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 000 Xxxxx Xxxxxx Xxxxx, Xxxxxx Xxxxx,
Xxxxxxxxxxx, Xxxxxxxxx 00000 (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
XXXXXX X. XXXXXXX, ESQUIRE
Trustee Account
ABA # 000000000
Swift # XXXXXX00
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 Xxxxx 00,
0000 , (xxx) 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
000 Xxxxx Xxxxxx Xxxxx, Xxxxxx Xxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
ATTN: Xxxxx X. Xxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
with a copy to:
Xxxxxx and Xxxxxx P.A.
0000 XXX Xxxxxx
Xxxxxxxxxxx, XX 00000
ATTN: Xxxxx X. Xxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
BUYER: At the addresses set forth on Schedule A
ESCROW AGENT: Xxxxxx X. Xxxxxxx, Esq.
0000 Xxxxxxxxxx Xxxxxxxxx
Xxxxxxxx, XX 00000
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
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/ Xxxxx Xxxxx
---------------------------------------------
Xxxxx Xxxxx
Vice President
BUYER
DOMINION CAPITAL LIMITED
By: /s/ Xxxx Xxxxxxxxx
---------------------------------------------
Xxxx Xxxxxxxxxx
Agent
BUYER
SOVEREIGN PARTNERS LP
By: /s/ Xxxx Xxxxxxxxx
---------------------------------------------
Xxxx Xxxxxxxxx
Agent
CHILDREN'S BROADCASTING CORPORATION
By: /s/ Xxxxx X. Xxxxxxxxxx
---------------------------------------------
Xxxxx X. Xxxxxxxxxx
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
00000 Xx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxx Xxxx, XX 00000
ATTN: Xxxxx Xxxxx
Telecopier No.: (000) 000-0000
Dominion Capital Limited 151,515.25
00 Xxxxx Xxxxxx
Xxxxxxxxx Xxxxxxxx
Xxxxxxxxxx, XX 00000
ATTN: Xxxxxx Xxxxx
Telecopier No.: (000) 000-0000
Sovereign Partners LP 151,515.25
00 Xxxxx Xxxxxx
Xxxxxxxxx Xxxxxxxx
Xxxxxxxxxx, XX 00000
ATTN: Xxxxxx Xxxxx
Telecopier No.: (000) 000-0000
