-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AvjevIk7LhLbfJz96/20IEHay7Ntfo8NC7CVYhEG0II10jfNRiHA/JRBJtbYTzzB IXmhO2swLoB0WMAIloIoYA== 0000897101-99-000775.txt : 19990809 0000897101-99-000775.hdr.sgml : 19990809 ACCESSION NUMBER: 0000897101-99-000775 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990723 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARMONY HOLDINGS INC CENTRAL INDEX KEY: 0000878246 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE PRODUCTION [7812] IRS NUMBER: 954333330 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-19577 FILM NUMBER: 99679256 BUSINESS ADDRESS: STREET 1: 1990 WESTWOOD BLVD STREET 2: SUITE 310 CITY: LOS ANGELES STATE: CA ZIP: 90025-4676 BUSINESS PHONE: 3104467700 MAIL ADDRESS: STREET 1: 724 FIRST STREET NORTH CITY: MINNEAPOLIS STATE: MN ZIP: 55401 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT: July 23, 1999 HARMONY HOLDINGS, INC. (Exact name of registrant as specified in its charter) DELAWARE 000-19577 95-4333330 -------- --------- ---------- (State or other (Commission File No.) (IRS Employer ID No.) jurisdiction of incorporation) 5501 EXCELSIOR BOULEVARD, MINNEAPOLIS, MINNESOTA 55416 ------------------------------------------------------ (Address of principal executive offices) (612) 925-8840 -------------- (Registrant's telephone number, including area code) ITEM 2. For nominal consideration, on July 23, 1999, Harmony Holdings, Inc., a Delaware corporation (the "Registrant"), sold 90% of the issued and outstanding shares of capital stock of The End (London) to Julia Reed, the executive producer of The End (London). The End (London), is a commercial production company based in London, England, and , prior to this sale, was a wholly-owned subsidiary of the Registrant. The sale is effective as of July 1, 1999. For the fiscal year ended June 30, 1998 and the nine month period ended March 31, 1999, The End (London) had gross revenues of $3,747,000 and $9,206,000, and net losses of $591,000 and $478,000, respectively. The Registrant retained all rights to the "The End (London)" name and logo. In connection with the sale of the stock, the Registrant and Julia Reed entered into an agreement granting Ms. Reed the right, under certain circumstances, to purchase the remaining 10% equity interest in The End (London) from the Registrant for approximately $803,000. ITEM 5. OTHER EVENTS. Effective as of August 1, 1999, Children's Broadcasting Corporation d/b/a iNTELEFILM ("iNTELEFILM") purchased the Option and Share Transfer Agreement ("Option Agreement") entered into by the Registrant and the four principal executives of Curious Pictures Corporation (collectively, "Curious Management") dated December 15, 1996. As previously disclosed in the Registrant's reports filed with the Securities and Exchange Commission and in the Registrant's financial statements, under the Option Agreement, the four members of Curious Management could earn the right to purchase 50% of the outstanding stock of Curious Pictures Corporation ("Curious Pictures") from the Registrant upon the achievement of certain specified financial goals. Pursuant to the iNTELEFILM purchase agreement and based on the results of operations of Curious Pictures, it was agreed by all parties, including the Registrant, that Curious Management's rights to purchase the 50% equity interest had fully vested and were exercisable for consideration totaling $50. iNTELEFILM also acquired a 1% equity interest owned by Curious Management that was conveyed to Curious Management upon signing the Option agreement. The consideration paid to Curious Management by iNTELEFILM for the aforementioned acquisitions aggregated $3,000,000, consisting of $1,500,000 in cash and a $1,500,000 note receivable. Additionally, iNTELEFILM granted Curious Management options to purchase 300,000 shares of iNTELEFILM common stock for approximately $1.92 per share. As a result of the aforementioned transaction, Curious Pictures will recognize additional compensation expense related to the stock options of approximately $1,908,000. Subsequently, iNTELEFILM acquired 50% of Curious Pictures through the exercise of stock options granted under the Option Agreement. As a result, the Registrant currently owns 49% of the outstanding stock of Curious Pictures and iNTELEFILM owns 51% of the stock. Prior to the acquisition, the Registrant owned 99% of the outstanding shares of Curious Pictures, and Curious Management owned 1%. As the owner of 55.2% of the Registrant's outstanding shares of common stock, iNTELEFILM currently is the principal stockholder of the Registrant. In addition, as of August 1, 1999, Curious Pictures entered into new five-year employment agreements with each of the four members of Curious Management. As part of the compensation to be paid to Curious Management, each member of Curious Management was granted the right to purchase from the Registrant one share (representing 1% of the capital stock of Curious Pictures) of the Registrant's 49 shares (representing the remaining 49% equity interest of Curious Pictures owned by the Registrant) at the end of each employment year. As a result, if all of the members of Curious Management exercise all of the new options over the five-year term of their employment agreements, iNTELEFILM will own 51% of the Curious Pictures stock, Curious Management will collectively own 20%, and the Registrant will own the remaining 29%. The Registrant, iNTELEFILM, and Curious Management also entered into a Stock Agreement effective as of August 1, 1999. Under this agreement, the members of Curious Management were granted the right to sell to iNTELEFILM the shares of Curious Pictures that they earn from the Registrant (the put right), and iNTELEFILM obtained the right to purchase such shares from Curious Management (the call right). The price per share to be paid by iNTELEFILM to Curious Management for each share under the put and call rights is $96,774 per share. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Financial Statements of Business Acquired Not applicable. (b) Pro Forma Financial Information This unaudited pro forma financial information sets forth the impact of the sale of 90% of the Registrant's stock in The End (London). The transaction was consummated effective July 1, 1999. The unaudited pro forma statements of operations and balance sheet do not purport to present the Registrant's consolidated results of operations and financial position as they might have been, or as they may be in the future, had the transaction occurred on the assumed dates. The pro forma adjustments are based upon information currently available. The pro forma financial information and accompanying notes should be read in conjunction with the historical consolidated financial statements of the Registrant for the fiscal year ended June 30, 1998 and for the interim period ended March 31, 1999. The objective of the unaudited pro forma financial information is to show what the significant effects on the historical financial statements might have been had the transaction occurred, for balance sheet purposes, on March 31, 1999, and, for statement of operations purposes, on July 1, 1997. However, the pro forma financial statements are not necessarily indicative of the effects of the Registrant's financial position that would have been attained had the transaction occurred earlier. STATEMENTS OF OPERATIONS:
PRO FORMA ADJUSTMENTS FOR PRO FORMA AFTER THE SALE OF THE SALE OF HARMONY THE END LTD THE END LTD HOLDINGS, INC. (LONDON) (1) (LONDON) -------------------------------------------------- Nine months ended March 31, 1999 Revenues: Contract revenues $ 47,641,060 $ 9,205,845 $ 38,435,215 Cost of production 40,403,894 8,277,792 32,126,102 -------------------------------------------------- Gross profit 7,237,166 928,053 6,309,113 Operating expenses: Selling 2,399,789 740,194 1,659,595 General and administrative 4,761,513 689,489 4,072,024 -------------------------------------------------- Income (loss) from productions 75,864 (501,630) 577,494 Subsidiary stock option compensation 326,400 -- 326,400 Corporate 1,057,813 -- 1,057,813 Depreciation & amortization 624,491 -- 624,491 Restructuring costs and impairment of assets 3,532,495 -- 3,532,495 -------------------------------------------------- Income (loss) from operations (5,465,335) (501,630) (4,963,705) Interest income 46,743 23,183 23,560 Interest expense (313,117) -- (313,117) -------------------------------------------------- Net income (loss) before income taxes (5,731,709) (478,447) (5,253,262) Income taxes 9,601 (99) 9,700 -------------------------------------------------- Net income (loss) $ (5,741,310) $ (478,348) $ (5,262,962) ================================================== Net income (loss) per share $ (0.78) $ (0.71) ================================================== Weighted average number of shares outstanding 7,376,957 7,376,957 ==================================================
(1) To eliminate the revenue and operating expenses related to The End (London).
PRO FORMA ADJUSTMENTS FOR PRO FORMA AFTER THE SALE OF THE SALE OF HARMONY THE END LTD THE END LTD HOLDINGS, INC. (LONDON) (1) (LONDON) -------------------------------------------------- Year ended June 30, 1998 Revenues: Contract revenues $ 53,355,100 $ 3,747,041 $ 49,608,059 Cost of production 43,616,737 3,428,784 40,187,953 -------------------------------------------------- Gross profit 9,738,363 318,257 9,420,106 Operating expenses: Selling 2,728,734 273,080 2,455,654 General and administrative 10,801,716 603,836 10,197,880 Depreciation & amortization 700,145 21,808 678,337 -------------------------------------------------- Income (loss) from operations (4,492,232) (580,467) (3,911,765) Interest income 124,459 5,901 118,558 Interest expense (99,144) (9,347) (89,797) -------------------------------------------------- Net income (loss) before income taxes (4,466,917) (583,913) (3,883,004) Income taxes 21,663 6,908 14,755 -------------------------------------------------- Net income (loss) $ (4,488,580) $ (590,821) $ (3,897,759) ================================================== Net income (loss) per share $ (0.69) $ (0.60) ================================================== Weighted average number of shares outstanding 6,515,000 6,515,000 ==================================================
To eliminate the revenue and operating expenses related to The End LTD (London). BALANCE SHEET:
PRO FORMA ADJUSTMENTS FOR PRO FORMA AFTER THE SALE OF THE SALE OF HARMONY THE END LTD THE END LTD HOLDINGS, INC. (LONDON) (1) (LONDON) ------------------------------------------- March 31, 1999 Current assets $ 8,416,156 $ 1,541,258 $ 6,874,898 Property and equipment, net 2,443,910 128,920 2,314,990 Goodwill, net 171,875 171,875 ------------ ------------ Other assets 754,296 754,296 --------------------------------------------- Total Assets $ 11,786,237 $ 1,670,178 $ 10,116,059 ============================================= LIABILITY & SHAREHOLDERS' EQUITY Current liabilities $ 12,621,939 $ 1,613,932 $ 11,008,007 Minority interest 792,150 -- 792,150 Shareholders' deficit (1,627,852) 56,246 (1,684,098) --------------------------------------------- Total Liabilities & Shareholders' Equity $ 11,786,237 $ 1,670,178 $ 10,116,059 =============================================
To eliminate the assets, liabilities, and equity of The End LTD (London). (c) Exhibits 99.1 Purchase Agreement dated as of July 27, 1999 and effective as of August 1, 1999, by and among Children's Broadcasting Corporation, a Minnesota corporation; Harmony Holdings, Inc., a Delaware corporation; Curious Pictures Corporation, a New York corporation; and Susan Holden; Stephen Oakes; Richard Winkler; and David Starr, as individuals. 99.2 Curious Stock Agreement dated as of July 27, 1999 and effective as of August 1, 1999, by and among Children's Broadcasting Corporation, a Minnesota corporation; Harmony Holdings, Inc., a Delaware corporation; and Susan Holden; Stephen Oakes; Richard Winkler; and David Starr, as individuals. 99.3 Purchase Agreement dated as of July 23, 1999, effective as of July 1, 1999, by and among Harmony Holdings, Inc., a Delaware corporation and Julia Reed. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: August 6, 1999 HARMONY HOLDINGS, INC. BY: ------------------------------------ James G. Gilbertson ITS: Chief Operating Officer and Chief Financial Officer EXHIBIT INDEX 99.1 Purchase Agreement dated as of July 27, 1999 and effective as of August 1, 1999, by and among Children's Broadcasting Corporation, a Minnesota corporation; Harmony Holdings, Inc., a Delaware corporation; Curious Pictures Corporation, a New York corporation; and Susan Holden; Stephen Oakes; Richard Winkler; and David Starr, as individuals. 99.2 Curious Stock Agreement dated as of July 27, 1999 and effective as of August 1, 1999, by and among Children's Broadcasting Corporation, a Minnesota corporation; Harmony Holdings, Inc., a Delaware corporation; and Susan Holden; Stephen Oakes; Richard Winkler; and David Starr, as individuals. 99.3 Purchase Agreement dated as of July 23, 1999, effective as of July 1, 1999, by and among Harmony Holdings, Inc., a Delaware corporation and Julia Reed. EX-99.1 2 PURCHASE AGREEMENT EXHIBIT 99.1 PURCHASE AGREEMENT THIS AGREEMENT, dated as of July 27, 1999, effective as of August 1, 1999, is made by and among CHILDREN'S BROADCASTING CORPORATION, a Minnesota corporation (referred to herein as "CBC"); HARMONY HOLDINGS, INC., a Delaware corporation (referred to herein as "HHI"); CURIOUS PICTURES CORPORATION, a New York corporation (referred to herein as "Curious"); and SUSAN HOLDEN; STEPHEN OAKES; RICHARD WINKLER; AND DAVID STARR, as individuals (collectively referred to herein as "CP Management"). W I T N E S S E T H: THAT, WHEREAS, Curious has currently issued and outstanding 100 shares of its Common Stock, which shares represent all of the issued and outstanding Common Stock of Curious; WHEREAS, pursuant to an Option and Share Transfer Agreement dated as of December 15, 1996 among CP Management, Curious and HHI ("Option Agreement"), a copy of which is attached hereto as Exhibit A, HHI is the holder of 99 shares (or 99%) of Curious and CP Management is the holder of 1 share or 1% of Curious (the 1 share owned by CP Management shall be referred to herein as the "Curious Share"); WHEREAS, under the Option Agreement, CP Management has the right, based upon Curious reaching certain net income levels, to receive shares of Curious up to an amount not to exceed 50% of the Common Stock of Curious; WHEREAS, contemporaneously herewith and incorporated herein, CP Management, Curious and HHI have entered into an agreement whereby the parties agree that Curious has reached such net income levels; that CP Management currently has the right to receive 50 shares (or 50%) of the issued and outstanding common stock of Curious; and that such shares are to be transferred from HHI to CP Management (the "Curious Agreement"); WHEREAS, contemporaneously herewith and incorporated herein, each member of CP Management has entered into five (5) year employment agreeements with Curious; and WHEREAS, CP Management desires to sell, transfer and assign the Curious Share and the Option Agreement to CBC, and CBC desires to purchase such Curious Share and the Option Agreement, and HHI consents to such sale, transfer and assignment on the terms and conditions set forth herein; and NOW, THEREFORE, in consideration of the foregoing and the covenants, representations and warranties hereinafter in this Agreement set forth, the parties hereto hereby agree as follows: 1. OWNERSHIP, TRANSFER, SALE AND ASSIGNMENT OF CURIOUS SHARE AND OPTION AGREEMENT. (a) CP Management represents that collectively they are the owner of the Curious Share and none of them owns any other shares of Curious Common Stock other than the right(s) to receive shares under the Option Agreement. CP Management and HHI represent that under the Option Agreement, CP Management has earned the right to receive 50 shares or 50% of the issued and outstanding Common Stock of Curious from HHI, and that CP Management has the right to sell, transfer and assign their interest in the Option Agreement and the Curious Share to CBC. (b) Subject to the terms and conditions hereinafter in this Agreement, CP Management agrees to sell, transfer and deliver the Curious Share and their entire interest in the Option Agreement to CBC on the Closing Date (as that term is hereinafter defined), free and clear of all security interests, liens and encumbrances, except for any subordination obligations to Fremont Financial Services, Inc. 2. PURCHASE AND CONSIDERATION. (a) On the basis of the representations and warranties, and subject to the terms and conditions set forth in this Agreement, CBC hereby agrees to purchase and CP Management agrees to sell, the Curious Share and CP Management's interest in the Option Agreement on the Closing Date. The total purchase price for the purchase of the Curious Share and assignment of the Option Agreement (the "Purchase Price"), will be the sum of Three Million and no/100 Dollars ($3,000,000.00) consisting of Two Million Seven Hundred Thousand and no/100 Dollars ($2,700,000.00) for the Option Agreement and Three Hundred Thousand and no/100 Dollars ($300,000.00) for the Curious Share and payable as follows: 1. The sum of $1,500,000 in cash at Closing (as defined below) to CP Management ($375,00 to each member); and 2. The execution of a promissory note at Closing in the amount equal to $1,500,000 ($375,000 to each member) payable on May 31, 2000 at an interest rate equal to eight percent (8%) per annum. The interest payments shall be paid to CP Management in quarterly payments. In the event any member(s) of CP Management's employment with Curious is terminated pursuant to 5(b) of his/her employment agreement or any member(s) of CP Management terminates his/her employment agreement prior to the payment of the promissory note, the principal amount of this promissory note shall be reduced by the sum of $375,000 for such member(s). Any cancellation or reduction of the promissory note pursuant to this section shall be in addition to any other remedies CBC may have against the members of CP Management and shall not be deemed to be liquidated damages. (b) HHI and Curious consent to the sale and purchase of the Curious Share and Option Agreement as provided in Section 2(a), and the assignment of all of CP Management's rights therein. (c) As additional consideration and as an inducement for each member of CP Management to enter into employment agreements with Curious, CBC agrees to grant each member of CP Management a warrant for the purchase of 75,000 shares of CBC's common stock at a price equal to the ten (10) day average closing price for the ten (10) trading days preceding the date of Closing. The warrant shall be in the form attached hereto as Exhibit B incorporated herein by reference as if set forth in full. 3. CLOSING. The closing of the transactions contemplated by this Agreement (the "Closing") unless otherwise agreed to by the parties, shall take place at the offices of Curious, 440 Lafayette Street, New York, New York 10003 at 9:00 a.m. on July ___, 1999 (such date of Closing is hereinafter sometimes referred to as the Closing Date). The Closing shall be subject to the satisfaction of all of the conditions to CBC's obligations set forth in Section 8 of this Agreement. At the Closing: (i) CP Management shall deliver, assign and transfer (or request that HHI deliver, assign and transfer) to CBC certificate(s) representing the Curious Share, appropriately endorsed or accompanied by a separate instrument or instruments of assignment in writing, in proper form for registration of transfer; (ii) CP Management shall deliver, assign and transfer the Option Agreement to CBC; (iii) CBC shall deliver to each member of CP Management a warrant agreement for the purchase of 75,000 shares, a form of which is attached hereto as Exhibit B; (iv) CP Management shall deliver the resignations referred to in Section 8.4 of this Agreement; (v) Each member of CP Management shall execute and deliver the employment agreements in the forms attached hereto as Exhibits C to F incorporated herein by reference as if set forth in full; (vi) $1,500,000 in cash shall be sent by CBC by wire transfer to such account or accounts in one or more banks in the United States of America as CP Management shall specify in writing delivered to CBC not less than forty eight (48) hours prior to the Closing Date, otherwise such purchase price shall be payable by check or checks; (vii) CBC shall execute a promissory note in the form of Exhibit G attached hereto and incorporated herein by reference as if set forth in full in the amount of $1,500,000 payable to CP Management at eight percent (8%) interest secured by the Curious Share and the Option Agreement, subject to subordination obligations with Fremont Financial Services, Inc.; (viii) CP Management, HHI and Curious shall deliver an executed Curious Agreement stating and confirming that CP Management has the right to receive 50% which equals 50 shares of the issued and outstanding common stock of Curious from HHI and consenting to assignment and transfer of the Option Agreement and the Curious Share to CBC, a form of which is attached hereto as Exhibit H; and (ix) Certified Resolutions of Curious, HHI and CBC approving the terms of this transaction. 4. REPRESENTATIONS AND WARRANTIES BY HHI. HHI represents and warrants as follows, which representations and warranties shall be deemed to have been made again at Closing; that HHI is a corporation organized and existing in good standing under the laws of the State of Delaware with full power and authority to enter into this Agreement to which it is a party and enter into and complete the transactions contemplated herein and therein; all required corporate action has been duly and validly taken by HHI to make and carry out this Agreement and the transactions contemplated herein; this Agreement constitutes the valid and binding obligation of HHI enforceable in accordance with its terms; the execution of the Agreement and, the completion of the transactions herein involved will not result in the violation of any order, license, permit, rule, judgment or decree to which HHI is subject or the breach of any contract, agreement or other commitment to which HHI is a party or by which it or its properties is bound or conflict with or violate any provision of HHI's Articles of Incorporation, By-Laws, or other organizational documents; and no other consent of any kind is required that has not been obtained to make or carry out the terms of this Agreement. 5. REPRESENTATIONS AND WARRANTIES BY CURIOUS. Curious represents and warrants as follows, which representations and warranties shall be deemed to have been made again at Closing, that Curious is a corporation organized and existing in good standing under the laws of the State of New York with full power and authority to enter into this Agreement to which it is a party and enter into and complete the transactions contemplated herein and therein; all required corporate action has been duly and validly taken by Curious to make and carry out this Agreement and the transactions contemplated herein; this Agreement constitutes the valid and binding obligation of Curious enforceable in accordance with its terms; the execution of the Agreement and, the completion of the transactions herein involved will not result in the violation of any order, license, permit, rule, judgment or decree to which Curious is subject or the breach of any contract, agreement or other commitment to which Curious is a party or by which it or its properties is bound or conflict with or violate any provision of Curious' Articles of Incorporation, By-Laws, or other organizational documents; and no other consent of any kind is required that has not been obtained to make or carry out the terms of this Agreement; that there are only 100 issued and outstanding shares of Curious and that Curious will not issue any additional shares of its Common Stock without receiving the prior written consent of HHI and CBC; and that the financial statements prepared by Curious are substantially correct in all material respects and there has not been any material adverse change in the financial condition of Curious since the latest financial statements. 6. REPRESENTATION AND WARRANTIES BY CBC. CBC represents and warrants as follows, which representations and warranties shall be deemed to have been made again at Closing, that CBC is a corporation organized and existing in good standing under the laws of the State of Minnesota with full power and authority to enter into this Agreement to which it is a party and enter into and complete the transactions contemplated herein and therein; all required corporate action has been duly and validly taken by CBC to make and carry out this Agreement and the transactions contemplated herein; this Agreement constitutes the valid and binding obligation of CBC enforceable in accordance with its terms; the execution of the Agreement and, the completion of the transactions herein involved will not result in the violation of any order, license, permit, rule, judgment or decree to which CBC is subject or the breach of any contract, agreement or other commitment to which CBC is a party or by which it or its properties is bound or conflict with or violate any provision of CBC's Articles of Incorporation, By-Laws, or other organizational documents; that the Curious Share and Option Agreement are being purchased for CBC's own account and not with a view to, or for resale; and that the warrants issued to members of CP Management are duly authorized and upon the exercise of the warrants will be validly issued non-assessable shares of CBC. 7. REPRESENTATION AND WARRANTIES BY CP MANAGEMENT. Each member of CP Management represents and warrants, which representations and warranties shall be deemed to have been made again at Closing that each member has the full right, power, authority and capacity, and is free, without restriction, to enter into and perform this Agreement; each member of CP Management represents and warrants that the Curious Share is owned by CP Management that upon the transfer of the Curious Share to CBC on the Closing Date, CBC will obtain absolute title to the Curious Share, free and clear of all liens, pledges, security interests, claims, charges, options, encumbrances or other adverse claims of any kind whatsoever other than any security interest which has been granted to Fremont Financial; that CP Management makes the same warranties and representations with respect to the Option Agreement, except that the Option Agreement may be subject to subordination obligations with Fremont Financial Services, Inc.; that each member is an accredited investor within the meaning of Regulation D, Rule 501(a) under the Securities Act 1933, as amended. 8. CONDITION OF CBC'S OBLIGATIONS. The obligations of CBC to consummate the transactions contemplated by this Agreement is subject to the fulfillment prior to or on the Closing Date of the following conditions, any of which may be waived in whole or in part in writing by CBC: 8.1 The representations and warranties of CP Management, Curious and HHI shall be true in all material respects as of the Closing Date with the same effect as though made on and as of the Closing Date. 8.2 CP Management and HHI shall have performed and complied with all agreements, covenants or conditions required by this Agreement to be performed and complied with by them prior to or as of the Closing Date. 8.3 ACTION BY HHI AND CURIOUS BOARD OF DIRECTORS. (a) HHI's Board of Directors, prior to the Closing Date, shall have met and duly adopted resolutions, subject to the consummation of the transactions contemplated by this Agreement: (i) to approve the terms of this transaction; (ii) to amend the Option Agreement to allow CP Management to freely assign and transfer CP Management's interest; and (iii) to approve the terms of the employment agreements. (b) Curious' Board of Directors, prior to the Closing Date, shall have met and duly adopted resolutions, subject to the consummation of the transactions contemplated by this Agreement: (i) to approve the terms of this transaction; and (ii) to approve the terms of the employment agreements. 8.4. RESIGNATIONS OF CP MANAGEMENT FROM CURIOUS BOARD. The members of Curious' Board of Directors and all of Curious' subsidiaries (other than Mr. Dahl and Mr. Cameron) shall have tendered their resignations as directors contemporaneously upon the Closing. 9. LEGAL FEES. Provided this transaction is consummated, Curious agrees to pay for any reasonable legal fees and expenses incurred by CP Management from the law firm of Wollmuth, Maher & Deutsch, LLP in connection with this transaction through April 28, 1999, provided that it receives copies of all such legal bills along with any other reasonably requested backup documentation. Beginning April 29, 1999, Curious agrees to pay for any reasonable legal fees and expenses incurred by CP Management in connection with assignment of the Option Agreement and purchase of the Curious Share by CBC. Notwithstanding the foregoing, CP Management shall pay for any legal fees and expenses incurred in connection with their employment agreements and any and all future issuances of shares, exercise of put rights and similar matters that are to the benefit of CP Management. Other than as provided for herein, each party shall be responsible for its or his/her own legal fees and expenses. 10. INDEMNIFICATION. 10.1 MUTUAL INDEMNIFICATION. Each party hereby indemnifies and agrees to hold harmless the other parties from and against all claims, damages, losses, liabilities, costs and expenses (including, without limitation, settlement costs and any legal, accounting or other expenses of investigating or defending any actions or threatened actions) (hereinafter sometimes collectively referred to as Losses) in connection with each of the following: (a) Any misrepresentation or breach of any representation or warranty made by such party in this Agreement; and (b) any breach of any covenant, agreement or obligation of such party contained in this Agreement, provided, however, that such party shall not have any obligation under this Section unless the aggregate Losses amount to more than $25,000 (if the Losses exceed $25,000, the indemnification obligations set forth in this Section shall include all such Losses and not only those in excess of $25,000). 10.2 CLAIMS FOR INDEMNIFICATION. Whenever any claim shall arise for indemnification under this section, the indemnified party (hereinafter sometimes referred to as the Indemnified Party) shall promptly notify the party against whom indemnification is sought (hereinafter sometimes referred to as the Indemnifying Party) of the claim and, when known, the facts constituting the basis for such claim. In the event of any such claim for indemnification under this Agreement resulting from or in connection with any claim or legal proceedings by a third party, the notice shall specify, if known, the amount or an estimate of the amount of liability arising therefrom. The Indemnified Party shall not settle or compromise any claim by a third party in respect of which it is entitled to indemnification under this Agreement without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed; provided, however, that if action or suit shall have been instituted against the Indemnified Party and the Indemnifying Party shall not have taken control of such action or suit as provided in this Section after notification thereof, the Indemnified Party shall have the right to settle or compromise such claim after giving notice to the Indemnifying Party as provided in this Section. 10.3 DEFENSE BY INDEMNIFYING PARTY. In connection with any claim that may give rise to a right of indemnification under this Section resulting from or arising out of any claim or legal proceeding by a person other than the Indemnified Party, the Indemnifying Party, at its or his/her sole cost and expense, may, upon written notice to the Indemnified Party, assume the defense of any such claim or legal proceeding if the Indemnifying Party acknowledges to the Indemnified Party in writing the obligation to indemnify the Indemnified Party with respect to all elements of such claim or legal proceeding. If the Indemnifying Party shall assume the defense of any such claim or legal proceeding, the Indemnifying Party shall select counsel reasonably acceptable to the Indemnified Party to conduct the defense of such claim or legal proceeding at the sole cost and expense of the Indemnifying Party, who shall take all steps necessary in the defense or settlement thereof. An Indemnified Party shall be entitled to participate in (but not control) the defense of any such claim or legal proceeding with its own counsel and at its own expense. If the Indemnifying Party shall not assume the defense of such claim or legal proceeding within 15 days after notice thereof shall have been given to in accordance with this Section: (a) the Indemnified Party may defend such claim or legal proceeding in such manner as it may deem appropriate, including, but not limited to, the settlement of such claim or legal proceeding, after giving notice of the same to Indemnifying Party, on terms as the Indemnified Party may deem appropriate and (b) Indemnifying Party shall be entitled to participate in (but not control) the defense of such claim or legal proceeding with their own counsel at their own expense. 11. MISCELLANEOUS PROVISIONS. 11.1 EXECUTION OF DOCUMENTS. The parties agree to execute all applications, documents and instruments which may be reasonably necessary for the consummation of the transactions contemplated hereunder, or which might be from time to time reasonably requested by any party hereto in connection therewith, whether before or after the date of Closing. 11.2 CHANGES, WAIVERS, ETC. Neither this Agreement nor any provision thereof may be changed, amended, waived, discharged or terminated orally, but only in writing signed by the party against which enforcement of the change, amendment, waiver, discharge or termination is sought. 11.3 NOTICES. All notices, requests, elections, demands and other communications given pursuant to this Agreement shall be in writing and shall be duly given when delivered personally or by facsimile transmission (upon receipt of confirmation) or when deposited in the mail, certified or registered mail, postage prepaid, return receipt requested, and shall be addressed as follows: If to CBC: Mr. Christopher T. Dahl Children's Broadcasting Corporation 5501 Excelsior Boulevard Minneapolis, Minnesota 55416 Facsimile: (612) 926-7946 with copy to: Jill Theis, Esq. Children's Broadcasting Corporation 5501 Excelsior Boulevard Minneapolis, Minnesota 55416 Facsimile: (612) 925-8845 If to HHI: Mr. Christopher T. Dahl Harmony Holdings, Inc, 5501 Excelsior Boulevard Minneapolis, Minnesota 55416 Facsimile: (612) 926-7946 with copy to: Jill Theis, Esq. Harmony Holdings, Inc. 5501 Excelsior Boulevard Minneapolis, Minnesota 55416 Facsimile: (612) 925-8845 If to Curious: Mr. Christopher T. Dahl Curious Pictures Corporation 5501 Excelsior Boulevard Minneapolis, Minnesota 55416 Facsimile: (612) 926-7946 with copy to: Jill Theis, Esq. Curious Pictures Corporation 5501 Excelsior Boulevard Minneapolis, Minnesota 55416 Facsimile: (612) 925-8845 If to CP Management: Susan Holden, Stephen Oakes, Richard Winkler, David Starr c/o Curious Pictures Corporation 440 Lafayette Street New York, New York 10003 Facsimile: (212) 674-0081 With copy to: David Wollmuth, Esq. WOLLMUTH, MAHER & DEUTSCH, LLP 516 Fifth Avenue, 12th Floor New York, New York 10036 Facsimile: (212) 382-0050 11.4 EXHIBITS. All Exhibits referred to herein are incorporated into this Agreement by reference for all purposes and shall be deemed part of this Agreement. 11.5 ASSIGNABILITY. None of the parties may assign their rights or obligations under this Agreement without the prior written consent of the other parties which shall not be unreasonably withheld or delayed, except that CBC, HHI and Curious may make an assignment to a parent, subsidiary, affiliate or successor of such party and each member of CP Management may make an assignment to an entity that is controlled by and 100% owned by such member. 11.6 BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the representatives, heirs, estates, successors, and assigns of the parties hereto. 11.7 HEADING. The headings contained in this Agreement are for reference only and shall not effect in any way the meaning or interpretation of this Agreement. 11.8 COUNTERPARTS. This Agreement and any other instrument to be signed by the parties hereto may be executed by the parties, together or separately, in two or more identical counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument. 11.9 CLAUSES SEVERABLE. The provisions of this Agreement are severable. If any provision of this Agreement or the application thereof to any person or circumstance is held invalid, the provision or its application shall be modified to the extent possible to reflect the expressed intent of the parties but in any event, invalidity shall not affect other provisions or applications of this Agreement which can be given effect without the invalid provision or application. IN WITNESS WHEREOF, the parties hereto, by their properly authorized representatives, have caused this Agreement to be executed as of the day and date first above written. CHILDREN'S BROADCASTING HARMONY HOLDINGS, INC., CORPORATION, a Minnesota corporation a Delaware corporation By: /s/ Christopher T. Dahl By: /s/ James G. Gilbertson ----------------------- ----------------------- Its: Chief Executive Officer Its: Chief Operating Officer ----------------------- ----------------------- CURIOUS PICTURES CORPORATION a New York corporation By: /s/ James G. Gilbertson ----------------------- Its: Chief Operating Officer ----------------------- CP MANAGEMENT /s/ Stephen Oakes /s/ Richard Winkler - ----------------- ------------------- Stephen Oakes Richard Winkler /s/ David Starr /s/ Susan Holden - ----------------- ------------------- David Starr Susan Holden EX-99.2 3 CURIOUS STOCK AGREEMENT EXHIBIT 99.2 CURIOUS STOCK AGREEMENT THIS AGREEMENT, dated as of July 27, effective as of August 1, 1999, is made by and among CHILDREN'S BROADCASTING CORPORATION, a Minnesota corporation (referred to herein as "CBC"); HARMONY HOLDINGS, INC., a Delaware corporation (referred to herein as "HHI"); and SUSAN HOLDEN; STEPHEN OAKES; RICHARD WINKLER; AND DAVID STARR, as individuals (collectively referred to herein as "CP Management"). W I T N E S S E T H: THAT, WHEREAS, contemporaneously herewith and incorporated herein, CP Management, HHI, Curious Pictures Corporation ("Curious") and CBC have entered into an agreement whereby CP Management agreed to sell, transfer and assign their one (1) share of Curious Common Stock ("Curious Share") and their interest in the Option and Share Transfer Agreement dated as of December 15, 1996 among CP Management, Curious and HHI ("Option Agreement") to CBC, and CBC agreed to purchase such Curious Share and the Option Agreement, and HHI consented to such sale, transfer and assignment (the "Purchase Agreement"); WHEREAS, contemporaneously herewith and incorporated herein, each member of CP Management has entered into five (5) year employment agreements with Curious; WHEREAS, as consideration for entering into the Purchase Agreement and employment agreements, HHI is desirous of transferring certain shares of Curious' common stock owned by HHI to members of CP Management; members of CP Management are desirous of having certain put rights to such shares to CBC; and CBC is desirous of having certain call rights to such shares on the terms and conditions set forth herein; and NOW, THEREFORE, in consideration of the foregoing and the covenants, representations and warranties hereinafter in this Agreement set forth, the parties hereto hereby agree as follows: 1. CURIOUS SHARES. 1.1 RIGHT TO ACQUIRE. Subject to the provisions set forth herein, the parties agree that on December 31, 1999 and each year thereafter until December 31, 2003, each member of CP Management will each receive the option to acquire 1 share which represents 1% of the issued and outstanding common stock of Curious from HHI up to an aggregate of 5 shares per member. Such member shall provide HHI with written notice of his/her right to receive such share(s) in the form attached hereto and incorporated herein as Exhibit A. 1.2 PUT AGREEMENT. 1.2.1 CP MANAGEMENT'S EMPLOYMENT AGREEMENTS. On December 31, 2002, provided that his/her employment agreement has not been terminated pursuant to Section 5(a) or (b) of his/her employment agreement, each member of CP Management shall have the right to put 2 shares of Curious Common Stock to CBC. On December 31, 2003, provided that his/her employment agreement has not been terminated pursuant to Section 5(a) or (b) of his/her employment agreement, each member of CP Management shall have the right to put an additional 2 shares of Curious Stock to CBC. Each member shall have the right to put his/her remaining 1 share of Curious common stock to CBC on December 31, 2004 only in the event that the member entered into an extension of his/her employment agreement for a term of at least one (1) additional year through December 31, 2004 and such member's employment agreement was not terminated pursuant to Section 5(a) or 5(b) of that employment agreement. Each member shall provide CBC with written notice in the form attached hereto and incorporated herein as Exhibit B of his/her intent to put such share(s) to CBC. 1.2.2 CP MANAGEMENT'S EMPLOYMENT IS TERMINATED UNDER SECTION 5(a). In the event a member of CP Management's employment is terminated due to death of member under Section 5(a), the estate of such member shall be entitled to put all of member's 4 shares of the Curious common stock to CBC immediately upon such termination, even if such amount had not yet been earned at the time of termination. In the event a member of CP Management's employment is terminated due to disability and such member is not re-employed under Section 5(a) of his/her employment agreement, such member shall be entitled to put all of his/her 4 shares of Curious common stock to CBC on the first day of the thirteenth month following such termination for disability, even if such amount had not yet been earned at the time of termination. 1.2.3 CP MANAGEMENT'S EMPLOYMENT IS TERMINATED UNDER SECTION 5(b). In the event a member of CP Management's employment is terminated under Section 5(b) of that member's employment agreement, any and all put rights which that member may have or may have been entitled to receive shall terminate upon such termination. 1.2.4 CP MANAGEMENT'S EMPLOYMENT IS TERMINATED UNDER SECTION 5(c). In the event Curious terminates a member's employment pursuant to Section 5(c) of that member's employment agreement, that member shall be entitled to put all of his/her 4 shares of the Curious common stock to CBC immediately upon such termination, even if such amount had not yet been earned at the time of termination by Curious. 1.2.5 PUT PRICE. The parties agree that the consideration for each share put shall be $96,774 per share. Unless otherwise terminated as set forth herein, CP Management shall have until March 31, 2005 to exercise his/her put rights. 1.3 CALL AGREEMENT. In the event a member of CP Management does not put his/her shares to HHI by March 31, 2005, CBC shall have the right to call such shares from CP Management at anytime commencing after June 1, 2005. The parties agree that the consideration for each share called shall be $96,774 per share. CBC shall provide the members of CP Management with written notice in the form attached hereto and incorporated herein as Exhibit C of its intent to call such share(s) from CP Management. 2. RESTRICTION ON TRANSFER. CBC and each member of CP Management hereby agrees that for as long as this Agreement remains in effect, it/he/she will not sell, transfer or otherwise dispose of (or enter into a binding agreement to sell, transfer or otherwise dispose of) all or any of its/his/her shares of or rights to acquire Curious common stock, now owned or hereafter acquired (the "Shares") except in compliance with this Agreement. 3. RIGHT OF CO-SALE. Except as hereinafter provided, each of the parties hereto agrees that it/he/she will not sell, transfer or otherwise dispose of any of the Shares or of any rights to acquire Shares unless the other party hereto is given the right to participate as a seller in such transaction on a pro rata basis as of the date of receipt of written notice described in Section 8.3 of this Agreement. The following sales, transfers or other disposals of Shares shall not be covered by this right of co-sale: (a) sales of Shares by any of the parties to this Agreement in a bona fide underwritten public offering pursuant to a registration statement filed by Curious under the Securities Act of 1933; (b) transfers or sales of a Share by a member of CP Management pursuant to the exercise of such member of his/her right require CBC to purchase such Share(s) pursuant to Section 1.2 of this Agreement, or transfers or sales of Shares to CBC pursuant to CBC's exercise of its right to purchase any Shares pursuant to Section 1.3 of this Agreement; (c) sales or transfers by CBC to any parent or subsidiary of CBC. In the event of any distribution of the Shares to the public shareholders of CBC, this Agreement shall cease to exist with respect to such Shares after such distribution has been affected. The provisions of subsection (a) above shall not apply to the members of CP Management during the period in which CBC has the right to purchase the Shares from the members of CP Management pursuant to Section 1.3 of this Agreement. 4. CO-SALE PROCEDURES. Each party to this Agreement to which the right of co-sale provided in Section 3 of this Agreement applies shall give prompt written notice to each other party to this Agreement in the event it/he/she has a present intention to sell, transfer or otherwise dispose of any Shares in a transaction subject to the right of co-sale, and each other party receiving such notice shall notify the party giving the notice within fifteen (15) calender days following receipt of such notice as to whether it wishes to participate in such transaction and bear a pro rata portion of the expenses incident thereto, with all negotiations leading to the consummation of such transaction to be conducted thereafter by the party contemplating such sale. Failure to respond to such notice within such 15 day period shall be deemed a declination of any right to participate in such transaction, provided that (i) such transaction is fully closed and consummated within 180 days of the expiration of such 15 day notice period; (ii) the terms of the actual transaction include no fewer or greater number of Shares than those set forth in such notice; and (iii) no purchasers or ultimate legal or beneficial holders of the Shares are involved in the transaction other than those disclosed in such notice. Failure to meet any of the foregoing conditions shall require that a new notification and right of co-sale with regard to such transaction under this section. 5. LEGENDS AND STOP TRANSFER ORDERS. (a) Legend Covering This Agreement. CBC and each member of CP Management shall promptly add the following legend to each of the certificates representing Shares heretofore or hereafter issued to it/him/her and standing in its/his/her name on the books of Curious and, so long as this Agreement shall remain in full force and effect, it/he/she shall add (and hereby directs Curious, as well as any transfer agent appointed by Curious, to add) such legend to any and all Shares issued to it/him/her, such legend to be and remain upon such certificates, as well as any re-issuance thereof unless and untl removed pursuant to Section 5(c) below: "The securities represented by this certificate are subject to certain transfer restrictions and co-sale rights set forth in an agreement, dated July ___, 1999, between the registered owner of such securities and certain other persons, and may not be sold, transferred or otherwise disposed of except in compliance with the terms of such agreement, a copy of which is available for inspection in the principal office of the issuer of such securities." (b) Stop Transfer Order. A stop transfer order shall be placed with Curious, as well as any transfer agent appointed by Curious, preventing transfer of any of the securities referred to in Section 5(a) pending compliance with the conditions set forth in any such legend. (c) Removal of Legends. Any legend endorsed on a certificate or instrument evidencing a security subject to this Agreement shall be removed, and Curious shall be authorized to issue a certificate or instrument without such legend to the holder of such security, if this Agreement has expired by its terms or such security is being disposed of pursuant to the terms of this Agreement in a transaction which upon completion will leave the Shares free and clear of this Agreement, and, in either event, the holder of such security provides Curious and the other parties to this Agreement with an opinion of counsel for such holder to such effect. 5. TERM OF AGREEEMENT. The co-sale rights of this Agreement shall terminate and expire on seventh anniversary of the date of this Agreement. 6. INDEMNIFICATION. Each party hereby indemnifies and agrees to hold harmless the other parties from and against all claims, damages, losses, liabilities, costs and expenses (including, without limitation, settlement costs and any legal, accounting or other expenses of investigating or defending any actions or threatened actions) in connection with any breach of any representation, warranty, covenant, agreement or obligation of such party contained in this Agreement. 7. Each of the parties hereto expressly represents and warrants to each other party that it/she/he has the full right, power, authority and capacity, and is free, without restriction to enter into this Agreement. 8. MISCELLANEOUS PROVISIONS. 8.1 EXECUTION OF DOCUMENTS. The parties agree to execute all applications, documents and instruments which may be reasonably necessary for the consummation of the transactions contemplated hereunder, or which might be from time to time reasonably requested by any party hereto in connection therewith, whether before or after the date of this Agreement. 8.2 CHANGES, WAIVERS, ETC. Neither this Agreement nor any provision thereof may be changed, amended, waived, discharged or terminated orally, but only in writing signed by all parties to this Agreement. 8.3 NOTICES. All notices, requests, elections, demands and other communications given pursuant to this Agreement shall be in writing and shall be duly given when delivered personally or by facsimile transmission (upon receipt of confirmation) or when deposited in the mail, certified or registered mail, postage prepaid, return receipt requested, and shall be addressed as follows: If to CBC: Mr. Christopher T. Dahl Children's Broadcasting Corporation 5501 Excelsior Boulevard Minneapolis, Minnesota 55416 Facsimile: (612) 926-7946 with copy to: Jill Theis, Esq. Children's Broadcasting Corporation 5501 Excelsior Boulevard Minneapolis, Minnesota 55416 Facsimile: (612) 925-8845 If to HHI: Mr. Christopher T. Dahl Harmony Holdings, Inc. 5501 Excelsior Boulevard Minneapolis, Minnesota 55416 Facsimile: (612) 926-7946 with copy to: Jill Theis, Esq. Harmony Holdings, Inc. 5501 Excelsior Boulevard Minneapolis, Minnesota 55416 Facsimile: (612) 925-8845 If to CP Management: Susan Holden, Stephen Oakes, Richard Winkler, David Starr c/o Curious Pictures Corporation 440 Lafayette Street New York, New York 10003 Facsimile: (212) 674-0081 With copy to: David Wollmuth, Esq. WOLLMUTH, MAHER & DEUTSCH, LLP 516 Fifth Avenue, 12th Floor New York, New York 10036 Facsimile: (212) 382-0050 8.4. EXHIBITS. All Exhibits referred to herein are incorporated into this Agreement by reference for all purposes and shall be deemed part of this Agreement. 8.5. ASSIGNABILITY. None of the parties may assign their rights or obligations under this Agreement without the prior written consent of the other parties which shall not be unreasonably withheld or delayed, except that CBC, HHI and Curious may make an assignment to a parent, subsidiary, affiliate or successor of such party and each member of CP Management may make an assignment to an entity that is controlled by and 100% owned by such member. 8.6. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the representatives, heirs, estates, successors, and assigns of the parties hereto. 8.7. HEADING. The headings contained in this Agreement are for reference only and shall not effect in any way the meaning or interpretation of this Agreement. 8.8. COUNTERPARTS. This Agreement and any other instrument to be signed by the parties hereto may be executed by the parties, together or separately, in two or more identical counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument. 8.9 CLAUSES SEVERABLE. The provisions of this Agreement are severable. If any provision of this Agreement or the application thereof to any person or circumstance is held invalid, the provision or its application shall be modified to the extent possible to reflect the expressed intent of the parties but in any event, invalidity shall not affect other provisions or applications of this Agreement which can be given effect without the invalid provision or application. IN WITNESS WHEREOF, the parties hereto, by their properly authorized representatives, have caused this Agreement to be executed as of the day and date first above written. CHILDREN'S BROADCASTING HARMONY HOLDINGS, INC., CORPORATION, a Minnesota corporation a Delaware corporation By: /s/ Christopher T. Dahl By: /s/ James G. Gilbertson ----------------------- ----------------------- Its: Chief Executive Officer Its: Chief Operating Officer ----------------------- ----------------------- CP MANAGEMENT /s/ Stephen Oakes /s/ Richard Winkler - ----------------- ------------------- Stephen Oakes Richard Winkler /s/ David Starr /s/ Susan Holden - ----------------- ------------------- David Starr Susan Holden EX-99.3 4 PURCHASE AGREEMENT EXHIBIT 99.3 PURCHASE AGREEMENT THIS AGREEMENT, dated as of July 23, 1999, effective as of July 1, 1999, is made by and among HARMONY HOLDINGS, INC., a company incorporated under the laws of Delaware, whose registered office is at 5501 Excelsior Boulevard, Minneapolis, MN 55416 (referred to herein as "HHI"); AND JULIA REED of 49 Mallinson Road, Battersea, London SW11R 1BW ("REED") W I T N E S S E T H THAT: WHEREAS, The Big End Limited ("TBE") is a private company limited by shares incorporated in England under number 03277387 on 12th November 1996 and changed its name from The End (London) Limited on 23rd July 1999; WHEREAS, the authorised share capital of TBE is (pound)1,000 divided into 1,000 ordinary shares of (pound)1 each of which 100 ordinary shares have been issued which represent all of the issued share capital of TBE and HHI is the sole legal and beneficial owner of all such shares of TBE; WHEREAS, immediately prior to signature of this Agreement TBE owed a net amount of (pound)655,000 to HHI, which sum was capitalised by the subscription by HHI for 98 of the 100 ordinary shares referred to in the preceding recital, following which (subject as described in Clause 3(a) there are no sums owing by HHI to TBE nor by TBE to HHI; WHEREAS, HHI has agreed to sell 90 shares of TBE which represent 90% of the issued and outstanding shares of TBE to Reed (the "SALE SHARES") and Reed has agreed to purchase the Sale Shares from HHI on the terms and conditions set forth in this Agreement; WHEREAS, HHI shall remain the owner of 10 shares of TBE, which represent 10% of the issued and outstanding shares of TBE; NOW, THEREFORE, the parties to this Agreement hereby agree as follows: 1. SALE AND PURCHASE OF THE SALE SHARES. (a) Subject to the terms and conditions of this Agreement, HHI agrees to sell with full title guarantee, transfer and deliver the Sale Shares to Reed, free and clear of all options, claims, charges, security interests, liens, encumbrances and any other third party rights with effect from July 1, 1999 (the "Effective Date"), together with all rights attached or accruing to them at that date, including any dividends or distributions declared or paid on the Sale Shares after that date and Reed agrees to purchase the Sale Shares; (b) HHI irrevocably waives any rights of pre-emption over the Sale Shares whether by virtue of the Articles of Association of TBE or otherwise in respect of the sale and purchase of the Sale Shares under this Agreement. 2. CONSIDERATION. (a) The total consideration for the sale of the Sale Shares shall be the payment by Reed to HHI of a cash consideration of(pound)1, payable in accordance with Clause 4. 3. PRIOR TO COMPLETION. (a) HHI undertakes to pay the remaining sums due to third parties in respect of the recent job undertaken for Pitney Bowes. The parties confirm that, subject to those payments being made, they are each satisfied that there are no sums owing by HHI or any of its Associates to TBE nor by TBE to HHI or any of its Associates. In this Agreement the expression "Associate" means any member of the same group as HHI, within the meaning of Section 207 of the Financial Services Act 1986. (b) HHI shall procure that prior to completion of this Agreement in respect of the sale and purchase of the Sale Shares ("COMPLETION"): (i) all guarantees or indemnities given by or binding on TBE in respect of any liabilities or obligations (actual or contingent) of HHI shall have been fully and effectually released without any provision or consideration for such release by TBE; and (ii) TBE shall be released, without payment by or other cost to TBE from all debts and obligations of any kind owed or outstanding to and from all guarantees, indemnities, mortgages and surety and security arrangements of any kind given by TBE in favour of HHI and all rights of subrogation arising against TBE from HHI; (c) HHI shall indemnify Reed and keep her indemnified from and against any failure so to procure pursuant to Clause 3(b) from any liability pending any such release pursuant to Clause 3(b). 4. COMPLETION. The sale and purchase of the Sale Shares shall be completed immediately following signature of this Agreement (the "COMPLETION DATE") at 7 Pilgrim Street, London EC4V 6LB. At Completion: (i) HHI shall deliver to Reed duly executed stock transfer forms transferring all of the Sale Shares to Reed (or her nominee) together with certificate(s) representing the Sale Shares, and all other documents as may be required to enable Reed and/or her nominee to be registered as the holder(s) of the Sale Shares and all other documents of title to the assets of TBE which are in the possession of HHI; (iii) HHI and Reed shall enter into the Shareholder Agreement attached hereto as Exhibit A; (iv) HHI shall (to the extent that such items are not already in the possession of Reed) deliver the certificate of incorporation, certificate of incorporation on change of name, the common seal, all minute books, share registers and share certificate books and other statutory books, cheque books and other books and records of TBE; (v) HHI shall procure that the current Directors and the Secretary of TBE shall resign as Directors of TBE and shall by delivering letters of resignation in the form of the draft initialled by the parties for the purpose of identification, waive any claims they may have against TBE in such capacity and shall procure that Reed and such other persons as she may nominate shall be appointed Directors of the Company; (vi) HHI shall procure that a meeting of the Board of Directors of the Company is held at which the transfers of Sale Shares referred to above shall be approved for registration (subject only to their being duly stamped); and (viii) Reed shall pay the cash Consideration to HHI. 5. INTELLECTUAL PROPERTY. (a) Reed acknowledges (on her own behalf and on behalf of TBE) that HHI is and remains the exclusive legal and beneficial owner of any and all Intellectual Property Rights associated with the name "The End", including without limitation names and logos. Reed undertakes (on her own behalf and on behalf of TBE) that following Completion neither she nor TBE nor any person connected or associated with them shall directly or indirectly hold themselves out as connected with TE or HHI, nor use any such Intellectual Property Rights, nor be interested in any business which does so. In this Agreement "TE" shall mean The End, Inc., a California Corporation. (b) HHI acknowledges (on its own behalf and on behalf of TE) that Reed is and remains the exclusive legal and beneficial owner of any and all Intellectual Property Rights associated with the name "The Big End", including, without limitation, names and logos. HHI undertakes, (on its own behalf and on behalf of TE) that following Completion, neither it nor TE nor any person connected or associated with them shall directly or indirectly hold themselves out as connected with TBE, nor use any such Intellectual Property Rights, nor be interested in any business which does so. (c) "INTELLECTUAL PROPERTY RIGHTS" shall be defined as goodwill, trade marks, service marks, design rights, database rights, moral rights, rights in any know-how, copyright or designs and other Intellectual property rights in each case whether registered or unregistered and including applications or rights to apply for the grant of any of the foregoing, trade or business names, and any right or interest in any of the foregoing having equivalent or similar effect anywhere in the world. (d) Notwithstanding the foregoing TBE shall be permitted to use on an exclusive basis the name "The End (London)", including without limitation names and logos, in the United Kingdom only and in the same manner as it has used it hitherto, for a period of six months immediately following Completion. 6. REPRESENTATIONS AND WARRANTIES BY HHI. (a) HHI represents and warrants as set out in Schedule 1 to this Agreement ("THE WARRANTIES"), and warrants that the Warranties are true and accurate which representations and warranties shall be deemed to have been made again at Completion by reference to the facts then subsisting, in each case subject to the limitations in Schedule 2 to this Agreement. HHI acknowledges that Reed has entered into this Agreement on the basis of the Warranties. (b) Without prejudice to the right of Reed to claim damages on any basis available to her or to any other right or remedy available to her, but subject to an obligation on Reed to use her reasonable endeavours to mitigate her loss, HHI shall pay to Reed on demand, subject to the limitations in Schedule 2, the higher of (i) the amount necessary to put the Company into the position which would have existed if the Warranties had not been breached and (ii) an amount equal to the resulting diminution in value of the Sale Shares. (c) HHI shall in addition pay to Reed all losses, costs,charges and expenses (including legal expenses) reasonably incurred in relation to proceedings and enforcement of proceedings in relation to the Warranties in which Reed is successful. 7. REPRESENTATIONS AND WARRANTIES OF REED. Acknowledging that HHI has entered into this Agreement on the basis of Reed's representations and warranties, Reed represents and warrants as follows, which representations and warranties shall be deemed to have been made again at Completion by reference to the facts then subsisting: (a) that Reed has the full right, power, authority and capacity, and is free, without restriction, to enter into and perform this Agreement; (b) that Reed is not relying on any representations or warranties other than those set out in Clause 5 and Schedule 1; (c) that Reed is not aware that TE and/or HHI are guarantors of any obligations of TBE; and (d) that Reed is not aware of any matter which would constitute a breach by HHI of the Warranties as at the date of this Agreement. Any reference to awareness of Reed in this Clause 7 shall mean actual awareness, without having made any enquiry. 8. INDEMNITY. (a) Reed hereby undertakes to indemnify TE and HHI and to keep them indemnified against all or any claims (whether or not successful, compromised or settled), actions, liabilities, demands, proceedings or judgments brought or established against TE or HHI in any jurisdiction by any person or body whatsoever and against all losses, costs, charges, expenses (including all legal fees reasonably incurred) which TE or HHI may suffer or incur (including, but not limited to, all such losses, costs, charges, expenses or taxes suffered or incurred in disputing any claim, action, liability, demand or proceedings aforesaid and/or in establishing its right to be indemnified pursuant to this Clause 7 and/or in seeking advice as to any claim, action, liability, demand or proceedings aforesaid) if and to the extent in any such case it arises, directly or indirectly, out of or is attributable to any guarantee, indemnity or other obligation assumed by TE or HHI in relation to TBE or any subsidiary of TBE, including without limitation the guarantee of the lease of the premises used by TBE; (b) Any amount which would otherwise be payable under the indemnity in Clause 8(a) shall be reduced by a percentage equal to the percentage of Ordinary Shares owned by HHI on the date on which the payment under the indemnity is due to be made to TE or HHI. 9. ANNOUNCEMENTS. Except to the extent required by law, no announcement, circular or other publicity relating to the any matter referred to in this Agreement shall be made or issued by or on behalf of the parties hereto without the prior written approval of the other, which approval shall not be unnecessarily withheld or delayed PROVIDED that nothing in this Clause 9 shall prevent Reed (or anyone on her behalf) from making any announcement dealing with the future operation of TBE or stating the fact of the acquisition to suppliers and customers. 10. COSTS. Each party shall pay its own legal and accountancy costs, charges and expenses connected with the negotiation, preparation and implementation of this Agreement and Reed shall pay all stamp duty on the transfer of the Sale Shares. 11. GENERAL. 11.1 This Agreement when taken together with all exhibits and documents referred to in it constitutes the entire agreement and understanding among the parties with respect to all matters herein referred to. 11.2 No variation of this Agreement shall be valid unless it is in writing and signed by or on behalf of each of the parties. 11.3 As it remains to be fulfilled this Agreement will continue in full force and effect notwithstanding Completion. 11.4 This Agreement may be executed in one or more counterparts. 11.5 Neither this Agreement nor any provision thereof may be changed, amended, waived, discharged or terminated orally, but only in writing signed by the party against which enforcement of the change, amendment, waiver, discharge or termination is sought. 11.6 Each of the parties at the request of the other shall, (and shall procure that any necessary third parties shall) do all such acts and execute all such documents as the other parties may from time to time request on or after Completion in order to fully implement this Agreement. 11.7 A failure to exercise or delay in exercising any right, remedy or power ("right") under this Agreement or by law does not constitute a waiver of that right or any other right. No single or partial exercise of any right prevents any further exercise of it or any other right. 12. NOTICES. All notices, requests, elections, demands and other communications given pursuant to this Agreement shall be in writing and shall be duly given when delivered personally or by facsimile transmission (upon receipt of confirmation) or when deposited in the mail, certified or registered mail, postage prepaid, return receipt requested, and shall be addressed as follows: If to HHI: Mr. Christopher T. Dahl Harmony Holdings, Inc./ The End, Inc. 5501 Excelsior Boulevard Minneapolis, Minnesota 55416 Facsimile: (612) 926-7946 with copies to: Jill Theis, Esq. Harmony Holdings, Inc./ The End, Inc. 5501 Excelsior Boulevard Minneapolis, Minnesota 55416 Facsimile: (612) 925-8845; and Max Audley, Esq. Faegre Benson Hobson Audley 7 Pilgrim Street London EC4V 6LB Facsimile: +44 207 450 4545 (and HHI hereby appoints Faegre Benson Hobson Audley as its agent for service of proceedings in England in relation to this Agreement) If to Reed: Ms. Julia Reed 49 Mallinson Road Battersea London SW1R 1BW Facsimile: +44 207 o with copy to: Lisa Bennett Harbottle & Lewis Hanover House 14 Hanover Square London W1R 0BE Facsimile: +44 207 667 5100 except where receipt occurs after 5pm on a business day or on a day other than a business day, when receipt shall be deemed to take place at 9am on the next business day. 13. GOVERNING LAW. This Agreement shall be governed in all respects by English law and the parties submit to the exclusive jurisdiction of the English Courts. 14. ASSIGNABILITY. None of the parties may assign their rights or obligations under this Agreement without the prior written consent of the other parties. 15. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the representatives, heirs, estates, successors, and assigns of the parties hereto. 16. SEVERABILITY. The provisions of this Agreement are severable. If any provision of this Agreement or the application thereof to any person or circumstance is held invalid, the provision or its application shall be modified to the extent possible to reflect the expressed intent of the parties but in any event, invalidity shall not affect other provisions or applications of this Agreement which can be given effect without the invalid provision or application. IN WITNESS WHEREOF, the parties hereto, by their properly authorized representatives, have caused this Agreement to be executed as a Deed on the day and date first above written. SCHEDULE 1 THE WARRANTIES 1. ARRANGEMENTS BETWEEN THE COMPANY AND HHI ASSOCIATES There are no contracts, arrangements or liabilities, actual or contingent, outstanding or remaining in whole or in part to be performed between the Company or any HHI Associate. SHARE CAPITAL 2. COMPANY 2.1 The Sale Shares constitute the entire issued and allotted share capital of TBE and are fully paid or credited as fully paid. 2.2 Apart from this Agreement, there is no agreement, arrangement or commitment outstanding which calls for the allotment, issue or transfer of, or accords to any person the right to call for the allotment, issue or transfer of, any share or loan capital of TBE. 2.3 None of the Sale Shares were, or represents assets which were, the subject of a transfer at an undervalue, within the meaning of sections 238 or 339 of the Insolvency Act 1986, within the past five years. 2.4 TBE has not at any time: reduced its share capital; redeemed any share capital; purchased any of its shares; or forfeited any of its shares. 3. SUBSIDIARIES Neither of the Directors of TBE nor HHI have done anything to cause the following statements to be incorrect nor are they aware of any circumstances which would make them incorrect: 3.1 Save for its interest in Precious Films Limited, TBE does not have, nor has it agreed to acquire, any interest in any undertaking or in the share capital of any body corporate. 3.2 TBE does not hold nor is it liable on any share or relevant security which is not fully paid up or which carries any liability. 3.3 TBE does not have any branch, agency, place of business or establishment outside the United Kingdom. CORPORATE MATTERS 4. INSOLVENCY OF TBE 4.1 So far as HHI is aware, no order has been made, no resolution has been passed, no petition presented, no meeting convened for the winding up of TBE or for a provisional liquidator to be appointed in respect of TBE and TBE has not been a party to any transaction which could be avoided in a winding up. 4.2 So far as HHI is aware, no administration order has been made and no petition for one has been presented in respect of TBE. 4.3 So far as HHI is aware, no receiver or administrative receiver has been appointed in respect of TBE or any of its assets. 4.4 So far as HHI is aware, the Company is not insolvent, has not failed or is or unable to pay, or has no reasonable prospect of being able to pay, any of its debts, as they fall due, as those expressions are defined in section 268 of the Insolvency Act 1986. 4.5 So far as HHI is aware, no voluntary arrangement has been proposed under section 1 of the Insolvency Act 1986 in respect of TBE and TBE has not made or proposed any arrangement or composition with its creditors or any class of them. 4.6 So far as HHI is aware, no unsatisfied judgment is outstanding against TBE and no demand has been served on TBE under section 123(1)(a) of the Insolvency Act 1986. 5. STATUTORY BOOKS AND DOCUMENTS FILED 5.1 The statutory books, including all registers and minute books, of TBE have been properly kept and contain an accurate and complete record of the matters with which those books should deal. 5.2 All documents which should have been delivered by TBE to the Registrar of Companies are complete and accurate and have been properly so delivered. 5.3 Since the date of the latest Accounts no resolution of the members in general meeting, or of any class of them, has been passed other than resolutions relating to the ordinary business of annual general meetings. 6. EVENTS SINCE THE ACCOUNTS DATE Since the date of the latest Accounts neither of the Directors of TBE nor HHI have (without the knowledge of Ms Reed) committed TBE to have: 6.1 incurred or committed to incur: 6.1.1 material capital expenditure; or 6.1.2 any liability whether actual or contingent except for full value or in the ordinary course of business; 6.2 acquired or agreed to acquire: 6.2.1 any asset for a consideration higher than its market value at the time of acquisition or otherwise than in the ordinary course of business; or 6.2.2 any business or substantial part of it or any share or shares in a body corporate; 6.3 disposed of or agreed to dispose of, any of its assets except in the ordinary course of business and for full value; 6.4 repaid wholly or in part any loan except upon the due date or dates for repayment; 6.5 issued or allotted share or loan capital, increased its authorised share capital, purchased or redeemed any shares, reduced or reorganised its share capital or agreed to do so; or 6.6 declared or paid any distribution of profit. 7. COMPLIANCE WITH LAW So far as HHI is aware TBE has not committed nor is it liable for, and no claim has been or, will be made that it has committed or is liable for, any criminal, illegal, unlawful or unauthorised act or breach of any obligation or duty whether imposed by or pursuant to statute, contract or otherwise. 8. LITIGATION AND DISPUTES 8.1 So far as HHI is aware, except for actions to recover any debt incurred in the ordinary course of the business owed to the Company where each individual debt and its costs outstanding amounts to less than (pound)1,000: 8.1.1 neither TBE nor any person for whose acts TBE may be liable is engaged in any litigation, arbitration, administrative or criminal proceedings, whether as plaintiff, defendant or otherwise; 8.1.2 no litigation, arbitration, administrative or criminal proceedings by or against TBE or any person for whose acts it may be liable are threatened or expected and none are pending; and 8.1.3 there are no facts or circumstances likely to give rise to any litigation, arbitration, administrative or criminal proceedings against TBE or any person for whose acts it may be liable. 8.2 So far as HHI is aware TBE is not subject to any order or judgment given by any court or governmental or other authority, department, board, body or agency or has not been a party to any undertaking or assurance given to any court or governmental or other authority, department, board, body or agency which is still in force, nor are there any facts or circumstances likely to give rise to it becoming subject to such an order or judgment or to be a party to any such undertaking or assurance. 12. CHARGES AND ENCUMBRANCES OVER ASSETS 12.1 No option, right to acquire, mortgage, charge, pledge, lien (other than a lien arising by operation of law in the ordinary course of trading) or other form of security or encumbrance or equity on, over or affecting the shares of TBE is outstanding and, apart from this Agreement, there is no agreement or commitment to give or create any of them and no claim has been made by person to be entitled to any of them. 12.2 Neither of the Directors of TBE nor HHI have received notice from any person intimating that it will enforce any security which it may hold over any asset of TBE, and there are no circumstances likely to give rise to such a notice. 13. CAPACITY OF HHI 13.1 HHI is a corporation organized and existing in good standing under the laws of the State of Delaware with full power and authority to enter into this Agreement to which it is a party and enter into and complete the transactions contemplated herein and therein. 13.2 All required corporate action has been duly and validly taken by HHI to make and carry out this Agreement and the transactions contemplated herein. 13.3 This Agreement constitutes the valid and binding obligation of HHI enforceable in accordance with its terms; the execution of this Agreement and the completion of the transactions herein involved will not result in the violation of any order, license, permit, rule, judgment or decree to which HHI is subject or the breach of any contract, agreement or other commitment to which HHI is a party or by which it or its properties is bound or conflict with or violate any provision of HHI's Articles of Incorporation, By-Laws, or other organizational documents. SCHEDULE 2 LIMITATIONS ON THE WARRANTIES The liability of HHI in respect of the Warranties shall be limited as follows: 1.1 the maximum aggregate liability of HHI under the Warranties shall be an amount equal to the lesser of (pound)500,000 and the fair value of the Option Shares (as defined in the Shareholder Agreement attached hereto as exhibit A) as at the date on which the claim is to be satisfied, such fair value to be determined by the auditors of the Company ("the Auditors") as between a willing seller and a willing buyer contracting on arm's length terms, valuing the Company as a whole and not taking into account the fact that the Option Shares represent a minority shareholding. 1.2 For the purpose of ascertaining the fair value the Auditors shall be deemed to be acting as experts and not as arbitrators and accordingly the Arbitration Act 1996 and any statutory modification or re-enactment thereof for the time being in force shall not apply. If either HHI or Reed disagrees with the Auditors' determination of the fair value, the person concerned may within 14 days of being notified of the fair value elect that the fair value shall be determined (on the basis specified above) by an independent firm of Chartered Accountants to be nominated (in default of agreement between HHI and Reed) by the President for the time being of the Institute of Chartered Accountants in England and Wales. In the event of any difference between the fair value as determined by the Auditors and such independent Accountants (who shall be deemed to be acting as experts and not as arbitrators) the price determined by the independent Accountants shall prevail and shall be the fair value. 1.3 HHI shall be entitled to settle any liability it may have under the Warranties by transferring to the Company or Reed such number of Option Shares as shall have a fair value equivalent to the value of the liability and shall once it has transferred all the Option Shares to the Company or Reed (whether pursuant to this Agreement or otherwise) extinguish all such liabilities entirely. 1.4 HHI shall not be liable in respect of the Warranties unless the amount of all claims in respect of which Reed would but for this paragraph be entitled to recover, whether made on the same occasion or previously, is equal to or exceeds (pound)10,000 in which event the whole amount shall be payable and not just the excess (subject to the other limitations in this Schedule). 1.5 the liability of the HHI under the Warranties shall terminate on the second anniversary of Completion except in respect of any claim of which notice in writing setting out reasonable details thereof is given to HHI on or before that date; 1.6 HHI shall not be liable in respect of any claim under the Warranties to the extent that the subject of the claim has been made good or is otherwise compensated for without cost to Reed. 1.7 Reed shall, as soon as reasonably practicable after establishing that in her opinion a Warranty Claim exists, give notice in writing to HHI of such Warranty Claim and no Warranty Claim shall be deemed to have been made unless notice of such claim was made in writing to HHI specifying in reasonable detail the event of default to which the claim relates, the nature of the breach and if practicable, Reed's then estimate of the amount claimed. 1.8 Reed shall, and shall procure that the Company takes such action to avoid, dispute, resist, appeal, compromise or contest the liability as may be reasonably requested by HHI provided that such action is not, in the reasonable opinion of Reed, likely to materially affect adversely the operations or profitability of the Company; 1.9 Any reference to awareness of HHI in the Warranties shall mean actual awareness, without having made any enquiry. EXECUTED AS A DEED by HARMONY HOLDINGS, INC., a Delaware corporation By: /s/ Christopher T. Dahl By: /s/ Jill J. Theis --------------------------------- --------------------------------- Its: CEO/President Its: General Counsel/Secretary --------------------------------- --------------------------------- EXECUTED AS A DEED by JULIA REED in the presence of: -----END PRIVACY-ENHANCED MESSAGE-----