Rights Agreement, the form of which is attached hereto as Annex IV (the "Registration Rights Agreement"), and the transactions contemplated hereby and thereby, have been duly and validly authorized by the Company, this Agreement and the Registration Rights Agreement, when executed and delivered by or on behalf of the Company, will be, valid and binding agreements of the Company enforceable in accordance with their respective terms, subject, as to enforceability, to general principles of equity and to bankruptcy, insolvency, moratorium, and other similar laws affecting the enforcement of creditors' rights generally. (e) NON-CONTRAVENTION. The execution and delivery of this Agreement and the Registration Rights Agreement by the Company, the issuance of the Securities, and, except as disclosed in Annex V, the consummation by the Company of the other transactions contemplated by this Agreement, the Registration Rights Agreement, and the Preferred Stock do not and will not conflict with or result in a breach by the Company of any of the terms or provisions of, or constitute a default under (i) the articles of incorporation or by-laws of the Company, each as currently in effect, (ii) any indenture, mortgage, deed of trust, or other material agreement or instrument to which the Company is a party or by which it or any of its properties or assets are bound, including any listing agreement for the Common Stock (except as herein set forth), (iii) to its knowledge, any existing applicable law, rule, or regulation or any applicable decree, judgment, or order of any court, United States federal or state regulatory body, administrative agency, or other governmental body having jurisdiction over the Company or any of its properties or assets, or (iv) any listing agreement for its Common Stock, except such conflict, breach or default which would not have a material adverse effect on the transactions contemplated herein. (f) APPROVALS. No authorization, approval or consent of any court, governmental body, regulatory agency, self-regulatory organization, or stock exchange or market or the shareholders of the Company is required to be obtained by the Company for the issuance and sale of the Securities to the Buyer as contemplated by this Agreement, except such authorizations, approvals and consents that have been obtained. (g) SEC FILINGS. None of the Company's SEC Reports, as amended, contained, at the time they were filed, any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements made therein in light of the circumstances under which they were made, not misleading. The Company has, since June 30, 1997, timely filed all requisite forms, reports and exhibits thereto with the SEC. (h) ABSENCE OF CERTAIN CHANGES. Since December 31, 1997, except as disclosed in Annex V or in the Company's SEC Reports, there has been no material adverse change and no material adverse development in the business, properties, operations, condition (financial or otherwise), or results of operations of the Company and its subsidiaries, taken as a whole, and the Company has not (i) incurred or become subject to any material liabilities (absolute or contingent) except liabilities incurred in the ordinary course of business consistent with past practices; (ii) discharged or satisfied any material lien or encumbrance or paid any material obligation or liability (absolute or contingent), other than current liabilities paid in the ordinary course of business consistent with past practices; (iii) declared or made any payment or distribution of cash or other property to shareholders with respect to its capital stock, or purchased or redeemed, or made any agreements to purchase or redeem, any shares of its capital stock; (iv) sold, assigned or transferred any other tangible assets, or canceled any debts or claims, except in the ordinary course of business consistent with past practices; (v) suffered any substantial losses or waived any rights of material value, whether or not in the ordinary course of business, or suffered the loss of any material amount of existing business; (vi) made any changes in employee compensation, except in the ordinary course of business consistent with past practices; or (vii) experienced any material problems with labor or management in connection with the terms and conditions of their employment. (i) FULL DISCLOSURE. There is no fact known to the Company (other than general economic conditions known to the public generally or as disclosed in the Company's SEC Reports), that has not been disclosed in writing to the Buyer that (i) would reasonably be expected to have a material adverse effect on the business or financial condition of the Company or (ii) would reasonably be expected to materially and adversely affect the ability of the Company to perform its obligations pursuant to this Agreement or any of the agreements contemplated hereby (collectively, including this Agreement, the "Transaction Agreements"). (j) ABSENCE OF LITIGATION. Except as set forth in Annex V hereto, or the Company's SEC Reports, which the Buyer has reviewed, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body pending or, to the knowledge of the Company, threatened against or affecting the Company, wherein an unfavorable decision, ruling or finding would have a material adverse effect on the properties, business or financial condition, results of operation or prospects of the Company and its subsidiaries taken as a whole or the transactions contemplated by any of the Transaction Agreements or which would adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, any of the Transaction Agreements. (k) ABSENCE OF EVENTS OF DEFAULT. Except as set forth in Annex V hereto and Section 3(e) hereof, no Event of Default (or its equivalent term), as defined in the respective agreements to which the Company is a party, and no event which, with the giving of notice or the passage of time or both, would become an Event of Default (or its equivalent term) (as so defined in such agreements), has occurred and is continuing, which would have a material adverse effect on the Company's financial condition or results of operations. (l) PRIOR ISSUES. During the twelve (12) months preceding the date hereof, the Company has not issued any Common Stock or convertible securities in capital transactions which have not been fully disclosed in the SEC Reports. All such issuances have been fully converted into shares of common stock, or there are no outstanding convertible securities from those transactions. (m) NO UNDISCLOSED LIABILITIES OR EVENTS. The Company has no liabilities or obligations, other than those disclosed in the Company's SEC Reports or those incurred in the ordinary course of the Company's business since December 31, 1997, which, individually or in the aggregate, do or would have a material adverse effect on the properties, business, condition (financial or otherwise), results of operations or prospects of the Company and its subsidiaries, taken as a whole. Except as set forth in Annex V, no event or circumstance has occurred or exists with respect to the Company or its properties, business, condition (financial or otherwise), results of operations or prospects, which, under applicable law, rule or regulation, requires public disclosure or announcement prior to the date hereof by the Company but which has not been so publicly announced or disclosed. (n) NO DEFAULT. Except as set forth in Annex V or the Company's SEC Reports, the Company is not in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust or other material instrument or agreement to which it is a party or by which it or its property is bound. (o) NO INTEGRATED OFFERING. NEITHER the Company nor any of its affiliates nor any person acting on its or their behalf has, directly or indirectly, at any time since June 30, 1997, made any offer or sale of any security or solicited any offers to buy any security under circumstances that would make unavailable the exemption from registration under Regulation D in connection with the offer and sale of the Securities as contemplated hereby. (p) DILUTION. The number of Shares issuable upon conversion of the Preferred Stock may increase substantially in certain circumstances, including, but not necessarily limited to, the circumstance wherein the trading price of the Common Stock declines prior to the conversion of the Preferred Stock. The Company's executive officers and directors have studied and fully understand the nature of the Securities being sold hereby and recognize that they have a potential dilutive effect. The board of directors of the Company has concluded, in its good faith business judgment, that such issuance is in the best interests of the Company. The Company specifically acknowledges that its obligation to issue the Shares upon conversion of the Preferred Stock is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interest of other shareholders of the Company. 4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS. (a) TRANSFER RESTRICTIONS. The Buyer acknowledges that (1) neither the Preferred Stock nor the Common Stock issuable upon conversion thereof has been, registered under the 1933 Act and, except as provided in the Registration Rights Agreement, and may not be sold, transferred or otherwise disposed of unless (A) registered thereunder or (B) Buyer shall have delivered to the Company an opinion of counsel, reasonably satisfactory in form, scope and substance to the Company, to the effect that such securities may be sold or transferred pursuant to an exemption from such registration; (2) any sale of such securities made in reliance on Rule 144 promulgated under the 1933 Act may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, that any resale of such securities under circumstances in which the seller, or the person through whom the sale is made, may be deemed to be an underwriter, as that term is used in the 1933 Act, may require compliance with another exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (3) neither the Company nor any other person is under any obligation to register such securities (other than pursuant to the Registration Rights Agreement) under the 1933 Act or to comply with the terms and conditions of any exemption thereunder. (b) RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that, until such time as the Common Stock has been registered for resale under the 1933 Act as contemplated by the Registration Rights Agreement, certificates and other instruments representing any of the Securities shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of any such Securities): THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION, OR OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED. The certificates and other instruments representing any of the Securities shall bear such other legends as may be required under state securities laws. (c) REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to enter into the Registration Rights Agreement on or before the Closing Date. (d) FILINGS. The Company undertakes and agrees to make all necessary filings in connection with the sale of the Preferred Stock to the Buyer under any United States laws and regulations, or by any domestic securities exchange or trading market, and to provide a copy thereof to the Buyer promptly after such filing. (e) REPORTING STATUS. So long as the Buyer beneficially owns any of the Preferred Stock, the Company shall file all reports required to be filed with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would permit such termination; provided, however, that the Company shall not be obligated to continue filing such reports after the third anniversary of this Agreement, or earlier if the Company has liquidated or effected a going-private transaction. (f) USE OF PROCEEDS. The Company will use the proceeds from the sale of the Preferred Stock (excluding amounts paid by the Company for legal fees, commissions or expenses in connection with the sale of the Preferred Stock) for general purposes and acquisitions, but shall not, directly or indirectly, use such proceeds for investment in any other affiliate or to repay debt to affiliates; except that the Company may invest in or repay amounts due Harmony Holdings, Inc., a partially-owned subsidiary. (g) AVAILABLE SHARES. The Company shall have at all times authorized and reserved for issuance, free from preemptive rights, shares of Common Stock (i) sufficient to yield two hundred percent (200%) of the number of shares of Common Stock issuable upon exercise of conversion rights of the Buyer pursuant to the terms and conditions of the Preferred Stock for all outstanding shares of Preferred Stock and (ii) sufficient to enable the complete exercise of the Warrant (as defined below). (h) WARRANTS. The Company agrees to issue to Buyer at the Closing a stock purchase warrant in the form of Annex VI (the "Warrant") entitling the holder thereof to purchase an aggregate of up to 100,000 shares of Common Stock (the "Warrant Shares"). The Warrant shall bear an exercise price per share of Common Stock equal to 125% of the average closing price of a share of Common Stock for the five (5) consecutive trading days ending on the day preceding the Closing Date, and shall be exercisable immediately upon issuance, and for a period of five (5) years thereafter. The Warrant Shares shall be entitled to the registration rights under the Registration Rights Agreement. In addition, if the closing of the transaction contemplated by that certain purchase agreement between the Company and Catholic Radio Network, LLC, dated April 17, 1998 (the "CRN Closing"), does not occur on or prior to September 30, 1998 and shares of Preferred Stock remain outstanding as of September 30, 1998, the Company shall issue to Buyer, on October 1, 1998, a stock purchase warrant substantially in the form of the Warrant (the "Additional Warrant") entitling the holder thereof to purchase an aggregate of up to 25,000 shares of Common Stock (the "Additional Warrant Shares"). The Additional Warrant shall bear an exercise price per share of Common Stock equal to the lesser of (i) 100% of the average closing price of a share of Common Stock for the five (5) consecutive trading days ending on the day preceding the Closing Date, or (ii) 80.77% of the closing price of a share of Common Stock on September 30, 1998. The Additional Warrant shall be exercisable immediately upon issuance, and for a period of five (5) years thereafter. Upon issuance of the Additional Warrant, the Additional Warrant Shares shall be entitled to registration rights substantially in the form of the Registration Rights Agreement. (i) LIMITATION ON ISSUANCE OF SHARES. The Company acknowledges that the number of shares of Common Stock it may issue could result in the issuance of more than 20% of the Company's outstanding Common Stock in accordance with Nasdaq Rule 4310(c)(25)(H)(i)(d)(2)("Cap Regulations"). Without limiting the other provisions thereof of the Preferred Stock, the Company will take all steps reasonably necessary to be in a position to issue shares of Common Stock on conversion of the Preferred Stock and/or exercise of the Warrant without violating the Cap Regulations. If, despite taking such steps, the Company still cannot issue such shares of Common Stock without violating the Cap Regulations, the holder of Preferred Stock and the Warrant which cannot be converted or exercised as a result of the Cap Regulations (each such share, an "Unconverted Share") shall have the option, exercisable in such holder's sole and absolute discretion, to elect either of the following remedies: (x) require the Company to issue shares of Common Stock in accordance with such holder's notice of conversion or exercise at a conversion or exercise purchase price equal to the average of the best bid price of a share of Common Stock for the five (5) consecutive trading days (subject to certain equitable adjustments for certain events occurring during each period) ending on the day preceding the date of notice of conversion or exercise; or (y) require the Company to redeem each Unconverted Share for an amount in cash (the "Redemption Amount") equal to One Hundred Fifteen Percent (115%) of the Fixed Strike Price of an Unconverted Share. The Certificate of Designation shall contain provisions substantially consistent with the above terms. If the holder elects option (y) above, the Redemption Amount shall be payable within three (3) business days of the date of conversion or exercise. (j) TRADING RESTRICTIONS. Buyer agrees that it will not purchase or bid for or effect any short sales in the Common Stock during any period in which such Buyer owns shares of Preferred Stock. 5. TRANSFER AGENT INSTRUCTIONS (a) Promptly following the delivery by the Buyer of the aggregate purchase price for the Preferred Stock in accordance with Section 1(c) hereof, the Company will irrevocably instruct its transfer agent to issue Common Stock from time to time upon conversion of the Preferred Stock in such amounts as specified from time to time by the Company to the transfer agent, bearing the restrictive legend specified in Section 4(b) of this Agreement prior to registration of the Shares under the 1933 Act, registered in the name of the Buyer or its nominee and in such denominations to be specified by the Buyer in connection with each conversion of the Preferred Stock. The Company warrants that no instruction other than such instructions referred to in this Section 5 and stop transfer instructions to give effect to Section 4(a) hereof prior to registration and sale of the Shares under the 1933 Act will be given by the Company to the transfer agent and that the Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement, the Registration Rights Agreement and applicable law. Nothing in this Section 5 shall affect in any way the Buyer's obligations and agreement to comply with all applicable securities laws upon resale of the Securities. If the Buyer provides the Company with an opinion of counsel reasonably satisfactory to the Company that registration of a resale by the Buyer of any of the Securities in accordance with clause (1)(B) of Section 4(a) of this Agreement is not required under the 1933 Act, the Company shall (except as provided in clause (2) of Section 4(a) of this Agreement) permit the transfer of the Securities and, in the case of the Converted Shares under Rule 144(k), promptly instruct the Company's transfer agent to issue one or more certificates for Common Stock without legend in such name and in such denominations as specified by the Buyer. (b) (i) The Company will permit the Buyer to exercise its right to convert the Preferred Stock by telecopying prior to 5:00 p.m. (Minneapolis time) an executed and completed Conversion Notice to the Company and delivering within three (3) business days thereafter, the original Notice of Conversion by express courier, together with the Preferred Stock duly endorsed for transfer. (ii) The term "Conversion Date" shall mean the date specified as such in the Certificate of Designation. (iii) The Company shall, at its expense, take all actions and use all means necessary to cause its transfer agent to transmit certificates representing the Converted Shares issued upon conversion of any Preferred Stock (together with Preferred Stock not being so converted) to the Buyer via express courier, by electronic transfer or otherwise, within three (3) business days after (i) receipt by the Company of the original Conversion Notice and (ii) the delivery to the Company of the Preferred Stock (the "Delivery Date"). (c) The Company understands that a delay in the issuance of the Shares of Common Stock beyond the Delivery Date could result in economic loss to the Buyer. As compensation to the Buyer for such loss, the Company agrees to pay as liquidated damages late payments to the Buyer, in the event that the Company fails to issue and deliver the Shares upon Conversion, in accordance with the following schedule (where "No. Business Days Late" is defined as the number of business days beyond five (5) business days from Delivery Date):
Late Payment for Each $10,000 of Preferred Stock No. Business Days Late Liquidation Amount Being Converted -------------------------------------------------------------------------- 1 $100 2 $200 3 $300 4 $400 5 $500 >5 $500 + $200 for each Business Day Late beyond 5 days from the Delivery Date
The Company shall pay any payments incurred under this Section 5 in immediately available funds upon demand. Nothing herein shall preclude Buyer from obtaining equitable relief against the Company if the Company fails to issue and deliver, or fails to cause its transfer agent to issue and deliver, the Common Stock to Buyer upon conversion of the Preferred Stock. Furthermore, in addition to any other remedies which may be available to the Buyer, in the event that the Company fails to deliver such shares of Common Stock within five (5) business days after the Delivery Date, the Buyer will be entitled to revoke the relevant Notice of Conversion by delivering a notice to such effect to the Company whereupon the Company and the Buyer shall each be restored to their respective positions immediately prior to delivery of such Notice of Conversion, and Buyer may require the Company to immediately redeem all outstanding Preferred Stock in accordance with Section 4(j)(y). (d) If the Company fails to deliver the Conversion Shares to be issued upon conversion of a Preferred Stock and after such Delivery Date, the holder of the Preferred Stock being converted (a "Converting Holder") purchases, in an open market transaction or otherwise, shares of Common Stock (the "Covering Shares") in order to make delivery in satisfaction of a sale of Common Stock by the Converting Holder (the "Sold Shares"), which delivery such Converting Holder anticipated to make using the Shares to be issued upon such conversion (a "Buy-In"), the Company shall pay to the Converting Holder, in addition to all other amounts contemplated in other provisions of the Transaction Agreements, and not in lieu thereof, the Buy-In Adjustment Amount (as defined below). The "Buy-In Adjustment Amount" is the amount equal to the excess, if any, of (x) the Converting Holder's total purchase price (including brokerage commissions, if any) for the Covering Shares over (y) the net proceeds (after brokerage commissions, if any) received by the Converting Holder from the sale of the Sold Shares. The Company shall pay the Buy-In Adjustment Amount to the Buyer in immediately available funds immediately upon demand by the Converting Holder. By way of illustration and not in limitation of the foregoing, if the Converting Holder purchases shares of Common Stock having a total purchase price (including brokerage commissions) of $11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net proceeds of $10,000, the Buy-in Adjustment Amount which Company will be required to pay to the Converting Holder will be $1,000. No amount shall be payable by the Company as a Buy-In Adjustment if the Buy-In to cover the Converting Holder's Sold Shares was at a price or prices less than the conversion price. (e) Subject to the completeness and accuracy of the Buyer's representations and warranties herein, upon the conversion of any Preferred Stock by a person who is a non-U.S. Person, and following the expiration of any applicable Restricted Period (as those terms are defined in Regulation S), the Company, shall, at its expense, take all necessary action (including the issuance of an opinion of counsel) to assure that the Company's transfer agent shall issue stock certificates without restrictive legend or stop orders in the name of Buyer (or its nominee (being a non-U.S. Person) or such non-U.S. Person as may be designated by Buyer) and in such denominations to be specified at conversion representing the number of shares of Common Stock issuable upon such conversion, as applicable. Nothing in this Section 5, however, shall affect in any way Buyer's or such nominee's obligations and agreement to comply with all applicable securities laws upon resale of the Securities. The remedies set forth in Sections 5(c), (d) and (e) shall be cumulative. (f) In lieu of delivering physical certificates representing the unlegended securities issuable upon conversion, provided the Company's transfer agent is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer program, upon request of the Buyer and its compliance with the provisions contained in this paragraph, so long as the certificates therefor do not bear a legend and the Buyer thereof is not obligated to return such certificate for the placement of a legend thereon , the Company shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Buyer by crediting the account of Buyer's Prime Broker with DTC through its Deposit Withdrawal Agent Commission system. 6. DELIVERY INSTRUCTIONS. The Preferred Stock shall be delivered by the Company to the Escrow Agent pursuant to Section 1(b) hereof, on a delivery against payment basis, no later than on the Closing Date. 7. CLOSING DATE. (i) The closing of the issuance and sale of the Preferred Stock shall occur on the date (the "Closing Date") which is the first trading day after the fulfillment or waiver of all closing conditions pursuant to Sections 8 and 9 hereof or such other date and time as is mutually agreed upon by the Company and the Buyer. The date of an alternate Closing Date shall be the date specified by either party upon at least five (5) business days' advance notice to the other party; provided, however, that it shall be a condition of an alternate Closing Date that (i) the conditions of Section 4(g) be satisfied, and (ii) each of the conditions contemplated by Sections 8 and 9 hereof shall have been satisfied or waived on or before such date. (ii) The purchase and issuance of Preferred Stock shall occur on the Closing Date at the offices of the Escrow Agent or at such other place as Company shall specify in writing, no later than 12:00 Noon, New York City time, on such day, or at such other time as is mutually agreed upon by the Company and the Buyer. (iii) Notwithstanding anything to the contrary contained herein, the Escrow Agent will be authorized to release the Escrow Property only upon satisfaction of the conditions set forth in Sections 8 and 9 hereof. 8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The Buyer understands that the Company's obligation to sell the Preferred Stock on the Closing Date to the Buyer pursuant to this Agreement is conditioned upon: (a) Acceptance by the Buyer of this Agreement, as indicated by execution of this Agreement; (b) Delivery by the Buyer to the Escrow Agent of good funds as payment in full of the Purchase Price for the Preferred Stock and the delivery thereof to the Company; (c) The accuracy on the Closing Date of the representations and warranties of the Buyer contained in this Agreement as if made on the Closing Date, and the performance by the Buyer on or before the Closing Date of all covenants and agreements of the Buyer required to be performed on or before the Closing Date; and (d) There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained. 9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE. The Company understands that the Buyer's obligation to purchase the Preferred Stock on the Closing Date is conditioned upon: (a) Acceptance by the Company of this Agreement, as indicated by execution of this Agreement; (b) Delivery by the Company to the Escrow Agent of the certificate for the Preferred Stock in accordance with this Agreement; (c) The accuracy in all material respects on the Closing Date of the representations, covenants and warranties of the Company contained in this Agreement as if made on the Closing Date, and the performance by the Company on or before the Closing Date of all covenants and agreements of the Company required to be performed on or before the Closing Date, and as to Additional Preferred Stock; (d) On the Closing Date, the Buyer has received an opinion of counsel for the Company, dated the Closing Date in form, scope and substance reasonably satisfactory to the Buyer, to the effect set forth in Annex III attached hereto, and the execution and delivery of the Registration Rights Agreement annexed hereto as Annex IV and the Warrant annexed hereto as Annex VI; (e) No statute, rule, regulation, executive order, decree, ruling or injunction shall be enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits or adversely effects any of the transactions contemplated by this Agreement, and no proceeding or investigation shall have been commenced or threatened which may have the effect of prohibiting or adversely effecting any of the transactions contemplated by this Agreement; and (f) From and after the date hereof to and including the initial Closing Date, the trading of the Common Stock shall not have been suspended by the SEC, the NASD, or trading in securities generally on the New York Stock Exchange or Nasdaq shall not have been suspended or limited, nor shall minimum prices been established for securities traded on Nasdaq, nor shall there by any outbreak or escalation of hostilities involving the United States or any material adverse change in any financial market that in either case in the reasonable judgment of the Buyer makes it impracticable or inadvisable to purchase the Preferred Stock. 10. GOVERNING LAW; MISCELLANEOUS. (a) This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York for contracts to be wholly performed in such state and without giving effect to the principles thereof regarding the conflict of laws. (b) A facsimile transmission of this signed Agreement shall be legal and binding on all parties hereto. (c) This Agreement may be signed in one or more counterparts, each of which shall be deemed an original. d. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. e. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. f. This Agreement may be amended only by an instrument in writing signed by the party to be charged with enforcement thereof. g. This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof. h. Except as otherwise set forth herein, all costs and expenses, including reasonable attorneys' fees, incurred in the enforcement of this Agreement shall be paid to the prevailing party by the non-prevailing party, upon demand. 11. NOTICES. Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be deemed effectively given on the earliest of (i) the date delivered, if delivered by personal delivery as against written receipt therefor or by confirmed facsimile transmission, (ii) the fourth business day after deposit, postage prepaid, in the United States Postal Service by registered or certified mail, or (iii) the third business day after mailing by international express courier, with delivery costs and fees prepaid, in each case, addressed to each of the other parties thereunto entitled at the following addresses (or at such other addresses as such party may designate by advance written notice similarly given to each of the other parties hereto): COMPANY: Children's Broadcasting Corporation 724 First Street North, Fourth Floor Minneapolis, Minnesota 55401 ATTN: Lance W. Riley, Esq. Telephone No.: (612) 330-9521 Telecopier No.: (612) 330-9558 with a copy to: Briggs and Morgan P.A. 2400 IDS Center Minneapolis, MN 55402 ATTN: Avron L. Gordon, Esq. Telephone No.: (612) 334-8455 Telecopier No.: (612) 334-8650 BUYER: At the addresses set forth on Schedule A ESCROW AGENT: Joseph B. Larocco, Esq. 1055 Washington Boulevard Stamford, CT 06901 Telephone No.: (203) 353-1922 Telecopier No.: (203) 353-0322 12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's representations and warranties herein shall survive the execution and delivery of this Agreement and the delivery of the Preferred Stock and the Purchase Price, and shall inure to the benefit of the Buyer and its successors and assigns. [REMAINDER OF PAGE LEFT BLANK INTENTIONALLY] IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the date first above written. BUYER TALISMAN CAPITAL OPPORTUNITY FUND LTD. By: /s/ Brian Ladin --------------------------------------------- Brian Ladin Vice President BUYER DOMINION CAPITAL LIMITED By: /s/ Mark Valentine --------------------------------------------- Mark Vanlentine Agent BUYER SOVEREIGN PARTNERS LP By: /s/ Mark Valentine --------------------------------------------- Mark Valentine Agent CHILDREN'S BROADCASTING CORPORATION By: /s/ James G. Gilbertson --------------------------------------------- James G. Gilbertson Chief Operating Officer SCHEDULE A BUYERS ANNEX I CERTIFICATE OF DESIGNATION ANNEX II JOINT ESCROW INSTRUCTIONS ANNEX III OPINION OF COUNSEL ANNEX IV REGISTRATION RIGHTS AGREEMENT ANNEX V COMPANY DISCLOSURE SCHEDULE ANNEX VI COMMON STOCK PURCHASE WARRANT SCHEDULE A
Name and Address of Buyer Number of Shares Purchased - --------------------------- -------------------------- Talisman Capital Opportunity Fund Ltd. 303,030.50 16101 La Grande Drive, Suite 100 Little Rock, AR 72211 ATTN: Brian Ladin Telecopier No.: (501) 821-6888 Dominion Capital Limited 151,515.25 90 Grove Street Executive Pavilion Ridgefield, CT 06877 ATTN: Steven Hicks Telecopier No.: (203) 431-8301 Sovereign Partners LP 151,515.25 90 Grove Street Executive Pavilion Ridgefield, CT 06877 ATTN: Steven Hicks Telecopier No.: (203) 431-8301
EX-10.2 3 EXHIBIT 10.2 EXHIBIT 10.2 CHILDREN'S BROADCASTING CORPORATION REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is made and entered into as of June 25, 1998, between Children's Broadcasting Corporation, a Minnesota corporation (the "Company"), and each buyer named on the signature page hereto (collectively, the "Buyer"). This Agreement is made pursuant to the Securities Purchase Agreement between the Company and the Buyer, dated as of the date hereof (the "Securities Purchase Agreement"). The Company and the Buyer hereby agree as follows: 1. DEFINITIONS Capitalized terms used herein, and not otherwise defined herein, shall have the meanings given such terms in the Securities Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: "Advice" shall have meaning set forth in Section 3(o). "Affiliate" means, with respect to any Person, any other Person that directly or indirectly controls or is controlled by or under common control with such Person. For the purposes of this definition, "control," when used with respect to any Person, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing. "Business Day" means any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of New York generally are authorized or required by law or other government actions to close. "Effectiveness Period" shall have the meaning set forth in Section 2(a). "Holder" or "Holders" means the holder or holders, as the case may be, from time to time of Registrable Securities. "Indemnified Party" shall have the meaning set forth in Section 5(c). "Indemnifying Party" shall have the meaning set forth in Section 5(c). "Losses" shall have the meaning set forth in Section 5(a). "Person" means an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind. "Proceeding" means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened. "Prospectus" means the prospectus included in the Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the 1933 Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. "Registrable Securities" means the Conversion Shares and the Warrant Shares. "Registration Statement" means the registration statement contemplated by Section 2(a) (covering such number of Registrable Securities and any additional Registration Statements contemplated in the definition of Registrable Securities), including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre-effective and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "Required Effectiveness Date" means the 120th day following the Closing Date, if such day is not a Business Day, the Required Effectiveness Date shall be the next succeeding Business Day. "Required Filing Date" means the 45th day following the Closing Date or, if such day is not a Business Day, the Required Filing Date shall be the next succeeding Business Day. "Rule 158" means Rule 158 promulgated by the SEC pursuant to the 1933 Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC having substantially the same effect as such rule. "Rule 415" means Rule 415 promulgated by the SEC pursuant to the 1933 Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC having substantially the same effect as such rule. "Underwritten Registration" or "Underwritten Offering" means a registration in connection with which securities of the Company are sold to an underwriter for reoffering to the public pursuant to an effective registration statement. 2. SHELF REGISTRATION (a) On or prior to the Required Filing Date the Company shall prepare and file with the SEC a Registration Statement, covering the Conversion Shares reserved for issuance pursuant to conversion of the Preferred Stock and the Warrant Shares, for an offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement shall be on Form S-3 promulgated under the 1933 Act or, if the Company is not then permitted to register the resale of Registrable Securities on Form S-3, the Registration Statement shall be on such other appropriate form in accordance herewith. The Company shall use its best efforts to cause the Registration Statement to be declared effective under the 1933 Act as promptly as possible after the filing thereof, but in any event prior to the Required Effectiveness Date, and to keep such Registration Statement continuously effective under the 1933 Act until the date which is two (2) years after the date that such Registration Statement is declared effective by the SEC or such earlier date when all Registrable Securities covered by such Registration Statement have been sold or may be sold without volume restrictions pursuant to Rule 144(k) promulgated under the 1933 Act, as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed to the Company's transfer agent (the "Effectiveness Period"); provided, however, that the Company shall not be deemed to have used its best efforts to keep the Registration Statement effective during the Effectiveness Period if it voluntarily takes any action that would result in the Holders not being able to sell all of the Registrable Securities covered by such Registration Statement during the Effectiveness Period, unless such action is required under applicable law or the Company has filed a post-effective amendment to the Registration Statement and the SEC has not declared it effective. (b) If the Holders of a majority of the Registrable Securities so elect, an offering of Registrable Securities pursuant to the Registration Statement may be effected in an Underwritten Offering of the Company. In such event, the investment banker that will administer the offering will be selected by the Holders of a majority of the Registrable Securities to be included in such offering. In connection with any Underwritten Offering, if the managing underwriters advise the Company and the participating Holders in writing that in their opinion the amount of Registrable Securities proposed to be sold in such Underwritten Offering exceeds the amount of Registrable Securities which can be sold in such Underwritten Offering, there shall be included in such Underwritten Offering the amount of such Registrable Securities which in the opinion of such managing underwriters can be sold, and such amount shall be allocated pro rata among the Holders proposing to sell Registrable Securities in such Underwritten Offering. No Holder may participate in any Underwritten Offering hereunder unless such Holder (i) agrees to sell its Registrable Securities on the basis provided in any underwriting agreements approved by the Persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such arrangements. 3. REGISTRATION PROCEDURES In connection with the Company's registration obligations hereunder, the Company shall: (a) Prepare and file with the SEC on or prior to the Required Filing Date, a Registration Statement (and any additional Registration Statements as may be required hereunder) in accordance with Section 2(a), and cause the Registration Statement to become effective and remain effective as provided herein; provided, however, that not less than three (3) Business Days prior to the filing of the Registration Statement or any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall (i) furnish to the Holders, their counsel, if any, and any managing underwriters, copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders, their counsel and such managing underwriters, and (ii) cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the opinion of respective counsel to such Holders and such underwriters, to conduct a reasonable investigation within the meaning of the 1933 Act. The Company shall not file the Registration Statement or any such Prospectus or any amendments or supplements thereto if the Holders of a majority of the Registrable Securities, their counsel, or any managing underwriters, shall reasonably object in writing within two (2) Business Days of their receipt thereof (provided, that any days that shall elapse after the date the Holders of a majority of the Registrable Securities, their counsel, or any managing underwriters provides the Company such objection and the date such party approves the filing of the Registration Statement shall not count towards determining the Required Filing Date or the Required Effectiveness Date). (b) (i) Prepare and file with the SEC such amendments, including post-effective amendments, to the Registration Statement as may be necessary to keep the Registration Statement continuously effective as to all Registrable Securities for the Effectiveness Period and prepare and file with the SEC such additional Registration Statements in order to register for resale under the 1933 Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the 1933 Act; (iii) respond as promptly as practicable to any comments received from the SEC with respect to the Registration Statement or any amendment thereto and promptly provide the Holders true and complete copies of all correspondence from and to the SEC relating to the Registration Statement; and (iv) comply with the provisions of the 1933 Act and the 1934 Act with respect to the disposition of all Registrable Securities covered by the Registration Statement during the applicable period in accordance with the intended methods of disposition by the Holders thereof set forth in the Registration Statement as so amended or in such Prospectus as so supplemented. (c) Notify the Holders of Registrable Securities to be sold, their counsel and any managing underwriters immediately (and, in the case of (i)(A) below, not less than three (3) days prior to such filing) and (if requested by any such Person) confirm such notice in writing no later than three (3) Business Days following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to the Registration Statement is proposed to be filed; (B) whenever the SEC notifies the Company whether there will be a "review" of such Registration Statement; (C) whenever the Company receives (or representatives of the Company receive on its behalf) any oral or written comments from the SEC in respect of a Registration Statement (copies or, in the case of oral comments, summaries of such comments shall be promptly furnished by the Company to the Holders; and (D) with respect to the Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the SEC or any other Federal or state governmental authority for amendments or supplements to the Registration Statement or Prospectus or for additional information; (iii) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) if at any time any of the representations and warranties of the Company contained in any agreement (including any underwriting agreement) contemplated hereby ceases to be true and correct in all material respects; (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (vi) of the occurrence of any event that makes any statement made in the Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to the Registration Statement, Prospectus or other documents so that, in the case of the Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. In addition, the Company shall furnish the Holders with copies of all intended written responses to the comments contemplated in clause (i)(C) of this Section 3(c) in advance of the filing of such responses with the SEC so that the Holder shall have the opportunity to comment thereon. (d) Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of the Registration Statement or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment. (e) If requested by any managing underwriter or the Holders of a majority in interest of the Registrable Securities to be sold in connection with an Underwritten Offering, (i) incorporate in a Prospectus supplement or post-effective amendment to the Registration Statement such information as such managing underwriters and such Holders reasonably agree should be included therein and (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment; provided, however, that the Company shall not be required to take any action pursuant to this Section 3(e) that would, in the opinion of counsel for the Company, violate applicable law or be materially detrimental to the business prospects of the Company. (f) Furnish to each Holder, their counsel and any managing underwriters, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the SEC. (g) As promptly as practicable, deliver to each Holder, their counsel, and any underwriters, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request; and the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders and any underwriters in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto. (h) Prior to any public offering of Registrable Securities, use its best efforts to register or qualify or cooperate with the selling Holders, any underwriters and their counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions as any Holder or underwriter reasonably requests in writing, to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by a Registration Statement; provided, however, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or subject the Company to any material tax in any such jurisdiction where it is not then so subject. (i) Cooperate with the Holders and any managing underwriters to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold pursuant to a Registration Statement, which certificates shall be free of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such managing underwriters or Holders may request at least two Business Days prior to any sale of Registrable Securities. (j) Upon the occurrence of any event contemplated by Section 3(c)(vi), as promptly as practicable, prepare a supplement or amendment, including a post-effective amendment, to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither the Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (k) Use its best efforts to cause all Registrable Securities relating to such Registration Statement to be listed on the Nasdaq National Market and any other securities exchange, quotation system, or market, if any, on which similar securities issued by the Company are then listed as and when required pursuant to the Securities Purchase Agreement. (l) In the case of an Underwritten Offering, enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in Underwritten Offerings) and take all such other reasonable actions in connection therewith (including those reasonably requested by any managing underwriters and the Holders of a majority of the Registrable Securities being sold) in order to expedite or facilitate the disposition of such Registrable Securities, and whether or not an underwriting agreement is entered into, (i) make such representations and warranties to such Holders and such underwriters as are customarily made by issuers to underwriters in underwritten public offerings, and confirm the same if and when requested; (ii) obtain and deliver copies thereof to each Holder and the managing underwriters, if any, of opinions of counsel to the Company and updates thereof addressed to each selling Holder and each such underwriter, in form, scope and substance reasonably satisfactory to any such managing underwriters and counsel to the selling Holders covering the matters customarily covered in opinions requested in Underwritten Offerings and such other matters as may be reasonably requested by such counsel or such underwriters; (iii) prior to the effectiveness of the Registration Statement or at the time of delivery of any Registrable Securities sold pursuant thereto (at the option of the underwriters), obtain and deliver copies to the Holders and the managing underwriters, if any, of "cold comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data is, or is required to be, included in the Registration Statement), addressed to each Person and in such form and substance as are customary in connection with Underwritten Offerings; (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable to the selling Holders and the underwriters, if any, than those set forth in Section 6 (or such other provisions and procedures acceptable to the managing underwriters, if any, and holders of a majority of Registrable Securities participating in such Underwritten Offering; and (v) deliver such documents and certificates as may be reasonably requested by the Holders of a majority of the Registrable Securities being sold, their counsel and any managing underwriters to evidence the continued validity of the representations and warranties made pursuant to clause 3(l)(i) above and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. (m) Make available for inspection by the selling Holders, any representative of such Holders, any underwriter participating in any disposition of Registrable Securities, and any attorney or accountant retained by such selling Holders or underwriters, at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, and cause the officers, directors, agents and employees of the Company and its subsidiaries to supply all information in each case requested by any such Holder, representative, underwriter, attorney or accountant in connection with the Registration Statement; provided, however, that any information that is determined in good faith by the Company in writing to be of a confidential nature at the time of delivery of such information shall be kept confidential by such Persons, unless (i) disclosure of such information is required by court or administrative order or is necessary to respond to inquiries of regulatory authorities; (ii) disclosure of such information, in the opinion of counsel to such Person, is required by law; (iii) such information becomes generally available to the public other than as a result of a disclosure or failure to safeguard by such Person; or (iv) such information becomes available to such Person from a source other than the Company and such source is not known by such Person to be bound by a confidentiality agreement with the Company. (n) Comply with all applicable rules and regulations of the SEC and make generally available to its security holders earning statements satisfying the provisions of Section 11(a) of the 1933 Act and Rule 158 not later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or best efforts Underwritten Offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of the Registration Statement, which statement shall cover said 12-month period, or end shorter periods as is consistent with the requirements of Rule 158. (o) The Company may require each selling Holder to furnish to the Company such information regarding the distribution of such Registrable Securities as is required by law to be disclosed in the Registration Statement or any amendment thereto or any supplement to the Prospectus and the Company may exclude from such registration the Registrable Securities of any such Holder who unreasonably fails to furnish such information within a reasonable time after receiving such request. If the Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require (i) the inclusion therein of language, in form and substance reasonably satisfactory to such Holder, to the effect that the ownership by such Holder of such securities in not to be construed as a recommendation by such Holder of the investment quality of the Company's securities covered thereby that such Holder will assist in meeting any future financial requirements of the Company , or (ii) if such reference to such Holder by name or otherwise is not required by the 1933 Act or any similar Federal statute then in force, the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required. Each Holder agrees by its acquisition of such Registrable Securities that (i) it will not offer or sell any Registrable Securities under the Registration Statement until it has received copies of the Prospectus as then amended or supplemented as contemplated in Section 3(g) and notice from the Company that such Registration Statement and any post-effective amendments thereto have become effective as contemplated by Section 3(c) and (ii) it will comply with the prospectus delivery requirements of the 1933 Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement. Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or 3(c)(vi), such Holder will forthwith discontinue disposition of such Registrable Securities until such Holder's receipt of the copies of the supplemented Prospectus and/or amended Registration Statement contemplated by Section 3(j), or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. 4. REGISTRATION EXPENSES (a) All reasonable fees and expenses incident to the performance of or compliance with this Agreement by the Company shall, except as and to the extent specified in Section 4(b), be borne by the Company whether or not pursuant to an Underwritten Offering and whether or not the Registration Statement is filed or becomes effective and whether or not any Registrable Securities are sold pursuant to the Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with The Nasdaq Stock Market and the Nasdaq National Market and each other securities exchange or market on which Registrable Securities are required hereunder to be listed and (B) in compliance with state securities or Blue Sky laws (including, without limitation, fees and disbursements of counsel for the underwriters in connection with Blue Sky qualifications of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as the Holders of a majority of Registrable Securities may reasonably designate)), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is requested by the managing underwriters, if any, or by the holders of a majority of the Registrable Securities included in the Registration Statement), (iii) fees and disbursements of counsel for the Company, (iv) 1933 Act liability insurance, if the Company so desires such insurance, and (v) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. (b) If the Holders desire to participate in an Underwritten Offering pursuant to the terms hereof, the Holders shall be responsible for all costs, fees and expenses in connection therewith, except for the fees and disbursements of the Company's legal counsel and accountants, which shall be borne by the Company. 5. INDEMNIFICATION (a) INDEMNIFICATION BY THE COMPANY. The Company shall, notwithstanding any termination of this Agreement and without limitation as to time, indemnify and hold harmless each Holder, the officers, directors, agents (including any underwriters retained by such Holder in connection with the offer and sale of Registrable Securities), each Person who controls any such Holder (within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act) to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, costs of preparation and attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that such untrue statements or omissions are based solely upon information regarding such Holder or any such underwriter furnished in writing to the Company by or on behalf of such Holder expressly for use therein, which information was reasonably relied on by the Company for use therein or to the extent that such information relates to such Holder or such Holder's proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto. The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding of which the Company is aware in connection with the transactions contemplated by this Agreement. (b) INDEMNIFICATION BY HOLDERS. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the 1933 Act and Section 20 of the 1934 Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses (as determined by a court of competent jurisdiction in a final judgment not subject to appeal or review) arising solely out of or based solely upon any untrue statement of a material fact or alleged untrue statement of material fact contained in the Registration Statement, any Prospectus, or any form of prospectus, or arising solely out of or based solely upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company specifically for inclusion in the Registration Statement or such Prospectus and that such information was reasonably relied upon by the Company for use in the Registration Statement, such Prospectus or such form of prospectus or to the extent that such information relates to such Holder or such Holder's proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement, such Prospectus or such form of Prospectus. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. (c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an "Indemnified Party"), such Indemnified Party promptly shall notify the Person from whom indemnity is sought (the "Indemnifying Party") in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of independent outside counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party. An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; or (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Party), provided, however that the Indemnifying Party shall only be responsible for the fees and expenses of one law firm as separate counsel for the Indemnified Party. The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding. All fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within 10 Business Days of written notice thereof to the Indemnifying Party (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder; provided, that the Indemnifying Party may require such Indemnified Party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder). (d) CONTRIBUTION. If a claim for indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party because of a failure or refusal of a governmental authority to enforce such indemnification in accordance with its terms (by reason of public policy or otherwise), then each 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 such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses 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 of a material fact, has been taken or 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, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 5(c), any reasonable attorneys' or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 5(d), the Buyer shall not be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by the Buyer from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that the Buyer has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties. 6. MISCELLANEOUS (a) REMEDIES. In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. In the event that the Registration Statement has not been declared effective under the 1933 Act by the SEC on or prior to the Required Effectiveness Date, the Company shall pay the Holder, as liquidated damages, the per diem sum of One Thousand Three Hundred Thirty-Three Dollars and Thirty-Three Cents ($1,333.33) for each day thereafter until such date as the Registration Statement has been declared effective under the 1933 Act by the SEC. (b) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of at least a majority of the then outstanding Registrable Securities; provided, however, that, for the purposes of this sentence, Registrable Securities that are owned, directly or indirectly, by the Company, or an Affiliate of the Company are not deemed outstanding. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence. (c) NOTICES. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section prior to 4:30 p.m. (Minneapolis time) on a Business Day, (ii) the Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in the Purchase Agreement later than 4:30 p.m. (Minneapolis time) on any date and earlier than 11:59 p.m. (Minneapolis time) on such date, (iii) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as follows: If to the Company: Children's Broadcasting Corporation 724 First Street North, Fourth Floor Minneapolis, MN 55402 Facsimile No.: (612) 338-4318 Attn: Chief Financial Officer With copies to: Briggs and Morgan, P.A. 2400 IDS Center 80 South Eighth Street Minneapolis, MN 55402 Facsimile No.: (612) 334-8650 Attn: Avron L. Gordon, Esq. If to the Buyer: Talisman Capital Opportunity Fund Ltd. 16101 La Grande Drive, Suite 100 Little Rock, AR 72211 Facsimile No.: (501) 821-6888 Attn: Brian Ladin Dominion Capital Limited 90 Grove street Executive Pavilion Ridgefield, CT 06877 Facsimile No.: (203) 431-8301 Attn: Steven Hicks Sovereign Partners LP 90 Grove Street Executive Pavilion Ridgefield, CT 06877 Facsimile No.: (203) 431-8301 Attn: Steven Hicks If to any other Person who is then the registered Holder: To the address of such Holder as it appears in the stock transfer books of the Company or such other address as may be designated in writing hereafter, in the same manner, by such Person. (d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of each Holder. The Buyer may assign its rights hereunder in the manner and to the Persons as permitted under the Securities Purchase Agreement. (e) ASSIGNMENT OF REGISTRATION RIGHTS. The rights of the Buyer hereunder, including the right to have the Company register for resale Registrable Securities in accordance with the terms of this Agreement, shall be automatically assignable by the Buyer to any assignee or transferee of all or a portion of the Registrable Securities without the consent of the Company if: (i) the Buyer agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment, (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to such registration rights are being transferred or assigned, (iii) at or before the time the Company receives the written notice contemplated by clause (ii) of this Section, the transferee or assignee agrees in writing with the Company to be bound by all of the provisions of this Agreement, and (iv) such transfer shall have been made in accordance with the applicable requirements of the Securities Purchase Agreement. The rights to assignment shall apply to the Buyer's (and to subsequent) successors and assigns. (f) COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof. (g) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of law. (h) CUMULATIVE REMEDIES. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. (i) SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (j) HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above. CHILDREN'S BROADCASTING CORPORATION By: /s/ James G. Gilbertson ------------------------------------------ James G. Gilbertson Chief Operating Officer TALISMAN CAPITAL OPPORTUNITY FUND LTD. By: /s/ Brian Ladin ------------------------------------------ Brian Ladin Vice President DOMINION CAPITAL LIMITED By: /s/ Mark Valentine ------------------------------------------ Mark Valentine Agent SOVEREIGN PARTNERS LP By: /s/ Mark Valentine ------------------------------------------ Mark Valentine Agent EX-10.3 4 EXHIBIT 10.3 EXHIBIT 10.3 THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION" LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION. CHILDREN'S BROADCASTING CORPORATION COMMON STOCK PURCHASE WARRANT 1. ISSUANCE. In consideration of good and valuable consideration, the receipt of which is hereby acknowledged by CHILDREN'S BROADCASTING CORPORATION, a Minnesota corporation (the "Company"), TALISMAN CAPITAL OPPORTUNITY FUND LTD., or registered assigns (the "Holder") is hereby granted the right to purchase at any time until 5:00 p.m., New York City time, on June 26, 2003 (the "Expiration Date"), Fifty Thousand (50,000) fully paid and nonassessable shares of the Company's Common Stock, par value $0.02 per share (the "Common Stock") at an initial exercise price not exceeding $3.7734375 per share (the "Exercise Price"), subject to further adjustment as set forth in Section 6. 2. EXERCISE OF WARRANTS. This Warrant is exercisable in whole or in part at the Exercise Price per share of Common Stock payable hereunder, payable in cash or by certified or official bank check, or by "cashless exercise," by means of tendering this Warrant Certificate to the Company to receive a number of shares of Common Stock equal in Market Value (as hereinafter defined) to the difference between the Market Value of the shares of Common Stock issuable upon exercise of this Warrant and the total Exercise Price thereof. Upon surrender of this Warrant Certificate with the annexed Notice of Exercise Form duly executed, together with payment of the Exercise Price for the shares of Common Stock purchased, the Holder shall be entitled to receive a certificate or certificates for the shares of Common Stock so purchased. For the purposes of this Section 2, "Market Value" shall be an amount equal to the average closing price of a share of Common Stock for the five (5) consecutive trading days ending on the day preceding the Company's receipt of the Notice of Exercise Form duly executed multiplied by the number of shares of Common Stock to be issued upon surrender of this Warrant Certificate. 3. RESERVATION OF SHARES. The Company hereby agrees that at all times during the term of this Warrant there shall be reserved for issuance upon exercise of this Warrant such number of shares of its Common Stock as shall be required for issuance upon exercise of this Warrant (the "Warrant Shares"). 4. MUTILATION OR LOSS OF WARRANT. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) receipt of reasonably satisfactory indemnification, and (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will execute and deliver a new Warrant of like tenor and date and any such lost, stolen, destroyed or mutilated Warrant shall thereupon become void. 5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in this Warrant and are not enforceable against the Company except to the extent set forth herein. 6. PROTECTION AGAINST DILUTION. a. ADJUSTMENT MECHANISM. If an adjustment of the Exercise Price is required pursuant to this Section 6, the Holder shall be entitled to purchase such number of shares of Common Stock as will cause (i) the total number of share of Common Stock Holder is entitled to purchase pursuant to this Warrant, multiplied by (ii) the adjusted purchase price per share, to equal (iii) the dollar amount of the total number of shares of Common Stock Holder was entitled to purchase before adjustment multiplied by the total purchase price before adjustment. b. CAPITAL ADJUSTMENTS. In case of any stock split or reverse stock split, stock dividend, reclassification of the Common Stock, recapitalization, merger or consolidation, spin-off, or like capital adjustment affecting the Common Stock of the Company, the provisions of this Section 6 shall be applied as if such capital adjustment event had occurred immediately prior to the date of this Warrant and the original purchase price had been fairly allocated to the stock resulting from such capital adjustment; and in other respects the provisions of this Section 6 shall be applied in a fair, equitable and reasonable manner so as to give effect, as nearly as may be, to the purposes hereof. A rights offering to shareholders shall be deemed a stock dividend to the extent of the bargain purchase element of the rights. 7. TRANSFER TO COMPLY WITH THE SECURITIES ACT; REGISTRATION RIGHTS. a. This Warrant has not been registered under the Securities Act of 1933, as amended (the "Act"), and has been issued to the Holder for investment and not with a view to the distribution of either the Warrant or the Warrant Shares. Neither this Warrant nor any of the Warrant Shares may be sold, transferred, pledged or hypothecated in the absence of an effective registration statement under the Act relating to such security or an opinion of counsel satisfactory to the Company that registration is not required under the Act. Each certificate for the Warrant and the Warrant Shares shall contain a legend on the face thereof, in form and substance satisfactory to counsel for the Company, setting forth the restrictions on transfer contained in this Section 7. b. The Company agrees to file a registration statement, which shall include the Warrant Shares, pursuant to the Registration Rights Agreement between the Company and the Holder dated as of the date hereof. 8. NOTICES. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, telegraphed, telexed, sent by facsimile transmission or sent by certified, registered or express mail, postage pre-paid. Any such notice shall be deemed given when so delivered personally, telegraphed, telexed or sent by facsimile transmission, or, if mailed, two days after the date of deposit in the United States mails, as follows: a. if to the Company, to: Children's Broadcasting Corporation 724 First Street North, Fourth Floor Minneapolis, Minnesota 55401 Attn: Chief Financial Officer Facsimile: (612) 338-4318 b. if to the Holder, to: Talisman Capital Opportunity Fund Ltd. 16101 La Grande Drive, Suite100 Little Rock, Arkansas 72211 Attn: Brian Ladin Facsimile: (501) 821-6888 Any party may give notice in accordance with this Section 8 until the other party designates another address or person for receipt of notices hereunder. 9. SUPPLEMENTS AND AMENDMENTS; WHOLE AGREEMENT. This Warrant may be amended or supplemented only by an instrument in writing signed by the parties hereto. This Warrant contains the full understanding of the parties hereto with respect to the subject matter hereof and there are no representations, warranties, agreements or understandings other than expressly contained herein. 10. GOVERNING LAW. This Warrant shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State. Each of the parties consents to the jurisdiction of the federal courts whose districts encompass any part of the City of New York or the state courts of the State of New York sitting in the City of New York in connection with any dispute arising under this Agreement and hereby waives, to the maximum extent permitted by law, any objection, including any objection based ON FORUM NON COVENIENS, to the bringing of any such proceeding in such jurisdictions. 11. COUNTERPARTS. This Warrant may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 12. DESCRIPTIVE HEADINGS. Descriptive headings of the several Sections of this Warrant are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. IN WITNESS WHEREOF, the undersigned officer has executed this Warrant as of this 26th day of June, 1998. CHILDREN'S BROADCASTING CORPORATION By: /s/ James G. Gilbertson ------------------------------------- James G. Gilbertson Chief Operating Officer EX-10.4 5 EXHIBIT 10.4 EXHIBIT 10.4 THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION" LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION. CHILDREN'S BROADCASTING CORPORATION COMMON STOCK PURCHASE WARRANT 1. ISSUANCE. In consideration of good and valuable consideration, the receipt of which is hereby acknowledged by CHILDREN'S BROADCASTING CORPORATION, a Minnesota corporation (the "Company"), DOMINION CAPITAL LIMITED, or registered assigns (the "Holder") is hereby granted the right to purchase at any time until 5:00 p.m., New York City time, on June 26, 2003 (the "Expiration Date"), Twenty-Five Thousand (25,000) fully paid and nonassessable shares of the Company's Common Stock, par value $0.02 per share (the "Common Stock") at an initial exercise price not exceeding $3.7734375 per share (the "Exercise Price"), subject to further adjustment as set forth in Section 6. 2. EXERCISE OF WARRANTS. This Warrant is exercisable in whole or in part at the Exercise Price per share of Common Stock payable hereunder, payable in cash or by certified or official bank check, or by "cashless exercise," by means of tendering this Warrant Certificate to the Company to receive a number of shares of Common Stock equal in Market Value (as hereinafter defined) to the difference between the Market Value of the shares of Common Stock issuable upon exercise of this Warrant and the total Exercise Price thereof. Upon surrender of this Warrant Certificate with the annexed Notice of Exercise Form duly executed, together with payment of the Exercise Price for the shares of Common Stock purchased, the Holder shall be entitled to receive a certificate or certificates for the shares of Common Stock so purchased. For the purposes of this Section 2, "Market Value" shall be an amount equal to the average closing price of a share of Common Stock for the five (5) consecutive trading days ending on the day preceding the Company's receipt of the Notice of Exercise Form duly executed multiplied by the number of shares of Common Stock to be issued upon surrender of this Warrant Certificate. 3. RESERVATION OF SHARES. The Company hereby agrees that at all times during the term of this Warrant there shall be reserved for issuance upon exercise of this Warrant such number of shares of its Common Stock as shall be required for issuance upon exercise of this Warrant (the "Warrant Shares"). 4. MUTILATION OR LOSS OF WARRANT. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) receipt of reasonably satisfactory indemnification, and (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will execute and deliver a new Warrant of like tenor and date and any such lost, stolen, destroyed or mutilated Warrant shall thereupon become void. 5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in this Warrant and are not enforceable against the Company except to the extent set forth herein. 6. PROTECTION AGAINST DILUTION. a. ADJUSTMENT MECHANISM. If an adjustment of the Exercise Price is required pursuant to this Section 6, the Holder shall be entitled to purchase such number of shares of Common Stock as will cause (i) the total number of share of Common Stock Holder is entitled to purchase pursuant to this Warrant, multiplied by (ii) the adjusted purchase price per share, to equal (iii) the dollar amount of the total number of shares of Common Stock Holder was entitled to purchase before adjustment multiplied by the total purchase price before adjustment. b. CAPITAL ADJUSTMENTS. In case of any stock split or reverse stock split, stock dividend, reclassification of the Common Stock, recapitalization, merger or consolidation, spin-off, or like capital adjustment affecting the Common Stock of the Company, the provisions of this Section 6 shall be applied as if such capital adjustment event had occurred immediately prior to the date of this Warrant and the original purchase price had been fairly allocated to the stock resulting from such capital adjustment; and in other respects the provisions of this Section 6 shall be applied in a fair, equitable and reasonable manner so as to give effect, as nearly as may be, to the purposes hereof. A rights offering to shareholders shall be deemed a stock dividend to the extent of the bargain purchase element of the rights. 7. TRANSFER TO COMPLY WITH THE SECURITIES ACT; REGISTRATION RIGHTS. a. This Warrant has not been registered under the Securities Act of 1933, as amended (the "Act"), and has been issued to the Holder for investment and not with a view to the distribution of either the Warrant or the Warrant Shares. Neither this Warrant nor any of the Warrant Shares may be sold, transferred, pledged or hypothecated in the absence of an effective registration statement under the Act relating to such security or an opinion of counsel satisfactory to the Company that registration is not required under the Act. Each certificate for the Warrant and the Warrant Shares shall contain a legend on the face thereof, in form and substance satisfactory to counsel for the Company, setting forth the restrictions on transfer contained in this Section 7. b. The Company agrees to file a registration statement, which shall include the Warrant Shares, pursuant to the Registration Rights Agreement between the Company and the Holder dated as of the date hereof. 8. NOTICES. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, telegraphed, telexed, sent by facsimile transmission or sent by certified, registered or express mail, postage pre-paid. Any such notice shall be deemed given when so delivered personally, telegraphed, telexed or sent by facsimile transmission, or, if mailed, two days after the date of deposit in the United States mails, as follows: a. if to the Company, to: Children's Broadcasting Corporation 724 First Street North, Fourth Floor Minneapolis, Minnesota 55401 Attn: Chief Financial Officer Facsimile: (612) 338-4318 b. if to the Holder, to: Dominion Capital Limited 90 Grove Street Executive Pavilion Ridgefield, CT 06877 Attn: Steven Hicks Facsimile: (203) 431-8301 Any party may give notice in accordance with this Section 8 until the other party designates another address or person for receipt of notices hereunder. 9. SUPPLEMENTS AND AMENDMENTS; WHOLE AGREEMENT. This Warrant may be amended or supplemented only by an instrument in writing signed by the parties hereto. This Warrant contains the full understanding of the parties hereto with respect to the subject matter hereof and there are no representations, warranties, agreements or understandings other than expressly contained herein. 10. GOVERNING LAW. This Warrant shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State. Each of the parties consents to the jurisdiction of the federal courts whose districts encompass any part of the City of New York or the state courts of the State of New York sitting in the City of New York in connection with any dispute arising under this Agreement and hereby waives, to the maximum extent permitted by law, any objection, including any objection based ON FORUM NON COVENIENS, to the bringing of any such proceeding in such jurisdictions. 11. COUNTERPARTS. This Warrant may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 12. DESCRIPTIVE HEADINGS. Descriptive headings of the several Sections of this Warrant are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. IN WITNESS WHEREOF, the undersigned officer has executed this Warrant as of this 26th day of June, 1998. CHILDREN'S BROADCASTING CORPORATION By: /s/ James G. Gilbertson ------------------------------------- James G. Gilbertson Chief Operating Officer EX-10.5 6 EXHIBIT 10.5 EXHIBIT 10.5 THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION" LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION. CHILDREN'S BROADCASTING CORPORATION COMMON STOCK PURCHASE WARRANT 1. ISSUANCE. In consideration of good and valuable consideration, the receipt of which is hereby acknowledged by CHILDREN'S BROADCASTING CORPORATION, a Minnesota corporation (the "Company"), SOVEREIGN PARTNERS LP, or registered assigns (the "Holder") is hereby granted the right to purchase at any time until 5:00 p.m., New York City time, on June 26, 2003 (the "Expiration Date"), Twenty-Five Thousand (25,000) fully paid and nonassessable shares of the Company's Common Stock, par value $0.02 per share (the "Common Stock") at an initial exercise price not exceeding $3.7734375 per share (the "Exercise Price"), subject to further adjustment as set forth in Section 6. 2. EXERCISE OF WARRANTS. This Warrant is exercisable in whole or in part at the Exercise Price per share of Common Stock payable hereunder, payable in cash or by certified or official bank check, or by "cashless exercise," by means of tendering this Warrant Certificate to the Company to receive a number of shares of Common Stock equal in Market Value (as hereinafter defined) to the difference between the Market Value of the shares of Common Stock issuable upon exercise of this Warrant and the total Exercise Price thereof. Upon surrender of this Warrant Certificate with the annexed Notice of Exercise Form duly executed, together with payment of the Exercise Price for the shares of Common Stock purchased, the Holder shall be entitled to receive a certificate or certificates for the shares of Common Stock so purchased. For the purposes of this Section 2, "Market Value" shall be an amount equal to the average closing price of a share of Common Stock for the five (5) consecutive trading days ending on the day preceding the Company's receipt of the Notice of Exercise Form duly executed multiplied by the number of shares of Common Stock to be issued upon surrender of this Warrant Certificate. 3. RESERVATION OF SHARES. The Company hereby agrees that at all times during the term of this Warrant there shall be reserved for issuance upon exercise of this Warrant such number of shares of its Common Stock as shall be required for issuance upon exercise of this Warrant (the "Warrant Shares"). 4. MUTILATION OR LOSS OF WARRANT. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) receipt of reasonably satisfactory indemnification, and (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will execute and deliver a new Warrant of like tenor and date and any such lost, stolen, destroyed or mutilated Warrant shall thereupon become void. 5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in this Warrant and are not enforceable against the Company except to the extent set forth herein. 6. PROTECTION AGAINST DILUTION. a. ADJUSTMENT MECHANISM. If an adjustment of the Exercise Price is required pursuant to this Section 6, the Holder shall be entitled to purchase such number of shares of Common Stock as will cause (i) the total number of share of Common Stock Holder is entitled to purchase pursuant to this Warrant, multiplied by (ii) the adjusted purchase price per share, to equal (iii) the dollar amount of the total number of shares of Common Stock Holder was entitled to purchase before adjustment multiplied by the total purchase price before adjustment. b. CAPITAL ADJUSTMENTS. In case of any stock split or reverse stock split, stock dividend, reclassification of the Common Stock, recapitalization, merger or consolidation, spin-off, or like capital adjustment affecting the Common Stock of the Company, the provisions of this Section 6 shall be applied as if such capital adjustment event had occurred immediately prior to the date of this Warrant and the original purchase price had been fairly allocated to the stock resulting from such capital adjustment; and in other respects the provisions of this Section 6 shall be applied in a fair, equitable and reasonable manner so as to give effect, as nearly as may be, to the purposes hereof. A rights offering to shareholders shall be deemed a stock dividend to the extent of the bargain purchase element of the rights. 7. TRANSFER TO COMPLY WITH THE SECURITIES ACT; REGISTRATION RIGHTS. a. This Warrant has not been registered under the Securities Act of 1933, as amended (the "Act"), and has been issued to the Holder for investment and not with a view to the distribution of either the Warrant or the Warrant Shares. Neither this Warrant nor any of the Warrant Shares may be sold, transferred, pledged or hypothecated in the absence of an effective registration statement under the Act relating to such security or an opinion of counsel satisfactory to the Company that registration is not required under the Act. Each certificate for the Warrant and the Warrant Shares shall contain a legend on the face thereof, in form and substance satisfactory to counsel for the Company, setting forth the restrictions on transfer contained in this Section 7. b. The Company agrees to file a registration statement, which shall include the Warrant Shares, pursuant to the Registration Rights Agreement between the Company and the Holder dated as of the date hereof. 8. NOTICES. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, telegraphed, telexed, sent by facsimile transmission or sent by certified, registered or express mail, postage pre-paid. Any such notice shall be deemed given when so delivered personally, telegraphed, telexed or sent by facsimile transmission, or, if mailed, two days after the date of deposit in the United States mails, as follows: a. if to the Company, to: Children's Broadcasting Corporation 724 First Street North, Fourth Floor Minneapolis, Minnesota 55401 Attn: Chief Financial Officer Facsimile: (612) 338-4318 b. if to the Holder, to: Sovereign Partners LP 90 Grove Street Executive Pavilion Ridgefield, CT 06877 Attn: Steven Hicks Facsimile: (203) 431-8301 Any party may give notice in accordance with this Section 8 until the other party designates another address or person for receipt of notices hereunder. 9. SUPPLEMENTS AND AMENDMENTS; WHOLE AGREEMENT. This Warrant may be amended or supplemented only by an instrument in writing signed by the parties hereto. This Warrant contains the full understanding of the parties hereto with respect to the subject matter hereof and there are no representations, warranties, agreements or understandings other than expressly contained herein. 10. GOVERNING LAW. This Warrant shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State. Each of the parties consents to the jurisdiction of the federal courts whose districts encompass any part of the City of New York or the state courts of the State of New York sitting in the City of New York in connection with any dispute arising under this Agreement and hereby waives, to the maximum extent permitted by law, any objection, including any objection based ON FORUM NON COVENIENS, to the bringing of any such proceeding in such jurisdictions. 11. COUNTERPARTS. This Warrant may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 12. DESCRIPTIVE HEADINGS. Descriptive headings of the several Sections of this Warrant are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. IN WITNESS WHEREOF, the undersigned officer has executed this Warrant as of this 26th day of June, 1998. CHILDREN'S BROADCASTING CORPORATION By: /s/ James G. Gilbertson --------------------------------- James G. Gilbertson Chief Operating Officer -----END PRIVACY-ENHANCED MESSAGE-----