SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: July 23, 1999
HARMONY HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 000-19577 95-4333330
-------- --------- ----------
(State or other (Commission File No.) (IRS Employer ID No.)
jurisdiction
of incorporation)
5501 EXCELSIOR BOULEVARD, MINNEAPOLIS, MINNESOTA 55416
------------------------------------------------------
(Address of principal executive offices)
(612) 925-8840
--------------
(Registrant's telephone number, including area code)
<PAGE>
ITEM 2.
For nominal consideration, on July 23, 1999, Harmony Holdings, Inc., a
Delaware corporation (the "Registrant"), sold 90% of the issued and outstanding
shares of capital stock of The End (London) to Julia Reed, the executive
producer of The End (London). The End (London), is a commercial production
company based in London, England, and , prior to this sale, was a wholly-owned
subsidiary of the Registrant. The sale is effective as of July 1, 1999. For the
fiscal year ended June 30, 1998 and the nine month period ended March 31, 1999,
The End (London) had gross revenues of $3,747,000 and $9,206,000, and net losses
of $591,000 and $478,000, respectively. The Registrant retained all rights to
the "The End (London)" name and logo. In connection with the sale of the stock,
the Registrant and Julia Reed entered into an agreement granting Ms. Reed the
right, under certain circumstances, to purchase the remaining 10% equity
interest in The End (London) from the Registrant for approximately $803,000.
ITEM 5. OTHER EVENTS.
Effective as of August 1, 1999, Children's Broadcasting Corporation d/b/a
iNTELEFILM ("iNTELEFILM") purchased the Option and Share Transfer Agreement
("Option Agreement") entered into by the Registrant and the four principal
executives of Curious Pictures Corporation (collectively, "Curious Management")
dated December 15, 1996. As previously disclosed in the Registrant's reports
filed with the Securities and Exchange Commission and in the Registrant's
financial statements, under the Option Agreement, the four members of Curious
Management could earn the right to purchase 50% of the outstanding stock of
Curious Pictures Corporation ("Curious Pictures") from the Registrant upon the
achievement of certain specified financial goals. Pursuant to the iNTELEFILM
purchase agreement and based on the results of operations of Curious Pictures,
it was agreed by all parties, including the Registrant, that Curious
Management's rights to purchase the 50% equity interest had fully vested and
were exercisable for consideration totaling $50. iNTELEFILM also acquired a 1%
equity interest owned by Curious Management that was conveyed to Curious
Management upon signing the Option agreement. The consideration paid to Curious
Management by iNTELEFILM for the aforementioned acquisitions aggregated
$3,000,000, consisting of $1,500,000 in cash and a $1,500,000 note receivable.
Additionally, iNTELEFILM granted Curious Management options to purchase 300,000
shares of iNTELEFILM common stock for approximately $1.92 per share. As a result
of the aforementioned transaction, Curious Pictures will recognize additional
compensation expense related to the stock options of approximately $1,908,000.
Subsequently, iNTELEFILM acquired 50% of Curious Pictures through the
exercise of stock options granted under the Option Agreement. As a result, the
Registrant currently owns 49% of the outstanding stock of Curious Pictures and
iNTELEFILM owns 51% of the stock. Prior to the acquisition, the Registrant owned
99% of
<PAGE>
the outstanding shares of Curious Pictures, and Curious Management owned 1%. As
the owner of 55.2% of the Registrant's outstanding shares of common stock,
iNTELEFILM currently is the principal stockholder of the Registrant.
In addition, as of August 1, 1999, Curious Pictures entered into new
five-year employment agreements with each of the four members of Curious
Management. As part of the compensation to be paid to Curious Management, each
member of Curious Management was granted the right to purchase from the
Registrant one share (representing 1% of the capital stock of Curious Pictures)
of the Registrant's 49 shares (representing the remaining 49% equity interest of
Curious Pictures owned by the Registrant) at the end of each employment year. As
a result, if all of the members of Curious Management exercise all of the new
options over the five-year term of their employment agreements, iNTELEFILM will
own 51% of the Curious Pictures stock, Curious Management will collectively own
20%, and the Registrant will own the remaining 29%.
The Registrant, iNTELEFILM, and Curious Management also entered into a
Stock Agreement effective as of August 1, 1999. Under this agreement, the
members of Curious Management were granted the right to sell to iNTELEFILM the
shares of Curious Pictures that they earn from the Registrant (the put right),
and iNTELEFILM obtained the right to purchase such shares from Curious
Management (the call right). The price per share to be paid by iNTELEFILM to
Curious Management for each share under the put and call rights is $96,774 per
share.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired
Not applicable.
(b) Pro Forma Financial Information
This unaudited pro forma financial information sets forth the impact
of the sale of 90% of the Registrant's stock in The End (London). The
transaction was consummated effective July 1, 1999. The unaudited pro
forma statements of operations and balance sheet do not purport to present
the Registrant's consolidated results of operations and financial position
as they might have been, or as they may be in the future, had the
transaction occurred on the assumed dates.
The pro forma adjustments are based upon information currently
available. The pro forma financial information and accompanying notes
should be read in conjunction with the historical consolidated financial
statements of the
<PAGE>
Registrant for the fiscal year ended June 30, 1998 and for the interim
period ended March 31, 1999.
The objective of the unaudited pro forma financial information is to
show what the significant effects on the historical financial statements
might have been had the transaction occurred, for balance sheet purposes,
on March 31, 1999, and, for statement of operations purposes, on July 1,
1997. However, the pro forma financial statements are not necessarily
indicative of the effects of the Registrant's financial position that
would have been attained had the transaction occurred earlier.
STATEMENTS OF OPERATIONS:
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS FOR PRO FORMA
AFTER
THE SALE OF THE SALE OF
HARMONY THE END LTD THE END LTD
HOLDINGS, INC. (LONDON) (1) (LONDON)
--------------------------------------------------
<S> <C> <C> <C>
Nine months ended
March 31, 1999
Revenues:
Contract revenues $ 47,641,060 $ 9,205,845 $ 38,435,215
Cost of production 40,403,894 8,277,792 32,126,102
--------------------------------------------------
Gross profit 7,237,166 928,053 6,309,113
Operating expenses:
Selling 2,399,789 740,194 1,659,595
General and administrative 4,761,513 689,489 4,072,024
--------------------------------------------------
Income (loss) from productions 75,864 (501,630) 577,494
Subsidiary stock option
compensation 326,400 -- 326,400
Corporate 1,057,813 -- 1,057,813
Depreciation & amortization 624,491 -- 624,491
Restructuring costs and
impairment of assets 3,532,495 -- 3,532,495
--------------------------------------------------
Income (loss) from operations (5,465,335) (501,630) (4,963,705)
Interest income 46,743 23,183 23,560
Interest expense (313,117) -- (313,117)
--------------------------------------------------
Net income (loss) before income
taxes (5,731,709) (478,447) (5,253,262)
Income taxes 9,601 (99) 9,700
--------------------------------------------------
Net income (loss) $ (5,741,310) $ (478,348) $ (5,262,962)
==================================================
Net income (loss) per share $ (0.78) $ (0.71)
==================================================
Weighted average number of
shares outstanding 7,376,957 7,376,957
==================================================
</TABLE>
(1) To eliminate the revenue and operating expenses related to The End (London).
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS FOR PRO FORMA
AFTER
THE SALE OF THE SALE OF
HARMONY THE END LTD THE END LTD
HOLDINGS, INC. (LONDON) (1) (LONDON)
--------------------------------------------------
<S> <C> <C> <C>
Year ended
June 30, 1998
Revenues:
Contract revenues $ 53,355,100 $ 3,747,041 $ 49,608,059
Cost of production 43,616,737 3,428,784 40,187,953
--------------------------------------------------
Gross profit 9,738,363 318,257 9,420,106
Operating expenses:
Selling 2,728,734 273,080 2,455,654
General and administrative 10,801,716 603,836 10,197,880
Depreciation & amortization 700,145 21,808 678,337
--------------------------------------------------
Income (loss) from operations (4,492,232) (580,467) (3,911,765)
Interest income 124,459 5,901 118,558
Interest expense (99,144) (9,347) (89,797)
--------------------------------------------------
Net income (loss) before income
taxes (4,466,917) (583,913) (3,883,004)
Income taxes 21,663 6,908 14,755
--------------------------------------------------
Net income (loss) $ (4,488,580) $ (590,821) $ (3,897,759)
==================================================
Net income (loss) per share $ (0.69) $ (0.60)
==================================================
Weighted average number of
shares outstanding 6,515,000 6,515,000
==================================================
</TABLE>
To eliminate the revenue and operating expenses related to The End LTD (London).
<PAGE>
BALANCE SHEET:
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS FOR PRO FORMA
AFTER
THE SALE OF THE SALE OF
HARMONY THE END LTD THE END LTD
HOLDINGS, INC. (LONDON) (1) (LONDON)
-------------------------------------------
<S> <C> <C> <C>
March 31, 1999
Current assets $ 8,416,156 $ 1,541,258 $ 6,874,898
Property and equipment, net 2,443,910 128,920 2,314,990
Goodwill, net 171,875 171,875
------------ ------------
Other assets 754,296 754,296
---------------------------------------------
Total Assets $ 11,786,237 $ 1,670,178 $ 10,116,059
=============================================
LIABILITY & SHAREHOLDERS'
EQUITY
Current liabilities $ 12,621,939 $ 1,613,932 $ 11,008,007
Minority interest 792,150 -- 792,150
Shareholders' deficit (1,627,852) 56,246 (1,684,098)
---------------------------------------------
Total Liabilities &
Shareholders' Equity $ 11,786,237 $ 1,670,178 $ 10,116,059
=============================================
</TABLE>
To eliminate the assets, liabilities, and equity of The End LTD (London).
(c) Exhibits
99.1 Purchase Agreement dated as of July 27, 1999 and effective as
of August 1, 1999, by and among Children's Broadcasting
Corporation, a Minnesota corporation; Harmony Holdings, Inc.,
a Delaware corporation; Curious Pictures Corporation, a New
York corporation; and Susan Holden; Stephen Oakes; Richard
Winkler; and David Starr, as individuals.
99.2 Curious Stock Agreement dated as of July 27, 1999 and
effective as of August 1, 1999, by and among Children's
Broadcasting Corporation, a Minnesota corporation; Harmony
Holdings, Inc., a Delaware corporation; and Susan Holden;
Stephen Oakes; Richard Winkler; and David Starr, as
individuals.
99.3 Purchase Agreement dated as of July 23, 1999, effective as of
July 1, 1999, by and among Harmony Holdings, Inc., a Delaware
corporation and Julia Reed.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: August 6, 1999 HARMONY HOLDINGS, INC.
BY:
------------------------------------
James G. Gilbertson
ITS: Chief Operating Officer and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
99.1 Purchase Agreement dated as of July 27, 1999 and effective as of August 1,
1999, by and among Children's Broadcasting Corporation, a Minnesota
corporation; Harmony Holdings, Inc., a Delaware corporation; Curious
Pictures Corporation, a New York corporation; and Susan Holden; Stephen
Oakes; Richard Winkler; and David Starr, as individuals.
99.2 Curious Stock Agreement dated as of July 27, 1999 and effective as of
August 1, 1999, by and among Children's Broadcasting Corporation, a
Minnesota corporation; Harmony Holdings, Inc., a Delaware corporation; and
Susan Holden; Stephen Oakes; Richard Winkler; and David Starr, as
individuals.
99.3 Purchase Agreement dated as of July 23, 1999, effective as of July 1,
1999, by and among Harmony Holdings, Inc., a Delaware corporation and
Julia Reed.
EXHIBIT 99.1
PURCHASE AGREEMENT
THIS AGREEMENT, dated as of July 27, 1999, effective as of August 1,
1999, is made by and among CHILDREN'S BROADCASTING CORPORATION, a Minnesota
corporation (referred to herein as "CBC"); HARMONY HOLDINGS, INC., a Delaware
corporation (referred to herein as "HHI"); CURIOUS PICTURES CORPORATION, a New
York corporation (referred to herein as "Curious"); and SUSAN HOLDEN; STEPHEN
OAKES; RICHARD WINKLER; AND DAVID STARR, as individuals (collectively referred
to herein as "CP Management").
W I T N E S S E T H:
THAT, WHEREAS, Curious has currently issued and outstanding 100 shares
of its Common Stock, which shares represent all of the issued and outstanding
Common Stock of Curious;
WHEREAS, pursuant to an Option and Share Transfer Agreement dated as of
December 15, 1996 among CP Management, Curious and HHI ("Option Agreement"), a
copy of which is attached hereto as Exhibit A, HHI is the holder of 99 shares
(or 99%) of Curious and CP Management is the holder of 1 share or 1% of Curious
(the 1 share owned by CP Management shall be referred to herein as the "Curious
Share");
WHEREAS, under the Option Agreement, CP Management has the right, based
upon Curious reaching certain net income levels, to receive shares of Curious up
to an amount not to exceed 50% of the Common Stock of Curious;
WHEREAS, contemporaneously herewith and incorporated herein, CP
Management, Curious and HHI have entered into an agreement whereby the parties
agree that Curious has reached such net income levels; that CP Management
currently has the right to receive 50 shares (or 50%) of the issued and
outstanding common stock of Curious; and that such shares are to be transferred
from HHI to CP Management (the "Curious Agreement");
WHEREAS, contemporaneously herewith and incorporated herein, each
member of CP Management has entered into five (5) year employment agreeements
with Curious; and
WHEREAS, CP Management desires to sell, transfer and assign the Curious
Share and the
<PAGE>
Option Agreement to CBC, and CBC desires to purchase such Curious Share and the
Option Agreement, and HHI consents to such sale, transfer and assignment on the
terms and conditions set forth herein; and
NOW, THEREFORE, in consideration of the foregoing and the covenants,
representations and warranties hereinafter in this Agreement set forth, the
parties hereto hereby agree as follows:
1. OWNERSHIP, TRANSFER, SALE AND ASSIGNMENT OF CURIOUS SHARE AND OPTION
AGREEMENT.
(a) CP Management represents that collectively they are the owner
of the Curious Share and none of them owns any other shares of
Curious Common Stock other than the right(s) to receive shares
under the Option Agreement. CP Management and HHI represent
that under the Option Agreement, CP Management has earned the
right to receive 50 shares or 50% of the issued and
outstanding Common Stock of Curious from HHI, and that CP
Management has the right to sell, transfer and assign their
interest in the Option Agreement and the Curious Share to CBC.
(b) Subject to the terms and conditions hereinafter in this
Agreement, CP Management agrees to sell, transfer and deliver
the Curious Share and their entire interest in the Option
Agreement to CBC on the Closing Date (as that term is
hereinafter defined), free and clear of all security
interests, liens and encumbrances, except for any
subordination obligations to Fremont Financial Services, Inc.
2. PURCHASE AND CONSIDERATION.
(a) On the basis of the representations and warranties, and
subject to the terms and conditions set forth in this
Agreement, CBC hereby agrees to purchase and CP Management
agrees to sell, the Curious Share and CP Management's interest
in the Option Agreement on the Closing Date. The total
purchase price for the purchase of the Curious Share and
assignment of the Option Agreement (the "Purchase Price"),
will be the sum of Three Million and no/100 Dollars
($3,000,000.00) consisting of Two Million Seven Hundred
Thousand and no/100 Dollars ($2,700,000.00) for the Option
Agreement and Three Hundred Thousand and no/100 Dollars
($300,000.00) for the Curious Share and payable as follows:
1. The sum of $1,500,000 in cash at Closing (as defined
below) to CP Management ($375,00 to each member); and
2. The execution of a promissory note at Closing in the
amount equal to $1,500,000 ($375,000 to each member)
payable on May 31, 2000 at an interest rate equal to
eight percent (8%) per annum. The interest payments
shall be paid to CP Management in quarterly payments.
In the event any member(s) of CP Management's
employment with Curious is terminated pursuant to
5(b) of his/her employment agreement or any member(s)
of CP Management terminates his/her employment
agreement prior to the payment
<PAGE>
of the promissory note, the principal amount of this
promissory note shall be reduced by the sum of
$375,000 for such member(s). Any cancellation or
reduction of the promissory note pursuant to this
section shall be in addition to any other remedies
CBC may have against the members of CP Management and
shall not be deemed to be liquidated damages.
(b) HHI and Curious consent to the sale and purchase of the
Curious Share and Option Agreement as provided in Section
2(a), and the assignment of all of CP Management's rights
therein.
(c) As additional consideration and as an inducement for each
member of CP Management to enter into employment agreements
with Curious, CBC agrees to grant each member of CP Management
a warrant for the purchase of 75,000 shares of CBC's common
stock at a price equal to the ten (10) day average closing
price for the ten (10) trading days preceding the date of
Closing. The warrant shall be in the form attached hereto as
Exhibit B incorporated herein by reference as if set forth in
full.
3. CLOSING.
The closing of the transactions contemplated by this Agreement (the
"Closing") unless otherwise agreed to by the parties, shall take place
at the offices of Curious, 440 Lafayette Street, New York, New York
10003 at 9:00 a.m. on July ___, 1999 (such date of Closing is
hereinafter sometimes referred to as the Closing Date). The Closing
shall be subject to the satisfaction of all of the conditions to CBC's
obligations set forth in Section 8 of this Agreement.
At the Closing:
(i) CP Management shall deliver, assign and transfer (or
request that HHI deliver, assign and transfer) to CBC
certificate(s) representing the Curious Share,
appropriately endorsed or accompanied by a separate
instrument or instruments of assignment in writing,
in proper form for registration of transfer;
(ii) CP Management shall deliver, assign and transfer the
Option Agreement to CBC;
(iii) CBC shall deliver to each member of CP Management a
warrant agreement for the purchase of 75,000 shares,
a form of which is attached hereto as Exhibit B;
(iv) CP Management shall deliver the resignations referred
to in Section 8.4 of this Agreement;
(v) Each member of CP Management shall execute and
deliver the employment agreements in the forms
attached hereto as Exhibits C to F incorporated
<PAGE>
herein by reference as if set forth in full;
(vi) $1,500,000 in cash shall be sent by CBC by wire
transfer to such account or accounts in one or more
banks in the United States of America as CP
Management shall specify in writing delivered to CBC
not less than forty eight (48) hours prior to the
Closing Date, otherwise such purchase price shall be
payable by check or checks;
(vii) CBC shall execute a promissory note in the form of
Exhibit G attached hereto and incorporated herein by
reference as if set forth in full in the amount of
$1,500,000 payable to CP Management at eight percent
(8%) interest secured by the Curious Share and the
Option Agreement, subject to subordination
obligations with Fremont Financial Services, Inc.;
(viii) CP Management, HHI and Curious shall deliver an
executed Curious Agreement stating and confirming
that CP Management has the right to receive 50% which
equals 50 shares of the issued and outstanding common
stock of Curious from HHI and consenting to
assignment and transfer of the Option Agreement and
the Curious Share to CBC, a form of which is attached
hereto as Exhibit H; and
(ix) Certified Resolutions of Curious, HHI and CBC
approving the terms of this transaction.
4. REPRESENTATIONS AND WARRANTIES BY HHI.
HHI represents and warrants as follows, which representations and
warranties shall be deemed to have been made again at Closing; that HHI
is a corporation organized and existing in good standing under the laws
of the State of Delaware with full power and authority to enter into
this Agreement to which it is a party and enter into and complete the
transactions contemplated herein and therein; all required corporate
action has been duly and validly taken by HHI to make and carry out
this Agreement and the transactions contemplated herein; this Agreement
constitutes the valid and binding obligation of HHI enforceable in
accordance with its terms; the execution of the Agreement and, the
completion of the transactions herein involved will not result in the
violation of any order, license, permit, rule, judgment or decree to
which HHI is subject or the breach of any contract, agreement or other
commitment to which HHI is a party or by which it or its properties is
bound or conflict with or violate any provision of HHI's Articles of
Incorporation, By-Laws, or other organizational documents; and no other
consent of any kind is required that has not been obtained to make or
carry out the terms of this Agreement.
5. REPRESENTATIONS AND WARRANTIES BY CURIOUS.
Curious represents and warrants as follows, which representations and
warranties shall be deemed to have been made again at Closing, that
Curious is a corporation organized and existing in good standing under
the laws of the State of New York with full power and authority to
enter into this Agreement to which it is a party and enter into and
complete the
<PAGE>
transactions contemplated herein and therein; all required corporate
action has been duly and validly taken by Curious to make and carry out
this Agreement and the transactions contemplated herein; this Agreement
constitutes the valid and binding obligation of Curious enforceable in
accordance with its terms; the execution of the Agreement and, the
completion of the transactions herein involved will not result in the
violation of any order, license, permit, rule, judgment or decree to
which Curious is subject or the breach of any contract, agreement or
other commitment to which Curious is a party or by which it or its
properties is bound or conflict with or violate any provision of
Curious' Articles of Incorporation, By-Laws, or other organizational
documents; and no other consent of any kind is required that has not
been obtained to make or carry out the terms of this Agreement; that
there are only 100 issued and outstanding shares of Curious and that
Curious will not issue any additional shares of its Common Stock
without receiving the prior written consent of HHI and CBC; and that
the financial statements prepared by Curious are substantially correct
in all material respects and there has not been any material adverse
change in the financial condition of Curious since the latest financial
statements.
6. REPRESENTATION AND WARRANTIES BY CBC.
CBC represents and warrants as follows, which representations and
warranties shall be deemed to have been made again at Closing, that CBC
is a corporation organized and existing in good standing under the laws
of the State of Minnesota with full power and authority to enter into
this Agreement to which it is a party and enter into and complete the
transactions contemplated herein and therein; all required corporate
action has been duly and validly taken by CBC to make and carry out
this Agreement and the transactions contemplated herein; this Agreement
constitutes the valid and binding obligation of CBC enforceable in
accordance with its terms; the execution of the Agreement and, the
completion of the transactions herein involved will not result in the
violation of any order, license, permit, rule, judgment or decree to
which CBC is subject or the breach of any contract, agreement or other
commitment to which CBC is a party or by which it or its properties is
bound or conflict with or violate any provision of CBC's Articles of
Incorporation, By-Laws, or other organizational documents; that the
Curious Share and Option Agreement are being purchased for CBC's own
account and not with a view to, or for resale; and that the warrants
issued to members of CP Management are duly authorized and upon the
exercise of the warrants will be validly issued non-assessable shares
of CBC.
7. REPRESENTATION AND WARRANTIES BY CP MANAGEMENT.
Each member of CP Management represents and warrants, which
representations and warranties shall be deemed to have been made again
at Closing that each member has the full right, power, authority and
capacity, and is free, without restriction, to enter into and perform
this Agreement; each member of CP Management represents and warrants
that the Curious Share is owned by CP Management that upon the transfer
of the Curious Share to CBC on the Closing Date, CBC will obtain
absolute title to the Curious Share, free and clear of all liens,
pledges, security interests, claims, charges, options, encumbrances or
other adverse claims of any kind whatsoever other than any security
interest which has been granted to Fremont Financial; that CP
Management makes the same warranties and representations with respect
to the Option Agreement, except that the Option Agreement may be
subject to
<PAGE>
subordination obligations with Fremont Financial Services, Inc.; that
each member is an accredited investor within the meaning of Regulation
D, Rule 501(a) under the Securities Act 1933, as amended.
8. CONDITION OF CBC'S OBLIGATIONS.
The obligations of CBC to consummate the transactions contemplated by
this Agreement is subject to the fulfillment prior to or on the Closing
Date of the following conditions, any of which may be waived in whole
or in part in writing by CBC:
8.1 The representations and warranties of CP Management, Curious
and HHI shall be true in all material respects as of the
Closing Date with the same effect as though made on and as of
the Closing Date.
8.2 CP Management and HHI shall have performed and complied with
all agreements, covenants or conditions required by this
Agreement to be performed and complied with by them prior to
or as of the Closing Date.
8.3 ACTION BY HHI AND CURIOUS BOARD OF DIRECTORS.
(a) HHI's Board of Directors, prior to the Closing Date,
shall have met and duly adopted resolutions, subject
to the consummation of the transactions contemplated
by this Agreement: (i) to approve the terms of this
transaction; (ii) to amend the Option Agreement to
allow CP Management to freely assign and transfer CP
Management's interest; and (iii) to approve the terms
of the employment agreements.
(b) Curious' Board of Directors, prior to the Closing
Date, shall have met and duly adopted resolutions,
subject to the consummation of the transactions
contemplated by this Agreement: (i) to approve the
terms of this transaction; and (ii) to approve the
terms of the employment agreements.
8.4. RESIGNATIONS OF CP MANAGEMENT FROM CURIOUS BOARD. The members
of Curious' Board of Directors and all of Curious'
subsidiaries (other than Mr. Dahl and Mr. Cameron) shall have
tendered their resignations as directors contemporaneously
upon the Closing.
9. LEGAL FEES.
Provided this transaction is consummated, Curious agrees to pay for any
reasonable legal fees and expenses incurred by CP Management from the
law firm of Wollmuth, Maher & Deutsch, LLP in connection with this
transaction through April 28, 1999, provided that it receives copies of
all such legal bills along with any other reasonably requested backup
documentation. Beginning April 29, 1999, Curious agrees to pay for any
reasonable legal fees and expenses incurred by CP Management in
connection with assignment of the Option Agreement and purchase of the
Curious Share by CBC. Notwithstanding the foregoing, CP Management
shall pay for any legal fees and expenses incurred in connection with
their employment agreements and any and all future issuances of shares,
exercise of put rights and similar
<PAGE>
matters that are to the benefit of CP Management. Other than as
provided for herein, each party shall be responsible for its or his/her
own legal fees and expenses.
10. INDEMNIFICATION.
10.1 MUTUAL INDEMNIFICATION. Each party hereby indemnifies and
agrees to hold harmless the other parties from and against all
claims, damages, losses, liabilities, costs and expenses
(including, without limitation, settlement costs and any
legal, accounting or other expenses of investigating or
defending any actions or threatened actions) (hereinafter
sometimes collectively referred to as Losses) in connection
with each of the following:
(a) Any misrepresentation or breach of any representation
or warranty made by such party in this Agreement; and
(b) any breach of any covenant, agreement or obligation
of such party contained in this Agreement, provided,
however, that such party shall not have any
obligation under this Section unless the aggregate
Losses amount to more than $25,000 (if the Losses
exceed $25,000, the indemnification obligations set
forth in this Section shall include all such Losses
and not only those in excess of $25,000).
10.2 CLAIMS FOR INDEMNIFICATION. Whenever any claim shall arise for
indemnification under this section, the indemnified party
(hereinafter sometimes referred to as the Indemnified Party)
shall promptly notify the party against whom indemnification
is sought (hereinafter sometimes referred to as the
Indemnifying Party) of the claim and, when known, the facts
constituting the basis for such claim. In the event of any
such claim for indemnification under this Agreement resulting
from or in connection with any claim or legal proceedings by a
third party, the notice shall specify, if known, the amount or
an estimate of the amount of liability arising therefrom. The
Indemnified Party shall not settle or compromise any claim by
a third party in respect of which it is entitled to
indemnification under this Agreement without the prior written
consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed; provided, however, that if
action or suit shall have been instituted against the
Indemnified Party and the Indemnifying Party shall not have
taken control of such action or suit as provided in this
Section after notification thereof, the Indemnified Party
shall have the right to settle or compromise such claim after
giving notice to the Indemnifying Party as provided in this
Section.
10.3 DEFENSE BY INDEMNIFYING PARTY. In connection with any claim
that may give rise to a right of indemnification under this
Section resulting from or arising out of any claim or legal
proceeding by a person other than the Indemnified Party, the
Indemnifying Party, at its or his/her sole cost and expense,
may, upon written notice to the Indemnified Party, assume the
defense of any such claim or legal proceeding if the
Indemnifying Party acknowledges to the Indemnified Party in
writing the obligation to indemnify the Indemnified Party with
respect to all elements of such claim or legal proceeding. If
the Indemnifying Party shall assume the defense of any such
claim or
<PAGE>
legal proceeding, the Indemnifying Party shall select counsel
reasonably acceptable to the Indemnified Party to conduct the
defense of such claim or legal proceeding at the sole cost and
expense of the Indemnifying Party, who shall take all steps
necessary in the defense or settlement thereof. An Indemnified
Party shall be entitled to participate in (but not control)
the defense of any such claim or legal proceeding with its own
counsel and at its own expense. If the Indemnifying Party
shall not assume the defense of such claim or legal proceeding
within 15 days after notice thereof shall have been given to
in accordance with this Section: (a) the Indemnified Party may
defend such claim or legal proceeding in such manner as it may
deem appropriate, including, but not limited to, the
settlement of such claim or legal proceeding, after giving
notice of the same to Indemnifying Party, on terms as the
Indemnified Party may deem appropriate and (b) Indemnifying
Party shall be entitled to participate in (but not control)
the defense of such claim or legal proceeding with their own
counsel at their own expense.
11. MISCELLANEOUS PROVISIONS.
11.1 EXECUTION OF DOCUMENTS. The parties agree to execute all
applications, documents and instruments which may be
reasonably necessary for the consummation of the transactions
contemplated hereunder, or which might be from time to time
reasonably requested by any party hereto in connection
therewith, whether before or after the date of Closing.
11.2 CHANGES, WAIVERS, ETC. Neither this Agreement nor any
provision thereof may be changed, amended, waived, discharged
or terminated orally, but only in writing signed by the party
against which enforcement of the change, amendment, waiver,
discharge or termination is sought.
11.3 NOTICES. All notices, requests, elections, demands and other
communications given pursuant to this Agreement shall be in
writing and shall be duly given when delivered personally or
by facsimile transmission (upon receipt of confirmation) or
when deposited in the mail, certified or registered mail,
postage prepaid, return receipt requested, and shall be
addressed as follows:
If to CBC:
Mr. Christopher T. Dahl
Children's Broadcasting Corporation
5501 Excelsior Boulevard
Minneapolis, Minnesota 55416
Facsimile: (612) 926-7946
with copy to:
Jill Theis, Esq.
Children's Broadcasting Corporation
5501 Excelsior Boulevard
Minneapolis, Minnesota 55416
<PAGE>
Facsimile: (612) 925-8845
If to HHI:
Mr. Christopher T. Dahl
Harmony Holdings, Inc,
5501 Excelsior Boulevard
Minneapolis, Minnesota 55416
Facsimile: (612) 926-7946
with copy to:
Jill Theis, Esq.
Harmony Holdings, Inc.
5501 Excelsior Boulevard
Minneapolis, Minnesota 55416
Facsimile: (612) 925-8845
If to Curious:
Mr. Christopher T. Dahl
Curious Pictures Corporation
5501 Excelsior Boulevard
Minneapolis, Minnesota 55416
Facsimile: (612) 926-7946
with copy to:
Jill Theis, Esq.
Curious Pictures Corporation
5501 Excelsior Boulevard
Minneapolis, Minnesota 55416
Facsimile: (612) 925-8845
If to CP Management:
Susan Holden, Stephen Oakes, Richard Winkler, David Starr
c/o Curious Pictures Corporation
440 Lafayette Street
New York, New York 10003
Facsimile: (212) 674-0081
With copy to:
David Wollmuth, Esq.
WOLLMUTH, MAHER & DEUTSCH, LLP
516 Fifth Avenue, 12th Floor
<PAGE>
New York, New York 10036
Facsimile: (212) 382-0050
11.4 EXHIBITS. All Exhibits referred to herein are incorporated
into this Agreement by reference for all purposes and shall be
deemed part of this Agreement.
11.5 ASSIGNABILITY. None of the parties may assign their rights or
obligations under this Agreement without the prior written
consent of the other parties which shall not be unreasonably
withheld or delayed, except that CBC, HHI and Curious may make
an assignment to a parent, subsidiary, affiliate or successor
of such party and each member of CP Management may make an
assignment to an entity that is controlled by and 100% owned
by such member.
11.6 BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the representatives, heirs, estates,
successors, and assigns of the parties hereto.
11.7 HEADING. The headings contained in this Agreement are for
reference only and shall not effect in any way the meaning or
interpretation of this Agreement.
11.8 COUNTERPARTS. This Agreement and any other instrument to be
signed by the parties hereto may be executed by the parties,
together or separately, in two or more identical counterparts,
each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
11.9 CLAUSES SEVERABLE. The provisions of this Agreement are
severable. If any provision of this Agreement or the
application thereof to any person or circumstance is held
invalid, the provision or its application shall be modified to
the extent possible to reflect the expressed intent of the
parties but in any event, invalidity shall not affect other
provisions or applications of this Agreement which can be
given effect without the invalid provision or application.
IN WITNESS WHEREOF, the parties hereto, by their properly authorized
representatives, have caused this Agreement to be executed as of the day and
date first above written.
CHILDREN'S BROADCASTING HARMONY HOLDINGS, INC.,
CORPORATION, a Minnesota corporation a Delaware corporation
By: /s/ Christopher T. Dahl By: /s/ James G. Gilbertson
----------------------- -----------------------
Its: Chief Executive Officer Its: Chief Operating Officer
----------------------- -----------------------
CURIOUS PICTURES CORPORATION
a New York corporation
By: /s/ James G. Gilbertson
-----------------------
<PAGE>
Its: Chief Operating Officer
-----------------------
CP MANAGEMENT
/s/ Stephen Oakes /s/ Richard Winkler
- ----------------- -------------------
Stephen Oakes Richard Winkler
/s/ David Starr /s/ Susan Holden
- ----------------- -------------------
David Starr Susan Holden
EXHIBIT 99.2
CURIOUS STOCK AGREEMENT
THIS AGREEMENT, dated as of July 27, effective as of August 1, 1999, is
made by and among CHILDREN'S BROADCASTING CORPORATION, a Minnesota corporation
(referred to herein as "CBC"); HARMONY HOLDINGS, INC., a Delaware corporation
(referred to herein as "HHI"); and SUSAN HOLDEN; STEPHEN OAKES; RICHARD WINKLER;
AND DAVID STARR, as individuals (collectively referred to herein as "CP
Management").
W I T N E S S E T H:
THAT, WHEREAS, contemporaneously herewith and incorporated herein, CP
Management, HHI, Curious Pictures Corporation ("Curious") and CBC have entered
into an agreement whereby CP Management agreed to sell, transfer and assign
their one (1) share of Curious Common Stock ("Curious Share") and their interest
in the Option and Share Transfer Agreement dated as of December 15, 1996 among
CP Management, Curious and HHI ("Option Agreement") to CBC, and CBC agreed to
purchase such Curious Share and the Option Agreement, and HHI consented to such
sale, transfer and assignment (the "Purchase Agreement");
WHEREAS, contemporaneously herewith and incorporated herein, each
member of CP Management has entered into five (5) year employment agreements
with Curious;
WHEREAS, as consideration for entering into the Purchase Agreement and
employment agreements, HHI is desirous of transferring certain shares of
Curious' common stock owned by HHI to members of CP Management; members of CP
Management are desirous of having certain put rights to such shares to CBC; and
CBC is desirous of having certain call rights to such shares on the terms and
conditions set forth herein; and
NOW, THEREFORE, in consideration of the foregoing and the covenants,
representations and warranties hereinafter in this Agreement set forth, the
parties hereto hereby agree as follows:
1. CURIOUS SHARES.
1.1 RIGHT TO ACQUIRE. Subject to the provisions set forth herein,
the parties agree that on December 31, 1999 and each year
thereafter until December 31, 2003, each member of CP
Management will each receive the option to acquire 1 share
which represents 1% of the issued and outstanding common stock
of Curious from HHI up to an aggregate of 5 shares per member.
Such member shall provide HHI with written notice of his/her
right to receive such share(s) in the form attached hereto and
incorporated herein as
<PAGE>
Exhibit A.
1.2 PUT AGREEMENT.
1.2.1 CP MANAGEMENT'S EMPLOYMENT AGREEMENTS. On December 31,
2002, provided that his/her employment agreement has not been
terminated pursuant to Section 5(a) or (b) of his/her
employment agreement, each member of CP Management shall have
the right to put 2 shares of Curious Common Stock to CBC. On
December 31, 2003, provided that his/her employment agreement
has not been terminated pursuant to Section 5(a) or (b) of
his/her employment agreement, each member of CP Management
shall have the right to put an additional 2 shares of Curious
Stock to CBC. Each member shall have the right to put his/her
remaining 1 share of Curious common stock to CBC on December
31, 2004 only in the event that the member entered into an
extension of his/her employment agreement for a term of at
least one (1) additional year through December 31, 2004 and
such member's employment agreement was not terminated pursuant
to Section 5(a) or 5(b) of that employment agreement. Each
member shall provide CBC with written notice in the form
attached hereto and incorporated herein as Exhibit B of
his/her intent to put such share(s) to CBC.
1.2.2 CP MANAGEMENT'S EMPLOYMENT IS TERMINATED UNDER SECTION
5(a). In the event a member of CP Management's employment is
terminated due to death of member under Section 5(a), the
estate of such member shall be entitled to put all of member's
4 shares of the Curious common stock to CBC immediately upon
such termination, even if such amount had not yet been earned
at the time of termination. In the event a member of CP
Management's employment is terminated due to disability and
such member is not re-employed under Section 5(a) of his/her
employment agreement, such member shall be entitled to put all
of his/her 4 shares of Curious common stock to CBC on the
first day of the thirteenth month following such termination
for disability, even if such amount had not yet been earned at
the time of termination.
1.2.3 CP MANAGEMENT'S EMPLOYMENT IS TERMINATED UNDER SECTION
5(b). In the event a member of CP Management's employment is
terminated under Section 5(b) of that member's employment
agreement, any and all put rights which that member may have
or may have been entitled to receive shall terminate upon such
termination.
1.2.4 CP MANAGEMENT'S EMPLOYMENT IS TERMINATED UNDER SECTION
5(c). In the event Curious terminates a member's employment
pursuant to Section 5(c) of that member's employment
agreement, that member shall be entitled to put all of his/her
4 shares of the Curious common stock to CBC immediately upon
such termination, even if such amount had not yet been earned
at the time of termination by Curious.
1.2.5 PUT PRICE. The parties agree that the consideration for
each share put shall be $96,774 per share. Unless otherwise
terminated as set forth herein, CP Management shall have until
March 31, 2005 to exercise his/her put rights.
1.3 CALL AGREEMENT. In the event a member of CP Management does
not put his/her
<PAGE>
shares to HHI by March 31, 2005, CBC shall have the right to
call such shares from CP Management at anytime commencing
after June 1, 2005. The parties agree that the consideration
for each share called shall be $96,774 per share. CBC shall
provide the members of CP Management with written notice in
the form attached hereto and incorporated herein as Exhibit C
of its intent to call such share(s) from CP Management.
2. RESTRICTION ON TRANSFER. CBC and each member of CP Management hereby
agrees that for as long as this Agreement remains in effect, it/he/she
will not sell, transfer or otherwise dispose of (or enter into a
binding agreement to sell, transfer or otherwise dispose of) all or any
of its/his/her shares of or rights to acquire Curious common stock, now
owned or hereafter acquired (the "Shares") except in compliance with
this Agreement.
3. RIGHT OF CO-SALE. Except as hereinafter provided, each of the parties
hereto agrees that it/he/she will not sell, transfer or otherwise
dispose of any of the Shares or of any rights to acquire Shares unless
the other party hereto is given the right to participate as a seller in
such transaction on a pro rata basis as of the date of receipt of
written notice described in Section 8.3 of this Agreement. The
following sales, transfers or other disposals of Shares shall not be
covered by this right of co-sale:
(a) sales of Shares by any of the parties to this Agreement in a
bona fide underwritten public offering pursuant to a
registration statement filed by Curious under the Securities
Act of 1933;
(b) transfers or sales of a Share by a member of CP Management
pursuant to the exercise of such member of his/her right
require CBC to purchase such Share(s) pursuant to Section 1.2
of this Agreement, or transfers or sales of Shares to CBC
pursuant to CBC's exercise of its right to purchase any Shares
pursuant to Section 1.3 of this Agreement;
(c) sales or transfers by CBC to any parent or subsidiary of CBC.
In the event of any distribution of the Shares to the public
shareholders of CBC, this Agreement shall cease to exist with respect to such
Shares after such distribution has been affected. The provisions of subsection
(a) above shall not apply to the members of CP Management during the period in
which CBC has the right to purchase the Shares from the members of CP Management
pursuant to Section 1.3 of this Agreement.
4. CO-SALE PROCEDURES. Each party to this Agreement to which the right of
co-sale provided in Section 3 of this Agreement applies shall give
prompt written notice to each other party to this Agreement in the
event it/he/she has a present intention to sell, transfer or otherwise
dispose of any Shares in a transaction subject to the right of co-sale,
and each other party receiving such notice shall notify the party
giving the notice within fifteen (15) calender days following receipt
of such notice as to whether it wishes to participate in such
transaction and bear a pro rata portion of the expenses incident
thereto, with all negotiations leading to the consummation of such
transaction to be conducted thereafter by the party contemplating such
sale. Failure to respond to such notice within such 15 day period shall
be deemed a declination of any right to
<PAGE>
participate in such transaction, provided that (i) such transaction is
fully closed and consummated within 180 days of the expiration of such
15 day notice period; (ii) the terms of the actual transaction include
no fewer or greater number of Shares than those set forth in such
notice; and (iii) no purchasers or ultimate legal or beneficial holders
of the Shares are involved in the transaction other than those
disclosed in such notice. Failure to meet any of the foregoing
conditions shall require that a new notification and right of co-sale
with regard to such transaction under this section.
5. LEGENDS AND STOP TRANSFER ORDERS.
(a) Legend Covering This Agreement. CBC and each member of CP
Management shall promptly add the following legend to each of
the certificates representing Shares heretofore or hereafter
issued to it/him/her and standing in its/his/her name on the
books of Curious and, so long as this Agreement shall remain
in full force and effect, it/he/she shall add (and hereby
directs Curious, as well as any transfer agent appointed by
Curious, to add) such legend to any and all Shares issued to
it/him/her, such legend to be and remain upon such
certificates, as well as any re-issuance thereof unless and
untl removed pursuant to Section 5(c) below:
"The securities represented by this certificate are
subject to certain transfer restrictions and co-sale
rights set forth in an agreement, dated July ___,
1999, between the registered owner of such securities
and certain other persons, and may not be sold,
transferred or otherwise disposed of except in
compliance with the terms of such agreement, a copy
of which is available for inspection in the principal
office of the issuer of such securities."
(b) Stop Transfer Order. A stop transfer order shall be placed
with Curious, as well as any transfer agent appointed by
Curious, preventing transfer of any of the securities referred
to in Section 5(a) pending compliance with the conditions set
forth in any such legend.
(c) Removal of Legends. Any legend endorsed on a certificate or
instrument evidencing a security subject to this Agreement
shall be removed, and Curious shall be authorized to issue a
certificate or instrument without such legend to the holder of
such security, if this Agreement has expired by its terms or
such security is being disposed of pursuant to the terms of
this Agreement in a transaction which upon completion will
leave the Shares free and clear of this Agreement, and, in
either event, the holder of such security provides Curious and
the other parties to this Agreement with an opinion of counsel
for such holder to such effect.
5. TERM OF AGREEEMENT. The co-sale rights of this Agreement shall
terminate and expire on seventh anniversary of the date of this
Agreement.
6. INDEMNIFICATION. Each party hereby indemnifies and agrees to hold
harmless the other parties from and against all claims, damages,
losses, liabilities, costs and expenses (including, without limitation,
settlement costs and any legal, accounting or other expenses of
investigating or defending any actions or threatened actions) in
connection with any breach of any representation, warranty, covenant,
agreement or obligation of such party contained in this
<PAGE>
Agreement.
7. Each of the parties hereto expressly represents and warrants to each
other party that it/she/he has the full right, power, authority and
capacity, and is free, without restriction to enter into this
Agreement.
8. MISCELLANEOUS PROVISIONS.
8.1 EXECUTION OF DOCUMENTS. The parties agree to execute all
applications, documents and instruments which may be
reasonably necessary for the consummation of the transactions
contemplated hereunder, or which might be from time to time
reasonably requested by any party hereto in connection
therewith, whether before or after the date of this Agreement.
8.2 CHANGES, WAIVERS, ETC. Neither this Agreement nor any
provision thereof may be changed, amended, waived, discharged
or terminated orally, but only in writing signed by all
parties to this Agreement.
8.3 NOTICES. All notices, requests, elections, demands and other
communications given pursuant to this Agreement shall be in
writing and shall be duly given when delivered personally or
by facsimile transmission (upon receipt of confirmation) or
when deposited in the mail, certified or registered mail,
postage prepaid, return receipt requested, and shall be
addressed as follows:
If to CBC:
Mr. Christopher T. Dahl
Children's Broadcasting Corporation
5501 Excelsior Boulevard
Minneapolis, Minnesota 55416
Facsimile: (612) 926-7946
with copy to:
Jill Theis, Esq.
Children's Broadcasting Corporation
5501 Excelsior Boulevard
Minneapolis, Minnesota 55416
Facsimile: (612) 925-8845
If to HHI:
Mr. Christopher T. Dahl
Harmony Holdings, Inc.
5501 Excelsior Boulevard
Minneapolis, Minnesota 55416
Facsimile: (612) 926-7946
<PAGE>
with copy to:
Jill Theis, Esq.
Harmony Holdings, Inc.
5501 Excelsior Boulevard
Minneapolis, Minnesota 55416
Facsimile: (612) 925-8845
If to CP Management:
Susan Holden, Stephen Oakes, Richard Winkler, David Starr
c/o Curious Pictures Corporation
440 Lafayette Street
New York, New York 10003
Facsimile: (212) 674-0081
With copy to:
David Wollmuth, Esq.
WOLLMUTH, MAHER & DEUTSCH, LLP
516 Fifth Avenue, 12th Floor
New York, New York 10036
Facsimile: (212) 382-0050
8.4. EXHIBITS. All Exhibits referred to herein are incorporated
into this Agreement by reference for all purposes and shall be
deemed part of this Agreement.
8.5. ASSIGNABILITY. None of the parties may assign their rights or
obligations under this Agreement without the prior written
consent of the other parties which shall not be unreasonably
withheld or delayed, except that CBC, HHI and Curious may make
an assignment to a parent, subsidiary, affiliate or successor
of such party and each member of CP Management may make an
assignment to an entity that is controlled by and 100% owned
by such member.
8.6. BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the representatives, heirs, estates,
successors, and assigns of the parties hereto.
8.7. HEADING. The headings contained in this Agreement are for
reference only and shall not effect in any way the meaning or
interpretation of this Agreement.
8.8. COUNTERPARTS. This Agreement and any other instrument to be
signed by the parties hereto may be executed by the parties,
together or separately, in two or more identical counterparts,
each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
8.9 CLAUSES SEVERABLE. The provisions of this Agreement are
severable. If any
<PAGE>
provision of this Agreement or the application thereof to any
person or circumstance is held invalid, the provision or its
application shall be modified to the extent possible to
reflect the expressed intent of the parties but in any event,
invalidity shall not affect other provisions or applications
of this Agreement which can be given effect without the
invalid provision or application.
IN WITNESS WHEREOF, the parties hereto, by their properly authorized
representatives, have caused this Agreement to be executed as of the day and
date first above written.
CHILDREN'S BROADCASTING HARMONY HOLDINGS, INC.,
CORPORATION, a Minnesota corporation a Delaware corporation
By: /s/ Christopher T. Dahl By: /s/ James G. Gilbertson
----------------------- -----------------------
Its: Chief Executive Officer Its: Chief Operating Officer
----------------------- -----------------------
CP MANAGEMENT
/s/ Stephen Oakes /s/ Richard Winkler
- ----------------- -------------------
Stephen Oakes Richard Winkler
/s/ David Starr /s/ Susan Holden
- ----------------- -------------------
David Starr Susan Holden
EXHIBIT 99.3
PURCHASE AGREEMENT
THIS AGREEMENT, dated as of July 23, 1999, effective as of July 1,
1999, is made by and among HARMONY HOLDINGS, INC., a company incorporated under
the laws of Delaware, whose registered office is at 5501 Excelsior Boulevard,
Minneapolis, MN 55416 (referred to herein as "HHI"); AND JULIA REED of 49
Mallinson Road, Battersea, London SW11R 1BW ("REED")
W I T N E S S E T H THAT:
WHEREAS, The Big End Limited ("TBE") is a private company limited by
shares incorporated in England under number 03277387 on 12th November 1996 and
changed its name from The End (London) Limited on 23rd July 1999;
WHEREAS, the authorised share capital of TBE is (pound)1,000 divided
into 1,000 ordinary shares of (pound)1 each of which 100 ordinary shares have
been issued which represent all of the issued share capital of TBE and HHI is
the sole legal and beneficial owner of all such shares of TBE;
WHEREAS, immediately prior to signature of this Agreement TBE owed a
net amount of (pound)655,000 to HHI, which sum was capitalised by the
subscription by HHI for 98 of the 100 ordinary shares referred to in the
preceding recital, following which (subject as described in Clause 3(a) there
are no sums owing by HHI to TBE nor by TBE to HHI;
WHEREAS, HHI has agreed to sell 90 shares of TBE which represent 90% of
the issued and outstanding shares of TBE to Reed (the "SALE SHARES") and Reed
has agreed to purchase the Sale Shares from HHI on the terms and conditions set
forth in this Agreement;
WHEREAS, HHI shall remain the owner of 10 shares of TBE, which
represent 10% of the issued and outstanding shares of TBE;
NOW, THEREFORE, the parties to this Agreement hereby agree as follows:
<PAGE>
1. SALE AND PURCHASE OF THE SALE SHARES.
(a) Subject to the terms and conditions of this Agreement, HHI
agrees to sell with full title guarantee, transfer and deliver
the Sale Shares to Reed, free and clear of all options,
claims, charges, security interests, liens, encumbrances and
any other third party rights with effect from July 1, 1999
(the "Effective Date"), together with all rights attached or
accruing to them at that date, including any dividends or
distributions declared or paid on the Sale Shares after that
date and Reed agrees to purchase the Sale Shares;
(b) HHI irrevocably waives any rights of pre-emption over the Sale
Shares whether by virtue of the Articles of Association of TBE
or otherwise in respect of the sale and purchase of the Sale
Shares under this Agreement.
2. CONSIDERATION.
(a) The total consideration for the sale of the Sale Shares shall
be the payment by Reed to HHI of a cash consideration
of(pound)1, payable in accordance with Clause 4.
3. PRIOR TO COMPLETION.
(a) HHI undertakes to pay the remaining sums due to third parties
in respect of the recent job undertaken for Pitney Bowes. The
parties confirm that, subject to those payments being made,
they are each satisfied that there are no sums owing by HHI or
any of its Associates to TBE nor by TBE to HHI or any of its
Associates. In this Agreement the expression "Associate" means
any member of the same group as HHI, within the meaning of
Section 207 of the Financial Services Act 1986.
(b) HHI shall procure that prior to completion of this Agreement
in respect of the sale and purchase of the Sale Shares
("COMPLETION"):
(i) all guarantees or indemnities given by or binding on
TBE in respect of any liabilities or obligations
(actual or contingent) of HHI shall have been fully
and effectually released without any provision or
consideration for such release by TBE; and
(ii) TBE shall be released, without payment by or other
cost to TBE from all debts and obligations of any
kind owed or outstanding to and from all guarantees,
indemnities, mortgages and surety and security
arrangements of any kind given by TBE in favour of
HHI and all rights of subrogation arising against TBE
from HHI;
(c) HHI shall indemnify Reed and keep her indemnified from and
against any failure so to procure pursuant to Clause 3(b) from
any liability pending any such release pursuant to Clause
3(b).
4. COMPLETION.
<PAGE>
The sale and purchase of the Sale Shares shall be completed immediately
following signature of this Agreement (the "COMPLETION DATE") at 7
Pilgrim Street, London EC4V 6LB.
At Completion:
(i) HHI shall deliver to Reed duly executed stock
transfer forms transferring all of the Sale Shares to
Reed (or her nominee) together with certificate(s)
representing the Sale Shares, and all other documents
as may be required to enable Reed and/or her nominee
to be registered as the holder(s) of the Sale Shares
and all other documents of title to the assets of TBE
which are in the possession of HHI;
(iii) HHI and Reed shall enter into the Shareholder
Agreement attached hereto as Exhibit A;
(iv) HHI shall (to the extent that such items are not
already in the possession of Reed) deliver the
certificate of incorporation, certificate of
incorporation on change of name, the common seal, all
minute books, share registers and share certificate
books and other statutory books, cheque books and
other books and records of TBE;
(v) HHI shall procure that the current Directors and the
Secretary of TBE shall resign as Directors of TBE and
shall by delivering letters of resignation in the
form of the draft initialled by the parties for the
purpose of identification, waive any claims they may
have against TBE in such capacity and shall procure
that Reed and such other persons as she may nominate
shall be appointed Directors of the Company;
(vi) HHI shall procure that a meeting of the Board of
Directors of the Company is held at which the
transfers of Sale Shares referred to above shall be
approved for registration (subject only to their
being duly stamped); and
(viii) Reed shall pay the cash Consideration to HHI.
5. INTELLECTUAL PROPERTY.
(a) Reed acknowledges (on her own behalf and on behalf of TBE)
that HHI is and remains the exclusive legal and beneficial
owner of any and all Intellectual Property Rights associated
with the name "The End", including without limitation names
and logos. Reed undertakes (on her own behalf and on behalf of
TBE) that following Completion neither she nor TBE nor any
person connected or associated with them shall directly or
indirectly hold themselves out as connected with TE or HHI,
nor use any such Intellectual Property Rights, nor be
interested in any business which does so. In this Agreement
"TE" shall mean The End, Inc., a California Corporation.
(b) HHI acknowledges (on its own behalf and on behalf of TE) that
Reed is and remains the exclusive legal and beneficial owner
of any and all Intellectual Property Rights associated with
the name "The Big End", including, without limitation, names
and logos. HHI undertakes, (on its own behalf and on behalf of
TE) that following Completion, neither it nor TE nor any
person connected or associated with them shall
<PAGE>
directly or indirectly hold themselves out as connected with
TBE, nor use any such Intellectual Property Rights, nor be
interested in any business which does so.
(c) "INTELLECTUAL PROPERTY RIGHTS" shall be defined as goodwill,
trade marks, service marks, design rights, database rights,
moral rights, rights in any know-how, copyright or designs and
other Intellectual property rights in each case whether
registered or unregistered and including applications or
rights to apply for the grant of any of the foregoing, trade
or business names, and any right or interest in any of the
foregoing having equivalent or similar effect anywhere in the
world.
(d) Notwithstanding the foregoing TBE shall be permitted to use on
an exclusive basis the name "The End (London)", including
without limitation names and logos, in the United Kingdom only
and in the same manner as it has used it hitherto, for a
period of six months immediately following Completion.
6. REPRESENTATIONS AND WARRANTIES BY HHI.
(a) HHI represents and warrants as set out in Schedule 1 to this
Agreement ("THE WARRANTIES"), and warrants that the Warranties
are true and accurate which representations and warranties
shall be deemed to have been made again at Completion by
reference to the facts then subsisting, in each case subject
to the limitations in Schedule 2 to this Agreement. HHI
acknowledges that Reed has entered into this Agreement on the
basis of the Warranties.
(b) Without prejudice to the right of Reed to claim damages on any
basis available to her or to any other right or remedy
available to her, but subject to an obligation on Reed to use
her reasonable endeavours to mitigate her loss, HHI shall pay
to Reed on demand, subject to the limitations in Schedule 2,
the higher of (i) the amount necessary to put the Company into
the position which would have existed if the Warranties had
not been breached and (ii) an amount equal to the resulting
diminution in value of the Sale Shares.
(c) HHI shall in addition pay to Reed all losses, costs,charges
and expenses (including legal expenses) reasonably incurred in
relation to proceedings and enforcement of proceedings in
relation to the Warranties in which Reed is successful.
7. REPRESENTATIONS AND WARRANTIES OF REED.
Acknowledging that HHI has entered into this Agreement on the basis of
Reed's representations and warranties, Reed represents and warrants as
follows, which representations and warranties shall be deemed to have
been made again at Completion by reference to the facts then
subsisting:
(a) that Reed has the full right, power, authority and capacity,
and is free, without restriction, to enter into and perform
this Agreement;
(b) that Reed is not relying on any representations or warranties
other than those set out in Clause 5 and Schedule 1;
<PAGE>
(c) that Reed is not aware that TE and/or HHI are guarantors of
any obligations of TBE; and
(d) that Reed is not aware of any matter which would constitute a
breach by HHI of the Warranties as at the date of this
Agreement.
Any reference to awareness of Reed in this Clause 7 shall mean actual awareness,
without having made any enquiry.
8. INDEMNITY.
(a) Reed hereby undertakes to indemnify TE and HHI and to keep
them indemnified against all or any claims (whether or not
successful, compromised or settled), actions, liabilities,
demands, proceedings or judgments brought or established
against TE or HHI in any jurisdiction by any person or body
whatsoever and against all losses, costs, charges, expenses
(including all legal fees reasonably incurred) which TE or HHI
may suffer or incur (including, but not limited to, all such
losses, costs, charges, expenses or taxes suffered or incurred
in disputing any claim, action, liability, demand or
proceedings aforesaid and/or in establishing its right to be
indemnified pursuant to this Clause 7 and/or in seeking advice
as to any claim, action, liability, demand or proceedings
aforesaid) if and to the extent in any such case it arises,
directly or indirectly, out of or is attributable to any
guarantee, indemnity or other obligation assumed by TE or HHI
in relation to TBE or any subsidiary of TBE, including without
limitation the guarantee of the lease of the premises used by
TBE;
(b) Any amount which would otherwise be payable under the
indemnity in Clause 8(a) shall be reduced by a percentage
equal to the percentage of Ordinary Shares owned by HHI on the
date on which the payment under the indemnity is due to be
made to TE or HHI.
9. ANNOUNCEMENTS. Except to the extent required by law, no announcement,
circular or other publicity relating to the any matter referred to in
this Agreement shall be made or issued by or on behalf of the parties
hereto without the prior written approval of the other, which approval
shall not be unnecessarily withheld or delayed PROVIDED that nothing in
this Clause 9 shall prevent Reed (or anyone on her behalf) from making
any announcement dealing with the future operation of TBE or stating
the fact of the acquisition to suppliers and customers.
10. COSTS. Each party shall pay its own legal and accountancy costs,
charges and expenses connected with the negotiation, preparation and
implementation of this Agreement and Reed shall pay all stamp duty on
the transfer of the Sale Shares.
11. GENERAL.
11.1 This Agreement when taken together with all exhibits and
documents referred to in it constitutes the entire agreement
and understanding among the parties with respect to all
matters herein referred to.
<PAGE>
11.2 No variation of this Agreement shall be valid unless it is in
writing and signed by or on behalf of each of the parties.
11.3 As it remains to be fulfilled this Agreement will continue in
full force and effect notwithstanding Completion.
11.4 This Agreement may be executed in one or more counterparts.
11.5 Neither this Agreement nor any provision thereof may be
changed, amended, waived, discharged or terminated orally, but
only in writing signed by the party against which enforcement
of the change, amendment, waiver, discharge or termination is
sought.
11.6 Each of the parties at the request of the other shall, (and
shall procure that any necessary third parties shall) do all
such acts and execute all such documents as the other parties
may from time to time request on or after Completion in order
to fully implement this Agreement.
11.7 A failure to exercise or delay in exercising any right, remedy
or power ("right") under this Agreement or by law does not
constitute a waiver of that right or any other right. No
single or partial exercise of any right prevents any further
exercise of it or any other right.
12. NOTICES. All notices, requests, elections, demands and other
communications given pursuant to this Agreement shall be in writing and
shall be duly given when delivered personally or by facsimile
transmission (upon receipt of confirmation) or when deposited in the
mail, certified or registered mail, postage prepaid, return receipt
requested, and shall be addressed as follows:
If to HHI:
Mr. Christopher T. Dahl
Harmony Holdings, Inc./ The End, Inc.
5501 Excelsior Boulevard
Minneapolis, Minnesota 55416
Facsimile: (612) 926-7946
with copies to:
Jill Theis, Esq.
Harmony Holdings, Inc./ The End, Inc.
5501 Excelsior Boulevard
Minneapolis, Minnesota 55416
Facsimile: (612) 925-8845; and
Max Audley, Esq.
Faegre Benson Hobson Audley
7 Pilgrim Street
London EC4V 6LB
<PAGE>
Facsimile: +44 207 450 4545
(and HHI hereby appoints Faegre Benson Hobson Audley as its agent for
service of proceedings in England in relation to this Agreement)
If to Reed:
Ms. Julia Reed
49 Mallinson Road
Battersea
London SW1R 1BW
Facsimile: +44 207 o
with copy to:
Lisa Bennett
Harbottle & Lewis
Hanover House
14 Hanover Square
London W1R 0BE
Facsimile: +44 207 667 5100
except where receipt occurs after 5pm on a business day or on a day
other than a business day, when receipt shall be deemed to take place
at 9am on the next business day.
13. GOVERNING LAW. This Agreement shall be governed in all respects by
English law and the parties submit to the exclusive jurisdiction of the
English Courts.
14. ASSIGNABILITY. None of the parties may assign their rights or
obligations under this Agreement without the prior written consent of
the other parties.
15. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the representatives, heirs, estates, successors, and assigns
of the parties hereto.
16. SEVERABILITY. The provisions of this Agreement are severable. If any
provision of this Agreement or the application thereof to any person or
circumstance is held invalid, the provision or its application shall be
modified to the extent possible to reflect the expressed intent of the
parties but in any event, invalidity shall not affect other provisions
or applications of this Agreement which can be given effect without the
invalid provision or application.
IN WITNESS WHEREOF, the parties hereto, by their properly authorized
representatives, have caused this Agreement to be executed as a Deed on the day
and date first above written.
<PAGE>
SCHEDULE 1
THE WARRANTIES
1. ARRANGEMENTS BETWEEN THE COMPANY AND HHI ASSOCIATES
There are no contracts, arrangements or liabilities, actual or
contingent, outstanding or remaining in whole or in part to be
performed between the Company or any HHI Associate.
SHARE CAPITAL
2. COMPANY
2.1 The Sale Shares constitute the entire issued and allotted share capital
of TBE and are fully paid or credited as fully paid.
2.2 Apart from this Agreement, there is no agreement, arrangement or
commitment outstanding which calls for the allotment, issue or transfer
of, or accords to any person the right to call for the allotment, issue
or transfer of, any share or loan capital of TBE.
2.3 None of the Sale Shares were, or represents assets which were, the
subject of a transfer at an undervalue, within the meaning of sections
238 or 339 of the Insolvency Act 1986, within the past five years.
2.4 TBE has not at any time:
reduced its share capital;
redeemed any share capital;
purchased any of its shares;
or forfeited any of its shares.
3. SUBSIDIARIES
Neither of the Directors of TBE nor HHI have done anything to cause the
following statements to be incorrect nor are they aware of any circumstances
which would make them incorrect:
3.1 Save for its interest in Precious Films Limited, TBE does not have, nor
has it agreed to acquire, any interest in any undertaking or in the
share capital of any body corporate.
3.2 TBE does not hold nor is it liable on any share or relevant security
which is not fully paid up or which carries any liability.
3.3 TBE does not have any branch, agency, place of business or
establishment outside the United Kingdom.
<PAGE>
CORPORATE MATTERS
4. INSOLVENCY OF TBE
4.1 So far as HHI is aware, no order has been made, no resolution has been
passed, no petition presented, no meeting convened for the winding up
of TBE or for a provisional liquidator to be appointed in respect of
TBE and TBE has not been a party to any transaction which could be
avoided in a winding up.
4.2 So far as HHI is aware, no administration order has been made and no
petition for one has been presented in respect of TBE.
4.3 So far as HHI is aware, no receiver or administrative receiver has been
appointed in respect of TBE or any of its assets.
4.4 So far as HHI is aware, the Company is not insolvent, has not failed or
is or unable to pay, or has no reasonable prospect of being able to
pay, any of its debts, as they fall due, as those expressions are
defined in section 268 of the Insolvency Act 1986.
4.5 So far as HHI is aware, no voluntary arrangement has been proposed
under section 1 of the Insolvency Act 1986 in respect of TBE and TBE
has not made or proposed any arrangement or composition with its
creditors or any class of them.
4.6 So far as HHI is aware, no unsatisfied judgment is outstanding against
TBE and no demand has been served on TBE under section 123(1)(a) of the
Insolvency Act 1986.
5. STATUTORY BOOKS AND DOCUMENTS FILED
5.1 The statutory books, including all registers and minute books, of TBE
have been properly kept and contain an accurate and complete record of
the matters with which those books should deal.
5.2 All documents which should have been delivered by TBE to the Registrar
of Companies are complete and accurate and have been properly so
delivered.
5.3 Since the date of the latest Accounts no resolution of the members in
general meeting, or of any class of them, has been passed other than
resolutions relating to the ordinary business of annual general
meetings.
6. EVENTS SINCE THE ACCOUNTS DATE
Since the date of the latest Accounts neither of the Directors of TBE nor HHI
have (without the knowledge of Ms Reed) committed TBE to have:
6.1 incurred or committed to incur:
6.1.1 material capital expenditure; or
6.1.2 any liability whether actual or contingent except for full
value or in the ordinary
<PAGE>
course of business;
6.2 acquired or agreed to acquire:
6.2.1 any asset for a consideration higher than its market value at
the time of acquisition or otherwise than in the ordinary
course of business; or
6.2.2 any business or substantial part of it or any share or shares
in a body corporate;
6.3 disposed of or agreed to dispose of, any of its assets except in the
ordinary course of business and for full value;
6.4 repaid wholly or in part any loan except upon the due date or dates for
repayment;
6.5 issued or allotted share or loan capital, increased its authorised
share capital, purchased or redeemed any shares, reduced or reorganised
its share capital or agreed to do so; or
6.6 declared or paid any distribution of profit.
7. COMPLIANCE WITH LAW
So far as HHI is aware TBE has not committed nor is it liable for, and no claim
has been or, will be made that it has committed or is liable for, any criminal,
illegal, unlawful or unauthorised act or breach of any obligation or duty
whether imposed by or pursuant to statute, contract or otherwise.
8. LITIGATION AND DISPUTES
8.1 So far as HHI is aware, except for actions to recover any debt incurred
in the ordinary course of the business owed to the Company where each
individual debt and its costs outstanding amounts to less than
(pound)1,000:
8.1.1 neither TBE nor any person for whose acts TBE may be liable is
engaged in any litigation, arbitration, administrative or
criminal proceedings, whether as plaintiff, defendant or
otherwise;
8.1.2 no litigation, arbitration, administrative or criminal
proceedings by or against TBE or any person for whose acts it
may be liable are threatened or expected and none are pending;
and
8.1.3 there are no facts or circumstances likely to give rise to any
litigation, arbitration, administrative or criminal
proceedings against TBE or any person for whose acts it may be
liable.
8.2 So far as HHI is aware TBE is not subject to any order or judgment
given by any court or governmental or other authority, department,
board, body or agency or has not been a party to any undertaking or
assurance given to any court or governmental or other authority,
department, board, body or agency which is still in force, nor are
there any facts or circumstances likely to give rise to it becoming
subject to such an order or judgment or to be a party to any such
undertaking or assurance.
<PAGE>
12. CHARGES AND ENCUMBRANCES OVER ASSETS
12.1 No option, right to acquire, mortgage, charge, pledge, lien (other than
a lien arising by operation of law in the ordinary course of trading)
or other form of security or encumbrance or equity on, over or
affecting the shares of TBE is outstanding and, apart from this
Agreement, there is no agreement or commitment to give or create any of
them and no claim has been made by person to be entitled to any of
them.
12.2 Neither of the Directors of TBE nor HHI have received notice from any
person intimating that it will enforce any security which it may hold
over any asset of TBE, and there are no circumstances likely to give
rise to such a notice.
13. CAPACITY OF HHI
13.1 HHI is a corporation organized and existing in good standing under the
laws of the State of Delaware with full power and authority to enter
into this Agreement to which it is a party and enter into and complete
the transactions contemplated herein and therein.
13.2 All required corporate action has been duly and validly taken by HHI to
make and carry out this Agreement and the transactions contemplated
herein.
13.3 This Agreement constitutes the valid and binding obligation of HHI
enforceable in accordance with its terms; the execution of this
Agreement and the completion of the transactions herein involved will
not result in the violation of any order, license, permit, rule,
judgment or decree to which HHI is subject or the breach of any
contract, agreement or other commitment to which HHI is a party or by
which it or its properties is bound or conflict with or violate any
provision of HHI's Articles of Incorporation, By-Laws, or other
organizational documents.
<PAGE>
SCHEDULE 2
LIMITATIONS ON THE WARRANTIES
The liability of HHI in respect of the Warranties shall be limited as follows:
1.1 the maximum aggregate liability of HHI under the Warranties shall be an
amount equal to the lesser of (pound)500,000 and the fair value of the
Option Shares (as defined in the Shareholder Agreement attached hereto
as exhibit A) as at the date on which the claim is to be satisfied,
such fair value to be determined by the auditors of the Company ("the
Auditors") as between a willing seller and a willing buyer contracting
on arm's length terms, valuing the Company as a whole and not taking
into account the fact that the Option Shares represent a minority
shareholding.
1.2 For the purpose of ascertaining the fair value the Auditors shall be
deemed to be acting as experts and not as arbitrators and accordingly
the Arbitration Act 1996 and any statutory modification or re-enactment
thereof for the time being in force shall not apply. If either HHI or
Reed disagrees with the Auditors' determination of the fair value, the
person concerned may within 14 days of being notified of the fair value
elect that the fair value shall be determined (on the basis specified
above) by an independent firm of Chartered Accountants to be nominated
(in default of agreement between HHI and Reed) by the President for the
time being of the Institute of Chartered Accountants in England and
Wales. In the event of any difference between the fair value as
determined by the Auditors and such independent Accountants (who shall
be deemed to be acting as experts and not as arbitrators) the price
determined by the independent Accountants shall prevail and shall be
the fair value.
1.3 HHI shall be entitled to settle any liability it may have under the
Warranties by transferring to the Company or Reed such number of Option
Shares as shall have a fair value equivalent to the value of the
liability and shall once it has transferred all the Option Shares to
the Company or Reed (whether pursuant to this Agreement or otherwise)
extinguish all such liabilities entirely.
1.4 HHI shall not be liable in respect of the Warranties unless the amount
of all claims in respect of which Reed would but for this paragraph be
entitled to recover, whether made on the same occasion or previously,
is equal to or exceeds (pound)10,000 in which event the whole amount
shall be payable and not just the excess (subject to the other
limitations in this Schedule).
1.5 the liability of the HHI under the Warranties shall terminate on the
second anniversary of Completion except in respect of any claim of
which notice in writing setting out reasonable details thereof is given
to HHI on or before that date;
1.6 HHI shall not be liable in respect of any claim under the Warranties to
the extent that the subject of the claim has been made good or is
otherwise compensated for without cost to Reed.
1.7 Reed shall, as soon as reasonably practicable after establishing that
in her opinion a Warranty Claim exists, give notice in writing to HHI
of such Warranty Claim and no Warranty Claim shall be deemed to have
been made unless notice of such claim was made in writing to HHI
specifying in reasonable detail the event of default to which the claim
relates, the nature of the breach and if practicable, Reed's then
estimate of the amount claimed.
<PAGE>
1.8 Reed shall, and shall procure that the Company takes such action to
avoid, dispute, resist, appeal, compromise or contest the liability as
may be reasonably requested by HHI provided that such action is not, in
the reasonable opinion of Reed, likely to materially affect adversely
the operations or profitability of the Company;
1.9 Any reference to awareness of HHI in the Warranties shall mean actual
awareness, without having made any enquiry.
EXECUTED AS A DEED by
HARMONY HOLDINGS, INC.,
a Delaware corporation
By: /s/ Christopher T. Dahl By: /s/ Jill J. Theis
--------------------------------- ---------------------------------
Its: CEO/President Its: General Counsel/Secretary
--------------------------------- ---------------------------------
EXECUTED AS A DEED by JULIA REED
in the presence of:
