<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 20, 2000
REGISTRATION NO. 333-38474
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 4
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
iNTELEFILM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MINNESOTA 41-1663712
(STATE OR OTHER JURISDICTION OF INCORPORATION OR
ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
5501 EXCELSIOR BOULEVARD
MINNEAPOLIS, MINNESOTA 55416
(612) 925-8840
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
CHRISTOPHER T. DAHL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
5501 EXCELSIOR BOULEVARD
MINNEAPOLIS, MINNESOTA 55416
(612) 925-8840
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
AVRON L. GORDON, ESQ. JILL J. THEIS, ESQ.
CHRISTOPHER C. CLEVELAND, ESQ. GENERAL COUNSEL AND SECRETARY
BRETT D. ANDERSON, ESQ. iNTELEFILM CORPORATION
JAMES R. SANKOVITZ, ESQ. 5501 EXCELSIOR BOULEVARD
BRIGGS AND MORGAN, PROFESSIONAL ASSOCIATION MINNEAPOLIS, MINNESOTA 55416
2400 IDS CENTER, 80 SOUTH EIGHTH STREET (612) 925-8894 (PHONE)
MINNEAPOLIS, MINNESOTA 55402 (612) 925-8840 (FAX)
(612) 334-8400 (PHONE)
(612) 334-8650 (FAX)
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVENESS OF THIS REGISTRATION STATEMENT
If the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
iNTELEFILM CORPORATION MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND
IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE
THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED NOVEMBER 20, 2000
iNTELEFILM CORPORATION
OFFER TO EXCHANGE ONE SHARE OF COMMON STOCK
OF
iNTELEFILM CORPORATION
FOR
EVERY 13.75 OUTSTANDING SHARES OF COMMON STOCK
OF HARMONY HOLDINGS, INC.
MERGER OF HARMONY HOLDINGS, INC. INTO iNTELEFILM CORPORATION
The offer and withdrawal rights will expire at 11:59 p.m., Minneapolis
time, on Thursday, December 21, 2000, unless the offer is extended.
We are offering to exchange one share of common stock of iNTELEFILM
Corporation for every 13.75 outstanding shares of common stock of Harmony
Holdings, Inc. that stockholders of Harmony validly tender, and do not properly
withdraw, before the offer expires. You may withdraw Harmony shares that you
tender pursuant to this offer at any time prior to the expiration of the offer,
but not during any subsequent offering period.
If we complete the offer, we intend to cause Harmony to merge into
iNTELEFILM or a wholly owned subsidiary of iNTELEFILM. In the merger, we will
issue one share of our common stock for every 13.75 outstanding shares of
Harmony common stock, subject to any applicable appraisal rights. This
prospectus also relates to the shares of our common stock that we would issue in
the merger.
You should read this prospectus carefully. It sets forth the terms and
conditions of the offer and the merger. It also describes the businesses and
finances of iNTELEFILM and Harmony. We have prepared this prospectus so that you
will have the information necessary to make a decision about the offer and
whether to pursue your appraisal rights in connection with the merger.
OUR OBLIGATION TO EXCHANGE OUR COMMON STOCK FOR HARMONY COMMON STOCK IS
SUBJECT TO THE IMPORTANT CONDITIONS LISTED BELOW UNDER "THE OFFER -- CONDITIONS
TO THE OFFER." THESE INCLUDE THE CONDITION THAT STOCKHOLDERS OF HARMONY VALIDLY
TENDER, AND DO NOT WITHDRAW, A SUFFICIENT NUMBER OF SHARES OF HARMONY COMMON
STOCK WHICH, TOGETHER WITH SHARES OF HARMONY COMMON STOCK OWNED BY US,
CONSTITUTE AT LEAST 90% OF THE OUTSTANDING SHARES OF HARMONY COMMON STOCK UPON
THE EXPIRATION OF THE OFFER. AS OF NOVEMBER 13, 2000, WE OWNED 4,139,562 SHARES
OF HARMONY COMMON STOCK, REPRESENTING APPROXIMATELY 55% OF THE OUTSTANDING
SHARES OF HARMONY COMMON STOCK ON THAT DATE.
Our common stock trades on the Nasdaq National Market under the symbol
"FILM." On November 13, 2000, the closing price for one share of our common
stock was $1.125. Harmony common stock trades on the OTC Bulletin Board under
the symbol "HAHO." On November 13, 2000, the closing price for one share of
Harmony common stock was $0.05.
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY REVIEW THE "RISK FACTORS" BEGINNING ON PAGE 18 FOR A DISCUSSION
OF IMPORTANT FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, THE
MERGER AND AN INVESTMENT IN OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE SECURITIES TO BE ISSUED UNDER THIS
PROSPECTUS OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is , 2000.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS....................................... 1
SUMMARY..................................................... 5
RISK FACTORS................................................ 18
THE OFFER................................................... 22
THE MERGER; APPRAISAL RIGHTS................................ 36
FEDERAL INCOME TAX CONSEQUENCES............................. 38
MATERIAL CONTACTS BETWEEN iNTELEFILM AND HARMONY............ 40
DESCRIPTION OF iNTELEFILM CAPITAL STOCK..................... 46
PRICE RANGE OF COMMON STOCK AND DIVIDENDS................... 50
COMPARISON OF SECURITY HOLDER RIGHTS........................ 52
LEGAL MATTERS............................................... 60
EXPERTS..................................................... 60
WHERE YOU CAN FIND MORE INFORMATION......................... 61
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS........... 63
EXCHANGE AGENT.............................................. 67
INFORMATION AGENT........................................... 67
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW......... A-1
</TABLE>
i
<PAGE> 4
QUESTIONS AND ANSWERS
Q: WHAT IS INTELEFILM PROPOSING?
A: iNTELEFILM proposes to acquire the outstanding common stock of Harmony that
it does not already own by offering to exchange iNTELEFILM shares for
Harmony shares. iNTELEFILM currently owns approximately 55% of Harmony's
outstanding common stock. iNTELEFILM will not complete the offer unless
doing so would enable it to achieve 90% ownership of Harmony's outstanding
common stock. iNTELEFILM intends to cause Harmony to be merged with
iNTELEFILM, or a wholly owned subsidiary of iNTELEFILM, after completion of
the offer. The merger would result in each share of Harmony common stock not
exchanged or accepted for exchange in the offer being converted into the
same number of iNTELEFILM shares that would have been issued to a Harmony
stockholder pursuant to the offer.
If stockholders of Harmony do not tender a sufficient number of shares of
Harmony common stock to enable iNTELEFILM to own at least 90% of the
outstanding shares of Harmony common stock upon completion of the offer,
iNTELEFILM plans to continue its investment in Harmony as a majority-owned
subsidiary. As of September 30, 2000, Harmony was indebted to iNTELEFILM to
the extent of approximately $5.9 million. iNTELEFILM is not obligated to
continue funding Harmony's operating losses and does not intend to continue
such funding if the offer is unsuccessful.
Q: WHAT WILL I RECEIVE IN EXCHANGE FOR MY SHARES OF HARMONY COMMON STOCK?
A: iNTELEFILM is offering one share of its common stock for every 13.75 shares
of Harmony common stock validly tendered and not properly withdrawn. You
will not receive any fractional iNTELEFILM shares. Instead, you will receive
cash in an amount equal to the closing sales price of any fractional
iNTELEFILM share you would otherwise have been entitled to receive.
Q: WHY SHOULD I TENDER MY SHARES OF HARMONY COMMON STOCK?
A: iNTELEFILM believes its acquisition of the outstanding common stock of
Harmony will enhance value for Harmony stockholders by, among other things:
- offering a significant premium over the price of Harmony's stock at the
time the offer was announced on March 22, 2000 and just prior to the date
of this document on November 13, 2000;
- Harmony's substantial indebtedness to iNTELEFILM will be eliminated for
financial accounting purposes;
- establishing a more diversified company capable of offering numerous
lines of business, including those managed by iNTELEFILM, webADTV and
Harmony, with a greater level of resources;
- giving you ownership of a solvent company and, by virtue of iNTELEFILM's
greater financial strength, avoiding the potential sale of Harmony and/or
the cessation of its operations if it continues to lose money from
operations and incur expenses as a separate public company;
1
<PAGE> 5
- achieving better long-term growth prospects;
- reducing costs of operations over the long-term; and
- providing you with increased investment liquidity as a shareholder of a
company the stock of which is traded on the Nasdaq National Market.
Q: HOW DO I PARTICIPATE IN INTELEFILM'S OFFER?
A: To tender your shares, you should do the following:
- If you hold shares in your own name, complete and sign the enclosed
letter of transmittal and return it with your Harmony share certificates
to Wells Fargo Bank Minnesota, N.A., the exchange agent for the offer, at
the appropriate address specified on page 67 of this document before the
expiration date of the offer.
- If you hold your shares in "street name" through a broker, instruct your
broker to tender your shares before the expiration date of the offer.
Q: HOW LONG WILL IT TAKE INTELEFILM TO COMPLETE THE OFFER?
A: The offer will remain open until December 21, 2000, unless iNTELEFILM
determines to provide a subsequent offering period or is required to extend
the offer due to a material change in the information presented in this
document.
Q: WHEN AND HOW CAN I WITHDRAW TENDERED SHARES?
A: Harmony shares tendered in the offer may be withdrawn by you at any time
prior to December 21, 2000, the expiration date of the offer, and, unless
iNTELEFILM has accepted them pursuant to the offer, may also be withdrawn at
any time after January 20, 2001.
Your withdrawal will only be effective if the exchange agent receives a
written notice of withdrawal at the appropriate address specified on page
67 of this document, or by facsimile at (651) 450-4163. The written notice
must contain your name, address, social security number, number of Harmony
shares to be withdrawn, the certificate number or numbers for such shares
and the name of the registered holder of the shares, if different from the
person who tendered the shares. All signatures on the notice of withdrawal
must be guaranteed by a financial institution in accordance with the
procedures set forth in this document under "The Offer -- Withdrawal
rights."
Q: MAY INTELEFILM ELECT, OR BE REQUIRED, TO EXTEND THE DURATION OF THE OFFER?
A: Yes. iNTELEFILM may provide, at its election, a subsequent offering period
of 3 to 20 business days following completion of the initial offering period
during which Harmony stockholders can tender Harmony shares into the offer
without withdrawal rights. If used, the subsequent offering period would be
designed:
- to assist iNTELEFILM in reaching the statutory minimum necessary to
perform a short-form merger, and
- to provide Harmony stockholders one last opportunity to tender into an
offer that is otherwise complete,
thereby avoiding the delay and illiquid market that can result after a
tender offer and before the related merger. During a subsequent offering
period,
2
<PAGE> 6
iNTELEFILM would accept and promptly pay for Harmony shares as they are
tendered, providing Harmony stockholders with the same form and amount of
consideration as paid in the offer.
Independent of whether iNTELEFILM provides a subsequent offering period, it
may be required to extend the initial offering period if there is a
material change in the information contained in this document.
In either event, iNTELEFILM would amend the offer and disseminate new
information to Harmony stockholders through a press release disclosing such
information.
Q: HOW WOULD INTELEFILM COMPLETE ITS PROPOSED ACQUISITION OF HARMONY?
A: iNTELEFILM intends to complete its acquisition of Harmony by undergoing a
short-form merger pursuant to Delaware law, which allows a parent
corporation owning at least 90% of the outstanding shares of each class of a
subsidiary corporation to merge the subsidiary corporation into itself, or a
merger subsidiary, without the approval of the stockholders of the parent
corporation or of the board of directors or stockholders of the subsidiary
corporation. Assuming that Harmony stockholders tender at least 35% of
Harmony's outstanding common stock and iNTELEFILM accepts such shares for
tender, iNTELEFILM would effect the merger without the vote of any other
Harmony stockholders.
Q: WHAT ARE THE CONDITIONS TO INTELEFILM'S OFFER?
A: Several conditions must be satisfied before iNTELEFILM will purchase any
shares pursuant to its offer, including:
- ownership of at least 90% of the outstanding shares of Harmony common
stock immediately following the closing of the offer;
- effectiveness of the registration statement covering the iNTELEFILM
common stock to be issued to Harmony stockholders, the absence of any
stop order suspending such effectiveness and receipt of all necessary
state securities law or "blue sky" authorizations;
- the absence of any temporary restraining order, preliminary or permanent
injunction or other court or government agency order or decree preventing
consummation of the offer and the absence of any statute, rule,
regulation or other similar decree prohibiting or restricting the offer
in effect at the time of the offer;
- the absence of any pending suit, action or proceeding by any governmental
entity which would be reasonably likely to have a material adverse effect
on iNTELEFILM, Harmony or the offer; and
- the absence of any other agreement or transaction involving Harmony which
would have the effect of impairing iNTELEFILM's ability to acquire
Harmony or otherwise diminish the expected economic value to iNTELEFILM
of the offer.
Q: HAS HARMONY'S BOARD OF DIRECTORS RECOMMENDED THAT HARMONY'S STOCKHOLDERS
ACCEPT INTELEFILM'S OFFER?
A: No. To iNTELEFILM's knowledge, Harmony's directors have taken no action
concerning a recommendation to its stockholders. Harmony's board consists of
five persons, three whom
3
<PAGE> 7
are directors of iNTELEFILM. iNTELEFILM expects Harmony's board to take action
with respect to the offer within ten days of its commencement.
Q: WILL MY RECEIPT OF INTELEFILM SHARES BE A TAXABLE TRANSACTION?
A: No. The offer and the merger are intended to qualify as a reorganization
under Section 368(a) of the Internal Revenue Code of 1986, as amended.
Assuming the offer and the merger so qualify, holders of Harmony shares will
not recognize any gain or loss as a result of the exchange of such stock for
iNTELEFILM shares pursuant to the offer or the merger, except to the extent
of cash received, if any, in lieu of fractional shares. See "Federal Income
Tax Consequences."
Q: AM I ENTITLED TO DISSENTERS' RIGHTS OR RIGHTS OF APPRAISALS IN THE OFFER?
A: No. Neither Minnesota nor Delaware provide dissenters' rights or rights of
appraisal in connection with the offer.
Q: AM I ENTITLED DISSENTERS' RIGHTS OR RIGHTS OF APPRAISAL IN CONNECTION WITH
THE MERGER?
A: Yes. If Harmony stockholders tender a sufficient number of shares in the
offer so that the offer may be completed, Harmony stockholders who do not
tender shares in the offer will have the right under Delaware law to dissent
and demand appraisal of their Harmony shares in connection with the merger.
This would entitle such stockholders to receive a judicial determination of,
and receive payment for, the fair value of their Harmony shares.
Q: WHERE CAN I FIND MORE INFORMATION ABOUT INTELEFILM AND HARMONY?
A: You can find more information about iNTELEFILM and Harmony from various
sources described under "Where You Can Find More Information."
Q: WHO CAN I CALL WITH QUESTIONS ABOUT THE OFFER?
A: You can contact iNTELEFILM's information agent, Georgeson Shareholder
Communications Inc., at (800) 223-2064.
4
<PAGE> 8
SUMMARY
This summary does not contain all of the information that should be
important to you. You should carefully read this entire document and the other
documents to which this document refers you to fully understand the offer.
THE OFFER (See page 22)
iNTELEFILM is offering to exchange one share of its common stock for every
13.75 shares of Harmony common stock. iNTELEFILM will accept all shares validly
tendered and not properly withdrawn. iNTELEFILM's obligation to exchange its
shares for Harmony shares is subject to important conditions, including a
minimum tender condition.
The consideration iNTELEFILM is offering has a value of approximately
$0.0818 per Harmony share, based on the closing price of iNTELEFILM common stock
on the Nasdaq National Market on November 13, 2000. On November 13, 2000, the
closing sales price of one share of Harmony common stock on the OTC Bulletin
Board was $0.05. On November 13, 2000, iNTELEFILM had 6,511,366 outstanding
shares of common stock and Harmony had 7,506,660 outstanding shares of common
stock.
The offer expires at 11:59 p.m., Minneapolis time, on December 21, 2000,
unless iNTELEFILM extends, or is required to extend, the period of time for
which the offer is open, in which case the offer will expire at a later
designated time and date.
THE MERGER (See page 36)
If stockholders of Harmony tender a sufficient number of shares of Harmony
common stock to enable iNTELEFILM to own at least 90% of the outstanding shares
of Harmony common stock upon completion of the offer, iNTELEFILM intends to
complete the offer. Promptly after completion of the offer, iNTELEFILM intends
to cause a merger of Harmony with iNTELEFILM or a wholly owned subsidiary of
iNTELEFILM. Any Harmony stockholders who did not tender their shares in the
offer will receive one share of iNTELEFILM common stock for every 13.75 shares
of Harmony common stock in the merger.
If stockholders of Harmony do not tender a sufficient number of shares of
Harmony common stock to enable iNTELEFILM to own at least 90% of the outstanding
shares of Harmony common stock upon completion of the offer, iNTELEFILM plans to
continue its investment in Harmony as a majority-owned subsidiary. As of
September 30, 2000, Harmony was indebted to iNTELEFILM to the extent of
approximately $5.9 million. iNTELEFILM is not obligated to continue funding
Harmony's operating losses and does not intend to continue such funding if the
offer is unsuccessful.
INFORMATION ABOUT iNTELEFILM AND HARMONY (See page 61)
iNTELEFILM CORPORATION
5501 Excelsior Boulevard
Minneapolis, Minnesota 55416
(612) 925-8840
5
<PAGE> 9
iNTELEFILM believes it is a leading source of services for the television
commercial production industry, offering extensive production capability and the
exclusive services of established industry talent. In addition, iNTELEFILM's
majority-owned subsidiary, webADTV.com, Inc., develops web-based applications
intended to increase productivity and communications between advertising
agencies, clients, production companies and media channels. Prior to 1999,
iNTELEFILM, operating under the name Children's Broadcasting Corporation,
created and marketed a children's entertainment format primary through a radio
network of owned, operated and affiliated radio stations. iNTELEFILM's total
revenues from production contracts in 1999 were $67,242,374, including
$39,491,545 attributable to Harmony. iNTELEFILM's operating loss before taxes in
1999 was $7,709,656, including $2,929,033 attributable to Harmony. iNTELEFILM's
total revenues for the nine months ended September 30, 2000 were $51,188,954,
including $15,890,624 attributable to Harmony. iNTELEFILM's operating loss
before taxes for the nine months ended September 30, 2000 was $5,753,388,
including $2,590,063 attributable to Harmony. The financial statements of
Harmony are consolidated with those of iNTELEFILM. iNTELEFILM owned
approximately 55% of Harmony's outstanding common stock as of November 13, 2000.
HARMONY HOLDINGS, INC.
5501 Excelsior Boulevard
Minneapolis, Minnesota 55416
(612) 925-8840
Harmony's primary business has been the production of television
commercials and music videos. Harmony's customers are typically advertising
agencies acting on behalf of television advertisers. Harmony's principal
operating company is The End, Inc., a wholly-owned subsidiary. Harmony also owns
a 49% equity ownership interest in Curious Pictures Corporation, all remaining
interest in which is owned by iNTELEFILM. For its fiscal year ended June 30,
1999, the six months ended December 31, 1999, and the nine months ended
September 30, 2000, Harmony's consolidated revenues from production contracts
totaled $66,340,255, $19,810,274 and $15,890,624, respectively. Harmony's
operating losses before taxes for its fiscal year ended June 30, 1999, the six
months ended December 31, 1999, and the nine months ended September 30, 2000,
were $8,383,105, $1,135,560 and $2,590,063, respectively.
BENEFITS TO HARMONY STOCKHOLDERS (See page 23)
iNTELEFILM believes that its acquisition of all of the outstanding common
stock of Harmony represents an opportunity to enhance value for Harmony
stockholders. Among the benefits that iNTELEFILM believes Harmony stockholders
would obtain from the combination of iNTELEFILM and Harmony are the following:
- Significant premium. Based on March 22, 2000, closing prices, the offer
represents a premium of approximately 50%. Based on November 13, 2000
closing prices, the offer represents a premium of approximately 64%.
- Harmony's indebtedness to iNTELEFILM. Combining iNTELEFILM and Harmony
will result in the elimination, for financial accounting purposes, of
approximately $5.9 million payable by Harmony to iNTELEFILM pursuant to
promissory notes and advances outstanding as of September 30, 2000.
6
<PAGE> 10
- Ownership of a stronger combined company. Combining iNTELEFILM and
Harmony will establish a more diversified company capable of providing a
greater level of resources.
- Ownership of a solvent company. Harmony's independent certified public
accountants have raised substantial doubt as to Harmony's ability to
continue as a going concern. Completion of the offer will provide Harmony
stockholders with ownership of a solvent company, and avoid the potential
sale of Harmony or the cessation of Harmony's operations.
- Better long-term growth prospects. Combining iNTELEFILM and Harmony would
yield better long-term growth prospects than operating the companies
separately, potentially resulting in increased shareholder value over the
long-term.
- Savings on operations. Combining iNTELEFILM and Harmony will result in
lower costs of operations over the long-term through the consolidation of
SEC reporting and audit fees.
- Increased investment liquidity. iNTELEFILM shares are traded on the
Nasdaq National Market and consequently may be more easily traded than
Harmony shares, which are traded on the OTC Bulletin Board.
COMPARATIVE MARKET PRICE INFORMATION (See page 50)
iNTELEFILM's common stock trades on the Nasdaq National Market under the
symbol "FILM" and Harmony's common stock trades on the OTC Bulletin Board under
the symbol "HAHO." The following table lists closing prices of iNTELEFILM common
stock and Harmony common stock and the value of the offer per share of Harmony
common stock on March 22, 2000, the last trading day before iNTELEFILM announced
its proposed offer, and on November 13, 2000, just prior to the date of this
document. The value of the offer per share of Harmony common stock at the
specified dates represents the closing price of one share of iNTELEFILM common
stock on that date multiplied by the exchange ratio of one share of iNTELEFILM
common stock for every 13.75 outstanding Harmony shares.
<TABLE>
<CAPTION>
iNTELEFILM Harmony
Common Stock Common Stock Value of Offer
------------ ------------ --------------
<S> <C> <C> <C>
March 22, 2000........................... $3.9375 $0.1875 $0.2864
November 13, 2000........................ $1.1250 $0.0500 $0.0818
</TABLE>
The value of the offer will fluctuate because market prices of iNTELEFILM
common stock and Harmony common stock will change prior to consummation of the
offer, while the exchange ratio is fixed. You should obtain current stock price
quotations for iNTELEFILM common stock and Harmony common stock. You can get
these quotations from a newspaper, on the Internet or by calling your broker.
COMPARISON OF SECURITY HOLDER RIGHTS (See page 52)
Upon an exchange of shares by tendering Harmony stockholders, or upon a
subsequent short-form merger of Harmony with iNTELEFILM or a wholly owned
subsidiary of iNTELEFILM, Harmony stockholders whose rights are currently
governed by Delaware law will become iNTELEFILM shareholders, and their rights
as such will be governed by Minnesota law and the
7
<PAGE> 11
instruments governing iNTELEFILM. The following summarizes how Harmony
stockholder's rights will change if and when they become holders of iNTELEFILM
common stock:
- Number, election and removal of directors. Harmony and iNTELEFILM both
have five directors on their boards. Harmony's certificate of
incorporation provides for cumulative voting in the election of
directors. iNTELEFILM's articles of incorporation specifically eliminate
cumulative voting. Directors for both Harmony and iNTELEFILM may be
elected or removed with or without cause by the affirmative vote of a
majority of shares present and entitled to vote at a regular meeting of
security holders, except that if less than the entire Harmony board is to
be removed, no Harmony director may be removed if the votes cast against
such director's removal would be sufficient to elect the director if then
cumulatively voted at an election of the entire board of directors.
Vacancies on the boards of both Harmony and iNTELEFILM may be filled by
either a majority of remaining directors or the security holders entitled
to vote on the matter.
- Shareholder action by written consent. Harmony stockholders currently
may take any action required or permitted to be taken at a security
holder meeting without a meeting through a written consent signed by
holders of the minimum number of votes required to authorize the action
at a properly called meeting. iNTELEFILM shareholders may take action in
writing only if signed by all the shareholders entitled to vote on the
action at a properly called meeting.
- Amendments to incorporating instruments. Harmony's certificate of
incorporation may be changed upon the board's recommendation and the
affirmative vote of a majority of the stock entitled to vote.
iNTELEFILM's articles of incorporation may be changed by the affirmative
vote of a majority of shares entitled to vote, except that an amendment
eliminating Minnesota's control share acquisition statute may also be
adopted by a special committee of the board.
- Amendments to bylaws. Harmony's bylaws may be amended or repealed by the
board or a majority of Harmony stock entitled to vote. iNTELEFILM's
bylaws may be amended or repealed by the board or shareholders, except
that certain amendments affecting the board of directors, or fixing a
quorum for shareholder meetings, may only be made by a majority vote of
shareholders. An amendment to iNTELEFILM's bylaws eliminating Minnesota's
control share acquisition statute also may be adopted by a special
committee of the board.
- Calling of special meeting of security holders. A special meeting of the
Harmony stockholders may be called by the board, the chairman of the
board, the chief executive officer, or the holders of not less than 10
percent of outstanding stock entitled to vote. A special meeting of
iNTELEFILM shareholders may be called by the chief executive officer, the
chief financial officer, two or more directors, the president, the
treasurer, or a shareholder or shareholders holding 10 percent or more of
shares entitled to vote, except that any special meeting to consider any
action to facilitate a business combination must be called by 25 percent
or more of shares entitled to vote.
- Anti-takeover measures. Both Delaware and Minnesota law have provisions
protecting security holders from potential unwanted takeovers of a
corporation that apply when such takeovers involve "interested
shareholders." Minnesota law utilizes
8
<PAGE> 12
a lower beneficial ownership threshold to define an interested shareholder and
has a shorter waiting period restricting interested shareholders from engaging
in prohibited business combinations as compared to Delaware law. Minnesota also
has a potentially broader definition of a business combination
encompassing a larger variety of transactions. In addition, iNTELEFILM has
adopted a shareholder rights plan which may have the effect of
discouraging unsolicited mergers or acquisitions of iNTELEFILM common
stock. Harmony has not adopted a stockholder rights plan. Minnesota law
includes a control share acquisition act establishing various disclosure
and shareholder approval requirements in connection with takeovers.
Delaware law has no comparable statute. Both Minnesota and Delaware have
business combination statutes intended to deter highly leveraged takeover
bids. Further, Minnesota law contains the following provisions that
Delaware law does not contain:
- a statute prohibiting iNTELEFILM from entering into or amending
agreements that increase compensation of officers or directors during
potential tender offers;
- provisions prohibiting iNTELEFILM's purchase of shares from an
iNTELEFILM shareholder owning more than five percent of the iNTELEFILM
voting power; and
- statutes permitting the board of directors to consider the interests of
employees, customers, suppliers, creditors, the community and the
economy in the event of a proposed acquisition of an interest in
iNTELEFILM.
- Indemnification. Delaware law permits Harmony to indemnify officers,
directors, employees or agents against liability for proceedings against
them involving their actions when acting on behalf of the corporation.
Harmony's bylaws require that it indemnify such persons to the full
extent provided by law. Minnesota law requires iNTELEFILM to indemnify
officers, directors, employees or agents against liability for
proceedings against them involving their actions when acting on behalf of
the corporation. Harmony and iNTELEFILM have similar indemnification
provisions.
- Dissenters' rights and appraisal rights. Delaware law allows for rights
of appraisal only in select mergers or consolidations. Harmony
stockholders will be entitled to rights of appraisal in a short-form
merger which follows the offer. Minnesota law, in general, affords
dissenters' rights upon amendments to the articles of incorporation that
materially and adversely affect the rights or preferences of the shares
of the dissenting shareholder, upon the sale of substantially all
corporate assets, and upon merger or exchange by a corporation,
regardless of whether the shares of the corporation are listed on a
national securities exchange or widely held. Harmony stockholders who
become holders of iNTELEFILM common stock will have expanded dissenters'
rights.
ACCOUNTING TREATMENT (SEE PAGE 35)
Shares acquired by iNTELEFILM pursuant to the offer and the merger will be
accounted for as a "purchase," as such term is used under GAAP, for accounting
and financial reporting purposes.
9
<PAGE> 13
FEDERAL INCOME TAX CONSEQUENCES (See page 38)
The offer and the merger are intended to be treated as an integrated
transaction that will qualify as a reorganization under Section 368(a) of the
Internal Revenue Code of 1986, as amended. Assuming the offer and the merger so
qualify, holders of Harmony shares will not recognize any gain or loss as a
result of the exchange of such stock for iNTELEFILM shares pursuant to the offer
or the merger, except to the extent of cash received, if any, in lieu of
fractional shares.
iNTELEFILM CORPORATION
SELECTED HISTORICAL FINANCIAL INFORMATION
The following is a summary of selected consolidated financial data of
iNTELEFILM for each of the years in the five-year period ended December 31,
1999, and the nine months ended September 30, 1999 and 2000. Results from the
interim periods do not necessarily indicate results that may be expected from
any other annual or interim periods. This information is derived from historical
financial statements previously filed by iNTELEFILM with the SEC that has been
restated to reflect discontinued operations. See "Where You Can Find More
Information" on page 61. You should read this summary together with these
financial statements and their accompanying notes and management's discussion
and analysis. In the opinion of iNTELEFILM's management, the interim financial
information includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such information.
iNTELEFILM transitioned its focus from its children's entertainment format
to commercial production services within the media and entertainment industry.
This transition was effectively completed with the closing of the sales of
iNTELEFILM's radio station distribution channel in January 1999 and its
acquisition of a majority interest in Harmony in April 1999 and Curious Pictures
in August 1999, and a 100% interest in Chelsea in March 1999. The operations and
disposition of radio stations has been classified as discontinued operations. As
a result of acquiring a majority interest in Harmony, iNTELEFILM began
consolidating Harmony in April 1999. Previous records are accounted for under
the equity method.
INTELEFILM CORPORATION
STATEMENT OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
DECEMBER 31, (UNAUDITED)
------------------------------------------------- -----------------
1995 1996 1997 1998 1999 1999 2000
------- ------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Contract revenue........ $ -- $ -- $ -- $ -- $67,242 $45,732 $51,189
Costs and expenses
Costs of production... -- 56,489 38,317 42,730 -- -- --
</TABLE>
10
<PAGE> 14
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
DECEMBER 31, (UNAUDITED)
------------------------------------------------- -----------------
1995 1996 1997 1998 1999 1999 2000
------- ------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
General selling and
administrative
expenses (exclusive
of items below)..... -- -- -- -- 9,722 5,987 9,220
Subsidiary stock
option
compensation........ 25 -- -- -- 2,121 2,018 311
Corporate charges..... 1,465 2,774 6,013 5,614 3,673 2,278 3,264
Depreciation and
amortization........ 2 4 7 8 1,542 902 1,598
------- ------- -------- -------- ------- ------- -------
Loss from continuing
operations............ (1,492) (2,778) (6,020) (5,622) (6,305) (3,770) (5,934)
Gain (loss) on sale
of subsidiary stock
and assets............ (31) -- -- -- 120 150 (18)
Equity loss in
Harmony............... -- -- (541) (4,058) (1,931) (1,931) --
Interest income
(expense), net........ (1,209) (399) (2,611) (5,268) 406 (165) 198
------- ------- -------- -------- ------- ------- -------
Loss from continuing
operations before
income taxes.......... (2,732) (3,177) (9,172) (14,948) (7,710) (5,386) (5,754)
Income tax (expense)
benefit............... -- -- -- 4,000 700 698 (51)
------- ------- -------- -------- ------- ------- -------
Net loss from continuing
operations............ (2,732) (3,177) (9,172) (10,948) (7,010) (4,688) (5,805)
Gain (loss) on the
disposal of
discontinued
operations, net of
income taxes.......... (3,376) (6,691) (5,387) 18,518 14,349 12,520 --
------- ------- -------- -------- ------- ------- -------
Net income (loss)....... (6,108) (9,868) (14,559) 7,570 7,339 7,832 (5,805)
Accretion of preferred
stock................. -- -- -- (680) -- (21) --
------- ------- -------- -------- ------- ------- -------
Net income (loss) to
common shareholders... $(6,108) $(9,868) $(14,559) $ 6,890 $ 7,339 $ 7,811 $(5,805)
======= ======= ======== ======== ======= ======= =======
Basic and diluted net
loss per share from
continuing
operations............ $ (0.97) $ (0.62) $ (1.47) $ (1.64) $ (1.11) $ (0.73) $ (0.91)
======= ======= ======== ======== ======= ======= =======
Basic and diluted net
income (loss) per
share................. $ (2.22) $ (1.99) $ (2.33) $ 1.03 $ 1.16 $ 1.21 $ (0.91)
======= ======= ======== ======== ======= ======= =======
Weighted average shares
outstanding........... 2,816 5,149 6,246 6,676 6,343 6,464 6,412
======= ======= ======== ======== ======= ======= =======
</TABLE>
11
<PAGE> 15
iNTELEFILM CORPORATION
BALANCE SHEET DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- 2000
1995 1996 1997 1998 1999 (UNAUDITED)
------- ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cash................... $ 587 $ 3,370 $ 545 $ 254 $15,986 $ 5,682
Current assets......... 2,247 5,094 2,021 12,537 27,191 11,435
Goodwill/Broadcast
license, net......... 4,970 16,725 19,679 -- 6,730 6,872
Total assets........... 13,327 28,607 35,414 33,822 37,618 24,220
Current liabilities.... 6,668 10,583 27,727 18,045 17,328 8,436
Long-term
liabilities.......... 925 1,437 2,558 848 680 640
Total liabilities...... 7,593 12,020 30,285 18,893 18,008 9,076
Minority interest...... -- -- -- -- 139 417
Redeemable convertible
preferred stock...... 2,247 -- -- 2,448 -- --
Shareholders' equity... $ 3,487 $16,587 $ 5,129 $12,481 $19,471 $14,727
</TABLE>
HARMONY HOLDINGS, INC.
SELECTED HISTORICAL FINANCIAL INFORMATION
The following is a summary of selected consolidated financial data of
Harmony for each of the years in the five-year period ended June 30, 1999, the
six months ended December 31, 1999 and the nine months ended September 30, 1999
and 2000. Results from the interim periods do not necessarily indicate results
that may be expected from any other annual or interim periods. This information
is derived from historical financial statements previously filed by Harmony with
the SEC. See "Where You Can Find More Information" on page 61. You should read
this summary together with these financial statements and their accompanying
notes and management's discussion and analysis. In the opinion of Harmony's
management, the interim financial information includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of such information.
Throughout the past five fiscal years, Harmony has operated through various
production divisions. During the fiscal years ending June 30, 1999 and 2000,
Harmony ceased operations of one of its production divisions, sold 90% of the
stock of another division and reduced its ownership of a third division to 49%
when iNTELEFILM purchased 51% of that division's outstanding common stock in
connection with the purchase of a stock option agreement from that division's
management. As of August 1, 1999, Harmony operates one division and accounts for
a second division as an equity investment. On June 29, 2000, Harmony changed its
reporting year-end from June 30 to December 31 effective for the six-month
period ended December 31, 1999.
12
<PAGE> 16
HARMONY HOLDINGS, INC.
STATEMENT OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX NINE MONTHS
MONTHS ENDED SEPT. 30,
JUNE 30, ENDED (UNAUDITED)
----------------------------------------------- DEC. 31, -----------------
1995 1996 1997 1998 1999 1999 1999 2000
------- ------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Contract revenue..... $61,227 $60,415 $64,831 $53,355 $66,340 $19,810 $46,880 $15,890
Cost of production... 50,920 51,041 52,174 43,617 56,347 17,396 39,647 14,487
General selling and
administrative
expenses (exclusive
of items below).... 8,800 8,628 9,343 10,761 10,012 2,799 6,580 2,915
Subsidiary stock
option
compensation....... -- -- 75 391 2,234 -- 2,017 --
Corporate charges.... 1,655 2,050 1,146 2,379 1,457 701 1,172 633
Depreciation and
amortization....... 528 564 620 700 882 171 508 155
Restructuring costs
and impairment of
assets............. -- -- -- -- 3,357 -- (175) --
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations......... (676) (1,868) 1,473 (4,493) (7,949) (1,257) (2,869) (2,300)
Gain on disposal
of production
division........... -- -- -- -- -- 120 150 --
Equity gain in
Curious Pictures... -- -- -- -- -- 280 22 88
Interest income
(expense), net..... (9) (243) 40 25 (434) (278) (387) (378)
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
taxes.............. $ (685) $(2,111) $ 1,513 $(4,468) $(8,383) $(1,135) $(3,084) $(2,590)
Income tax expense... -- (20) (179) (22) (11) -- (2) (15)
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).... $ (685) $(2,131) $ 1,334 $(4,490) $(8,394) $(1,135) $(3,086) $(2,605)
======= ======= ======= ======= ======= ======= ======= =======
Income (loss) per
share.............. $ (0.12) $ (0.37) $ 0.20 $ (0.69) $ (1.13) $ (0.15) $ (0.41) $ (0.35)
======= ======= ======= ======= ======= ======= ======= =======
Weighted average
shares
outstanding........ 5,567 5,692 6,682 6,515 7,409 7,507 7,507 7,507
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
13
<PAGE> 17
HARMONY HOLDINGS, INC.
BALANCE SHEET DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, SEPT. 30,
---------------------------------------------- DECEMBER 31, 2000
1995 1996 1997 1998 1999 1999 (UNAUDITED)
------- ------ ------- ------- ------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash................. $ 230 $ 447 $ 2,355 $ 3,834 $ 2,911 $ 1,067 $ 110
Current assets....... 7,707 4,986 9,505 12,008 10,713 6,251 934
Goodwill, net........ 3,181 2,969 2,758 2,546 169 163 155
Total assets......... 12,955 9,687 14,505 16,927 14,121 8,729 3,386
Current
liabilities........ 6,196 5,382 6,748 12,698 15,703 12,571 9,832
Long-term
liabilities........ 385 -- -- -- -- -- --
Total
liabilities........ 6,581 5,382 6,748 12,698 15,703 12,571 9,832
Minority
interest........... -- -- 75 466 2,700 -- --
Stockholders' equity
(deficit).......... $ 6,374 $4,304 $ 7,682 $ 3,763 $(4,281) $(3,842) $(6,446)
</TABLE>
14
<PAGE> 18
SELECTED PRO FORMA FINANCIAL DATA
iNTELEFILM CORPORATION
PRO FORMA STATEMENT OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
The following is a summary of the Pro Forma Condensed Combined Financial
Statements presented in full beginning on page 63.
<TABLE>
<CAPTION>
PRO FORMA
NINE MONTHS
PRO FORMA ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1999 2000
----------------- ----------------
<S> <C> <C>
Contract revenue............................ $83,517 $51,189
Cost of production.......................... 70,378 42,731
Operating expenses.......................... 21,461 14,517
------- -------
Loss from continuing operations............. (8,322) (6,059)
Gain on sale of assets...................... 120 (18)
Interest income (expense), net.............. 327 199
Income tax (expense) benefit................ 700 (51)
------- -------
Net loss from continuing operations......... $(7,176) $(5,929)
======= =======
Basic and diluted net loss per share from
Continuing operations..................... $ (1.09) $ (0.89)
======= =======
Weighted average shares outstanding......... 6,588 6,657
</TABLE>
15
<PAGE> 19
iNTELEFILM CORPORATION
PRO FORMA BALANCE SHEET DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
SEPTEMBER 30,
2000
-------------
<S> <C>
Current assets.............................................. $11,235
Property and equipment, net................................. 4,373
Goodwill, net............................................... 7,912
Total assets................................................ 25,060
Current liabilities......................................... 8,436
Long-term debt.............................................. 640
Total liabilities........................................... 9,076
Minority interest........................................... 418
Shareholders' equity........................................ 15,566
</TABLE>
16
<PAGE> 20
COMPARATIVE PER SHARE DATA
The following table sets forth historical per share data of iNTELEFILM and
Harmony and consolidated per share data on an unaudited pro forma combined basis
after giving effect to the offer under the purchase method of accounting. The
following data should be read in conjunction with the Pro Forma Condensed
Combined Financial Statements and the separate Selected Historical Financial
Information of iNTELEFILM and Harmony. The unaudited pro forma consolidated per
common share data is provided for illustrative purposes only and is not
necessarily indicative of the consolidated financial position or consolidated
results of operations that would have been reported had the offer occurred at
the beginning of the earliest period presented or as of the dates for which such
unaudited pro forma information is presented, nor does it represent a forecast
of the consolidated financial position as of any future date or results of
operations for any future period. No pro forma adjustments have been included
herein which reflect potential effects of the efficiencies which may be obtained
by consolidating the operations of iNTELEFILM and Harmony.
<TABLE>
<CAPTION>
AS OF AND FOR THE
NINE MONTHS ENDED
AS OF AND FOR THE SEPTEMBER 30,
YEAR ENDED 2000
DECEMBER 31, 1999 (UNAUDITED)
----------------- -----------------
<S> <C> <C>
Basic and diluted net loss per share from
continuing operations
Historical -- iNTELEFILM..................... $(1.11) $(0.91)
Pro Forma Consolidated....................... (1.09) (0.89)
Historical -- Harmony........................ (0.56) (0.35)
Equivalent Pro Forma Consolidated per Harmony
share(1).................................. (0.08) (0.07)
Book value per common share(2)
Historical -- iNTELEFILM..................... 3.10 2.26
Pro Forma Consolidated....................... 3.13 2.30
Historical -- Harmony........................ (0.51) (0.86)
Equivalent Pro Forma Consolidated per Harmony
share(1).................................. 0.23 0.17
</TABLE>
Neither iNTELEFILM nor Harmony has paid cash dividends in the past and
iNTELEFILM intends to retain future earnings, if any, to fund the development
and growth of its business. Accordingly, subsequent to the completion of this
transaction, iNTELEFILM does not anticipate paying cash dividends on its common
stock in the foreseeable future.
---------------
(1) Each equivalent pro forma consolidated per Harmony share amount is
calculated by dividing the related pro forma consolidated per share amount
by the assumed exchange ratio of 13.75 Harmony shares for one iNTELEFILM
share.
(2) The historical book value per common share is computed by dividing total
shareholders' equity by the number of shares of common stock outstanding at
the end of the period. The pro forma consolidated book value per share is
computed by dividing pro forma shareholders' equity by the pro forma number
of shares of common stock outstanding at the end of the respective period.
17
<PAGE> 21
RISK FACTORS
An investment in the shares offered by iNTELEFILM involves a high degree of
risk. Prospective investors should carefully consider the following risk
factors, in addition to the other information set forth in this document, in
connection with an investment in the shares offered by iNTELEFILM.
When used below and elsewhere in this document, including documents
incorporated herein by reference, the words "believes," "anticipates" and
"intends" and similar expressions are intended to identify "forward-looking
statements." Such statements are subject to risks and uncertainties that could
cause actual results to differ materially from those projected. Potential
purchasers of iNTELEFILM's common stock are cautioned not to place undue
reliance on such forward-looking statements, which speak only as of the date of
this document.
iNTELEFILM'S COMMERCIAL PRODUCTION BUSINESS MAY NOT PROVE ADVANTAGEOUS OR
PROFITABLE.
iNTELEFILM has changed its business focus to servicing the commercial
production and related media business industry. Although iNTELEFILM believes
favorable opportunities exist in the television commercial production industry,
the industry is highly fragmented and iNTELEFILM cannot assure you that it will
be successful in completing its business plan, or if completed, that the
business plan will be advantageous or profitable. iNTELEFILM cannot assure you
that its competitors will not try to consolidate commercial production companies
and production service companies. iNTELEFILM cannot assure you that
consolidation, if it occurs, will be advantageous or profitable. iNTELEFILM
cannot assure you that any acquisitions, if consummated, will be advantageous or
profitable.
iNTELEFILM MAY BE UNABLE TO ACQUIRE ADDITIONAL COMMERCIAL PRODUCTION COMPANIES
OR PRODUCTION SERVICE COMPANIES WITHOUT ADDITIONAL FINANCING, CAUSING INTELEFILM
TO BE UNABLE TO EXECUTE ITS BUSINESS STRATEGY.
In order to fully execute its business strategy, iNTELEFILM must acquire
additional commercial production or production service companies. The
availability of capital may limit iNTELEFILM's ability to complete future
acquisitions as it tries to consolidate commercial production companies and
production service companies. iNTELEFILM cannot assure you that it will obtain
such financing when required or, if available, that the amount or terms of such
financing would be acceptable or favorable. Additional financing could require
the sale of equity securities, which could result in significant dilution to
iNTELEFILM shareholders.
COMMERCIAL DIRECTORS AND OTHER KEY PERSONNEL COULD LEAVE INTELEFILM, IMPAIRING
INTELEFILM'S GROWTH, PROFITABILITY AND PROSPECTS.
The television commercial production business is driven by its personnel
and creative talent. iNTELEFILM recognizes that a major part of its success in
this industry will depend upon the hiring and continued engagement or employment
of its directors and other key personnel. To this end, iNTELEFILM has entered
into various director and employment agreements which range from one to five
years in length. However, iNTELEFILM cannot assure you that it will be able to
retain such talent, that such
18
<PAGE> 22
directors and employees will fulfill their obligations to iNTELEFILM, or that
they will seek renewal at the end of their current agreements. In general,
iNTELEFILM does not maintain life insurance on its television commercial
directors or other key personnel.
iNTELEFILM HAS INCURRED OPERATING LOSSES AND EXPECTS TO INCUR FUTURE OPERATING
LOSSES. THIS MAY PREVENT INTELEFILM FROM RAISING CAPITAL AND CONTINUING
OPERATIONS.
In general, iNTELEFILM has experienced operating losses in each quarterly
and annual period since inception. iNTELEFILM incurred operating losses from
continuing operations of approximately $7.7 million for the fiscal year ended
December 31, 1999, approximately $14.9 million for the fiscal year ended
December 31, 1998, and approximately $5.8 million for the nine months ended
September 30, 2000. If iNTELEFILM is successful in acquiring additional
commercial production companies or production service companies, iNTELEFILM's
operating expenses may increase. If revenues do not offset any increased
expenses, iNTELEFILM will incur operating losses for the foreseeable future.
iNTELEFILM will need to generate significant increases in its revenues and
operating margins to achieve and maintain profitability. If revenues or
operating margins fail to grow or grow more slowly than iNTELEFILM anticipates,
iNTELEFILM's operating losses could significantly increase, which would harm its
business, operating results and financial condition. In addition, iNTELEFILM's
failure to become and remain profitable may adversely affect the market price of
its securities and its ability to raise capital and continue operations.
THE SCREEN ACTORS GUILD'S STRIKE AGAINST THE ADVERTISING AGENCIES HAD AN ADVERSE
EFFECT ON THE BUSINESS OF INTELEFILM.
On May 1, 2000, members of the Screen Actors Guild began a strike against
the advertising agencies that represent iNTELEFILM's customer base. Although the
strike was settled on October 28, 2000 and commercial production recommenced on
October 30, 2000, the strike, while in effect, limited iNTELEFILM's ability to
produce television commercials domestically and in Canada. iNTELEFILM made an
effort to limit the effect that the strike had on its operations by utilizing
non-union talent and continuing to produce commercials off-shore wherever
possible. However, iNTELEFILM experienced some loss of business as a result of
the strike.
INTELEFILM MAY NOT RECOVER ANY DAMAGES IN ITS LAWSUIT AGAINST ABC/DISNEY DESPITE
JURY FINDINGS THAT ABC RADIO HAD BREACHED ITS CONTRACT WITH INTELEFILM AND THAT
ABC/DISNEY HAD MISAPPROPRIATED INTELEFILM'S TRADE SECRET INFORMATION.
In September 1998, a jury ruled in iNTELEFILM's favor in connection with
litigation for breach of contract and misappropriation of trade secrets that
iNTELEFILM had commenced against ABC/Disney and awarded iNTELEFILM $20 million
for breach of contract against ABC Radio, $10 million for misappropriation of
trade secret by ABC Radio and $10 million for misappropriation of trade secret
against Disney. In January 1999, the court upheld the jury's findings that ABC
Radio had breached its contract with iNTELEFILM and that ABC/Disney
misappropriated iNTELEFILM's trade secret information; however, the court
disagreed with the jury's conclusion that the evidence showed that those actions
caused damages to iNTELEFILM or that the amount of damages awarded by the jury
was supported by the evidence, and set aside the jury's verdict. The court
further ruled that in the event that the decision is reversed or remanded on
appeal, that the defendants be granted a new trial on the issues of causation
and
19
<PAGE> 23
damages. iNTELEFILM filed a notice of appeal in February 1999. In February 2000,
iNTELEFILM presented its oral argument to the 8th Circuit Court of Appeals. As
of the date of this document, the 8th Circuit Court of Appeals had not ruled on
the appeal. iNTELEFILM intends to pursue its appeal of the judgment and to this
end, personnel and financial resources will be used. iNTELEFILM cannot assure
you that it will be successful on its appeal.
WEBADTV MAY BE UNABLE TO IMPLEMENT ITS BUSINESS PLAN, IMPAIRING INTELEFILM'S
EFFORTS TO ENTER INTO E-COMMERCE WITH ADVERTISING AGENCIES.
In January 2000, iNTELEFILM announced the formation of webADTV, a
subsidiary which intends to combine the digital archiving and retrieval service,
inteleSource, with additional web enabled services, news, and information under
development, for global advertising industries and their clientele. webADTV
plans to seek financing in order to expand and brand its infrastructure. If
webADTV is unable to obtain such financing, iNTELEFILM's efforts to enter into
e-commerce with advertising agencies would be substantially impaired. On the
other hand, if webADTV obtains such financing, iNTELEFILM's equity ownership in
webADTV would be diluted. iNTELEFILM cannot assure you that webADTV will be
successful in obtaining such financing or that such financing, if obtained, will
be sufficient to implement its business plan. Further, iNTELEFILM cannot assure
you that webADTV's business plan will be completed or that the business plan, if
completed, will be successful.
INTELEFILM'S STOCK PRICE HAS BEEN VOLATILE DUE TO, AMONG OTHER THINGS,
CONDITIONS IN THE COMMERCIAL PRODUCTION INDUSTRY. YOU MAY BE UNABLE TO RESELL
SUCH STOCK AT OR ABOVE THE PRICE YOU PAY FOR IT.
The market price of iNTELEFILM's common stock has been subject to
significant fluctuations in response to numerous factors, including variations
in annual or quarterly financial results, changes by financial research analysts
in their estimates of iNTELEFILM's earnings, conditions in the economy in
general or in the commercial production industry in particular, unfavorable
publicity or changes in applicable laws and regulations, or related judicial or
administrative interpretations, affecting iNTELEFILM or the commercial
production industry. During 1999, the closing price of iNTELEFILM common stock
ranged from a high of $5.25 on December 8, 1999, to a low of $1.50 on May 28,
1999. During the first ten months of 2000, the closing price of iNTELEFILM's
common stock ranged from a high of $5.125 on each of January 27, 2000, January
28, 2000 and January 31, 2000, to a low of $1.3125 on October 27, 2000. During
the first 13 trading days of November 2000, the closing price of iNTELEFILM's
common stock ranged from a high of $1.50 on November 1, 2000, November 2, 2000
and November 3, 2000, to a low of $1.00 on November 17, 2000. iNTELEFILM cannot
assure you that purchasers of its common stock will be able to resell such stock
at or above the prices at which it was purchased.
RESALES OF INTELEFILM SHARES FOLLOWING THE OFFER MAY CAUSE THE MARKET PRICE OF
SUCH STOCK TO FALL, DECREASING THE VALUE OF THE INTELEFILM SHARES ISSUED IN THE
OFFER.
iNTELEFILM had 6,511,366 shares of common stock outstanding as of November
13, 2000, and also had warrants and options outstanding to purchase an
additional 3,287,868 shares of common stock. iNTELEFILM expects that it will
issue up to 244,880 new shares in connection with the offer and the subsequent
merger. The sale of
20
<PAGE> 24
such shares and the sale of additional shares of iNTELEFILM common stock which
may become eligible for sale in the public market from time to time upon
exercise of warrants and options could have the effect of depressing the market
price for iNTELEFILM's common stock. This could negatively affect those who
receive iNTELEFILM shares in connection with the offer or the subsequent merger.
INTELEFILM DEPENDS ON MANAGEMENT SERVICES RENDERED BY AN ENTITY WHICH MAY FAVOR
ITS OWN INTERESTS OVER INTELEFILM'S INTERESTS.
iNTELEFILM shares with Harmony management services provided by MMLLC which
is owned by Christopher T. Dahl and Richard W. Perkins, each a director of
iNTELEFILM and a director of Harmony. The management services consist of
administrative, legal and accounting services. Such arrangements may present
conflicts of interest in connection with the pricing of services provided.
During their most recent fiscal years, iNTELEFILM and Harmony made payments in
the aggregate of approximately $1.6 million to MMLLC for such services. The
potential for conflicts of interest is exacerbated by the fact that Messrs. Dahl
and Perkins have fiduciary duties to iNTELEFILM's shareholders and Harmony's
stockholders as a matter of state corporate law. iNTELEFILM has not
independently priced the services provided by MMLLC. Therefore, iNTELEFILM
cannot represent that its transactions with MMLLC were on terms as fair as those
which could have been obtained from unrelated third parties through arms-length
negotiation.
INTELEFILM'S MANAGEMENT HAS THE ABILITY TO SIGNIFICANTLY AFFECT THE OUTCOME OF
SHAREHOLDER VOTING, INCLUDING POSSIBLY TAKING ACTIONS CONTRARY TO THE
PREFERENCES OF SHAREHOLDERS AT LARGE.
As of November 13, 2000, approximately 25% of iNTELEFILM's outstanding
common stock was beneficially owned by iNTELEFILM's current executive officers
and directors. Accordingly, such persons may be able to significantly influence
iNTELEFILM's business and affairs. This concentration of ownership may have the
effect of delaying, deferring or preventing a change in control of iNTELEFILM.
This could deny shareholders the receipt of a premium on their common stock and
depress the market price of iNTELEFILM common stock.
iNTELEFILM'S SEVERANCE PLAN, RIGHTS PLAN, ABILITY TO ISSUE "BLANK CHECK"
PREFERRED STOCK AND APPLICABLE PROVISIONS OF MINNESOTA LAW MAY PREVENT A CHANGE
IN CONTROL, DENYING SHAREHOLDERS THE RECEIPT OF A PREMIUM ON THEIR COMMON STOCK.
iNTELEFILM has a severance plan which provides significant benefits to two
executive officers and one non-employee director following a change in control.
Christopher T. Dahl, iNTELEFILM's Chief Executive Officer, President and
Chairman of the Board, James G. Gilbertson, iNTELEFILM's Chief Operating
Officer, and Richard W. Perkins, one of iNTELEFILM's directors, are each
eligible to receive lump sum severance payments under the plan. Based upon 1999
annual gross base salaries, the plan participants would receive an aggregate of
approximately $2.1 million following a change in control. The plan also provides
for accelerated vesting of outstanding options and other benefits following a
change in control.
iNTELEFILM also has a rights plan pursuant to which existing shareholders
may purchase from iNTELEFILM, after the distribution date as defined in the
rights
21
<PAGE> 25
agreement, that number of iNTELEFILM shares having a market value of two times
the purchase price of the rights. The rights have anti-takeover effects. The
rights will cause substantial dilution to a person or group that attempts to
acquire iNTELEFILM without conditioning the offer on a substantial number of
rights being acquired or redeemed. iNTELEFILM's board of directors, without any
action by iNTELEFILM's shareholders, also has the authority to issue the
remaining undesignated and unissued authorized shares and to fix the powers,
preferences, rights and limitations of such shares or any class or series of
such shares, without shareholder approval. Persons acquiring such shares could
have preferential rights with respect to voting, liquidation, dissolution or
dividends over existing shareholders. In addition, iNTELEFILM is subject to
provisions of Minnesota law which limit the voting rights of shares acquired in
"control share acquisitions" and restrict "business combinations."
The existence of iNTELEFILM's severance plan, rights plan, ability to issue
"blank check" preferred stock and provisions of Minnesota law could deter or
delay a takeover or other change in control. This could deny shareholders the
receipt of a premium on their common stock and depress the market price of
iNTELEFILM common stock.
THE OFFER
OVERVIEW
iNTELEFILM is making an offer to acquire directly from Harmony stockholders
all of the outstanding common stock of Harmony that it does not already own. The
consideration offered is one share of iNTELEFILM common stock for every 13.75
shares of Harmony common stock validly tendered and not properly withdrawn,
subject to the terms and conditions described in this document and the related
letter of transmittal. iNTELEFILM's obligation to exchange its shares for
Harmony shares is subject to important conditions, including a minimum tender
condition. See "-- Conditions to the offer."
Based on the closing price of one share of iNTELEFILM common stock on March
22, 2000, the day prior to the announcement of the proposed offer, the offer had
a value of $0.2864 per Harmony share. On November 13, 2000, the closing sales
price of one share of iNTELEFILM common stock on the Nasdaq National Market was
$1.125 and the closing sales price of one share of Harmony common stock on the
OTC Bulletin Board was $0.05.
The offer will expire on the expiration date. The expiration date is 11:59
p.m., Minneapolis time, on December 21, 2000, unless iNTELEFILM extends or is
required to extend the period of time for which this offer is open, in which
case the term expiration date will be the latest time and date on which the
offer, as so extended, expires.
If stockholders of Harmony tender a sufficient number of shares of Harmony
common stock to enable iNTELEFILM to own at least 90% of the outstanding shares
of Harmony common stock upon completion of the offer, iNTELEFILM intends to
complete the offer. Promptly after completion of the offer, iNTELEFILM intends
to cause a merger of Harmony with iNTELEFILM or a wholly owned subsidiary of
iNTELEFILM. In the merger, each share of Harmony common stock which has not been
exchanged or accepted for exchange in the offer would be converted into the same
number of iNTELEFILM shares that would have been issued to a holder of Harmony
common stock pursuant to the
22
<PAGE> 26
offer. If iNTELEFILM obtains all of the outstanding shares of Harmony common
stock pursuant to this offer and the subsequent merger, former Harmony
stockholders would own approximately 4% of the outstanding shares of iNTELEFILM
common stock.
If stockholders of Harmony do not tender a sufficient number of shares of
Harmony common stock to enable iNTELEFILM to own at least 90% of the outstanding
shares of Harmony common stock upon the expiration of the offer, iNTELEFILM
plans to continue its investment in Harmony as a majority-owned subsidiary. As
of September 30, 2000, Harmony was indebted to iNTELEFILM to the extent of
approximately $5.9 million. iNTELEFILM is not obligated to continue funding
Harmony's operating losses and does not intend to continue such funding if the
offer is unsuccessful.
REASONS FOR THE OFFER
iNTELEFILM believes that its proposed acquisition of Harmony represents a
compelling opportunity to enhance value for Harmony stockholders. Specifically,
iNTELEFILM estimates that a complete combination of Harmony and iNTELEFILM would
result in a savings by Harmony of approximately $225,000 per year. As Harmony is
already consolidated for iNTELEFILM's financial reporting purposes, this saving
would be effected by further integration of operational and administrative
functions of the combined companies.
In addition, iNTELEFILM believes that the complete combination of Harmony
and iNTELEFILM will produce substantial benefits for Harmony stockholders,
including the following:
- Significant premium. Based on the closing prices of one Harmony share
and one iNTELEFILM share on March 22, 2000, the day prior to iNTELEFILM's
announcement of the proposed offer, iNTELEFILM's offer represents a
premium of approximately 50% over the closing price of Harmony common
stock. Harmony common stock, which has traded on the OTC Bulletin Board
at a 52-week historical range of $0.375 to $0.081, had a last sale price
of $0.19 on March 22, 2000, the last trading day before iNTELEFILM's
announcement of its proposed offer. On November 13, 2000, the closing
sales price of one share of iNTELEFILM common stock on the Nasdaq
National Market was $1.125, and the closing sales price of one share of
Harmony common stock on the OTC Bulletin Board was $0.05. Based on the
closing prices of one Harmony share and one iNTELEFILM share on November
13, 2000, just prior to the date of this document, iNTELEFILM's offer
represents a premium of approximately 64% over the closing price of
Harmony common stock.
- Harmony's indebtedness to iNTELEFILM. Harmony currently operates at a
cash flow deficit and has outstanding indebtedness to iNTELEFILM of
approximately $5.9 million pursuant to notes payable and advances.
Completion of the offer will result in the elimination, for financial
accounting purposes, of all indebtedness Harmony owes to iNTELEFILM
through the combination of the two entities.
- Ownership of a stronger combined company. By offering numerous lines of
business, including those managed by iNTELEFILM, webADTV and Harmony, the
consolidation of Harmony and iNTELEFILM will establish a more diversified
company capable of providing a greater level of services than either
company could provide on its own. The combined company will have
divisions which produce
23
<PAGE> 27
hip hop commercials and music videos, storytelling commercials, animated
commercials and half-hour animated television series.
- Ownership of a solvent company. At September 30, 2000, Harmony had a
working capital deficit of $8,898,595 and stockholders' deficit of
$6,446,366. As a result, Harmony's independent certified public
accountants have modified their report on Harmony's fiscal 1999 financial
statements and have raised substantial doubt as to Harmony's ability to
continue as a going concern. iNTELEFILM, in comparison, had working
capital of $2,998,986 and shareholders' equity of $14,726,644.
Consequently, completion of the offer will provide Harmony stockholders
with ownership of a solvent company and avoid the potential sale or
liquidation of Harmony and/or the ultimate cessation of Harmony's
operations which may result if Harmony continues to lose money and incur
expenses as a separate public company.
- Better long-term growth prospects. iNTELEFILM believes that combining
iNTELEFILM and Harmony would yield better long-term growth prospects than
operating the companies separately, potentially resulting in increased
shareholder value over the long-term.
- Cost savings. The offer will result in an estimated annual consolidated
cost savings to Harmony of approximately $225,000. This estimate consists
primarily of the expenses associated with Harmony's annual audits and
compliance with the reporting requirements of the SEC, the IRS and
various state agencies.
- Increased liquidity. iNTELEFILM's common stock is traded on the Nasdaq
National Market. Harmony's common stock is currently traded on the OTC
Bulletin Board. Harmony was delisted from Nasdaq in February 1999 as a
result of not maintaining Nasdaq's tangible net worth requirement.
Further, for the year ended September 30, 2000, iNTELEFILM's average
daily volume was approximately 51,546 shares or 0.79% of its total shares
outstanding while Harmony's average daily volume was approximately 18,660
shares or 0.25% of its total shares outstanding.
24
<PAGE> 28
BACKGROUND OF THE OFFER
iNTELEFILM initially entered into commercial production as an extension of
its entertainment and media industry expertise and as a way to offset losses of
its children's entertainment format. As part of this strategic plan, iNTELEFILM
invested in Harmony. iNTELEFILM owned approximately 55% of Harmony's outstanding
common stock as of the date of this document. iNTELEFILM acquired this ownership
interest over a period of time as summarized in the following table:
<TABLE>
<CAPTION>
HARMONY OPTIONS TO PURCHASE
COMMON STOCK HARMONY COMMON STOCK
------------------------- -------------------------
NUMBER OF NUMBER OF
DATE SHARES CONSIDERATION SHARES CONSIDERATION
---- --------- ------------- --------- -------------
<S> <C> <C> <C> <C>
July 21, 1997..................... 769,231 $2,000,000 -- $ --
July 22, 1997..................... 600,000 1,747,500 550,000 260,000
September 25, 1997................ 819,500 2,401,650 200,000 330,000
--------- ---------- -------- ---------
Balance at December 31, 1997...... 2,188,731 6,149,150 750,000 590,000
========= ========== ======== =========
June 30, 1998 (exercise of
options)........................ 750,000 1,715,000 (750,000) (590,000)
July 2, 1998...................... 250,000 432,500 -- --
November 4, 1998.................. 494,231 968,750 -- --
--------- ---------- -------- ---------
Balance at December 31, 1998...... 3,682,962 $9,265,400 -- $ --
========= ========== ======== =========
April 15, 1999.................... 225,000 229,754 -- --
May 21, 1999...................... 40,000 39,304 -- --
May 25, 1999...................... 180,000 184,575 -- --
June 25, 1999..................... 1,600 1,622 -- --
June 28, 1999..................... 10,000 10,217 -- --
--------- ---------- -------- ---------
Balance at December 31, 1999...... 4,139,562 $9,730,872 -- $ --
========= ========== ======== =========
</TABLE>
On July 21, 1997, iNTELEFILM and Unimedia S.A., a privately held societe
anonyme organized and existing under the laws of France, entered into an
agreement pursuant to which Unimedia agreed to sell 1,000,000 Harmony shares to
iNTELEFILM for $2,600,000 and Unimedia agreed to dismiss the litigation entitled
UNIMEDIA S.A. V. HARMONY HOLDINGS, INC. AND HARVEY BIBICOFF, case no. CV 96-7109
JGD (RNBx), pending in the United States District Court for the Central District
of California. iNTELEFILM assigned its right to purchase 230,769 of the shares
to Harmony. As a result, the number of issued and outstanding Harmony shares was
reduced and iNTELEFILM's purchase price became $2,000,000 in cash. Pursuant to
this transaction, iNTELEFILM was able to increase its equity position in
Harmony, avoid any dispute with Unimedia as a shareholder in Harmony and settle
a potential material liability of Harmony.
On July 22, 1997, iNTELEFILM acquired 600,000 Harmony shares and options to
purchase 550,000 additional Harmony shares from Harvey Bibicoff, Harmony's
former Chief Executive Officer, for $1,760,000 in cash and 60,000 iNTELEFILM
shares valued at $247,500. Prior to the date of this transaction, iNTELEFILM and
Harmony had no common directors or executive officers.
25
<PAGE> 29
On September 25, 1997, iNTELEFILM purchased:
- 420,000 Harmony shares from Glenn B. Laken, a Harmony stockholder, at
$3.15 per share,
- 399,500 Harmony shares from a group which was acting together with Mr.
Laken at $2.70 per share, and
- options to purchase 200,000 Harmony shares from Mr. Laken at an exercise
price of $1.50 per share for $330,000.
In April 1998, iNTELEFILM assigned all of its right to purchase 225,000
Harmony shares at $2.50 per share from Mr. Laken to:
- Pyramid Partners, L.P.,
- Perkins & Partners, Inc., Profit Sharing Plan & Trust, and
- Christopher T. Dahl and State Bank of New Prague Joint Account.
Pyramid Partners, L.P. is an entity of which Perkins Capital Management is the
managing partner. Richard W. Perkins, a director of both iNTELEFILM and Harmony,
is President and Chief Executive Officer of Perkins Capital Management. Mr.
Perkins is also President of Perkins & Partners, Inc. Christopher T. Dahl is
President, Chief Executive Officer and Chairman of both iNTELEFILM and Harmony.
In November 1998, iNTELEFILM purchased 225,000 Harmony shares at $2.75 per
share from Pyramid Partners, L.P.; Perkins & Partners, Inc., Profit Sharing Plan
& Trust; and Christopher T. Dahl and State of New Prague Joint Account.
On June 30, 1998, iNTELEFILM exercised stock options to purchase 750,000
Harmony shares at $1.50 per share. Harmony received cash proceeds of $1,125,000
from this exercise. On July 2, 1998, iNTELEFILM purchased 250,000 Harmony shares
on the open market for $432,500 in cash. On November 4, 1998, iNTELEFILM
purchased 494,231 Harmony shares directly from Harmony for $968,750 in cash.
iNTELEFILM's 1999 purchases of Harmony common stock, aggregating 456,600
shares, were open market purchases for total consideration of $465,472 in cash.
Upon completing iNTELEFILM's April 15, 1999 purchase of 225,000 shares, its
ownership of Harmony exceeded 50% of Harmony's outstanding shares. iNTELEFILM
began consolidating Harmony for financial reporting purposes on April 1, 1999.
TIMING OF THE OFFER
iNTELEFILM's offer is scheduled to expire at 11:59 p.m., Minneapolis time,
on December 21, 2000. For more information, you should read the discussion under
the caption "Extension, termination and amendment."
EXTENSION, TERMINATION AND AMENDMENT
iNTELEFILM expressly reserves the right, in its sole discretion, at any
time or from time to time, to extend the period of time during which its offer
remains open. iNTELEFILM may extend the duration of its offer by giving oral or
written notice of such extension to the exchange agent and by making a public
announcement. iNTELEFILM is not making any assurance that it will exercise its
right to extend its offer by providing a
26
<PAGE> 30
subsequent offering period, although iNTELEFILM currently intends to do so until
all conditions have been satisfied or waived. You will not be allowed to
withdraw shares tendered during any subsequent offering period. You should read
the discussion under the caption "Withdrawal rights" for details regarding the
withdrawal of tendered Harmony shares.
Subject to the SEC's applicable rules and regulations, iNTELEFILM also
reserves the right, in its sole discretion, to do any of the following, at any
time or from time to time:
- to delay exchange of or acceptance for exchange of any Harmony shares
pursuant to the offer regardless of whether iNTELEFILM previously
accepted Harmony shares for exchange;
- to terminate the offer and not exchange or accept for exchange any
Harmony shares not previously exchanged, or accepted for exchange upon
the failure of any of the conditions of the offer to be satisfied; or
- to waive any condition, other than the conditions relating to the absence
of an injunction and the effectiveness of the registration statement for
the iNTELEFILM shares to be issued in the offer and the merger, or
otherwise amend the offer in any respect by giving oral or written notice
of such extension, termination or amendment to the exchange agent and by
making a public announcement.
iNTELEFILM will follow any extension, termination or amendment with a public
announcement as promptly as practicable. In the case of an extension, any such
announcement will be issued no later than 9:00 a.m., Minneapolis time, on the
next business day after the previously scheduled expiration date. Subject to
applicable law which requires that any material change in the information
published, sent or given to stockholders in connection with the offer be
promptly sent to stockholders in a manner reasonably designed to inform
stockholders of such change and without limiting the manner in which iNTELEFILM
may choose to make any public announcement, iNTELEFILM assumes no obligation to
publish, advertise or otherwise communicate any such public announcement other
than by making a release to Business Wire.
If iNTELEFILM makes a material change in the terms of its offer or the
information concerning the offer, or if iNTELEFILM waives a material condition
of the offer, iNTELEFILM will extend the offer to the extent required under the
Exchange Act. If, prior to the expiration date, iNTELEFILM changes the
percentage of Harmony shares being sought or the consideration offered, that
change will apply to all holders whose Harmony shares are accepted for exchange
pursuant to the offer. If at the time notice of that change is first published,
sent or given to you, the offer is scheduled to expire at any time earlier than
the tenth business day from and including the date of such notice, iNTELEFILM
will extend the offer until the expiration of that ten business day period. For
purposes of iNTELEFILM's offer, a business day means any day other than a
Saturday, Sunday or federal holiday and consists of the time period from 12:00
a.m. through 11:59 p.m, Minneapolis time.
iNTELEFILM may, although it does not currently intend to, elect to provide
a subsequent offering period of 3 to 20 business days following completion of
the initial
27
<PAGE> 31
offering period during which Harmony stockholders can tender Harmony shares into
the offer without withdrawal rights. If used, the subsequent offering period
would be designed:
- to assist iNTELEFILM in reaching the statutory minimum necessary to
perform a short-form merger, and
- to provide Harmony stockholders one last opportunity to tender into an
offer that is otherwise complete,
thereby avoiding the delay and illiquid market that can result after a tender
offer and before the related merger. During a subsequent offering period,
iNTELEFILM would accept and promptly exchange Harmony shares as they are
tendered, providing Harmony stockholders with the same form and amount of
consideration as paid in the offer. Independent of whether iNTELEFILM provides a
subsequent offering period, it may be required to extend the initial offering
period if there is a material change in the information contained in this
document. In either event, iNTELEFILM would amend the offer and disseminate new
information to Harmony stockholders through a press release disclosing such
information.
EXCHANGE OF HARMONY SHARES; DELIVERY OF INTELEFILM SHARES
Upon the terms and subject to the conditions of the offer, iNTELEFILM will
accept for exchange, and will exchange, Harmony shares validly tendered and not
withdrawn as promptly as practicable after the expiration date. In addition,
subject to applicable rules of the SEC, iNTELEFILM expressly reserves the right
to delay exchange or acceptance for exchange of Harmony shares in order to
comply with any applicable law. In all cases, exchange of Harmony shares
tendered and accepted for exchange pursuant to the offer will be made only after
timely receipt by the exchange agent of all of the following:
- certificates for those Harmony shares or a confirmation of a book-entry
transfer of those Harmony shares in the exchange agent's account at DTC;
- a properly completed and duly executed letter of transmittal or a
manually signed facsimile of that document; and
- any other required documents.
For purposes of the offer, iNTELEFILM will be deemed to have accepted for
exchange Harmony shares validly tendered and not withdrawn, as, if and when
iNTELEFILM notifies the exchange agent of its acceptance of the tenders of those
Harmony shares pursuant to the offer. The exchange agent will deliver iNTELEFILM
shares in exchange for Harmony shares tendered pursuant to the offer, and cash
instead of fractional shares, as soon as practicable after receipt of such
notice. The exchange agent will act as agent for tendering stockholders for the
purpose of receiving iNTELEFILM shares and cash to be paid instead of fractional
shares from iNTELEFILM and transmitting such stock and cash to tendering
stockholders. Tendering stockholders will not receive interest on any cash that
iNTELEFILM pays, even if there is a delay in making the exchange.
If iNTELEFILM does not accept any tendered Harmony shares for exchange
pursuant to the terms and conditions of the offer for any reason, or if
certificates are
28
<PAGE> 32
submitted for more Harmony shares than are accepted, as soon as practicable
following expiration or termination of the offer, iNTELEFILM will:
- return certificates for such unexchanged Harmony shares without expense
to the tendering stockholder, or
- in the case of Harmony shares tendered by book-entry pursuant to the
procedures set forth below under the caption "Procedure for tendering,"
credit such unexchanged Harmony shares to an account maintained within
DTC.
Because the number of iNTELEFILM shares you will receive in the offer is
fixed and because the market price of iNTELEFILM common stock may fluctuate
prior to the completion of the offer, the value of the iNTELEFILM shares that
you will receive in the offer may increase or decrease prior to and following
the offer.
CASH INSTEAD OF FRACTIONAL SHARES
iNTELEFILM will not issue certificates representing fractional shares of
its common stock pursuant to the offer. Instead, each tendering stockholder who
would otherwise be entitled to a fractional share will receive cash in an amount
equal to such fraction, expressed as a decimal and rounded to the nearest 0.01
of a share, multiplied by the closing price for one share of iNTELEFILM's common
stock on the Nasdaq National Market on the date that iNTELEFILM accepts those
Harmony shares for exchange.
WITHDRAWAL RIGHTS
You may withdraw Harmony shares tendered pursuant to the offer at any time
prior to the expiration date, and, unless iNTELEFILM previously accepted them
pursuant to the offer, you may also withdraw Harmony shares tendered pursuant to
the offer at any time after January 20, 2001. If iNTELEFILM elects to provide a
subsequent offering period pursuant to Rule 14d-11 under the Exchange Act, you
will not have the right to withdraw Harmony shares that you tender in the
subsequent offering period.
For your withdrawal to be effective, the exchange agent must receive from
you a written notice of withdrawal at the appropriate address set forth on page
67 of this document. Your notice must include your name, address, social
security number, the certificate number(s) and the number of Harmony shares to
be withdrawn as well as the name of the registered holder, if it is different
from that of the person who tendered those Harmony shares.
A financial institution must guarantee all signatures on the notice of
withdrawal. Most banks, savings and loan associations and brokerage houses are
able to effect these signature guarantees for you. The financial institution
must be an eligible institution, namely one which participates in the Securities
Transfer Agents Medallion Program, unless those Harmony shares have been
tendered for the account of an eligible institution. If Harmony shares have been
tendered pursuant to the procedures for book-entry tender discussed under the
caption "Procedure for tendering," any notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn Harmony
shares and must otherwise comply with DTC's procedures. If certificates have
been delivered or otherwise identified to the exchange agent, the name of the
registered holder and the serial numbers of the particular certificates
evidencing the Harmony shares withdrawn must also be furnished to the exchange
agent, as stated above, prior to the
29
<PAGE> 33
physical release of such certificates. iNTELEFILM will decide all questions as
to the form and validity of any notice of withdrawal, in iNTELEFILM's sole
discretion, and its decision shall be final and binding. Neither iNTELEFILM, the
exchange agent, the information agent nor any other person will be under any
duty to give notification of any defects or irregularities in any notice of
withdrawal or will incur any liability for failure to give any such
notification. Any Harmony shares properly withdrawn will be deemed not to have
been validly tendered for purposes of iNTELEFILM's offer. However, you may
retender withdrawn Harmony shares by following one of the procedures discussed
under the captions "Procedure for tendering" or "Guaranteed delivery" at any
time prior to the expiration date.
PROCEDURE FOR TENDERING
For you to validly tender Harmony shares pursuant to the offer, you must:
- do both of the following:
- a properly completed and duly executed letter of transmittal, or
manually executed facsimile of that document, along with any required
signature guarantees, or an agent's message in connection with a
book-entry transfer, and any other required documents, must be
transmitted to and received by the exchange agent at one of its
addresses set forth on page 67 of this document, and
- certificates for tendered Harmony shares must be received by the
exchange agent at such address or those Harmony shares must be tendered
pursuant to the procedures for book-entry tender set forth below and a
confirmation of receipt of such tender received, in each case before the
expiration date; or
- comply with the guaranteed delivery procedures set forth below.
The term "agent's message" means a message, transmitted by DTC to the
exchange agent and forming a part of a book-entry confirmation, which states:
- that DTC has received an express acknowledgment from the participant in
DTC tendering the Harmony shares which are the subject of such book-entry
confirmation,
- that such participant has received and agrees to be bound by the terms of
the letter of transmittal, and
- that iNTELEFILM may enforce that agreement against such participant.
The agent's message must be received by the exchange agent to be valid.
The exchange agent will establish accounts with respect to the Harmony
shares at DTC for purposes of the offer within two business days after the date
of this document. Any financial institution that is a participant in DTC may
make book-entry delivery of Harmony shares by causing DTC to transfer such
Harmony shares into the exchange agent's account in accordance with DTC's
procedure for such transfer. Although delivery of Harmony shares may be effected
through book-entry at DTC, you must follow the
30
<PAGE> 34
guaranteed delivery procedures described below, or you must transmit to, and the
exchange agent must receive before the expiration date, either of the following:
- the letter of transmittal or a manually signed facsimile of the letter of
transmittal, with any required signature guarantees, or
- an agent's message in connection with a book-entry transfer,
and any other required documents. Signatures on all letters of transmittal must
be guaranteed by an eligible institution, except in cases in which Harmony
shares are tendered either by a registered holder of Harmony shares who has not
completed Box C on the letter of transmittal or for the account of an eligible
institution.
If the certificates for Harmony shares are registered in the name of a
person other than the person who signs the letter of transmittal, or if
certificates for unexchanged Harmony shares are to be issued to a person other
than the registered holder(s), the certificates must be endorsed or accompanied
by appropriate stock powers. In either case the endorsement or appropriate stock
powers must be signed exactly as the name(s) of the registered owner(s) appear
on the certificates, with the signature(s) on the certificates or stock powers
guaranteed in the manner described above.
The method of delivery of Harmony share certificates and all other required
documents, including delivery through DTC, is at your option and risk, and the
delivery will be deemed made only when actually received by the exchange agent.
If delivery is by mail, we recommend registered mail with return receipt
requested, properly insured. In all cases, you should allow sufficient time to
ensure timely delivery.
To prevent backup federal income tax withholding with respect to any cash
received pursuant to the offer, you must provide the exchange agent with your
correct taxpayer identification number and certify whether you are subject to
backup withholding of federal income tax by completing the substitute Form W-9
included in the letter of transmittal. Some stockholders, including, among
others, all corporations and some foreign individuals, are not subject to these
backup withholding and reporting requirements. In order for a foreign individual
to qualify as an exempt recipient, the stockholder must submit a Form W-8,
signed under penalties of perjury, attesting to that individual's exempt status.
GUARANTEED DELIVERY
If you wish to tender Harmony shares pursuant to iNTELEFILM's offer and
your certificates are not immediately available or you cannot deliver the
certificates and all other required documents to the exchange agent prior to the
expiration date, or cannot complete the procedure for book-entry transfer on a
timely basis, your Harmony shares may nevertheless be tendered, so long as all
of the following conditions are satisfied:
- you make your tender by or through an eligible institution;
- a properly completed and duly executed notice of guaranteed delivery,
substantially in the form made available by iNTELEFILM, is received by
the exchange agent, as provided below, on or prior to the expiration
date; and
31
<PAGE> 35
- the following are received by the exchange agent within three Nasdaq
National Market trading days after the date of execution of such notice
of guaranteed delivery:
- the certificates for all tendered Harmony shares or a confirmation of a
book-entry transfer of such securities into the exchange agent's account
at DTC as described above, in proper form for transfer;
- a properly completed and duly executed letter of transmittal, or a
manually signed facsimile of the letter of transmittal, with any
required signature guarantees, or, in the case of a book-entry transfer,
an agent's message, and
- all other documents required by the letter of transmittal.
You may deliver the notice of guaranteed delivery by hand, facsimile or
mail to the exchange agent and you must include a guarantee by an eligible
institution in the form set forth in that notice.
In all cases, iNTELEFILM will exchange Harmony shares tendered and accepted
for exchange pursuant to its offer only after timely receipt by the exchange
agent of:
- certificate(s) for Harmony shares or timely confirmation of a book-entry
transfer of such securities into the exchange agent's account at DTC,
- properly completed and duly executed letter(s) of transmittal, or
manually signed facsimile(s) of the letter of transmittal, or an agent's
message in connection with a book-entry transfer, and
- any other required documents.
By executing a letter of transmittal as set forth above, you irrevocably
appoint iNTELEFILM's designees as your attorneys-in-fact and proxies, each with
full power of substitution, to the full extent of your rights with respect to
your Harmony shares tendered and accepted for exchange and with respect to any
other securities issued or issuable in respect of the Harmony shares on or after
December 22, 2000. That appointment is effective, and voting rights will be
affected, when and only to the extent that iNTELEFILM deposits iNTELEFILM
shares, along with any cash to be paid for fractional shares, for Harmony shares
that you have tendered with the exchange agent. All such proxies shall be
considered coupled with an interest in the tendered Harmony shares and therefore
shall not be revocable. Upon the effectiveness of such appointment, all prior
proxies that you have given will be revoked, and you may not give any subsequent
proxies. iNTELEFILM's designees will, with respect to the Harmony shares for
which the appointment is effective, be empowered, among other things, to
exercise all of your voting and other rights as they, in their sole discretion,
deem proper at any annual, special or adjourned meeting of Harmony's
stockholders or otherwise. iNTELEFILM requires that, in order for Harmony shares
to be deemed validly tendered, immediately upon iNTELEFILM's exchange of those
Harmony shares, iNTELEFILM must be able to exercise full voting rights with
respect to such Harmony shares.
iNTELEFILM will determine questions as to the validity, form, eligibility
and acceptance for exchange of any tender of Harmony shares, in its sole
discretion, and its determination shall be final and binding. iNTELEFILM
reserves the absolute right to reject any and all tenders of Harmony shares that
it determines are not in proper form or the acceptance of or exchange for which
may, in the opinion of its counsel, be unlawful.
32
<PAGE> 36
iNTELEFILM also reserves the absolute right to waive any of the conditions of
its offer, other than the conditions relating to the absence of an injunction
and the effectiveness of the registration statement for iNTELEFILM shares to be
issued in the offer and the merger, or any defect or irregularity in the tender
of any Harmony shares. No tender of Harmony shares will be deemed to have been
validly made until all defects and irregularities in tenders of Harmony shares
have been cured or waived. Neither iNTELEFILM, the exchange agent, the
information agent nor any other person will be under any duty to give
notification of any defects or irregularities in the tender of any Harmony
shares or will incur any liability for failure to give any such notification.
iNTELEFILM's interpretation of the terms and conditions of its offer, including
the letter of transmittal and instructions to such letter, will be final and
binding.
The tender of Harmony shares pursuant to any of the procedures described
above will constitute a binding agreement between iNTELEFILM and you upon the
terms and subject to the conditions of the offer.
EFFECT OF THE OFFER ON HARMONY REGISTRATION UNDER THE EXCHANGE ACT
Harmony shares are currently registered under the Exchange Act. Harmony can
terminate that registration upon application to the SEC if the outstanding
shares are not listed on a national securities exchange and if there are fewer
than 300 holders of record of Harmony shares. Termination of registration of the
Harmony shares under the Exchange Act would reduce the information that Harmony
must furnish to its stockholders and to the SEC and would make select provisions
of the Exchange Act, such as the short-swing profit recovery provisions of
Section 16(b), the requirement of furnishing a proxy statement in connection
with stockholder meetings pursuant to Section 14(a) and the related requirement
of furnishing an annual report to stockholders, no longer applicable with
respect to Harmony shares. Furthermore, the ability of "affiliates" of Harmony
and persons holding "restricted securities" of Harmony to dispose of such
securities pursuant to Rule 144 under the Securities Act may be impaired or
eliminated. If registration under the Exchange Act were terminated, Harmony
shares would no longer be eligible for OTC Bulletin Board trading.
CONDITIONS OF THE OFFER
Notwithstanding any other provision of iNTELEFILM's offer, iNTELEFILM shall
not be required to accept for exchange or exchange any Harmony shares, may
postpone the acceptance for exchange of or exchange for tendered Harmony shares,
and may, in its sole discretion, terminate or amend the offer if, on or after
the date of this document and at or prior to the expiration date of the offer,
any of the following conditions are not satisfied:
- iNTELEFILM would own at least 90% of the outstanding shares of Harmony
common stock upon completion of the offer;
- The registration statement shall have become effective under the
Securities Act, and no stop order suspending the effectiveness of the
registration statement shall have been issued nor shall there have been
proceedings for that purpose initiated or threatened by the SEC and
iNTELEFILM shall have received all necessary state securities law or
"blue sky" authorizations;
33
<PAGE> 37
- No temporary restraining order, preliminary or permanent injunction or
other order or decree issued by any court or agency of competent
jurisdiction or other legal restraint or prohibition preventing the
consummation of the offer or any of the other transactions contemplated
by this document shall be in effect; no statute, rule, regulation, order,
injunction or decree shall have been enacted, entered, promulgated or
enforced by any court, administrative agency or commission or other
governmental authority or instrumentality which prohibits, restricts or
makes illegal the consummation of iNTELEFILM's offer; nor shall there
have been a failure to obtain any required consent or approval under
foreign laws or regulations which would prohibit the consummation of the
offer or would have a material adverse effect on iNTELEFILM or Harmony;
- There shall not be pending any suit, action or proceeding by any
governmental entity:
- challenging the offer, seeking to restrain or prohibit the consummation
of the offer or seeking to obtain from Harmony or iNTELEFILM any damages
that are material in relation to Harmony and its subsidiaries taken as a
whole or iNTELEFILM and its subsidiaries taken as a whole,
- seeking to prohibit or limit the ownership or operation by Harmony or
iNTELEFILM or any of their subsidiaries of any material portion of the
business or assets of Harmony or iNTELEFILM or any of their subsidiaries
or to compel Harmony or iNTELEFILM or any of their subsidiaries to
dispose of or hold separate any material portion of the business or
assets of Harmony or iNTELEFILM or any of their subsidiaries as a result
of the offer,
- seeking to prohibit iNTELEFILM from effectively controlling in any
material respect the business or operations of Harmony, or
- which otherwise is reasonably likely to have a material adverse effect
on iNTELEFILM or Harmony; and
- Harmony shall not have entered into or effectuated any other agreement or
transaction with any person or entity having the effect of impairing
iNTELEFILM's ability to acquire Harmony or otherwise diminishing the
expected economic value to iNTELEFILM of the acquisition of Harmony.
The foregoing conditions are solely for iNTELEFILM's benefit and iNTELEFILM
may assert them in its sole discretion. Other than the conditions relating to
the absence of an injunction and the effectiveness of the registration
statement, iNTELEFILM may waive these conditions in whole or in part. The
determination as to whether any condition has been satisfied shall be in
iNTELEFILM's reasonable judgment and will be final and binding on all parties.
The failure by iNTELEFILM at any time to exercise any of the foregoing rights
shall not be deemed a waiver of any such right and each such right shall be
deemed a continuing right which may be asserted at any time and from time to
time. Notwithstanding the fact that iNTELEFILM reserves the right to assert the
failure of a condition following acceptance for exchange in order to postpone,
terminate or amend its obligation to exchange properly tendered Harmony shares,
iNTELEFILM will either promptly exchange such Harmony shares or promptly return
such Harmony shares.
34
<PAGE> 38
RELATIONSHIPS WITH HARMONY
As of the date of this prospectus, iNTELEFILM beneficially owned for its
own account 4,139,562 shares of Harmony common stock, constituting approximately
55% of the class. Three members of iNTELEFILM's board of directors, Christopher
T. Dahl, Richard W. Perkins and William E. Cameron, are members of Harmony's
board of directors. For further information please refer to "Material Contacts
between iNTELEFILM and Harmony."
FEES AND EXPENSES
iNTELEFILM has retained Georgeson Shareholder Communications Inc. to act as
the information agent in connection with the offer. The information agent may
contact holders of Harmony shares by mail, telephone, facsimile, telegraph and
personal interview and may request brokers, dealers and other nominee
stockholders to forward iNTELEFILM's offer materials to beneficial owners of
Harmony shares. The information agent will be paid $7,500 for such services,
plus reimbursement of out-of-pocket expenses, and iNTELEFILM will indemnify the
information agent against liabilities and expenses in connection with the offer,
including liabilities under federal securities laws. If you tender your shares,
you will not be obligated to pay any charges or expenses of the information
agent. However, iNTELEFILM will not pay any fees or commissions to any broker,
dealer or other persons, other than the information agent, for soliciting
tenders of Harmony shares pursuant to the offer.
ACCOUNTING TREATMENT
iNTELEFILM has historically accounted for the acquisition of its existing
55% ownership interest of Harmony as a purchase and accordingly, shares acquired
pursuant to the offer will also be accounted for as a "purchase," as such term
is used under GAAP, for accounting and financial reporting purposes. Harmony has
been and will continue to be treated as the acquired corporation for such
purposes. The proportionate share of Harmony's assets, liabilities and other
items will be adjusted to their estimated fair value on the closing date of the
offer and combined with the historical book values of the assets and liabilities
of iNTELEFILM. Applicable income tax effects of such adjustments will be
included as a component of the combined company's deferred tax asset or
liability. The difference between the estimated fair value of the assets,
liabilities and other items, adjusted as discussed above, and the purchase price
will be recorded as an intangible asset and amortized against the combined
company's earnings over a seven-year period following completion of the offer.
iNTELEFILM has prepared the unaudited pro forma financial information
contained in this document using the purchase accounting method to account for
the offer and the merger. For further information please refer to "Pro Forma
Condensed Combined Financial Statements."
35
<PAGE> 39
THE MERGER; APPRAISAL RIGHTS
OVERVIEW
iNTELEFILM intends, as soon as practicable after consummation of the offer,
to seek to merge Harmony with and into iNTELEFILM or a wholly-owned subsidiary
of iNTELEFILM. The purpose of the merger is to acquire all Harmony shares not
tendered and exchanged pursuant to the offer. In the merger, each outstanding
Harmony share not already owned by iNTELEFILM would be converted into the same
number of iNTELEFILM shares as is exchanged in the offer. iNTELEFILM expects to
consummate the merger pursuant to Section 253 of the Delaware General
Corporation Law (the "DGCL"). Under Section 253 of the DGCL, a parent
corporation owning at least 90% of the outstanding shares of each class of a
subsidiary corporation may merge the subsidiary corporation into itself, or a
merger subsidiary, without the approval of the stockholders of the parent
corporation or of the board of directors or stockholders of the subsidiary
corporation. Assuming that Harmony stockholders tender at least 35% of Harmony's
outstanding common stock and iNTELEFILM accepts such shares for tender,
iNTELEFILM would effect the merger under Section 253 of the DGCL without the
vote of any other stockholder of Harmony.
Upon consummation of the offer, iNTELEFILM intends to take appropriate
actions to optimize the combined entities' assets, operations, management,
personnel, general and administrative functions and corporate structure and may
also elect or seek the election of nominees of its choice to Harmony's board of
directors. Except as otherwise discussed elsewhere in this document, iNTELEFILM
does not have any current plans or proposals that would result in an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation, or sale of a material amount of assets, involving Harmony or any of
its subsidiaries, or any material changes in Harmony's corporate structure or
business, or any change in its management.
APPRAISAL RIGHTS
Although stockholders who do not have appraisal rights as a result of the
offer, Harmony stockholders at the time of the merger who do not wish to accept
iNTELEFILM shares in the merger under Section 253 of the DGCL will have the
right under the DGCL to dissent and demand appraisal of their Harmony shares in
accordance with Section 262 of the DGCL. Under Section 262 of the DGCL,
dissenting stockholders who comply with the applicable statutory procedures will
be entitled to receive a judicial determination of the fair value of their
Harmony shares and to receive payment of such fair value in cash, together with
a fair rate of interest, if any.
The following summary of Section 262 of the DGCL discusses the material
provisions affecting stockholders' appraisal rights, is not intended to be a
complete statement of such rights and is qualified in its entirety by reference
to the full text of Section 262 of the DGCL, a copy of which is incorporated by
reference and attached to this prospectus as Appendix A. Holders of Harmony
common stock who want to exercise appraisal rights must strictly comply with the
rules governing the exercise of appraisal rights or they will lose those rights.
If the merger is completed, each holder of shares of Harmony common stock
as of the effective date of the merger who follows the procedures set forth in
Section 262 of the
36
<PAGE> 40
DGCL will be entitled to be paid for his or her shares of Harmony common stock
the fair value in cash of such shares of Harmony common stock.
No later than 10 days after the effective date of the merger, Harmony
stockholders entitled to appraisal rights will be notified that the merger was
approved and that appraisal rights are available. All written demands for
appraisal rights should be mailed or delivered to iNTELEFILM within 20 days
after the date of the mailing of such notice. Within 120 days after the
effective date of the merger, holders of shares of Harmony common stock entitled
to appraisal rights may file a petition in the Delaware Court of Chancery for
the appraisal of their shares, although they may, within 60 days after the
effective date of the merger, withdraw their demand for appraisal. Within 120
days after the effective date of the merger, the holders of dissenting shares
may also receive from iNTELEFILM, upon written request, a statement setting
forth the aggregate number of shares with respect to which demands for
appraisals have been received.
The fair value of shares of Harmony common stock will be determined by the
Delaware Court of Chancery, exclusive of any element of value arising from the
merger. The shares of Harmony common stock with respect to which holders have
perfected their appraisal rights in accordance with Section 262 of the DGCL and
have not effectively withdrawn or lost their appraisal rights are referred to in
this prospectus as the "dissenting shares."
Appraisal rights are available only to record holders of shares of Harmony
common stock. If you wish to exercise appraisal rights but have a beneficial
interest in shares which are held of record by or in the name of another person,
such as a broker or nominee, you should act promptly to cause the record holder
to follow the procedures set forth in Section 262 of the DGCL to perfect your
appraisal rights.
A demand for appraisal should be signed by or on behalf of the stockholder
exactly as the stockholder's name appears on the stockholder's stock
certificates. If the shares are owned of record in a fiduciary capacity, such as
by a trustee, guardian or custodian, the demand should be executed in that
capacity, and if the shares are owned of record by more than one person, as in a
joint tenancy or tenancy in common, the demand should be executed by or on
behalf of all joint owners. An authorized agent, including one or more joint
owners, may execute a demand for appraisal on behalf of a record holder,
provided that, in the demand, the agent identifies the record owner or owners
and expressly discloses that the agent is executing the demand as an agent for
the record owner or owners. A record holder such as a broker who holds shares as
nominee for several beneficial owners may exercise appraisal rights for the
shares held for one or more beneficial owners and not exercise rights for the
shares held for other beneficial owners. In this case, the written demand should
state the number of shares for which appraisal rights are being demanded. When
no number of shares is stated, the demand will be presumed to cover all shares
held of record by the broker or nominee.
If any holder of shares of Harmony common stock who demands appraisal of
his or her shares under Section 262 of the DGCL fails to perfect, or effectively
withdraws or loses the right to appraisal, his or her shares will be converted
into a right to receive the stock consideration with respect to the holder's
dissenting shares in accordance with the merger agreement. Dissenting shares
lose their status as dissenting shares if:
- the merger is abandoned;
- the dissenting stockholder fails to make a timely written demand for
appraisal;
37
<PAGE> 41
- neither iNTELEFILM nor the dissenting stockholder files a complaint or
intervenes in a pending action regarding appraisal rights within 120 days
after the effective date of the merger; or
- the stockholder delivers to iNTELEFILM, as the surviving corporation,
within 60 days after the effective date of the merger, or thereafter with
iNTELEFILM's approval, a written withdrawal of the stockholder's demand
for appraisal of the dissenting shares, although no appraisal proceeding
in the Delaware Court of Chancery may be dismissed as to any stockholder
without the approval of the court.
Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in the loss of appraisal rights, in which
event a Harmony stockholder will be entitled to receive the consideration with
respect to the holder's dissenting shares in accordance with the merger
agreement. In view of the complexity of the provisions of Section 262 of the
DGCL, holders of Harmony common stock who are considering objecting to the
merger should consult their own legal advisors.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material United States federal
income tax consequences of the transaction to Harmony stockholders. This
discussion presents the opinion of Briggs and Morgan, Professional Association,
counsel for iNTELEFILM, and is based on provisions of the Internal Revenue Code
of 1986, Treasury regulations promulgated thereunder, and related administrative
and judicial interpretations, all as in effect as of the date of this document
and all of which are subject to change, possibly with retroactive effect. This
discussion does not address all aspects of United States federal income taxation
that may be applicable to Harmony stockholders in light of their particular
circumstances or to Harmony stockholders subject to special treatment under
United States federal income tax law, including, without limitation:
- partnerships,
- select foreign persons,
- financial institutions,
- insurance companies,
- tax-exempt entities,
- dealers in securities,
- traders in securities that elect to apply a mark-to-market method of
accounting,
- select U.S. expatriates,
- persons that hold Harmony common stock as part of a straddle, hedge,
conversion transaction or other integrated investment,
- Harmony stockholders whose functional currency is not the United States
dollar, and
- Harmony stockholders who acquired Harmony shares through the exercise of
employee stock options or otherwise as compensation.
38
<PAGE> 42
This discussion is limited to Harmony stockholders that hold their Harmony
shares as capital assets and does not consider the tax treatment of Harmony
stockholders that hold Harmony shares through a partnership or other
pass-through entity. Furthermore, this summary does not discuss any aspect of
state, local or foreign taxation.
Harmony stockholders will recognize no gain or loss as a result of the
exchange of their Harmony common stock solely for shares of iNTELEFILM common
stock pursuant to the offer or the merger, except with respect to cash received
in lieu of fractional share interests, if any, as discussed below.
The aggregate adjusted tax basis of the shares of iNTELEFILM common stock
received by each Harmony stockholder in the offer or the merger, including only
fractional shares of iNTELEFILM common stock deemed to be received, as described
below, will be equal to the aggregate adjusted tax basis of the shares of
Harmony common stock surrendered.
The holding period of the shares of iNTELEFILM common stock received by
each Harmony stockholder in the offer or the merger, including only fractional
shares of iNTELEFILM common stock deemed to be received as described below, will
include the holding period of the shares of Harmony common stock exchanged
therefor.
A Harmony stockholder who received cash in lieu of a fractional shares of
iNTELEFILM common stock will be treated as if the fractional share had been
received by such stockholder in the offer or the merger and then redeemed by
iNTELEFILM in return for the cash amount. The receipt of such cash will cause
the recipient to recognize capital gain or loss equal to the difference between
the amount of cash received and the portion of such holder's adjusted tax basis
in the shares of iNTELEFILM common stock allocable to the fractional share.
Cash received by Harmony stockholders exercising appraisal rights will be
treated as (a) a distribution in full payment of such shares, resulting in
capital gain or loss, or (b) ordinary income, as the case may be, depending upon
such stockholder's individual situation.
Based upon the advice of counsel, iNTELEFILM believes that the offer or the
merger will be treated as an integrated transaction that will qualify as a
reorganization for federal income tax purposes. Accordingly, the material
federal income tax consequences to a holder of Harmony common stock will be as
described in the foregoing paragraphs.
The foregoing discussion is intended only as a summary and does not purport
to be a complete analysis or listing of all potential federal income tax
consequences of the offer. Harmony stockholders are urged to consult their tax
advisors concerning the United States federal, state, local and foreign tax
consequences of the offer to them.
39
<PAGE> 43
MATERIAL CONTACTS BETWEEN INTELEFILM AND HARMONY
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Several executive officers and directors of iNTELEFILM also serve as
executive officers or directors of Harmony. Christopher T. Dahl serves as the
Chairman of the Board, President and Chief Executive Officer of both iNTELEFILM
and Harmony. James G. Gilbertson and Steven C. Smith serve as the Chief
Operating Officer and Chief Financial Officer, respectively, of both iNTELEFILM
and Harmony. Jill J. Theis serves as the Secretary and General Counsel of both
iNTELEFILM and Harmony. Richard W. Perkins and William E. Cameron are directors
of both iNTELEFILM and Harmony.
Since August 1998, iNTELEFILM and Harmony have received administrative,
legal and accounting services from MMLLC, an entity owned by Mr. Dahl, Chairman
of the Board, President and Chief Executive Officer of both iNTELEFILM and
Harmony, and Mr. Perkins, a non-employee member of the board of directors of
both iNTELEFILM and Harmony. iNTELEFILM currently pays a set monthly fee of
$125,000 for such services. All outside services directly attributable to
iNTELEFILM are billed directly to iNTELEFILM. Employees of MMLLC also provide
similar services to Harmony for which Harmony currently pays a set monthly fee
of $55,000. The following information provides additional detail regarding the
relationships between iNTELEFILM, Harmony and MMLLC:
- iNTELEFILM paid MMLLC an aggregate of $745,000 for services during 1998,
$370,000 of which was paid in conjunction with expenses incurred in the
sale of iNTELEFILM's radio stations.
- iNTELEFILM paid MMLLC an aggregate of $1,095,000 for services during
1999, $550,000 of which was paid in conjunction with expenses incurred in
the sale of iNTELEFILM's radio stations.
- Harmony paid MMLLC an aggregate of $463,720 for such services during its
fiscal year ended June 30, 1999.
- The salaries of three officers of iNTELEFILM, Messrs. Gilbertson and
Smith and Ms. Theis, are paid by MMLLC. The services of Chief Operating
Officer, Chief Financial Officer and General Counsel are rendered by
Messrs. Gilbertson and Smith and Ms. Theis, respectively, on a shared
basis with Harmony.
- In August 1998, MMLLC entered into a consulting arrangement with Mr.
Perkins pursuant to which Mr. Perkins provided consulting services to
iNTELEFILM in connection with the restructuring of iNTELEFILM following
its sale of radio stations. Mr. Perkins was not paid for such services
during 1998. Through MMLLC, iNTELEFILM paid Mr. Perkins $170,000 for such
services during 1999. MMLLC terminated the foregoing consulting
arrangement effective December 31, 1999.
- MMLLC also has a consulting arrangement with Mr. Cameron, a non-employee
member of the board of directors of both iNTELEFILM and Harmony, pursuant
to which Mr. Cameron provides consulting services to iNTELEFILM and
Harmony in connection with the ongoing business strategies of such
entities. Through MMLLC, Harmony paid Mr. Cameron $36,000 and $45,061 for
such services during 1998 and 1999, respectively.
40
<PAGE> 44
In connection with the July 1997 acquisition by iNTELEFILM of Harmony
shares, iNTELEFILM borrowed an aggregate of $1.25 million from three parties:
Rodney P. Burwell, a former director of iNTELEFILM, Pyramid Partners, L.P., an
entity of which Perkins Capital Management, Inc. is the managing partner, and
William M. Toles, a shareholder of iNTELEFILM and a director of Harmony. Mr.
Perkins, a director of both iNTELEFILM and Harmony, is President and Chief
Executive Officer of Perkins Capital Management. Their loans were evidenced by
notes bearing interest at 10% per annum, initially payable in July 1998, and
amended in June 1998 to be payable in October 1998. Warrants to purchase an
aggregate of 125,000 iNTELEFILM shares at $4.00 per share were issued to those
lenders in July 1997. In connection with the June 1998 amendment to such notes:
- the interest rate on the note issued to Mr. Burwell was increased to 20%
per annum effective July 1998,
- an additional warrant to purchase 25,000 iNTELEFILM shares at $3.0625 per
share was issued to Pyramid Partners, L.P., and
- an additional warrant to purchase 12,500 iNTELEFILM shares at $3.0625 per
share was issued to Mr. Toles.
In November 1998, iNTELEFILM repaid Messrs. Perkins, Toles and Burwell in full.
Messrs. Dahl, Perkins and Cameron are directors of both iNTELEFILM and
Harmony. In January 1998, iNTELEFILM received proceeds of $611,000 and paid debt
issuance costs of $39,000 through the issuance of a note payable to Harmony with
a face amount of $650,000. The note payable bore interest at 15% per annum, was
unsecured and was due upon demand. In May 1998, iNTELEFILM repaid $322,863 of
principal on the note and $36,062 of interest which had accrued through May
1998. iNTELEFILM repaid the entire note along with accrued interest in June
1998.
In April 1998, iNTELEFILM assigned all of its right to purchase 225,000
Harmony shares at $2.50 per shares from Glenn B. Laken, a Harmony stockholder,
to:
- Pyramid Partners, L.P.,
- Perkins & Partners, Inc., Profit Sharing Plan & Trust, and
- Christopher T. Dahl and State Bank of New Prague Joint Account.
Pyramid Partners, L.P. is an entity of which Perkins Capital Management is the
managing partner. Richard W. Perkins, a director of both iNTELEFILM and Harmony,
is President and Chief Executive Officer of Perkins Capital Management. Mr.
Perkins is also President of Perkins & Partners, Inc. Christopher T. Dahl is
President, Chief Executive Officer and Chairman of both iNTELEFILM and Harmony.
In November 1998, iNTELEFILM repurchased 225,000 Harmony shares at $2.75
from Pyramid Partners, L.P.; Perkins & Partners, Inc., Profit Sharing Plan &
Trust; and Christopher T. Dahl and State of New Prague Joint Account.
From November 1998 to March 2000, iNTELEFILM advanced Harmony operating
funds under notes receivable, of which approximately $3.2 million remained
outstanding as of March 1, 2000. The notes receivable bear an interest rate of
14%. The Related Party Transaction Committee of Harmony's Board approved these
transactions. On March 22, 2000, iNTELEFILM called these notes. As a result of
Harmony's inability to repay the
41
<PAGE> 45
notes within the 30-day demand period, on May 1, 2000, iNTELEFILM granted
Harmony a temporary forbearance of the default to allow Harmony time to consider
its alternatives. In addition to the foregoing notes, iNTELEFILM had advanced
Harmony an additional $2.7 million to fund Harmony's operating losses as of
September 30, 2000, resulting in total indebtedness to iNTELEFILM of
approximately $5.9 million as of that date. iNTELEFILM is not obligated to
continue such funding and does not intend to continue such funding if the offer
is unsuccessful.
On June 30, 1998, iNTELEFILM exercised its stock options to purchase
750,000 Harmony shares for $1.50 per share. These options were purchased from
third parties by iNTELEFILM in previous transactions for consideration totaling
$790,000. Additionally, 550,000 of such options were purchased from Harvey
Bibicoff, Harmony's former Chief Executive Officer, concurrent with iNTELEFILM's
initial investment in Harmony.
Effective as of August 1, 1999, iNTELEFILM purchased the option agreement
entered into by Harmony and the four principal executives of Curious Pictures
Corporation, dated December 15, 1996, from Curious management. Under the option
agreement, Curious management could earn the right to purchase 50% of the
outstanding stock of Curious Pictures from Harmony upon the achievement of
specified financial goals. Pursuant to iNTELEFILM's purchase agreement and based
on the results of operations of Curious Pictures, it was agreed by all parties
that Curious management's rights to purchase the 50% equity interest in Curious
Pictures had fully vested and were exercisable for consideration totaling $50.
Following its purchase of the option agreement, iNTELEFILM acquired 50% of
Curious Pictures through the exercise of stock options granted under the option
agreement. iNTELEFILM also acquired a 1% equity interest in Curious Pictures
owned by Curious management that was initially conveyed to Curious management
upon signing the option agreement. The consideration paid to Curious management
by iNTELEFILM for the aforementioned acquisitions aggregated $3.0 million,
consisting of $1.5 million in cash and a $1.5 million note receivable bearing an
interest rate of 8% per year, which was paid on May 31, 2000. As a result of the
aforementioned transaction, iNTELEFILM came to own 51% of the outstanding stock
of Curious Pictures and Harmony came to own 49% of the outstanding stock of
Curious Pictures.
In addition, as of January 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, at the
end of each employment year, each member of Curious management was granted the
right to purchase from Harmony, one share of Curious Pictures, representing 1%
of the capital stock of Curious Pictures. As a result, if all of the members of
Curious management exercise all of their new options over the five-year term of
their employment agreements, iNTELEFILM will own 51% of the Curious Pictures
stock, Curious management will own 20%, and Harmony will own the remaining 29%.
Additionally, iNTELEFILM granted Curious management warrants to purchase an
aggregate of 300,000 iNTELEFILM shares for approximately $1.92 per share.
iNTELEFILM, Harmony, 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 Harmony, and iNTELEFILM obtained the right
to purchase such shares from Curious management. The price to be paid by
iNTELEFILM to Curious management under such put or call is $96,774 per share.
These options have been valued at $54,000 per option, their intrinsic value as
of August 1, 1999. The related compensation
42
<PAGE> 46
expense will be recognized ratably over the employment agreement service period
and reflected as a minority interest on iNTELEFILM's balance sheet. Further, the
minority interest will be ratably accreted to the value of management's put
right over the time period from the option vesting date to the date that the put
right may be exercised. During the nine month period ended September 30, 2000,
iNTELEFILM recognized compensation expense of $310,697, resulting in a minority
interest valuation aggregating $417,629 at September 30, 2000 and $139,947 at
December 31, 1999.
In February 2000, webADTV.com, Inc., a subsidiary of iNTELEFILM, granted
certain officers of iNTELEFILM and the non-employee directors of iNTELEFILM and
Harmony the right to purchase certain shares of webADTV common stock. Messrs.
Germain and Toles each received options to purchase 25,000 shares of webADTV
common stock at an exercise price of $0.02 per share, the fair market value of
such shares at the time of grant. In June 2000, in connection with the
appointment of Mr. Germain to webADTV's board of advisors, Mr. Germain received
options to purchase up to 40,000 additional shares of webADTV common stock at an
exercise price of $0.10 per share, the fair market value of such shares at the
time of grant.
In August 2000, iNTELEFILM, Harmony and their subsidiaries entered into an
accounts receivable based loan and security agreement with General Electric
Capital Corporation. This loan and security agreement provides for borrowings
for working capital under a revolving line of credit with availability based on
acceptable accounts receivable. All parties to the agreement cross-collateralize
all borrowings.
iNTELEFILM guarantees the New York office space for The End, a subsidiary
of Harmony. The lease is for ten years ending in August 2009 at a monthly rate
of $9,282.
DIRECTORS AND OFFICERS
The following table sets forth the name, business address, position with
iNTELEFILM and position with Harmony for each executive officer and director of
iNTELEFILM. Each person may be reached by telephone at (612) 925-8840. To
iNTELEFILM's knowledge, no person listed in the following table was convicted in
a criminal proceeding during the past five years, excluding traffic violations
or similar misdemeanors. To iNTELEFILM's knowledge, no person in the following
table was a party to any judicial or administrative proceeding during the past
five years, except for matters that were dismissed without sanction or
settlement, that resulted in a judgment, decree or final order enjoining the
person from future violations of, or prohibiting activities subject to, federal
or state securities laws, or a finding of any violation of federal or state
securities laws. To iNTELEFILM's knowledge, each person listed in the following
table is a citizen of the United States of America.
<TABLE>
<CAPTION>
NAME ADDRESS POSITION AT INTELEFILM POSITION AT HARMONY
---- ------- ---------------------- -------------------
<S> <C> <C> <C>
Christopher T. Dahl..... 5501 Excelsior Boulevard President, Chief President, Chief
Minneapolis, MN 55416 Executive Officer and Executive Officer and
Chairman of the Board Chairman of the Board
William E. Cameron...... 5501 Excelsior Boulevard Director Director
Minneapolis, MN 55416
Richard W. Perkins...... 730 East Lake Street Director Director
Wayzata, MN 55391
Michael R. Wigley....... One Carlson Parkway Director None
Suite 120
Plymouth, MN 55447-4453
</TABLE>
43
<PAGE> 47
<TABLE>
<CAPTION>
NAME ADDRESS POSITION AT INTELEFILM POSITION AT HARMONY
---- ------- ---------------------- -------------------
<S> <C> <C> <C>
William H. Spell........ 222 South Ninth Street Director None
Suite 2880
Minneapolis, MN 55402
James G. Gilbertson..... 5501 Excelsior Boulevard Chief Operating Officer Chief Operating Officer
Minneapolis, MN 55416 and
President -- Internet
Division
Patrick Knisley......... 5501 Excelsior Boulevard Executive Vice President None
Minneapolis, MN 55416 and President --
Production Division
Jill J. Theis........... 5501 Excelsior Boulevard General Counsel and General Counsel and
Minneapolis, MN 55416 Secretary Secretary
Steven C. Smith......... 5501 Excelsior Boulevard Chief Financial Officer Chief Financial Officer
Minneapolis, MN 55416
Michael N. Delgado...... 5501 Excelsior Boulevard Vice President -- None
Minneapolis, MN 55416 Marketing
</TABLE>
BUSINESS EXPERIENCE
Christopher T. Dahl has been President, Chief Executive Officer and
Chairman of iNTELEFILM since its inception in February 1990. Mr. Dahl also
serves as President, Chief Executive Officer and Chairman of Harmony, and is the
Chairman of webADTV, a subsidiary of iNTELEFILM. Mr. Dahl also owns CTD
Properties, a company that owns and operates real estate in the upper Midwest.
Mr. Dahl is also a board member of the Association for Publicly Traded Companies
and serves on the Advisory Board for the College of Liberal Arts of the
University of Minnesota. Messrs. Dahl and Perkins own and control MMLLC.
Employees of MMLLC provide certain administrative, legal and accounting services
to iNTELEFILM and Harmony. From 1985 to 1999, Mr. Dahl served as Chairman and
Chief Executive Officer of Community Airwaves Corporation ("CAC"), a company
which formerly owned and operated radio stations. Prior to founding CAC, Mr.
Dahl managed his private investments. From 1969 to 1979, Mr. Dahl was the
founder and President of a group of companies involved in photo finishing,
retail photo sales, home sewing notions, toy distribution and retail craft
stores. He was employed by Campbell-Mithun and Knox Reeves Advertising from 1965
to 1969.
William E. Cameron has been a director of iNTELEFILM since April 1998.
Formerly a Vice President with J. Walter Thompson, Omnicom and the NBC
Television Network, Mr. Cameron brings over 30 years experience to iNTELEFILM in
the fields of advertising and broadcast television. Since 1993, Mr. Cameron has
been the head of International Business Development for Universal Health
Communications, London, England, the largest medical-health-wellness video
library in the world. A broadcast journalism graduate of Drake University, Mr.
Cameron also serves as a director of Harmony and RME Entertainment.
Richard W. Perkins has been a director of iNTELEFILM since its inception in
February 1990. For more than five years, Mr. Perkins has been President and
Chief Executive Officer of Perkins Capital Management ("PCM"), a registered
investment advisor. Mr. Perkins is also a director of the following publicly
held companies: Bio-Vascular, Inc., a medical products manufacturer; CNS, Inc.,
a consumer products manufacturer; PW Eagle, Inc., a manufacturer of plastic
pipe; Harmony; LifeCore Biomedical, Inc., a medical device manufacturer; Nortech
Systems, Inc., an electronic sub-systems manufacturer; Quantech
44
<PAGE> 48
LTD., a developer of immunological tests; and Vital Images, Inc., a medical
visualization software company.
Michael R. Wigley was elected to iNTELEFILM's Board of Directors in
February 1998. Mr. Wigley is President and Chief Executive Officer of Great
Plains Companies, Inc. ("Great Plains"), a building material and supply company
based in Roseville, Minnesota. He has served as its President since 1989. Mr.
Wigley is Chairman and Chief Executive Officer of four subsidiaries of Great
Plains, as well as Chairman and Chief Executive Officer of Great Plains
Properties, Inc. and TerraDek Lighting, Inc., two independent privately-held
companies. Mr. Wigley is also a director of Choicetel Communications, Inc., an
Internet kiosk provider. He co-founded the Minnesota branch of McKinsey &
Company, where he managed various teams of consultants from 1986 to 1989. Mr.
Wigley holds a M.B.A. from Harvard University and a M.S. in Civil Engineering
from Stanford University.
William H. Spell has been a director of iNTELEFILM since September 30,
2000. Mr. Spell also serves as the Chief Executive Officer of PW Eagle, Inc., a
leading extruder of PVC pipe, polyethylene pipe and tubing products. In
addition, Mr. Spell also operates a firm which focuses on leveraged acquisitions
of established businesses in the upper midwest. Mr. Spell has been involved in
private equity investing since 1988. From 1981 through 1988, Mr. Spell was Vice
President and Director of Corporate Finance at John G. Kinnard & Co., a regional
investment banking firm located in Minneapolis, Minnesota. Mr. Spell has a B.S.
and an M.B.A. degree from the University of Minnesota.
James G. Gilbertson has served as iNTELEFILM's Chief Operating Officer
since April 1996 and its Chief Financial Officer from July 1992 to December 21,
1999. In January 2000, Mr. Gilbertson was appointed the Chief Executive Officer,
President and director of webADTV. From June 1988 to July 1992, he was the Chief
Financial Officer of Parker Communications, which operated a group of radio
stations. From 1985 to June 1998, he was Controller at Palmer Communications,
which operated radio, television and cable divisions. Prior to joining Palmer
Communications, Mr. Gilbertson was a practicing certified public accountant with
the firm of Ernst & Young LLP. Mr. Gilbertson is also the Chief Operating
Officer of Harmony. Mr. Gilbertson is also a director of Founders Food &
Firkins, Ltd., a company which owns and operates Granite City Brewery, a
microbrewery and restaurant. Mr. Gilbertson is the spouse of Ms. Theis.
Patrick Knisley became the Executive Vice President of iNTELEFILM in April
2000 and the President of the Production Division in August 2000 and divides his
time between New York and Los Angeles. Mr. Kinsley has worked in the advertising
and marketing field for twenty years. Mr. Kinsley spent thirteen years with
Young & Rubicam New York, rising to the level of Senior Vice President, and
working on such accounts as Johnson & Johnson, American Home Products and Kraft.
He joined the Bates advertising agency in 1991, where he served as Executive
Vice President in charge of the $300 million dollar Miller Brewing business, and
was later promoted to President and Chief Executive Officer of Bates Canada,
with offices in Toronto and Montreal where he was responsible for the Canadian
operation of Bates Worldwide. Mr. Kinsley is a native of Ohio, a cum laude
graduate of Harvard College, and holds an M.A. and a Ph.D. from the University
of Colorado.
Jill J. Theis joined iNTELEFILM in March 1997 and has served as the General
Counsel and Secretary since February 1999. From January 1996 to March 1997, Ms.
Theis worked for the law firm of Holper, Welsh, Mitchell & Joanis, P.A., in
Minneapolis, Minnesota. In 1997, Ms. Theis graduated from law school at William
Mitchell School of
45
<PAGE> 49
Law in St. Paul, Minnesota. Ms. Theis is also the General Counsel and Secretary
of Harmony and webADTV.com. Ms. Theis is the spouse of Mr. Gilbertson.
Steven C. Smith became the Chief Financial Officer of iNTELEFILM on
December 21, 1999. Mr. Smith has been with iNTELEFILM since October 1998.
Formerly the Chief Financial Officer of DIC Entertainment Animation Television
and Vice President of Finance of Orion Television, Mr. Smith brings more than 20
years experience with companies such as the Walt Disney Company. Mr. Smith has
also performed as a financial consultant to special effects houses, TV and
Satellite Broadcasters and technology companies. On December 21, 1999, Mr. Smith
also became the Chief Financial Officer of Harmony.
Michael N. Delgado oversees the marketing and sales efforts of iNTELEFILM
and has been with the company since March 1997. A graduate of the University of
Southern California School of Fine Arts, Mr. Delgado has orchestrated national
marketing campaigns and has been involved in worldwide branching efforts for a
variety of corporations including Patagonia and Lucky Brand Clothing Companies.
Mr. Delgado gained significant operations experience in his capacity as
President of SenDel Automotive Corporation, a manufacturer of aluminum
automotive wheels whose customers included Toyota Motor Company.
SECURITY OWNERSHIP
The following table sets forth the aggregate number and percentage of
Harmony shares beneficial owned by each executive officer and director of
iNTELEFILM, as of September 1, 2000. All Harmony Shares referred to in the table
below consist of shares issuable pursuant to the exercise of stock options.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
NAME BENEFICIALLY OWNED OUTSTANDING SHARES
---- ------------------ ------------------
<S> <C> <C>
Christopher T. Dahl......... 175,000 2.3%
William E. Cameron.......... 75,000 1.0%
Richard W. Perkins.......... 75,000 1.0%
William H. Spell............ 0 --
James G. Gilbertson......... 25,000 *
Jill J. Theis............... 1,667 *
Michael R. Wigley........... 0 --
Patrick Kinsley............. 0 --
Steven C. Smith............. 0 --
Michael N. Delgado.......... 0 --
</TABLE>
---------------
* Less than one percent
DESCRIPTION OF INTELEFILM CAPITAL STOCK
iNTELEFILM's Articles of Incorporation authorize it to issue 50,000,000
shares, with a par value of $0.02 per share. As of August 2, 2000, iNTELEFILM
had 6,511,366 shares issued and outstanding, and also had warrants and options
outstanding to purchase an additional 3,529,903 shares. The remaining shares are
undesignated.
COMMON STOCK
No share of iNTELEFILM common stock is entitled to preference over any
other share and each share of common stock is equal to every other share in all
respects. The holders of common stock, other than non-voting shares, are
entitled to one vote for each
46
<PAGE> 50
share held of record at each meeting of shareholders. The non-voting shares may
become shares with full voting rights at such time as they are transferred by
the current holder. In any distribution of assets, whether voluntary or
involuntary, holders are entitled to receive pro rata the assets remaining after
creditors have been paid in full and after any liquidation preference of any
other class of stock has been satisfied.
The board of directors of iNTELEFILM has the authority to issue the
remaining unissued authorized shares and to fix the powers, preferences, rights
and limitations of such shares or any class or series of such shares, without
shareholder approval. Persons acquiring such shares could have preferential
rights with respect to voting, liquidation, dissolution or dividends over
existing shareholders. Shares could also be issued to deter or delay a takeover
or other change in control of iNTELEFILM.
Holders of iNTELEFILM common stock have no preemptive rights to purchase
additional securities which may be offered by iNTELEFILM. There is no cumulative
voting for the election of directors. Accordingly, the owners of a majority of
outstanding voting shares may elect all of the directors if they choose to do
so. All iNTELEFILM shares are entitled to participate equally in all dividends
when, as and if declared by the board of directors out of funds legally
available therefor.
NON-VOTING COMMON STOCK
iNTELEFILM issued 189,041 shares of non-voting common stock to Russell
Cowles, a former director of iNTELEFILM, in April 1992. Given iNTELEFILM's
interest at that time in radio broadcast licenses and Mr. Cowles' interest at
that time in other media outlets, FCC regulations prohibited iNTELEFILM from
issuing voting securities to Mr. Cowles. All non-voting common stock is
currently convertible to voting common stock on a share for share basis.
PREFERRED STOCK
iNTELEFILM's Articles of Incorporation authorize iNTELEFILM's board of
directors, without further shareholder action, to issue shares of preferred
stock in one or more series and to fix the voting rights, liquidation
preferences, dividend rights, repurchase rights, conversion rights, redemption
rights and terms, including sinking fund provisions and other rights and
preferences of the preferred stock.
Although there is no current intention to do so, the board of directors of
iNTELEFILM may, without shareholder approval, issue additional shares of a class
or series of preferred stock with voting and conversion rights which could
adversely affect the voting power or dividend rights of the holders of common
stock and may have the effect of delaying, deferring or preventing a change in
control of iNTELEFILM.
SHAREHOLDER RIGHTS PLAN
In February 1998, iNTELEFILM's board of directors declared a dividend of
one common share purchase right for each share of iNTELEFILM common stock
outstanding as of the close of business on February 27, 1998. Each right will
entitle the registered holder to purchase from iNTELEFILM, after the
distribution date of the rights, that number of shares of iNTELEFILM common
stock having a market value of two times the purchase price of the rights at an
initial purchase price of $18.00, subject to adjustment. The board of directors
of iNTELEFILM further directed the issuance of one right, subject to adjustment,
with respect to each common share that shall become outstanding between the
record date and the earliest of the distribution date of the rights, the
redemption date of the rights or the final expiration date of the rights. The
rights may be issued with respect to common shares that become outstanding after
the distribution date and prior to
47
<PAGE> 51
the earlier of the redemption date or the final expiration date. The rights will
be issued upon the terms and subject to the conditions set forth in a rights
agreement dated as of February 19, 1998, between iNTELEFILM and Wells Fargo Bank
Minnesota, N.A., as rights agent.
The rights become exercisable at any time after the distribution date. The
distribution date is defined as the close of business on the earlier to occur
of:
- the fifteenth business day, or such later date as may be determined by
action of the board of directors of iNTELEFILM, after the date of the
commencement by any person or group of affiliated or associated persons,
or the first public announcement of the intention of any person or group
of affiliated or associated persons to commence, a tender or exchange
offer, the consummation of which would result in beneficial ownership by
a person or group of affiliated or associated persons of 20% or more of
the common shares of iNTELEFILM, or
- the fifteenth business day, or such later date as may be determined by
action of the board of directors of iNTELEFILM, after the first date of
public announcement by iNTELEFILM or an acquiring person that any person
or group of affiliated or associated persons intends to commence a tender
or exchange offer, the consummation of which would result in beneficial
ownership by a person or group of affiliated or associated persons of 20%
or more of the common shares then outstanding, not including:
- iNTELEFILM;
- any subsidiary of iNTELEFILM;
- any person holding common shares acquired by that person in a
transaction occurring after the record date and approved in advance in
writing by a majority of disinterested directors of iNTELEFILM's board
of directors to the extent, but only to the extent, of the common shares
so held;
- any employee benefit plan of iNTELEFILM or of any subsidiary of
iNTELEFILM;
- any person holding common shares for or pursuant to the terms of any
employee benefit plan of this sentence to the extent, but only to the
extent, of the common shares so held;
- any person who or which, together with all affiliates and associates of
such person, becomes the beneficial owner of 20% or more of the then
outstanding common shares as a result of the acquisition of common
shares directly from iNTELEFILM; or
- any person who or which, together with all affiliates and associates of
such person, is the beneficial owner of 20% or more of the common shares
outstanding on the twentieth business day preceding the record date.
A person is deemed to be an acquiring person, however, upon becoming the
beneficial owner, together with all affiliates and associates of such person, of
any additional common shares representing an incremental increase of 20% or more
of the common shares then outstanding, which were acquired at any time after the
twentieth business day preceding the record date.
48
<PAGE> 52
The rights will expire at the close of business on February 13, 2008,
unless the rights are earlier redeemed or exchanged by iNTELEFILM, in each case
as described below.
The purchase price, the number and the kind of shares covered by each right
are subject to adjustment from time to time to prevent dilution. The number of
outstanding rights and the number of common shares issuable upon exercise of
each right are also subject to adjustment in the event of a stock split or a
stock dividend on the common shares or consolidations or combinations of the
common shares occurring prior to the distribution date. Common shares
purchasable upon exercise of the rights will not be redeemable.
If any person or group of affiliated or associated persons becomes an
acquiring person, each holder of a right, other than the rights that are or were
acquired or beneficially owned by the acquiring person, which will thereupon
become null and void, will thereafter have the right to receive, upon exercise
of the right at the then-current exercise price of the right, that number of
common shares having a market value of two times the exercise price of the
right. If, on or after the share acquisition date, iNTELEFILM is, in effect,
acquired in a merger or other business combination transaction, or 50% or more
of its consolidated assets or earning power is sold, proper provisions will be
made so that each holder of a right, other than rights owned by that person or
group, which will have become null and void, will thereafter have the right to
receive, upon exercise of the right at the then-current exercise price of the
right, that number of shares of capital stock of the acquiring company which at
the time of such transaction will have a market value of two times the exercise
price of the right.
At any time after any person or group becomes an acquiring person and
before the earlier of one of the events described in the previous paragraph, the
board of directors of iNTELEFILM may exchange the rights, other than rights
owned by that person or group which will have become null and void, in whole or
in part, at an exchange ratio of one common share per right, subject to
adjustment. As described in the rights agreement, rights issued to any person
who becomes an acquiring person become null and void.
In general, no adjustment in the purchase price will be required unless
such cumulative adjustments require an adjustment of at least 1% in the purchase
price. iNTELEFILM is not required to issue fractional common shares. In lieu of
issuing fractional shares, an adjustment in cash will be made based on the
market price of the common shares on the last trading day prior to the date of
exercise.
iNTELEFILM may redeem all but not less than all of the then outstanding
rights at a redemption price of $0.01 per right, subject to adjustment, in cash,
with common shares, or other consideration deemed appropriate by iNTELEFILM at
any time prior to the earlier of:
- the close of business on the tenth business day after the first date of
public announcement by iNTELEFILM or an acquiring person that an
acquiring person has become such, or
- the final expiration date.
Immediately upon the action of the board of directors of iNTELEFILM ordering the
redemption of the rights, the right to exercise the rights will terminate.
For so long as the rights are then redeemable, iNTELEFILM in its sole and
absolute discretion may from time to time rescind, change, supplement or amend
the rights agreement in any respect without the approval of any holders of
rights certificates. At any time when the rights are no longer redeemable,
iNTELEFILM may supplement or amend
49
<PAGE> 53
the rights agreement without the approval of any holders of rights certificates
in order to cure ambiguities, correct or supplement defective or inconsistent
provisions, shorten or lengthen time periods, or otherwise change, delete or
supplement provisions, so long as any such change, deletion or amendment does
not adversely affect the interests of the holders of the rights, other than an
acquiring person or an affiliate or associate of an acquiring person, in whose
hands all rights are null and void.
Until a right is exercised, the holder of such right, as such, will have no
rights as a shareholder of iNTELEFILM pursuant to such right, including, without
limitation, the right to vote or to receive dividends.
The rights have anti-takeover effects. The rights will cause substantial
dilution to a person or group that attempts to acquire iNTELEFILM without
conditioning the offer on a substantial number of rights being acquired or
redeemed. The rights should not interfere with any merger or other business
combination approved by the board of directors of iNTELEFILM since the board of
directors may, at its option and in its sole and absolute discretion, redeem the
rights as provided in the rights agreement.
The rights agreement between iNTELEFILM and the rights agent specifying the
terms of the rights, which includes the form of right certificate and the form
of summary of rights to purchase common shares as exhibits, has been filed as an
exhibit to iNTELEFILM's Registration Statement on Form 8-A/A. See "Where You Can
Find More Information" on page 61. This summary description of the rights does
not purport to be complete and is qualified in its entirety by reference to the
rights agreement, which is incorporated by reference into this document.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
INTELEFILM
iNTELEFILM common stock is listed on the Nasdaq National Market and traded
under the symbol "FILM." The following table sets forth, for the calendar
periods indicated, the high and low reported sales prices per share of
iNTELEFILM common stock on the Nasdaq National Market.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
---------------
HIGH LOW
------ ------
<S> <C> <C>
1998
First Quarter.......................................... $4.313 $3.188
Second Quarter......................................... 4.063 3.000
Third Quarter.......................................... 3.375 2.875
Fourth Quarter......................................... 3.688 2.813
1999
First Quarter.......................................... 3.063 1.719
Second Quarter......................................... 2.188 1.594
Third Quarter.......................................... 2.563 1.500
Fourth Quarter......................................... 5.250 1.625
2000
First Quarter.......................................... 5.125 3.375
Second Quarter......................................... 3.188 2.063
Third Quarter.......................................... 2.500 1.500
Fourth Quarter (through November 13, 2000)............. 2.125 1.125
</TABLE>
50
<PAGE> 54
HARMONY
Harmony common stock is listed on the OTC Bulletin Board and traded under
the symbol "HAHO." The following table sets forth, for the calendar periods
indicated, the high and low reported sales prices per share of Harmony common
stock on the OTC Bulletin Board reporting system. Such over-the-counter market
quotations reflect interdealer prices without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
-----------------
HIGH LOW
------- -------
<S> <C> <C>
1998
First Quarter..................................... $2.0625 $1.3125
Second Quarter.................................... 1.8125 1.3125
Third Quarter..................................... 1.6875 1.0000
Fourth Quarter.................................... 1.4375 1.1875
1999
First Quarter..................................... 1.5000 1.0000
Second Quarter.................................... 1.0625 0.8750
Third Quarter..................................... 1.1250 0.3125
Fourth Quarter.................................... 0.4375 0.1250
2000
First Quarter..................................... 0.3000 0.1250
Second Quarter.................................... 0.2600 0.1300
Third Quarter..................................... 0.1590 0.1000
Fourth Quarter (through November 13, 2000)........ 0.1100 0.0500
</TABLE>
DIVIDEND POLICY OF iNTELEFILM AND HARMONY
The holders of iNTELEFILM and Harmony common stock receive dividends if and
when declared by their respective board of directors out of funds legally
available therefor. The declaration and payment of dividends by iNTELEFILM after
completion of the offer will depend upon business conditions, operating results,
capital and reserve requirements and the consideration of other relevant factors
by iNTELEFILM's board of directors.
iNTELEFILM and Harmony have not paid dividends during the past two years.
Under the terms of Harmony's revolving line of credit, Harmony is currently
prohibited from paying dividends on its common stock. Following the completion
of the tender offer, iNTELEFILM intends to retain future earnings, if any, to
fund the development and growth of its business.
51
<PAGE> 55
COMPARISON OF SECURITY HOLDER RIGHTS
iNTELEFILM is incorporated under the laws of the State of Minnesota.
Harmony is incorporated under the laws of the State of Delaware. Upon an
exchange of shares by tendering Harmony stockholders, or upon a subsequent
short-form merger of Harmony with iNTELEFILM, Harmony stockholders, whose rights
are currently governed by the DGCL, the certificate of incorporation of Harmony
and the amended and restated bylaws of Harmony, will become shareholders of
iNTELEFILM, and their rights as such will be governed by the Minnesota Business
Corporation Act (the "MBCA"), the iNTELEFILM articles of incorporation and the
bylaws of iNTELEFILM. The material differences between the rights of Harmony
stockholders and the rights of iNTELEFILM shareholders, resulting from the
differences in their governing documents, are summarized below.
The following summary enumerates material differences between the rights of
iNTELEFILM shareholders and Harmony stockholders, but is qualified in its
entirety by reference to the DGCL, the MBCA and the governing corporate
instruments of iNTELEFILM and Harmony, to which Harmony stockholders are
referred. Copies of the governing corporate instruments of iNTELEFILM and
Harmony are available, without charge, to any person, including any beneficial
owner to whom this prospectus is delivered, by following the instructions listed
under "Where You Can Find More Information" on page 61.
NUMBER OF DIRECTORS
The DGCL requires that Harmony's board consists of one or more directors,
the number of Harmony directors is to be fixed by or in the manner provided in
Harmony's bylaws, unless Harmony's certificate of incorporation fixes the number
of directors. Harmony's certificate of incorporation does not address the number
of directors to serve on its board. Harmony's bylaws require that its board
consist of between one and six directors. Harmony's board currently consists of
five directors. The MBCA requires that iNTELEFILM's board consist of one or more
directors, the number to be fixed by or in the manner provided in iNTELEFILM's
articles of incorporation or bylaws. iNTELEFILM's bylaws require that its board
consist of at least one or more directors, as shall be determined by iNTELEFILM
shareholders. iNTELEFILM's board currently consists of five directors.
ELECTION OF DIRECTORS
The DGCL permits a board of directors to be divided into classes without
regard to the size of the board of directors. Harmony's board is not classified.
Under the DGCL, cumulative voting in the election of directors does not exist
unless specified in the certificate of incorporation. Harmony's certificate of
incorporation allows Harmony stockholders, at their own option, to cumulate
votes and give one candidate a number of votes equal to the number of directors
to be elected multiplied by the number of votes to which the stockholder's
shares are entitled. Harmony's bylaws require directors be elected by the
affirmative vote of a majority of stockholders present at each annual
stockholder meeting, or at a special meeting of stockholders in the event no
annual meeting occurs.
The MBCA permits a board of directors to be divided into classes without
regard to the size of the board of directors. iNTELEFILM's board is not
classified. Under the MBCA, cumulative voting in the election of directors is
mandatory unless the articles of incorporation provide there shall be no
cumulative voting. iNTELEFILM's articles of
52
<PAGE> 56
incorporation contain a provision eliminating cumulative voting. iNTELEFILM's
bylaws require directors be elected by the affirmative vote of a majority of
shareholders present at the regular shareholder meeting to be held on an annual
or other less frequent periodic basis.
REMOVAL OF DIRECTORS
The DGCL provides that any director or all directors may be removed at any
time, with or without cause, by the affirmative vote of the holders of a
majority of the voting power of all shares entitled to vote at an election of
directors. Because Harmony stockholders are entitled to cumulative voting, if
less than the entire board is to be removed, no director may be removed without
cause if the votes cast against such director's removal would be sufficient to
elect the director if then cumulatively voted at an election of the entire board
of directors. Harmony's certificate of incorporation does not alter these
provisions.
The MBCA provides that unless otherwise provided in the articles of
incorporation or bylaws, directors may be removed at any time, with or without
cause, by the affirmative vote of the holders of a majority of the voting power
of all shares entitled to vote at an election of directors. iNTELEFILM's bylaws
allow any or all of the directors to be removed with or without cause:
- at any meeting of the shareholders called for that purpose by a majority
of the iNTELEFILM common stock represented and entitled to vote at the
meeting, or
- so long as the director was named by the board to fill a vacancy and
iNTELEFILM shareholders have not elected directors in the interval
between the time of the appointment to fill a vacancy and the time of the
removal, by the affirmative vote of a majority of the remaining
directors.
VACANCIES ON THE BOARD OF DIRECTORS
The DGCL provides that, unless otherwise provided in the certificate of
incorporation or bylaws, vacancies and newly created directorships resulting
from an increase in the authorized number of directors may be filled by a
majority of the directors then in office, although less than a quorum. Harmony's
certificate of incorporation provides that board vacancies may be filled by the
vote of a majority of the remaining directors, even if the remaining directors
do not constitute a quorum or if only one director remains on the board, and
that any director so elected will hold office until the next annual meeting and
until the director's successor is elected and qualified. Harmony's bylaws
provide that Harmony stockholders may elect a director or directors at any time
to fill any vacancy not filled by the directors, so long as the stockholders act
by written consent of a majority of the outstanding shares entitled to vote.
iNTELEFILM's bylaws provide that vacancies in the board resulting from the
death, resignation, removal or disqualification of a director shall be filled by
the affirmative vote of a majority of the remaining directors, even though less
than a quorum, or by iNTELEFILM shareholders. The MBCA and iNTELEFILM's bylaws
provide that vacancies in the board may be filled by the affirmative vote of a
majority of the remaining directors, even though less than a quorum, or existing
directors at the time of an increase. The MBCA and iNTELEFILM's bylaws also
provide that a director elected to fill a
53
<PAGE> 57
vacancy serves until the next regular or special meeting of shareholders and
until the director's successor is elected and qualified.
SHAREHOLDER ACTION BY WRITTEN CONSENT
Harmony's bylaws provide that any action required or permitted to be taken
at a stockholder meeting may be taken without a meeting and without prior notice
if a consent in writing is signed by the holders of outstanding shares having
not less than the minimum number of votes that would be necessary to authorize
such action at a meeting. iNTELEFILM'S bylaws provide that any action required
or permitted to be taken at a shareholder meeting may be taken without a meeting
if the action is taken by all the shareholders entitled to vote on the action
and evidenced by written consent signed by all the shareholders.
AMENDMENT TO INCORPORATING INSTRUMENTS
The DGCL permits Harmony's certificate of incorporation to be altered,
amended, or repealed upon the board's recommendation and by a vote of a majority
of the stock outstanding and entitled to vote. Harmony's certificate of
incorporation does not alter these provisions.
The MBCA provides that amendments to iNTELEFILM's articles of incorporation
may be recommended to the iNTELEFILM shareholders by the majority of the board
or a shareholder or shareholders holding three percent or more of the voting
power of the shares entitled to vote. Proposed amendments to iNTELEFILM's
articles must be approved by the affirmative vote of the holders of a majority
of the shares present and entitled to vote on such amendment, except that a
proposed amendment to cause the Minnesota control share acquisition statute at
MBCA Section 302A.671 to be inapplicable may also be approved by a committee of
the board of directors comprised solely of directors who:
- are, nor have been during the past five years, neither officers nor
employees,
- are neither "acquiring persons" nor affiliates or associates of an
"acquiring persons,"
- were not nominated for election as directors by an "acquiring persons" or
an affiliate or associate of an "acquiring persons," and
- were directors at the time an acquiring person became an "acquiring
persons" or were nominated, elected, or recommended for election as
directors by a majority of those directors.
AMENDMENT TO BYLAWS
The DGCL provides that, unless otherwise designated in the certificate of
incorporation, bylaws may be amended or repealed by the stockholders entitled to
vote. Harmony's certificate of incorporation provides that the board may amend
or repeal the bylaws. Harmony's bylaws also provide for amendment or repeal by
the vote of a majority of the holders of outstanding shares or by the approval
of the board.
54
<PAGE> 58
The MBCA provides that the board has the power to amend or repeal bylaws
unless:
- such power is reserved by the articles of incorporation to the
shareholders, or
- a shareholder or shareholders holding three percent or more of the voting
power of the shares entitled to vote propose a resolution for action by
the shareholders to adopt, amend, or repeal the bylaws.
iNTELEFILM's bylaws provide that they may be amended or repealed by the board,
except that amendments affecting the qualifications, classifications, number,
term, procedures for removal or filling of vacancies on the board of directors,
or fixing a quorum for shareholder meetings, may only be made by a majority vote
of shareholders. A proposed amendment to cause the Minnesota control share
acquisition statute at MBCA Section 302A.671 to be inapplicable, however, may be
approved by a committee of the board of directors comprised solely of directors
who:
- are, nor have been during the past five years, neither officers nor
employees,
- are neither "acquiring persons" nor affiliates or associates of an
"acquiring persons,"
- were not nominated for election as directors by an "acquiring persons" or
an affiliate or associate of an "acquiring persons," and
- were directors at the time an acquiring person became an "acquiring
persons" or were nominated, elected, or recommended for election as
directors by a majority of those directors.
CALLING OF SPECIAL MEETING OF SECURITY HOLDERS
The DGCL provides that special meetings of stockholders may be called by
the board or by such persons or persons as may be authorized by the certificate
of incorporation or bylaws. Harmony's bylaws authorize the board, the chairman
of the board, the chief executive officer, or the holders of not less than 10
percent of the outstanding shares entitled to vote at the meeting. Stockholders
must receive written notice of a special meeting no less than 10 days and no
more than 60 days before the date of the meeting.
The MBCA provides that special meetings of shareholders may be called by
the chief executive officer, the chief financial officer, two or more directors,
any person authorized in the articles or bylaws to call special meetings or a
shareholder or shareholders holding 10 percent or more of the voting power of
all shares entitled to vote, except that any special meeting for the purpose of
considering any action to directly or indirectly facilitate or effect a business
combination must be called by 25 percent or more of the voting power of all
shares entitled to vote. iNTELEFILM's bylaws provide that special meetings of
shareholders may be called by the president, treasurer, two or more directors or
a shareholder or shareholders holding 10 percent or more of the voting power of
all shares entitled to vote at the meeting. Shareholders must receive written
notice of a special meeting at least three days and not more than 60 days before
the date of the meeting.
ANTI-TAKEOVER MEASURES
Both Delaware and Minnesota law contain provisions intended to protect
security holders from individuals or companies attempting a takeover of a
corporation in limited circumstances. The anti-takeover provisions of the DGCL
and the MBCA differ in a
55
<PAGE> 59
number of respects, and the following is a summary of material differences. As a
general rule, an interested shareholder in Minnesota is one who owns 10 percent
of the outstanding shares while an interested stockholder in Delaware is one who
owns 15 percent of the outstanding stock. An interested shareholder must wait
four years in Minnesota to engage in prohibited business combinations, while the
waiting period is only three years in Delaware. Minnesota law has a potentially
broader definition of a business combination which encompass a larger variety of
transactions.
Security holder rights plans
iNTELEFILM adopted a shareholder rights plan in February 1998. Rights may
become exercisable, entitling holders of such rights to purchase iNTELEFILM
common stock, as a result of acquisitions of, and tender or exchange offers for,
iNTELEFILM common stock. iNTELEFILM's shareholder rights plan may have the
effect of discouraging unsolicited mergers or acquisitions of iNTELEFILM common
stock. For a more detailed description of such plan see "Description of
iNTELEFILM capital stock -- Shareholders rights plan." Harmony has not adopted a
stockholder rights plan.
Control share acquisitions
The Minnesota "control share acquisition" statute establishes various
disclosure and shareholder approval requirements to be met by individuals or
entities attempting a takeover. Delaware has no comparable provision. The
Minnesota statute applies to an issuing public corporation. An "issuing public
corporation" is one which is incorporated under or governed by Minnesota law and
has at least 50 stockholders. iNTELEFILM is subject to the statute. Harmony,
because it is a Delaware corporation, is not subject to the statute.
The Minnesota statute requires disinterested shareholder approval for any
acquisition of shares of an "issuing public corporation" which results in the
"acquiring person" owning any of the following ranges of the outstanding shares
of such corporation:
- at least 20 percent but less than 33 1/3 percent;
- at least 33 1/3 percent but less than or equal to 50 percent; or
- over 50 percent.
Shareholders which exceed this threshold without shareholder approval lose their
voting rights and are subject to redemption privileges of the corporation. These
shares regain their voting rights only if the acquiring person discloses
information to the corporation and these voting rights are granted by the
shareholders at a special or annual meeting of the shareholders. The Minnesota
control share acquisition statute applies unless the "issuing public
corporation" opts out of the statute in its articles of incorporation or bylaws.
Neither the articles of incorporation nor the bylaws of iNTELEFILM contain such
an opt out provision.
Business combinations
While there is no Delaware statute comparable to the Minnesota control
share acquisition statute, both Minnesota and Delaware have business combination
statutes that are intended primarily to deter highly leveraged takeover bids
which propose to use the
56
<PAGE> 60
target's assets as collateral for the offeror's debt financing and to liquidate
the target, in whole or in part, to satisfy financing obligations.
In general, the MBCA states that an issuing public corporation may not
engage in business combinations with any person that acquires beneficial
ownership of ten percent or more of the voting stock of that corporation for a
period of four years following the date that the person became a ten percent
shareholder unless, prior to that share acquisition date, a committee of the
corporation's disinterested directors approve either the business combination or
the acquisition of shares.
In contrast to the Minnesota provisions, the DGCL Section 203 generally
provides that any person, including a corporation, acquiring 15 percent of more
of the voting stock of a Delaware corporation is designated as an interested
stockholder and the corporation may not engage in business combinations with
such person for a period of three years unless one of the following conditions
is met:
- prior to the date the person became an interested stockholder, the board
of directors approved either the business combination or the transaction
which resulted in such person becoming an interested stockholder;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, such person owned at least 85% of the
voting stock of the corporation, excluding those shares owned by
directors who are also officers and shares owned by select employee stock
ownership plans; or
- the business combination is approved by the board and authorized at an
annual or special meeting of stockholders, and not by written consent, by
the affirmative vote of two-thirds of the outstanding voting shares held
by disinterested stockholders.
The Delaware provisions also do not apply to any business combination in which
the corporation, with the support of a majority of those directors who were
serving as directors before any person became an interested stockholder,
proposes a merger, sale, lease, exchange or other disposition of at least 50
percent of its assets, or supports, or does not oppose, a tender offer for at
least 50 percent of its voting stock. In that case, all interested stockholders
are released from the three-year prohibition and may compete with the
corporation sponsored transaction.
DGCL Section 203 differs from Minnesota's control share acquisition
provisions in that under the DGCL, an otherwise prohibited business combination
may be permitted by board approval, by stockholder approval, or by an
acquisition of 85 percent of the outstanding shares of voting stock. Under the
MBCA, a prohibited transaction is only permitted by advance board committee
approval. In addition, the Delaware statute states that if the corporation
proposes a merger or sale of assets, or does not oppose a tender offer, all
interested stockholders are released from the three-year prohibition and may
compete with the company-sponsored transaction in limited circumstances.
Minnesota law does not have a comparable provision.
Both the MBCA and the DGCL permit a corporation to opt out of the business
combination statute by electing to do so in its articles or certificate of
incorporation or bylaws. Neither the certificate of incorporation nor the bylaws
of Harmony contain such an opt out provision. Similarly, neither the articles of
incorporation nor the bylaws of iNTELEFILM contain such an opt out provision.
57
<PAGE> 61
DGCL Section 203 does not apply to iNTELEFILM's offer because prior to the
date iNTELEFILM became an interested stockholder of Harmony, Harmony's board of
directors approved of the transactions which resulted in iNTELEFILM becoming an
interested stockholder.
Other anti-takeover provisions
The MBCA includes three special provisions relating to takeovers that are
not included in the DGCL. Minnesota law contains a provision prohibiting a
publicly-held corporation from entering into or amending agreements that
increase current or future compensation of any officer or director during any
tender offer or request or invitation for tenders. Minnesota law also prohibits
a publicly-held corporation from purchasing or agreeing to purchase any shares
from a person who beneficially owns more than five percent of the voting power
of the corporation if the shares had been beneficially owned by that person for
less than two years, and if the purchase price would exceed the market value of
those shares. However, a purchase will not violate the statute if it is approved
at a meeting of the shareholders by a majority of the voting power of all shares
entitled to vote or if the corporation's offer is of at least equal value per
share and is made to all holders of shares of the class or series and to all
holders of any class or series into which the securities may be converted.
Minnesota law also authorizes the board of directors, in considering the best
interests of the corporation in a proposed acquisition of an interest in the
corporation, to consider the interest of the corporation's employees, customers,
suppliers and creditors, the economy of the state and nation, community and
social considerations and the long-term as well as short-term interests of the
corporation and its shareholders, including the possibility that these interests
may best be served by the continued independence of the corporation.
INDEMNIFICATION
Delaware law permits a corporation to indemnify officers, directors,
employees or agents and expressly provides that such indemnification shall not
be deemed exclusive of any indemnification right provided under any bylaw, vote
of stockholders or disinterested directors or otherwise. The DGCL permits
indemnification against expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with any legal action,
suit or proceeding brought or threatened against such persons for their conduct
on behalf of the corporation. Indemnification is available provided the person
acted in good faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the corporation and, in the case of
criminal proceeding, had no reasonable cause to believe that the conduct was
unlawful. Delaware law does not allow indemnification for officers, directors,
employees or agents in the case of an action by, or in the right of, the
corporation, including stockholder derivative suits, as to which such person is
adjudged to be liable to the corporation, unless indemnification is ordered by a
court. Harmony's certificate of incorporation and bylaws require indemnification
to the full extent permitted by Delaware law, except that the certificate of
incorporation provides that no director shall be liable to Harmony or its
stockholders for monetary damages for breach of fiduciary duty as a director
except for liability:
- for any breach of the director's duty of loyalty to the corporation or
its stockholders,
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
58
<PAGE> 62
- for unlawful payment of a dividend or unlawful stock purchase or
redemption under Section 174 of the DGCL, or
- for any transaction from which the director derived an improper personal
benefit.
Harmony's certificate of incorporation and bylaws permit it to maintain
insurance on behalf of officers, directors, employees or agents against any
liability which may be asserted against them.
Minnesota law generally provides for mandatory indemnification of persons
made or threatened to be made a party to a proceeding by reason of a former or
present official capacity of the person against judgments, penalties, fines,
taxes assessed against the person, settlements and reasonable expenses,
including attorneys' fees and disbursements. Indemnification is available
provided the person has not been indemnified by another organization or employee
benefit plan for the same action, acted in good faith, received no improper
personal benefit, acted in a manner the person reasonably believed to be in or
not opposed to the best interest of the corporation and, in the case of criminal
proceeding, had no reasonable cause to believe that the conduct was unlawful. If
a person is made or threatened to be made a party to a proceeding, the person is
entitled, upon written request to the corporation, to payment or reimbursement
by the corporation of reasonable expenses, including attorneys' fees and
disbursements, incurred by the person in advance of the final disposition of the
proceeding. iNTELEFILM's articles of incorporation and bylaws provide for
indemnification to the full extent provided by Minnesota law and the articles of
incorporation eliminate indemnification for:
- any breach of the director's duty of loyalty to the corporation or its
stockholders,
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
- improper payment of a dividend or improper repurchase of iNTELEFILM stock
under Section 302A.559 of the MBCA or a violation of federal or state
securities laws,
- any transaction from which the director derived an improper personal
benefit, or
- any act or omission occurring prior to the date the articles of
incorporation became effective.
Minnesota law permits iNTELEFILM to maintain insurance on behalf of persons in
their official capacity against any liability which may be asserted against
them.
DISSENTERS' RIGHTS AND APPRAISAL RIGHTS IN CONNECTION WITH CORPORATE
REORGANIZATIONS AND OTHER ACTIONS
Under Minnesota law and Delaware law, security holders have the right, in
some circumstances, to dissent from corporate transactions by demanding payment
in cash for their shares equal to the fair value as determined by agreement with
the corporation or by a court in an action timely brought by the dissenters.
Delaware law in general allows for rights of appraisal only in select mergers or
consolidations, including any short-form merger under DGCL Section 253 involving
iNTELEFILM and Harmony. Minnesota law in general affords dissenters' rights upon
amendments to the articles of incorporation that materially and adversely affect
the rights or preferences of the shares of the dissenting shareholder, upon the
sale, lease, transfer or other disposition of substantially all corporate
59
<PAGE> 63
assets and upon a plan of merger or exchange. Delaware law eliminates rights of
appraisal in connection with certain mergers or consolidations, but not in
connection with a short-form merger, where stockholders receive either one or a
combination of the following:
- shares of stock of the surviving corporation in a merger;
- shares of stock that will be listed on a national securities exchange or
designated as a national market system security on Nasdaq or held of
record by more than 2,000 holders; or
- cash in lieu of fractional shares.
Minnesota law affords dissenters' rights regardless of whether the shares of the
corporation are listed on a national securities exchange or widely held.
Although no appraisal rights exist in connection with the tender offer,
Harmony stockholders who do not wish to accept iNTELEFILM shares in a short-form
merger which follows the offer will have the right under Delaware law to dissent
and demand appraisal of their Harmony shares. Rights of appraisal under Delaware
law entitle dissenting Harmony stockholders to receive a judicial determination
of, and receive payment for, the fair value of their shares. The procedures for
asserting rights of appraisal in Delaware impose most of the initial costs of
assertion on the dissenting stockholder, whereas the Minnesota procedures pose
little financial risk to the dissenting shareholder in demanding payment in
excess of the amount the corporation determined to be the fair value of the
dissenter's shares. Therefore, Harmony stockholders will have expanded
dissenters' rights under Minnesota law upon becoming iNTELEFILM shareholders.
LEGAL MATTERS
The validity of the common stock offered by iNTELEFILM in the offer and the
merger will be passed upon for iNTELEFILM by Jill J. Theis, Esq., Secretary and
General Counsel of iNTELEFILM. Ms. Theis is a participant in iNTELEFILM's stock
option plans and various other benefit plans offered by iNTELEFILM.
Briggs and Morgan, Professional Association, counsel for iNTELEFILM, will
pass upon certain federal income tax consequences of the offer and the merger.
EXPERTS
The consolidated financial statements of iNTELEFILM incorporated by
reference in this prospectus have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their report, incorporated herein by reference and are incorporated herein, in
reliance upon such report given upon the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of Harmony incorporated by reference
in this prospectus have been audited by BDO Seidman, LLP, independent certified
public accountants, to the extent and for the periods set forth in their report,
which contains an explanatory paragraph regarding Harmony's ability to continue
as a going concern, incorporated herein by reference and are incorporated
herein, in reliance upon such report given upon the authority of said firm as
experts in auditing and accounting.
60
<PAGE> 64
WHERE YOU CAN FIND MORE INFORMATION
iNTELEFILM and Harmony file annual, quarterly and special reports, proxy
statements and other information with the SEC under the Securities Exchange Act
of 1934. You may read and copy this information at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may also obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC also maintains an Internet site that contains reports,
proxy statements and other information about issuers, like iNTELEFILM and
Harmony, who file electronically with the SEC. The address of that site is
http://www.sec.gov.
iNTELEFILM filed a registration statement on Form S-4 to register with the
SEC the shares to be issued pursuant to the offer. This prospectus is a part of
that registration statement. As allowed by SEC rules, this prospectus does not
contain all the information you can find in the registration statement or the
exhibits to the registration statement. In addition, iNTELEFILM has filed with
the SEC a statement on Schedule TO pursuant to Rule 14d-3 under the Exchange Act
that furnishes information about its offer. You may obtain copies of the Form
S-4 or the Schedule TO, and any amendments to those documents, in the manner
described above.
The SEC allows iNTELEFILM and Harmony to "incorporate by reference"
information they file with the SEC, which means that iNTELEFILM and Harmony can
disclose important information to you by referring you to documents they file
with the SEC. The information incorporated by reference is considered to be part
of this registration statement. Information that iNTELEFILM and Harmony later
file with the SEC will automatically update and supersede this information. This
information is available at the Internet site the SEC maintains at
http://www.sec.gov, as well as from other sources.
iNTELEFILM incorporates by reference the documents listed below and any
future filings it will make with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act until all of the shares covered by this registration
statement have been sold or the offer terminates:
- Annual Report on Form 10-KSB for the year ended December 31, 1999 (as
amended).
- Quarterly Reports on Form 10-QSB for the quarters ended March 31, 2000
(as amended), June 30, 2000 (as amended), and September 30, 2000.
- Current Reports on Form 8-K filed on October 4, 2000, September 11, 2000,
July 10, 2000, June 22, 2000, April 27, 2000, April 26, 2000, March 23,
2000, March 3, 2000, February 29, 2000, and January 19, 2000.
61
<PAGE> 65
- Definitive Schedule 14A filed on April 28, 2000.
- Registration Statement on Form 8-A filed on June 23, 2000.
iNTELEFILM incorporates by reference the documents filed by Harmony listed
below, and any future filings it will make with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act until all of the shares covered by this
registration statement have been sold or the offer terminates:
- Transition Report on Form 10-K for the six months ended December 31, 1999
(as amended).
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 2000,
June 30, 2000, and September 30, 2000.
- Current Report on Form 8-K filed on June 29, 2000.
We have enclosed with this document one copy of iNTELEFILM's latest Annual
Report on Form 10-KSB (as amended), iNTELEFILM's latest Quarterly Report on Form
10-QSB, Harmony's latest Transition Report on Form 10-K (as amended) and
Harmony's latest Quarterly Report on Form 10-Q. You also may request additional
copies or copies of the other documents listed above from iNTELEFILM, without
charge, upon written or oral request to iNTELEFILM's information agent,
Georgeson Shareholder Communications Inc., at (800) 223-2064. In order to
receive timely delivery of the documents, you must make your requests no later
than December 14, 2000.
62
<PAGE> 66
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
This unaudited pro forma financial information sets forth the impact of the
offer of one share of iNTELEFILM common stock for every 13.75 shares of Harmony
common stock. The unaudited pro forma statements of operations and balance sheet
do not purport to present iNTELEFILM'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 statements should be read in conjunction with the
historical consolidated financial statements of iNTELEFILM and Harmony for the
fiscal year ended December 31 and June 30, 1999 and the transition period ended
December 31, 1999, respectively, and for the interim period ended September 30,
2000. However, the pro forma financial statements are not necessarily indicative
of the financial position that would have been attained by iNTELEFILM had the
transaction occurred earlier.
The objective of the pro forma financial statements is to show what the
significant effects on the historical consolidated financial statements might
have been had the transaction occurred on January 1, 1999, for the statements of
operations presented, and as of September 30, 2000, for the balance sheet
presented. The pro forma financial statements assume that the 3,367,098 shares
of Harmony common stock not currently owned by iNTELEFILM are completely
acquired for 244,880 shares of iNTELEFILM common stock. Additionally, iNTELEFILM
anticipates that the transaction will result in financial benefits to the
consolidated company, including reduced operating expenses and enhanced
opportunities to increase revenue. The pro forma financial statements, while
helpful in illustrating the financial characteristics of the consolidated
company under one set of assumptions, do not reflect these anticipated financial
benefits.
This information is for illustrative purposes only. The companies would
likely have performed differently had they always been combined. The information
set forth should not be relied upon as being indicative of the future results
that the consolidated company will experience as a result of the transaction.
63
<PAGE> 67
PRO FORMA STATEMENTS OF OPERATIONS FOR YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
REVERSE
EQUITY TENDER OFFER INTELEFILM
INTELEFILM HARMONY LOSS (GOODWILL PRO FORMA FOR
YEAR ENDED QUARTER ENDED IN HARMONY AMORTIZATION, YEAR ENDED
DECEMBER 31, MARCH 31, AND ADJUST TRANSACTION DECEMBER 31,
1999 1999(1) GOODWILL(2) COSTS)(3) 1999
------------ ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues............... $67,242,374 $16,274,699 $ -- $ -- $83,517,073
Cost of production..... 56,488,737 13,889,304 -- -- 70,378,041
Operating expenses..... 17,057,941 3,511,348 725,900 166,334 21,461,523
----------- ----------- ---------- --------- -----------
Loss from continuing
operations........... (6,304,304) (1,125,953) (725,900) (166,334) (8,322,491)
Gain on sale of
assets............... 119,508 -- -- -- 119,508
Equity loss in
Harmony.............. (1,930,942) -- 1,930,942 -- --
Interest income
(expense), net....... 406,082 (79,089) 326,993
Income tax benefit..... 700,000 -- -- -- 700,000
----------- ----------- ---------- --------- -----------
Net loss from
continuing
operations........... $(7,009,656) $(1,205,042) $1,205,042 $(166,334) $(7,175,990)
=========== =========== ========== ========= ===========
Basic and diluted net
loss per share from
continuing
operations........... $ (1.11) $ (1.09)
=========== ===========
Weighted average number
of shares
outstanding.......... 6,343,000 $ 6,588,000
=========== ===========
</TABLE>
---------------
(1) Includes the revenue and operating expenses related to the operations of
Harmony for the quarter ended March 31, 1999. All subsequent quarters of
1999 have been consolidated with iNTELEFILM's results of operations as
reported.
(2) Eliminates the equity loss in Harmony recorded in the first quarter of 1999
and reclassifies the portion of that loss related to the amortization of
goodwill to amortization expense.
(3) Reflects an adjustment to amortization expense related to goodwill of
$1,164,336 recognized in the transaction based on the March 22, 2000 share
price of $3.94 of 244,880 iNTELEFILM shares to be issued totaling $964,336,
and an estimated $200,000 in transaction costs. Amortization is calculated
on a straight-line basis over seven years.
64
<PAGE> 68
PRO FORMA STATEMENTS OF OPERATIONS
FOR NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
INTELEFILM
PRO FORMA
iNTELEFILM ADJUST FOR
SIX MONTHS AMORTIZATION SIX MONTHS
ENDED OF ENDED
JUNE 30, 2000 GOODWILL(1) JUNE 30, 2000
----------------- -------------- -----------------
<S> <C> <C> <C>
Revenues................... $51,188,954 $ -- $51,188,954
Cost of production......... 42,730,649 -- 42,730,649
Operating expenses......... 14,392,116 124,750 14,516,866
----------- --------- -----------
Loss from operations....... 5,933,811 (124,750) (6,058,561)
Loss on disposal of
asset.................... (18,078) -- (18,078)
Interest income, net....... 198,501 -- 198,501
Income taxes............... (51,358) -- (51,358)
----------- --------- -----------
Net loss................... $(5,804,746) $(124,750) $(5,929,496)
=========== ========= ===========
Basic and diluted net loss
per share................ $ (0.91) $ (0.89)
=========== ===========
Weighted average number of
shares outstanding....... 6,412,000 6,657,000
=========== ===========
</TABLE>
---------------
(1) Reflects nine months of amortization of the goodwill recognized in the
transaction.
65
<PAGE> 69
PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
TENDER OFFER
(GOODWILL INTELEFILM
INTELEFILM AMORTIZATION, PRO FORMA
SEPTEMBER 30, TRANSACTION SEPTEMBER 30,
2000 COSTS) (1) 2000
------------- ------------- -------------
<S> <C> <C> <C>
Current assets................... $11,434,573 $ (200,000) $11,234,573
Property and equipment, net...... 4,373,024 -- 4,373,024
Goodwill, net.................... 6,872,460 1,039,586 7,912,046
Other assets..................... 1,540,207 1,540,207
----------- ---------- -----------
Total assets........... $24,220,264 $ 839,586 $25,059,850
=========== ========== ===========
Current liabilities.............. $ 8,435,587 $ -- $ 8,435,587
Long-term debt................... 640,404 -- 640,404
Minority interest................ 417,629 -- 417,629
Shareholders' equity............. 14,726,644 839,586 15,566,230
----------- ---------- -----------
Total liabilities and
shareholders' equity........... $24,220,264 $ 839,586 $25,059,850
=========== ========== ===========
</TABLE>
---------------
(1) Reflect the goodwill recognized in the transaction, assuming $200,000 of
transaction costs are incurred.
66
<PAGE> 70
EXCHANGE AGENT
The letter of transmittal, certificates for Harmony shares and any other
required documents should be sent or delivered by each Harmony stockholder or
his or her broker, dealer, commercial bank, trust company or other nominee to
the exchange agent at one of its addresses set forth below.
The exchange agent for the offer is:
WELLS FARGO BANK MINNESOTA, N.A.
<TABLE>
BY OVERNIGHT, CERTIFIED OR
BY MAIL BY HAND EXPRESS MAIL DELIVERY
------------------------------------ -------------------------------- --------------------------------
<S> <C> <C>
Wells Fargo Bank Minnesota, N.A. Wells Fargo Bank Minnesota, N.A. Wells Fargo Bank Minnesota, N.A.
Reorganization Department Reorganization Department Reorganization Department
P.O. Box 64858 161 North Concord Exchange 161 North Concord Exchange
South St. Paul, MN 55164-0858 South St. Paul, MN 55075 South St. Paul, MN 55075
BY FACSIMILE TRANSMISSION
--------------------------
Wells Fargo Bank Minnesota, N.A.
Reorganization Department
(800) 468-9716 (phone)
(651) 450-4163 (fax)
</TABLE>
INFORMATION AGENT
Any questions or requests for assistance or additional copies of the
prospectus, the letter of transmittal, the notice of guaranteed delivery and
related offer materials may be directed to the information agent at the
telephone number and location listed below. You may also contact your local
broker, commercial bank, trust company or nominee for assistance concerning the
offer.
The information agent for the offer is:
GEORGESON SHAREHOLDER COMMUNICATIONS INC.
17 State Street, 10th Floor
New York, New York 10004
(800) 223-2064
67
<PAGE> 71
APPENDIX A
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
SEC. 262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market
A-1
<PAGE> 72
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the
shares of any class or series of its stock as a result of an amendment
to its certificate of incorporation, any merger or consolidation in
which the corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the certificate
of incorporation contains such a provision, the procedures of this
section, including those set forth in subsections (d) and (e) of this
section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or
A-2
<PAGE> 73
consolidation, such notice shall be given by the surviving or resulting
corporation to all such holders of any class or series of stock of a
constituent corporation that are entitled to appraisal rights. Such notice
may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date
of the merger or consolidation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of such notice, demand
in writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such holder's
shares. If such notice did not notify stockholders of the effective date of
the merger or consolidation, either (i) each such constituent corporation
shall send a second notice before the effective date of the merger or
consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of
the effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders
on or within 10 days after such effective date; provided, however, that if
such second notice is sent more than 20 days following the sending of the
first notice, such second notice need only be sent to each stockholder who
is entitled to appraisal rights and who has demanded appraisal of such
holder's shares in accordance with this subsection. An affidavit of the
secretary or assistant secretary or of the transfer agent of the
corporation that is required to give either notice that such notice has
been given shall, in the absence of fraud, be prima facia evidence of the
facts stated therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix, in advance,
a record date that shall be not more than 10 days prior to the date the
notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder
who has complied with subsections (a) and (d) hereof and who is
otherwise entitled to appraisal rights, may file a petition in the Court
of Chancery demanding a determination of the value of the stock of all
such stockholders. Notwithstanding the foregoing, at any time within 60
days after the effective date of the merger or consolidation, any
stockholder shall have the right to withdraw such stockholder's demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled
to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with
respect to which demands for appraisal have been received and the
aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after such stockholder's
written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period
for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
A-3
<PAGE> 74
(f) Upon the filing of any such petition by a stockholder, service
of a copy thereof shall be made upon the surviving or resulting
corporation, which shall within 20 days after such service file in the
office of the Register in Chancery in which the petition was filed a
duly verified list containing the names and addresses of all
stockholders who have demanded payment for their shares and with whom
agreements as to the value of their shares have not been reached by the
surviving or resulting corporation. If the petition shall be filed by
the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if
so ordered by the Court, shall give notice of the time and place fixed
for the hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown on the
list at the addresses therein stated. Such notice shall also be given by
1 or more publications at least 1 week before the day of the hearing, in
a newspaper of general circulation published in the City of Wilmington,
Delaware or such publication as the Court deems advisable. The forms of
the notices by mail and by publication shall be approved by the Court,
and the costs thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock
represented by certificates to submit their certificates of stock to the
Register in Chancery for notation thereon of the pendency of the
appraisal proceedings; and if any stockholder fails to comply with such
direction, the Court may dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal,
the Court shall appraise the shares, determining their fair value
exclusive of any element of value arising from the accomplishment or
expectation of the merger or consolidation, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair
value. In determining such fair value, the Court shall take into account
all relevant factors. In determining the fair rate of interest, the
Court may consider all relevant factors, including the rate of interest
which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by
the surviving or resulting corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may, in its
discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of
the stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting corporation
pursuant to subsection (f) of this section and who has submitted such
stockholder's certificates of stock to the Register in Chancery, if such
is required, may participate fully in all proceedings until it is
finally determined that such stockholder is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple
or compound, as the Court may direct. Payment shall be so made to each
such stockholder, in the case of holders of uncertificated stock
forthwith, and the case of holders of shares represented by certificates
upon the surrender to the corporation of the
A-4
<PAGE> 75
certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of
any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the
circumstances. Upon application of a stockholder, the Court may order
all or a portion of the expenses incurred by any stockholder in
connection with the appraisal proceeding, including, without limitation,
reasonable attorney's fees and the fees and expenses of experts, to be
charged pro rata against the value of all the shares entitled to an
appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded appraisal rights as
provided in subsection (d) of this section shall be entitled to vote
such stock for any purpose or to receive payment of dividends or other
distributions on the stock (except dividends or other distributions
payable to stockholders of record at a date which is prior to the
effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided
in subjection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of such
stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the
merger or consolidation as provided in subsection (e) of this section or
thereafter with the written approval of the corporation, then the right
of such stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery shall be
dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the court deems
just.
(l) The Shares of the surviving or resulting corporation to which
the shares of such objecting stockholders would have been converted had
they assented to the merger or consolidation shall have the status of
authorized and unissued shares of the surviving or resulting
corporation.
A-5
<PAGE> 76
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Minnesota Statutes Section 302A.521 provides that as a Minnesota business
corporation, iNTELEFILM shall indemnify any director, officer, employee or agent
of the corporation made or threatened to be made a party to a proceeding, by
reason of the former or present official capacity of the person, against
judgments, penalties, fines, settlements and reasonable expenses incurred by the
person in connection with the proceeding if statutory standards are met.
"Proceeding" means a threatened, pending or completed civil, criminal,
administrative, arbitration or investigative proceeding, including one by or in
the right of the corporation. Section 302A.521 contains detailed terms regarding
such right of indemnification and reference is made thereto for a complete
statement of such indemnification rights.
Article 6.2 of iNTELEFILM's bylaws provides that iNTELEFILM will indemnify
its directors, officers, employees and agents, past or present, and persons
serving as such of another corporation or entity at iNTELEFILM's request, for
such expenses and liabilities, in such manner, under such circumstances, and to
such extent as permitted under Section 302A.521.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 Articles of Incorporation of iNTELEFILM Corporation, as
amended and restated (incorporated by reference to
iNTELEFILM's Current Report on Form 8-K (File No. 000-21534)
filed October 1, 1999).
3.2 Bylaws of iNTELEFILM, as amended and restated (incorporated
by reference to iNTELEFILM's Registration Statement on Form
S-18 (File No. 33-44412) filed December 5, 1991).
5 Opinion of Jill J. Theis, Esq.*
8 Opinion of Briggs and Morgan, Professional Association
regarding tax matters.
23.1 Consent of Briggs and Morgan, Professional Association
(included in Exhibit 8 hereto).
23.2 Consent of BDO Seidman, LLP for iNTELEFILM.*
23.3 Consent of BDO Seidman, LLP for Harmony.*
23.4 Consent of Jill J. Theis, Esq. (included in Exhibit 5
hereto).
24.1 Powers of Attorney.*
24.2 Power of Attorney from William H. Spell.*
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letter to Clients.
</TABLE>
---------------
* Previously filed.
(b) Financial Statement Schedules.
None.
(c) Item 4(b) Information.
None.
II-1
<PAGE> 77
ITEM 22. UNDERTAKINGS.
iNTELEFILM undertakes:
(A)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(B) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(C) To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Items 4, 10(b), 11, or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(D) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
II-2
<PAGE> 78
Insofar as indemnification by the registrant for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE> 79
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Minneapolis, State of
Minnesota, on November 20, 2000.
iNTELEFILM CORPORATION
By /s/ CHRISTOPHER T. DAHL
----------------------------------------
Christopher T. Dahl
President, Chief Executive Officer
and Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CHRISTOPHER T. DAHL President, Chief Executive November 20, 2000
--------------------------------------------------- Officer and Director
Christopher T. Dahl (Principal executive
officer)
/s/ STEVEN C. SMITH Chief Financial Officer November 20, 2000
--------------------------------------------------- (Principal accounting
Steven C. Smith and financial officer)
* Director
---------------------------------------------------
Richard W. Perkins
* Director
---------------------------------------------------
Michael R. Wigley
* Director
---------------------------------------------------
William E. Cameron
* Director
---------------------------------------------------
William H. Spell
*By: /s/ CHRISTOPHER T. DAHL Director November 20, 2000
----------------------------------------------
Christopher T. Dahl
Attorney-in-fact
</TABLE>
II-4
<PAGE> 80
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ------------------------------------------------------------
<C> <S>
3.1 Articles of Incorporation of iNTELEFILM Corporation, as
amended and restated (incorporated by reference to
iNTELEFILM's Current Report on Form 8-K (File No. 000-21534)
filed October 1, 1999).
3.2 Bylaws of iNTELEFILM, as amended and restated (incorporated
by reference to iNTELEFILM's Registration Statement on Form
S-18 (File No. 33-44412) filed December 5, 1991).
5 Opinion of Jill J. Theis, Esq.*
8 Opinion of Briggs and Morgan, Professional Association
regarding tax matters.
23.1 Consent of Briggs and Morgan, Professional Association
(included in Exhibit 8 hereto).
23.2 Consent of BDO Seidman, LLP for iNTELEFILM.*
23.3 Consent of BDO Seidman, LLP for Harmony.*
23.4 Consent of Jill J. Theis, Esq. (included in Exhibit 5
hereto).
24.1 Powers of Attorney.*
24.2 Power of Attorney from William H. Spell.*
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letter to Clients.
</TABLE>
---------------
* Previously filed.
