-----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, I3BR8wzKftdpPsdUFdx5buCVnJ+tWtwPriYrcZmnDuot8qG1nOZ5R51aqLMPNo+J 3Ojrx6Xnb47beZxwHmBqXg== /in/edgar/work/20000811/0000950124-00-004932/0000950124-00-004932.txt : 20000921 0000950124-00-004932.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950124-00-004932 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTELEFILM CORP CENTRAL INDEX KEY: 0000882160 STANDARD INDUSTRIAL CLASSIFICATION: [7812 ] IRS NUMBER: 411663712 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-38474 FILM NUMBER: 695291 BUSINESS ADDRESS: STREET 1: 5501 EXCELSIOR BLVD CITY: MINNEAPOLIS STATE: MN ZIP: 55416 BUSINESS PHONE: 6129258840 MAIL ADDRESS: STREET 1: 5501 EXCELSIOR BLVD CITY: MINNEAPOLIS STATE: MN ZIP: 55416 FORMER COMPANY: FORMER CONFORMED NAME: CHILDRENS BROADCASTING CORP DATE OF NAME CHANGE: 19951102 S-4/A 1 s-4a.txt AMENDMENT NO. 1 FOR FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 11, 2000 REGISTRATION NO. 333-38474 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ PRE-EFFECTIVE AMENDMENT NO. 1 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ iNTELEFILM CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MINNESOTA 41-1663712 (STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NO.) ORGANIZATION)
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: 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)
------------------------ 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 AUGUST 11, 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. iNTELEFILM Corporation offers, upon the terms and subject to the conditions set forth herein and in the related letter of transmittal, to exchange one share of its common stock for every 13.75 outstanding shares of common stock of Harmony Holdings, Inc. The purpose of this offer is to enable iNTELEFILM to acquire 100% of the outstanding common stock of Harmony. iNTELEFILM currently owns 55% of Harmony's outstanding common stock. iNTELEFILM intends, promptly after consummation of the offer, to seek to have Harmony consummate a merger with iNTELEFILM, or a wholly- owned subsidiary of iNTELEFILM, in which each outstanding share of Harmony common stock not already owned by iNTELEFILM would be converted into the same number of iNTELEFILM shares as is paid in the offer. The offer and withdrawal rights will expire at 12:00 midnight, Minneapolis time, on , 2000, unless extended. Shares tendered pursuant to this offer may be withdrawn at any time prior to the expiration of the offer, but not during any subsequent offering period. iNTELEFILM's common stock is quoted on the Nasdaq National Market and trades under the ticker symbol "FILM." Harmony's common stock is quoted on the OTC Bulletin Board and trades under the ticker symbol "HAHO." On August 2, 2000, the closing price of one share of iNTELEFILM common stock on the Nasdaq National Market was $2.0625 and the closing price of one share of Harmony common stock on the OTC Bulletin Board was $0.11. SEE "RISK FACTORS" BEGINNING ON PAGE 20 FOR A DISCUSSION OF FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER. 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. 3 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE OFFER....................... 1 WHAT IS iNTELEFILM PROPOSING?............................. 1 WHAT WILL I RECEIVE IN EXCHANGE FOR MY SHARES OF HARMONY COMMON STOCK?.......................................... 1 WHY SHOULD I TENDER MY SHARES OF HARMONY COMMON STOCK?.... 1 HOW DO I PARTICIPATE IN iNTELEFILM'S OFFER?............... 2 HOW LONG WILL IT TAKE iNTELEFILM TO COMPLETE THE OFFER?... 2 WHEN AND HOW CAN I WITHDRAW TENDERED SHARES?.............. 2 MAY iNTELEFILM ELECT, OR BE REQUIRED, TO EXTEND THE DURATION OF THE OFFER?................................. 2 HOW WOULD iNTELEFILM COMPLETE ITS PROPOSED ACQUISITION OF HARMONY?............................................... 3 WHAT ARE THE CONDITIONS TO iNTELEFILM'S OFFER?............ 3 WHAT WILL iNTELEFILM DO IF IT DOES NOT ACQUIRE AT LEAST 90% OF HARMONY'S OUTSTANDING COMMON STOCK IN THIS OFFER?................................................. 3 FOLLOWING THIS OFFER, IF iNTELEFILM IS UNABLE TO PERFORM A SHORT-FORM MERGER AND ELECTS NOT TO PERFORM A STATUTORY MERGER, WHAT WOULD HAPPEN TO THE TRADING MARKET FOR HARMONY SHARES NOT TENDERED IN THIS OFFER?............. 4 HAS HARMONY'S BOARD OF DIRECTORS RECOMMENDED THAT HARMONY'S STOCKHOLDERS ACCEPT iNTELEFILM'S OFFER?...... 4 WILL MY RECEIPT OF iNTELEFILM SHARES BE A TAXABLE TRANSACTION?........................................... 4 AM I ENTITLED TO DISSENTERS' RIGHTS OR RIGHTS OF APPRAISALS IN CONNECTION WITH THE OFFER?............... 4 WHERE CAN I FIND MORE INFORMATION ABOUT iNTELEFILM AND HARMONY?............................................... 5 WHO CAN I CALL WITH QUESTIONS ABOUT THE OFFER?............ 5 WHERE YOU CAN FIND MORE INFORMATION......................... 6 INCORPORATION OF DOCUMENTS BY REFERENCE..................... 6 SUMMARY..................................................... 8 THE iNTELEFILM OFFER...................................... 8 INFORMATION ABOUT iNTELEFILM AND HARMONY.................. 8 BENEFITS TO HARMONY STOCKHOLDERS.......................... 9 COMPARATIVE MARKET PRICE INFORMATION...................... 10 COMPARISON OF SECURITY HOLDER RIGHTS...................... 10 ACCOUNTING TREATMENT...................................... 12 MATERIAL FEDERAL INCOME TAX CONSEQUENCES.................. 12 iNTELEFILM CORPORATION SELECTED HISTORICAL FINANCIAL INFORMATION............................................... 13 HARMONY HOLDINGS, INC. SELECTED HISTORICAL FINANCIAL INFORMATION............................................... 15
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PAGE ---- SELECTED PRO FORMA FINANCIAL DATA........................... 17 COMPARATIVE PER SHARE DATA.................................. 19 RISK FACTORS................................................ 20 iNTELEFILM'S COMMERCIAL PRODUCTION BUSINESS MAY NOT PROVE ADVANTAGEOUS OR PROFITABLE............................. 20 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................ 20 COMMERCIAL DIRECTORS AND OTHER KEY PERSONNEL COULD LEAVE iNTELEFILM, IMPAIRING iNTELEFILM'S GROWTH, PROFITABILITY AND PROSPECTS............................ 20 iNTELEFILM HAS INCURRED OPERATING LOSSES AND EXPECTS TO INCUR FUTURE OPERATING LOSSES. THIS MAY PREVENT iNTELEFILM FROM RAISING CAPITAL AND CONTINUING OPERATIONS............................................. 21 THE SCREEN ACTORS GUILD'S STRIKE AGAINST THE ADVERTISING AGENCIES MAY HAVE AN EFFECT ON THE BUSINESS OF iNTELEFILM............................................. 21 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..................................... 21 WEBWEBADTV MAY BE UNABLE TO IMPLEMENT ITS BUSINESS PLAN, IMPAIRING iNTELEFILM'S EFFORTS TO ENTER INTO E-COMMERCE WITH ADVERTISING AGENCIES.............................. 22 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......................... 22 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..... 22 iNTELEFILM DEPENDS ON MANAGEMENT SERVICES RENDERED BY AN ENTITY WHICH MAY FAVOR ITS OWN INTERESTS OVER iNTELEFILM'S INTERESTS................................. 23 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.................................. 23 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........................................... 23 THE iNTELEFILM OFFER........................................ 24 OVERVIEW.................................................. 24 REASONS FOR THE iNTELEFILM OFFER.......................... 25 BACKGROUND OF THE OFFER................................... 27 TIMING OF THE OFFER....................................... 28 EXTENSION, TERMINATION AND AMENDMENT...................... 28
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PAGE ---- EXCHANGE OF HARMONY SHARES; DELIVERY OF iNTELEFILM SHARES................................................ 30 CASH INSTEAD OF FRACTIONAL SHARES...................... 30 WITHDRAWAL RIGHTS...................................... 31 PROCEDURE FOR TENDERING................................ 31 GUARANTEED DELIVERY.................................... 33 MATERIAL FEDERAL INCOME TAX CONSEQUENCES............... 34 EFFECT OF THE OFFER ON HARMONY REGISTRATION UNDER THE EXCHANGE ACT.......................................... 35 PURPOSE OF THE OFFER; THE iNTELEFILM-HARMONY MERGER; APPRAISAL RIGHTS...................................... 35 CONDITIONS OF THE OFFER................................ 36 RELATIONSHIPS WITH HARMONY............................. 38 FEES AND EXPENSES...................................... 38 ACCOUNTING TREATMENT................................... 38 NASDAQ NATIONAL MARKET LISTING......................... 39 MATERIAL CONTACTS BETWEEN INTELEFILM AND HARMONY............ 40 DESCRIPTION OF INTELEFILM CAPITAL STOCK..................... 42 Common Stock........................................... 42 Non-Voting Common Stock................................ 43 Preferred Stock........................................ 43 Shareholder rights plan................................ 43 PRICE RANGE OF COMMON STOCK AND DIVIDENDS................... 46 iNTELEFILM............................................. 46 Harmony................................................ 47 Dividend policy of iNTELEFILM and Harmony.............. 47 COMPARISON OF SECURITY HOLDER RIGHTS........................ 47 NUMBER OF DIRECTORS....................................... 48 ELECTION OF DIRECTORS..................................... 48 REMOVAL OF DIRECTORS...................................... 48 VACANCIES ON THE BOARD OF DIRECTORS....................... 49 SHAREHOLDER ACTION BY WRITTEN CONSENT..................... 49 AMENDMENT TO INCORPORATING INSTRUMENTS.................... 50 AMENDMENT TO BYLAWS....................................... 50 CALLING OF SPECIAL MEETING OF SECURITY HOLDERS............ 50 ANTI-TAKEOVER MEASURES.................................... 51 Security holder rights plans........................... 51 Control share acquisitions............................. 51 Business combinations.................................. 52 Other anti-takeover provisions......................... 53
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PAGE ---- INDEMNIFICATION........................................... 53 DISSENTERS' RIGHTS AND APPRAISAL RIGHTS IN CONNECTION WITH CORPORATE REORGANIZATIONS AND OTHER ACTIONS............ 54 LEGAL MATTERS............................................... 55 EXPERTS..................................................... 55 PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS........... 55 EXCHANGE AGENT.............................................. 60 INFORMATION AGENT........................................... 60
iv 7 QUESTIONS AND ANSWERS ABOUT THE OFFER 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 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. 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; - 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; - achieving better long-term growth prospects; - eliminating Harmony's substantial indebtedness to iNTELEFILM; - 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 in the Nasdaq National Market. 1 8 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 the back cover page 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 30 days following commencement of the offer, 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 , 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 , 2000 [60 DAYS AFTER COMMENCEMENT OF THE OFFER]. Your withdrawal will only be effective if the exchange agent receives a written notice of withdrawal at the appropriate address specified on the back cover page of this document, or by facsimile at (651) 450-4033. 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 iNTELEFILM 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 (a) to assist iNTELEFILM in reaching the statutory minimum necessary to perform a short-form merger and (b) 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 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 2 9 Harmony stockholders in a manner reasonably calculated to inform them of such change pursuant to Rule 14d-6 under the Exchange Act. 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 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 have sufficient voting power to effect the iNTELEFILM-Harmony merger without the vote of any other Harmony stockholder. Q: WHAT ARE THE CONDITIONS TO iNTELEFILM'S OFFER? A: The offer is subject to several conditions, including: - authorization for listing on the Nasdaq National Market of iNTELEFILM common stock to be issued to Harmony stockholders; - 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: WHAT WILL iNTELEFILM DO IF IT DOES NOT ACQUIRE AT LEAST 90% OF HARMONY'S OUTSTANDING COMMON STOCK IN THIS OFFER? A: iNTELEFILM needs 90% of Harmony's outstanding common stock to complete a short-form merger. If iNTELEFILM does not acquire at least 90% in this tender offer, it may seek to acquire additional Harmony shares, no earlier than ten business days after the offer has terminated, through one or more of the following actions: - open market purchases; - privately negotiated transactions with stockholders who have not tendered pursuant to this offer; - purchasing Harmony shares for cash or other forms of consideration directly from Harmony; 3 10 - negotiating payment of notes payable to cure the outstanding demand on such indebtedness; or - converting all or a portion of Harmony's indebtedness to iNTELEFILM into Harmony shares. If iNTELEFILM does not acquire additional Harmony shares by any of the above methods, it may determine to continue its investment in Harmony as a majority-owned subsidiary or complete a statutory merger. Q: FOLLOWING THIS OFFER, IF INTELEFILM IS UNABLE TO PERFORM A SHORT-FORM MERGER AND ELECTS NOT TO PERFORM A STATUTORY MERGER, WHAT WOULD HAPPEN TO THE TRADING MARKET FOR HARMONY SHARES NOT TENDERED IN THIS OFFER? If iNTELEFILM elects to continue its investment in Harmony as a majority-owned subsidiary following this offer, the trading market for Harmony shares not tendered in the offer would become highly illiquid. 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 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: Yes. The tender of Harmony shares by Harmony stockholders pursuant to the offer will be taxable as capital gain or loss or as long-term gain or loss for federal income tax purposes and may also be a taxable transaction under applicable state, local and foreign income tax laws. See "The iNTELEFILM offer -- Federal income tax consequences." Q: AM I ENTITLED TO DISSENTERS' RIGHTS OR RIGHTS OF APPRAISALS IN CONNECTION WITH THE OFFER? A: No. Neither Minnesota nor Delaware provide dissenters' rights or rights of appraisal in connection with the offer. Harmony stockholders who do not wish to tender shares in the offer, however, will have the right under Delaware law to dissent and demand appraisal of their Harmony shares in connection with any merger which follows the offer. This would entitle such stockholders to receive a judicial determination of, and receive payment for, the fair value of their Harmony shares. 4 11 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. 5 12 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, on the day that iNTELEFILM commences the offer, it will file with the SEC a statement on Schedule TO pursuant to Rule 14d-3 under the Exchange Act to furnish information about its offer. You may obtain copies of the Form S-4 or, once filed, the Schedule TO, and any amendments to those documents, in the manner described above. INCORPORATION OF DOCUMENTS BY REFERENCE 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. See "Where You Can Find More Information." 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. - Quarterly Report on Form 10-QSB for the quarter ended March 31, 2000. - Current Reports on Form 8-K filed on 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. - 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 6 13 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-K for the year ended June 30, 1999. - Quarterly Reports on Form 10-Q for the quarters ended September 30, 1999, December 31, 1999 and March 31, 2000. - Current Report on Form 8-K filed on June 29, 2000, and August 6, 1999. We have enclosed with this document one copy of iNTELEFILM's latest Annual Report on Form 10-KSB, iNTELEFILM's latest Quarterly Report on Form 10-QSB, Harmony's latest Annual Report on Form 10-K 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 , 2000. 7 14 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 iNTELEFILM OFFER (See page 24) 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. There is no minimum percentage or number of shares that must be tendered. The consideration iNTELEFILM is offering has a value of $0.15 per Harmony share, based on the closing price of iNTELEFILM common stock on the Nasdaq National Market on August 2, 2000. On August 2, 2000, the closing sales price of one share of Harmony common stock on the OTC Bulletin Board was $0.11. The offer expires at 12:00 midnight, Minneapolis time, on , 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. If iNTELEFILM increases its ownership of Harmony common stock to at least 90% of Harmony's outstanding shares, it intends, promptly after completion of the offer, to cause a merger of Harmony with iNTELEFILM or a wholly owned subsidiary of iNTELEFILM. If the merger occurs, 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 offer. INFORMATION ABOUT INTELEFILM AND HARMONY iNTELEFILM CORPORATION 5501 Excelsior Boulevard Minneapolis, Minnesota 55416 (612) 925-8840 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 and broadcast related activities in 1999 were $67,342,653, including $39,491,545 attributable to Harmony. iNTELEFILM's operating loss in 1999 was $6,417,487, including $2,929,033 attributable to Harmony. INTELEFILM's total revenues from production contracts and related activities for the three months ended March 31, 2000 were $21,739,591, including $9,722,266 attributable to Harmony. INTELEFILM's operating loss for the three months ended March 31, 2000 was $1,577,608, including $782,126 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 the date of this document. 8 15 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, Harmony had total revenue from production contracts of $66,340,255. For the nine months ended March 31, 2000, Harmony's consolidated revenues from production contracts totaled $29,532,540. Harmony operating loss for its fiscal year ended June 30, 1999 was $ and was $ for the nine months ended March 31, 2000. BENEFITS TO HARMONY STOCKHOLDERS (See page 25) 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%. - 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. - Elimination of Harmony's indebtedness to iNTELEFILM. Combining iNTELEFILM and Harmony will result in the elimination of approximately $3.2 million payable by Harmony to iNTELEFILM pursuant to outstanding promissory notes. - Savings on operations. Combining iNTELEFILM and Harmony will result in lower costs of operations over the long-term through the consolidation of SEC 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. 9 16 COMPARATIVE MARKET PRICE INFORMATION (See page 46) 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 iNTELEFILM offer per share of Harmony common stock on March 22, 2000, the last trading day before iNTELEFILM announced its proposed offer, and on August 2, 2000, a trading day 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.
VALUE OF INTELEFILM HARMONY INTELEFILM COMMON STOCK COMMON STOCK OFFER ------------ ------------ ---------- March 22, 2000.................... $3.9375 $0.1875 $0.2864 August 2, 2000.................... $2.0625 $0.1100 $0.1500
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 47) 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 Delaware law will become iNTELEFILM shareholders, and their rights as such will be governed by Minnesota law and the 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 currently has five directors on its board, while iNTELEFILM has four directors. 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 10 17 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 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) a statute prohibiting iNTELEFILM from entering into or amending agreements that increase compensation of offers or directors during potential tender offers; (b) provisions prohibiting iNTELEFILM's purchase of shares from an iNTELEFILM shareholder owning more than five percent of the iNTELEFILM voting power; and (c) 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. 11 18 - 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 indemnify officers, directors, employees or agents against liability for proceedings against them involving their actions when acting on behalf of the corporation. Harmony has very similar indemnification as iNTELEFILM. - 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 38) Shares acquired by iNTELEFILM pursuant to the offer will be accounted for as a "purchase," as such term is used under GAAP, for accounting and financial reporting purposes. MATERIAL FEDERAL INCOME TAX CONSEQUENCES (See page 34) The tender of Harmony shares by Harmony stockholders pursuant to the offer will constitute a taxable transaction for federal income tax purposes and may also be a taxable transaction under applicable state, local and foreign income tax laws. In general, a stockholder will recognize gain or loss equal to the difference between the tax basis of his or her shares and the fair market value of the iNTELEFILM shares received on the date of the exchange, plus the amount, if any, of cash received as a payment for a fractional share. For federal income tax purposes, such gain or loss will be capital gain or loss if the shares are capital assets in the hands of the stockholder at the effective date of the tender. The capital gain or loss will be long-term capital gain or loss with respect to Harmony shares held for more than 12 months at that time. The capital gain or loss will be short-term capital gain or loss with respect to Harmony shares held for less than 12 months at that time. 12 19 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 three months ended March 31, 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. See "Where You Can Find More Information" on page 5. 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 and Curious Pictures, and a 100% interest in Chelsea in March and April 1999. As a result of acquiring a majority interest in Harmony and Curious Pictures, iNTELEFILM began consolidating these companies in April 1999. Previous records are accounted for under the equity method. INTELEFILM CORPORATION STATEMENT OF OPERATIONS DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, DECEMBER 31, (UNAUDITED) ------------------------------------------------ ----------------- 1995 1996 1997 1998 1999 1999 2000 ------- ------- -------- ------- ------- ------- ------- Contract revenue.......... $ -- $ -- $ -- $ -- $67,242 $ 1,144 $21,740 Broadcast related revenue................. 5,107 5,655 5,854 2,567 100 87 Cost of production........ -- -- -- -- 56,489 965 18,497 General and administrative expenses (exclusive of all items shown below).................. -- -- -- -- 9,722 300 3,052 Broadcast related expenses................ 7,445 8,561 9,111 4,152 91 180 -- Subsidiary stock option compensation............ 25 -- -- -- 2,121 -- 91 Corporate charges......... 1,465 2,774 6,013 5,614 3,673 540 1,161 Amortization and write-off of deferred expenses.... 103 2,288 -- -- -- -- -- Depreciation and amortization............ 937 1,501 2,137 1,949 1,664 103 516 ------- ------- -------- ------- ------- ------- ------- Income (loss) from operations.............. (4,868) (9,469) (11,407) (9,148) (6,418) (857) (1,577)
13 20
THREE MONTHS ENDED MARCH 31, DECEMBER 31, (UNAUDITED) ------------------------------------------------ ----------------- 1995 1996 1997 1998 1999 1999 2000 ------- ------- -------- ------- ------- ------- ------- Gain (loss) on sale of radio stations and division................ (31) -- -- 26,375 16,384 16,546 -- Equity loss in Harmony.... -- -- (541) (4,058) (1,931) (1,931) -- Interest income (expense), net..................... (1,209) (399) (2,611) (5,269) 406 (503) 63 ------- ------- -------- ------- ------- ------- ------- Income (loss) before taxes................... (6,108) (9,868) (14,559) 7,900 8,441 13,255 (1,514) Income tax expense........ -- -- -- (330) (1,102) (3,100) (5) ------- ------- -------- ------- ------- ------- ------- Net income (loss)......... (6,108) (9,868) (14,559) 7,570 7,339 10,155 (1,519) Accretion of preferred stock................... -- -- -- (680) -- -- -- ------- ------- -------- ------- ------- ------- ------- Net income (loss) to common shareholders..... $(6,108) $(9,868) $(14,559) $ 6,890 $ 7,339 $10,155 $(1,519) ======= ======= ======== ======= ======= ======= ======= Basic net income (loss) per share............... $ (2.22) $ (1.99) $ (2.33) $ 1.03 $ 1.16 $ 1.56 $ (0.24) ======= ======= ======== ======= ======= ======= ======= Diluted net income (loss) per share............... $ (2.22) $ (1.99) $ (2.33) $ 1.03 $ 1.14 $ 1.56 $ (0.24) ======= ======= ======== ======= ======= ======= ======= Weighted average shares outstanding............. 2,816 5,149 6,246 6,676 6,343 6,492 6,336 ======= ======= ======== ======= ======= ======= ======= Weighted average shares outstanding assuming dilution................ 2,816 5,149 6,246 6,676 6,448 6,492 6,336 ======= ======= ======== ======= ======= ======= =======
INTELEFILM CORPORATION BALANCE SHEET DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, MARCH 31, ----------------------------------------------- 2000 1995 1996 1997 1998 1999 (UNAUDITED) ------- ------- ------- ------- ------- ----------- Cash..................... $ 587 $ 3,370 $ 545 $ 254 $15,986 $12,935 Current assets........... 2,247 5,094 2,021 12,537 27,191 19,754 Goodwill/Broadcast license, net........... 4,970 16,725 19,679 -- 6,730 6,475 Total assets............. 13,327 28,607 35,414 33,822 37,618 30,095 Current liabilities...... 6,668 10,583 27,727 18,045 17,328 10,948 Long-term liabilities.... 925 1,437 2,558 848 680 654 Total liabilities........ 7,593 12,020 30,285 18,893 18,008 11,602 Minority interest........ -- -- -- -- 139 248 Redeemable convertible preferred stock........ 2,247 -- -- 2,448 -- -- Shareholders' equity..... $ 3,487 $16,587 $ 5,129 $12,481 $19,471 $18,244
14 21 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, and the nine months ended March 31, 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 5. 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. HARMONY HOLDINGS, INC. STATEMENT OF OPERATIONS DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED MARCH 31, JUNE 30, (UNAUDITED) ----------------------------------------------- ----------------- 1995 1996 1997 1998 1999 1999 2000 ------- ------- ------- ------- ------- ------- ------- Contract revenue........ $61,227 $60,415 $64,831 $53,355 $66,340 $47,659 $29,533 Cost of production...... 50,920 51,041 52,174 43,617 56,347 40,718 26,500 General selling and administrative expenses (exclusive of all items shown below)................ 8,800 8,628 9,343 10,760 10,012 7,706 3,830 Subsidiary stock option compensation.......... -- -- 75 391 2,234 326 -- Corporate charges....... 1,655 2,050 1,146 2,379 1,457 1,158 1,024 Depreciation and amortization.......... 528 564 620 700 882 671 218 Restructuring costs and impairment of assets................ -- -- -- -- 3,357 3,357 -- ------- ------- ------- ------- ------- ------- ------- Income (loss) from operations............ (676) (1,868) 1,473 (4,493) (7,949) (6,277) (2,039) Gain on disposal of production division... -- -- -- -- -- -- 120
15 22
NINE MONTHS ENDED MARCH 31, JUNE 30, (UNAUDITED) ----------------------------------------------- ----------------- 1995 1996 1997 1998 1999 1999 2000 ------- ------- ------- ------- ------- ------- ------- Equity gain in Curious Pictures.............. -- -- -- -- -- -- 522 Interest income (expense), net........ (9) (243) 40 25 (434) (266) (434) ------- ------- ------- ------- ------- ------- ------- Income (loss) before taxes................. $ (685) $(2,111) $ 1,513 $(4,468) $(8,383) $(6,543) $(1,831) Income tax expenses..... -- (20) (179) (22) (11) (10) -- ------- ------- ------- ------- ------- ------- ------- Net income (loss)....... $ (685) $(2,131) $ 1,334 $(4,490) $(8,394) $(6,553) $(1,831) ======= ======= ======= ======= ======= ======= ======= Basic and diluted income (loss) per share...... $ (0.12) $ (0.37) $ 0.20 $ (0.69) $ (1.13) $ (0.89) $ (0.24) ======= ======= ======= ======= ======= ======= ======= Basic and diluted weighted average shares outstanding.... 5,567 5,692 6,682 6,515 7,409 7,377 7,507 ======= ======= ======= ======= ======= ======= =======
HARMONY HOLDINGS, INC. BALANCE SHEET DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, MARCH 31, -------------------------------------------------- 2000 1995 1996 1997 1998 1999 (UNAUDITED) ------- ------ ------- ------- ------- ----------- Cash................. $ 230 $ 447 $ 2,355 $ 3,834 $ 2,911 $ -- Current assets....... 7,707 4,986 9,505 12,008 10,713 3,644 Goodwill, net........ 3,181 2,969 2,758 2,546 169 160 Total assets......... 12,955 9,687 14,505 16,927 14,121 6,317 Current liabilities.. 6,196 5,382 6,748 12,698 15,703 10,855 Long-term liabilities........ 385 -- -- -- -- -- Total liabilities.... 6,581 5,382 6,748 12,698 15,703 10,855 Minority interest.... -- -- 75 466 2,700 -- Stockholders' equity (deficit).......... $ 6,374 $4,304 $ 7,682 $ 3,763 $(4,281) $(4,538)
16 23 SELECTED PRO FORMA FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) iNTELEFILM CORPORATION PRO FORMA STATEMENT OF OPERATIONS DATA The following is a summary of the selected pro forma financial data presented in full on pages 49-53.
PRO FORMA PRO FORMA YEAR ENDED THREE MONTHS ENDED DECEMBER 31, 1999 MARCH 31, 2000 ----------------- ------------------ Contract revenue........................... $83,617 $21,740 Cost of production......................... 70,378 18,497 Operating expenses......................... 21,675 4,862 ------- ------- Loss from operations....................... (8,436) (1,619) Gain on sale of radio stations and division................................. 16,384 -- Interest income, net....................... 327 63 Income tax expense......................... (1,102) (5) ------- ------- Net income (loss).......................... $ 7,173 $(1,561) ======= ======= Basic net income (loss) per share.......... $ 1.09 $ (0.24) Diluted net income (loss) per share........ $ 1.07 $ (0.24) Weighted average shares outstanding........ 6,588 6,581 Weighted average shares outstanding -- assuming dilution........................ 6,693 6,581
17 24 iNTELEFILM CORPORATION PRO FORMA BALANCE SHEET DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
PRO FORMA MARCH 31, 2000 -------------- Current assets.............................................. $19,554 Property and equipment, net................................. 3,026 Goodwill, net............................................... 7,639 Total assets................................................ 31,060 Current liabilities......................................... 10,948 Long-term debt.............................................. 654 Total liabilities........................................... 11,602 Minority interest........................................... 248 Shareholders' equity........................................ 19,209
18 25 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.
AS OF AND FOR THE AS OF AND FOR THE THREE MONTHS ENDED YEAR ENDED MARCH 31, 2000 DECEMBER 31, 1999 (UNAUDITED) ----------------- ------------------ Net income (loss) per share -- basic Historical -- iNTELEFILM................... $ 1.16 $(0.24) Pro Forma Consolidated..................... 1.09 (0.24) -- Historical -- Harmony................... (0.56) (0.09) -- Equivalent Pro Forma Consolidated per Harmony share(1)........................ 0.08 (0.02) Net income (loss) per share -- diluted Historical -- iNTELEFILM................... 1.14 (0.24) Pro Forma Consolidated..................... 1.07 (0.24) Historical -- Harmony...................... (0.56) (0.09) Equivalent Pro Forma Consolidated per Harmony share(1)........................ 0.08 (0.02) Book value per common share(2) Historical -- iNTELEFILM................... 3.10 2.84 Pro Forma Consolidated..................... 3.13 2.88 Historical -- Harmony...................... (0.51) (0.60) Equivalent Pro Forma Consolidated per Harmony share(1)........................ 0.23 0.21
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. 19 26 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 does not have any understandings, commitments or agreements with respect to any material future acquisitions. 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 directors and employees will fulfill their obligations to iNTELEFILM, or that they will 20 27 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 of approximately $6.4 million for the fiscal year ended December 31, 1999, approximately $9.1 million for the fiscal year ended December 31, 1998, and approximately $1.6 million for the three months ended March 31, 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 may have an 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. This on-going strike has limited iNTELEFILM's ability to produce television commercials domestically and in Canada. iNTELEFILM has made an effort to limit the effect that the strike may have on its operations by utilizing non-union talent and continuing to produce commercials off-shore wherever possible. To date, iNTELEFILM has experienced some loss of business as a result of the strike. iNTELEFILM can give no assurance that an extended strike will not have a material adverse effect on its operations. 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 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. 21 28 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 seven 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 $2.00 on each of July 28, 2000 and July 31, 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 August 2, 2000, and also had warrants and options outstanding to purchase an additional 3,529,903 shares of common stock. iNTELEFILM expects that it will issue approximately 244,880 new shares in connection with this offer. The sale of 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. 22 29 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 August 2, 2000, approximately % 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 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 23 30 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 iNTELEFILM 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. 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 August 2, 2000, the closing sales price of one share of iNTELEFILM common stock on the Nasdaq National Market was $2.0625 and the closing sales price of one share of Harmony common stock on the OTC Bulletin Board was $0.11. If iNTELEFILM obtains all of the outstanding shares of Harmony common stock pursuant to this offer, tendering Harmony stockholders would own approximately 4% of the outstanding iNTELEFILM shares. iNTELEFILM's obligation to exchange shares of its common stock for Harmony shares pursuant to the offer is subject to several conditions referred to below under "Conditions of the offer." iNTELEFILM expects Harmony's board to take action with respect to the offer within ten days of its commencement. The offer will expire on the expiration date. The expiration date is 12:00 midnight, Minneapolis time, on , 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. The offer is the first step in the completion of iNTELEFILM's acquisition of Harmony and is intended to facilitate the acquisition of all the shares of Harmony common stock. If iNTELEFILM ownership of Harmony reaches 90% or greater after consummation of the offer, iNTELEFILM plans to immediately initiate a short-form merger of iNTELEFILM and Harmony. 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 short-form merger. If iNTELEFILM does not reach a 90% ownership level after consummation of the offer, iNTELEFILM may take action necessary, no earlier than ten business days after the 24 31 offer has terminated, to reach this level of ownership. Such action may include the following: - iNTELEFILM may acquire additional Harmony shares through open market purchases. - iNTELEFILM may negotiate private transactions with stockholders who have not tendered pursuant to this offer. - iNTELEFILM may purchase Harmony shares for cash or other forms of consideration directly from Harmony. - iNTELEFILM may negotiate for the payment of notes payable due from Harmony. These unsecured demand notes payable aggregate approximately $3.2 million and were called on March 23, 2000. Harmony was not able to repay the notes pursuant to the demand and iNTELEFILM has granted Harmony a temporary default forbearance on collection of the debt. - iNTELEFILM may convert all or a portion of Harmony's $3.2 million indebtedness to iNTELEFILM into Harmony shares. Upon reaching a 90% ownership level through any or a combination of these actions, iNTELEFILM plans to initiate a short-form merger of iNTELEFILM and Harmony as described above. If iNTELEFILM does not acquire additional Harmony shares by any of the above methods, it may determine to continue its investment in Harmony as a majority-owned subsidiary or perform a statutory merger. Following this offer, if iNTELEFILM is unable to perform a short-form merger and elects not to perform a statutory merger, the trading market for Harmony shares not tendered in the offer would become highly illiquid. REASONS FOR THE iNTELEFILM 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 $1.00 to $0.11, 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 August 2, 2000, the closing sales price of one share of iNTELEFILM common 25 32 stock on the Nasdaq National Market was $2.0625 and the closing sales price of one share of Harmony common stock on the OTC Bulletin Board was $0.11. - 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 hip hop commercials and music videos, storytelling commercials, animated commercials and half-hour animated television series. - Ownership of a solvent company. At March 31, 2000, Harmony had a working capital deficit of $7,211,000 and stockholders' deficit of $4,538,000. 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 $8,806,000 and shareholders' equity of $18,244,000. 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. - Elimination of Harmony's indebtedness to iNTELEFILM. Harmony currently operates at a cash flow deficit and has outstanding indebtedness to iNTELEFILM of approximately $3.2 million pursuant to notes payable. Completion of the offer will result in the elimination of all indebtedness Harmony owes to iNTELEFILM through the combination of the two entities and cancellation of any existing loans. iNTELEFILM has granted Harmony temporary forbearance of a default under these notes which occurred when Harmony did not repay the notes pursuant to iNTELEFILM's demand. The merger would cure this default. - 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 March 31, 2000, iNTELEFILM's average daily volume was approximately 32,000 shares or 0.50% of its total shares outstanding while Harmony's average daily volume was approximately 21,000 shares or 0.15% of its total shares outstanding. 26 33 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 currently owns 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:
HARMONY OPTIONS TO PURCHASE COMMON STOCK HARMONY COMMON STOCK -------------------------- -------------------------- NUMBER OF NUMBER OF DATE SHARES CONSIDERATION SHARES CONSIDERATION - ---- --------- ------------- --------- ------------- 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 -- $ -- ========= ========== ======== =========
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. 27 34 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 to Pyramid Partners, L.P.; Perkins & Partners, Inc., Profit Sharing Plan & Trust; and Christopher T. Dahl and State Bank of New Prague Joint Account all of its right to purchase 225,000 shares of common stock of Harmony at $2.50 per share from Mr. Laken. 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 12:00 midnight, Minneapolis time, on , 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. iNTELEFILM is not making any assurance that it will exercise its right to extend its offer by providing a 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; 28 35 - 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, 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 that such notice is first so published, sent or given, 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 12:01 a.m. through 12:00 midnight, 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 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 (a) to assist iNTELEFILM in reaching the statutory minimum necessary to perform a short-form merger and (b) 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 in a manner reasonably calculated to inform them of such change pursuant to Rule 14d-6 under the Exchange Act. 29 36 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 you. You will not receive interest on any cash that iNTELEFILM pays you, 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 submitted for more Harmony shares than are accepted, 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 transfer of such Harmony shares into the exchange agent's account at DTC pursuant to the procedures set forth below under the caption "Procedure for tendering," those Harmony shares will be credited to an account maintained within DTC, as soon as practicable following expiration or termination of the offer. 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. 30 37 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 , 2000 [60 DAYS AFTER COMMENCEMENT OF THE OFFER]. 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 the back cover 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 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 either of the following: (a) both (1) 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 the back cover of this document, and (2) 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 31 38 confirmation of receipt of such tender received, in each case before the expiration date; or (b) you must 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 (a) 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, (b) that such participant has received and agrees to be bound by the terms of the letter of transmittal and (c) 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. However, although delivery of Harmony shares may be effected through book-entry at DTC, (a) the guaranteed delivery procedures described below must be followed or (b) either of the following must, in any case, be transmitted to and received by the exchange agent at one or more of its addresses set forth on the back cover of this document prior to the expiration date: 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 the section entitled "Special Issuance Instructions" 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. 32 39 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: (a) you make your tender by or through an eligible institution; (b) 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 (c) 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: (1) 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; (2) 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 (3) 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 (a) certificate(s) for Harmony shares or timely confirmation of a book-entry transfer of such securities into the exchange agent's account at DTC, (b) 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 (c) 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 by iNTELEFILM and with respect to any and all other Harmony shares and other securities issued or issuable in respect of the Harmony shares on or after , 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, 33 40 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. 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, 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. MATERIAL FEDERAL INCOME TAX CONSEQUENCES The following is a discussion of the material United States federal income tax consequences to Harmony stockholders who exchange Harmony shares for iNTELEFILM shares pursuant to the offer. 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, (a) partnerships, (b) select foreign persons, (c) financial institutions, (d) insurance companies, (e) tax-exempt entities, (f) dealers in securities, (g) traders in securities that elect to apply a mark-to-market method of accounting, (h) select U.S. expatriates, (i) persons that hold Harmony common stock as part of a straddle, hedge, conversion transaction or other integrated investment, (j) Harmony stockholders whose functional currency is not the United States dollar and (k) Harmony stockholders who acquired Harmony shares through the exercise of employee stock options or otherwise as compensation. 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. The tender of shares by Harmony stockholders pursuant to the offer will constitute a taxable transaction for federal income tax purposes under the Internal Revenue Code of 1986 and may also constitute a taxable transaction under applicable state, local and foreign 34 41 income tax laws. In general, a stockholder will recognize gain or loss equal to the difference between the tax basis of his or her Harmony shares and the fair market value of the iNTELEFILM shares received on the date of the exchange, plus the amount, if any, of cash received as a payment for a fractional share. For federal income tax purposes, such gain or loss will be capital gain or loss if the shares are capital assets in the hands of the stockholder at the effective date of the tender. The capital gain or loss will be long-term gain or loss if the holding period for the shares is more than 12 months as of the date of the sale of such shares. The capital gain or loss will be short-term capital gain or loss with respect to Harmony shares held for less than 12 months at that time. A Harmony stockholder who tenders shares may be subject to backup withholding unless the stockholder provides its taxpayer identification number and certifies that such number is correct or an exemption applies. A Harmony stockholder who does not furnish its taxpayer identification number may be subject to a penalty imposed by the IRS. 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. 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. PURPOSE OF THE OFFER; THE iNTELEFILM-HARMONY MERGER; APPRAISAL RIGHTS iNTELEFILM is making the offer in order ultimately to acquire the entire common equity interest in Harmony. You will not have appraisal rights as a result of the offer. 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. The purpose of the iNTELEFILM-Harmony merger is to acquire all Harmony shares not tendered and exchanged pursuant to the offer. In the iNTELEFILM-Harmony merger, each then outstanding Harmony share not already owned by iNTELEFILM would be converted into the same number of iNTELEFILM shares as is exchanged in the offer. The iNTELEFILM-Harmony merger may be consummated pursuant to Section 253 of the Delaware General Corporation Law. 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 without the approval of the stockholders of the parent corporation or of the board of directors or stockholders of the 35 42 subsidiary corporation. If iNTELEFILM increases its ownership of Harmony common stock to at least 90% of Harmony's outstanding shares, iNTELEFILM would have sufficient voting power to effect the iNTELEFILM-Harmony merger under Section 253 of the DGCL without the vote of any other stockholder of Harmony. Although stockholders do not have appraisal rights as a result of the offer, Harmony stockholders at the time of the iNTELEFILM-Harmony merger who do not wish to accept iNTELEFILM shares in a short-form 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, 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. In Cede & Co. and Cinerama, Inc. v. Technicolor, Inc., the Supreme Court of the State of Delaware construed Section 262 of the DGCL and held that the "accomplishment or expectation" exclusion from the calculation of fair value set forth in the preceding sentence is narrow and is designed to eliminate use of pro forma data and projections of a speculative variety relating to the completion of a merger. The court held that it is appropriate to include in the calculation of fair value any known elements of value, including those elements of value which exist on the date of the merger because of a majority acquiror's interim action in a two-step cash-out transaction. We cannot assure you as to the methodology a court would use to determine fair value or how a court would select which of the elements of value are to be included in such a determination. Any such judicial determination of the fair value of Harmony shares could be based upon factors other than, or in addition to, the price per Harmony share to be paid in the iNTELEFILM-Harmony merger or the market value of the Harmony shares. The value so determined could be more or less than the value of the consideration per Harmony share to be paid in the iNTELEFILM-Harmony merger. Rule 13e-3 under the Exchange Act, which iNTELEFILM does not believe would apply to the iNTELEFILM-Harmony merger if such merger occurred within one year of consummation of its offer, would require, among other things, that financial information concerning Harmony, and information relating to the fairness of the proposed transaction and the consideration offered to Harmony stockholders therein, be filed with the SEC and disclosed to you prior to consummation of the iNTELEFILM-Harmony merger. Upon consummation of the offer, iNTELEFILM (a) intends to take appropriate actions to optimize the combined entities' assets, operations, management, personnel, general and administrative functions and corporate structure and (b) 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. 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 as to any Harmony shares not then 36 43 exchanged if, on or after the date of this document and at or prior to the expiration date of the offer, whether or not any Harmony shares have theretofore been accepted for exchange or exchanged pursuant to the offer, any of the following conditions are not satisfied: - The iNTELEFILM shares to be issued to Harmony stockholders in the offer have been authorized for listing on the Nasdaq National Market, subject to official notice of issuance; - 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; - 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 (a) 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, (b) 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, (c) seeking to prohibit iNTELEFILM from effectively controlling in any material respect the business or operations of Harmony, or (d) 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 37 44 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. RELATIONSHIPS WITH HARMONY As of the date of this document iNTELEFILM beneficially owned for its own account 4,139,562 Harmony shares. 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 a customary fee 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 exchange 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" on page 49. 38 45 NASDAQ NATIONAL MARKET LISTING iNTELEFILM's common stock is listed on the Nasdaq National Market. iNTELEFILM will make an application to list on the Nasdaq National Market the shares that it will issue pursuant to the offer. 39 46 MATERIAL CONTACTS BETWEEN INTELEFILM AND HARMONY **6 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 has 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. 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, 40 47 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, (a) the interest rate on the note issued to Mr. Burwell was increased to 20% per annum effective July 1998, (b) an additional warrant to purchase 25,000 iNTELEFILM shares at $3.0625 per share was issued to Pyramid Partners, L.P., and (c) 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 on 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 to Pyramid Partners, L.P., Perkins & Partners, Inc., Profit Sharing Plan & Trust, and Christopher T. Dahl and State Bank of New Prague Joint Account all of its right to purchase 225,000 Harmony shares at $2.50 per share from Glenn B. Laken, a shareholder of Harmony. Pyramid Partners, L.P. is an entity of which Perkins Capital Management is the managing partner. Mr. 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. Mr. Dahl is President, Chief Executive Officer and Chairman of both iNTELEFILM and Harmony. In October 1998, iNTELEFILM repurchased the 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 notes within the 30-day demand period, on May 1, 2000, iNTELEFILM granted Harmony a temporary forebearance of the default to allow Harmony time to consider its alternatives. 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 41 48 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%, 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 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 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 three month period ended March 31, 2000, iNTELEFILM recognized compensation expense of $84,952, resulting in a minority interest valuation aggregating $333,477 at March 31, 2000 and $139,947 at December 31, 1999. 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 42 49 holders of common stock, other than non-voting shares, are entitled to one vote for each 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. All non-voting stock was issued in order to avoid attribution of interests under FCC regulations, and all non-voting stock is convertible to voting stock on a share for share basis if such conversion would not result in FCC attribution of interests. 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 43 50 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 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 Norwest 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 (a) 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 (b) 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. 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. 44 51 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. At any time prior to the earlier of (a) 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 (b) the final expiration date, 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. 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 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 45 52 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 5. 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.
PRICE RANGE OF COMMON STOCK ---------------- HIGH LOW ------ ------ 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 through August 2, 2000...................... 2.500 2.000
46 53 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.
PRICE RANGE OF COMMON STOCK ------------------ HIGH LOW ------- ------- 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 through August 2, 2000..................... 0.1590 0.1100
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 historically not paid dividends and iNTELEFILM intends to retain future earnings, if any, to fund the development and growth of its business. 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. 47 54 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 5. 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 four 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 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 48 55 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 (a) 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 (b) 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 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 49 56 outstanding and entitled to vote. Harmony's certificate of incorporation does not alter these provisions. The MBCA provides that amendments to iNTELEFILM's article 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 (a) are, nor have been during the past five years, neither officers nor employees, (b) are neither "acquiring persons" nor affiliates or associates of an "acquiring persons," (c) were not nominated for election as directors by an "acquiring persons" or an affiliate or associate of an "acquiring persons," and (d) 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. The MBCA provides that the board has the power to amend or repeal bylaws unless (a) such power is reserved by the articles of incorporation to the shareholders or (b) 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 (a) are, nor have been during the past five years, neither officers nor employees, (b) are neither "acquiring persons" nor affiliates or associates of an "acquiring persons," (c) were not nominated for election as directors by an "acquiring persons" or an affiliate or associate of an "acquiring persons," and (d) 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. 50 57 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 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: (a) at least 20 percent but less than 33 - 1/3 percent; (b) at least 33 - 1/3 percent but less than or equal to 50 percent; or (c) 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 51 58 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 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: (a) 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; (b) 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 (c) 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 52 59 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. 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 (a) for any breach of the director's duty of loyalty to the corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) for unlawful 53 60 payment of a dividend or unlawful stock purchase or redemption under Section 174 of the DGCL, or (d) 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 (a) any breach of the director's duty of loyalty to the corporation or its stockholders, (b) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) 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, (d) any transaction from which the director derived an improper personal benefit, or (e) 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 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: (a) shares of stock of the surviving corporation in a merger; (b) 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 (c) cash in lieu of fraction al shares. Minnesota law affords dissenters' rights regardless of whether the shares of the corporation are listed on a national securities exchange or widely held. 54 61 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 will be passed upon for iNTELEFILM by Briggs and Morgan, Professional Association, Minneapolis, Minnesota. 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, 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, in reliance upon such report given upon the authority of said firm as experts in auditing and accounting. 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, respectively, and for the interim period ended March 31, 2000. However, the pro forma financial statements are not necessarily indicative of the 55 62 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 March 31, 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. 56 63 PRO FORMA STATEMENTS OF OPERATIONS FOR YEAR ENDED DECEMBER 31, 1999 (UNAUDITED)
REVERSE iNTELEFILM INTELEFILM HARMONY EQUITY LOSS PRO FORMA FOR YEAR ENDED QUARTER ENDED IN HARMONY TENDER OFFER YEAR ENDED DECEMBER 31, MARCH 31, AND ADJUST (GOODWILL DECEMBER 31, 1999 1999(1) GOODWILL(2) AMORTIZATION)(3) 1999 ------------ ------------- ----------- ---------------- ------------- Revenues................ $67,342,653 $16,274,699 $ -- $ -- $83,617,352 Cost of production...... 56,488,737 13,889,304 -- -- 70,378,041 Operating expenses...... 17,271,403 3,511,348 725,900 166,333 21,674,984 ----------- ----------- ---------- --------- ----------- Loss from operations.... (6,417,487) (1,125,953) (725,900) (166,333) (8,435,673) Gain on sale of assets................ 16,383,816 -- -- -- 16,383,816 Equity loss in Harmony............... (1,930,942) -- 1,930,942 -- -- Interest income (expense) net......... 406,082 (79,089) 326,993 Income taxes............ (1,101,892) -- -- -- (1,101,892) ----------- ----------- ---------- --------- ----------- Net income (loss)....... $ 7,339,577 $(1,205,042) $1,205,042 $(166,333) $ 7,173,244 Basic net income per share................. $ 1.16 $ 1.09 =========== =========== Diluted net income per share................. $ 1.14 $ 1.07 =========== =========== Weighted average number of shares outstanding........... 6,343,000 $ 6,587,880 =========== =========== Weighted average number of shares outstanding -- assuming dilution..... 6,448,000 $ 6,692,880 =========== =========== *7
- --------------- (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 $1,164,337 recognized in the transaction, based on the March 22, 2000 share price of $3.94 of 244,880 iNTELEFILM shares to be issued totaling $964,337, including estimated transaction costs of $200,000. Amortization is calculated on a straight-line basis over seven years. 57 64 PRO FORMA STATEMENTS OF OPERATIONS FOR QUARTER ENDED MARCH 31, 2000 (UNAUDITED)
**7 INTELEFILM PRO FORMA FOR INTELEFILM ADJUST QUARTER ENDED QUARTER ENDED AMORTIZATION MARCH 31, MARCH 31, 2000 OF GOODWILL(1) 2000 -------------- -------------- ------------- Revenues.......................... $21,739,591 $ -- $21,739,591 Cost of production................ 18,497,237 -- 18,497,237 Operating expenses................ 4,819,962 41,583 4,861,545 ----------- -------- ----------- Loss from operations.............. (1,577,608) (41,583) (1,619,191) Gain on sale of assets............ -- -- -- Equity loss in Harmony............ -- -- -- Interest expense, net............. 62,941 -- 62,941 Income taxes...................... (4,549) -- (4,549) ----------- -------- ----------- Net loss.......................... $(1,519,216) $(41,583) $(1,560,799) =========== ======== =========== Basic and diluted net loss per share........................... $ (0.24) $ (0.24) =========== =========== Basic and diluted weighted average number of shares outstanding.... 6,336,000 6,581,000 =========== ===========
- --------------- (1) Reflects three months of amortization of the goodwill recognized in the transaction. 58 65 PRO FORMA BALANCE SHEET AS OF MARCH 31, 2000 (UNAUDITED)
TENDER OffER iNTELEFILM INTELEFILM (GOOD WILL PRO FORMA MARCH 31, 2000 COSTS)(1) MARCH 31, 2000 -------------- ------------ -------------- Current assets...................... $19,753,733 $ (200,000) $19,553,733 Property and equipment, net......... 3,025,699 -- 3,025,699 Goodwill, net....................... 6,475,112 1,164,337 7,639,449 Other assets........................ 840,654 840,654 ----------- ---------- ----------- Total assets...................... $30,095,198 $ 964,337 $31,059,535 =========== ========== =========== Current liabilities................. $10,948,210 $ -- $10,948,210 Long-term debt...................... 654,283 -- 654,283 Minority interest................... 248,226 -- 248,226 Shareholders' equity................ 18,244,479 964,337 19,208,846 ----------- ---------- ----------- Total liabilities and shareholders' equity............................ $30,095,198 $ 964,337 $31,059,535 =========== ========== ===========
- ------------------------- (1) Reflect $1,164,337 of goodwill recognized in the transaction, including payment of the transaction cost estimated at $200,000. 59 66 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.
BY MAIL BY HAND Wells Fargo Bank Minnesota, N.A. Wells Fargo Bank Minnesota, N.A. Attention: Neal Freese Attention: Neal Freese 161 North Concord Exchange 161 North Concord Exchange South St. Paul, MN 55075 South St. Paul, MN 55075
BY OVERNIGHT, CERTIFIED OR EXPRESS MAIL DELIVERY BY FACSIMILE TRANSMISSION Wells Fargo Bank Minnesota, N.A. Wells Fargo Bank Minnesota, N.A. Attention: Neal Freese Attention: Neal Freese 161 North Concord Exchange (800) 468-9716 (phone) South St. Paul, MN 55075 (651) 450-4033 (fax)
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 60 67 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.
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 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 Briggs and Morgan, Professional Association.* 8 Opinion of Briggs and Morgan, Professional Association regarding tax matters.* 23.1 Consent of Briggs and Morgan, Professional Association (included in Exhibit 5 hereto). 23.2 Consent of BDO Seidman, LLP for iNTELEFILM. 23.3 Consent of BDO Seidman, LLP for Harmony. 24 Powers of Attorney.* 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery. 99.3 Form of Letter to Clients.
- --------------- * Previously filed (b) Financial Statement Schedules. None. (c) Item 4(b) Information. None. II-1 68 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 69 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 70 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 August 11, 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.
SIGNATURE TITLE DATE --------- ----- ---- /s/ CHRISTOPHER T. DAHL President, Chief Executive August 11, 2000 - --------------------------------------------------- Officer and Director Christopher T. Dahl (Principal executive officer) /s/ STEVEN C. SMITH Chief Financial Officer August 11, 2000 - --------------------------------------------------- (Principal accounting and Steven C. Smith financial officer) * Director - --------------------------------------------------- Richard W. Perkins * Director - --------------------------------------------------- Michael R. Wigley * Director - --------------------------------------------------- William E. Cameron *By: /s/ CHRISTOPHER T. DAHL Director August 11, 2000 --------------------------------------------- Christopher T. Dahl Attorney-in-fact
II-4 71 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 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 Briggs and Morgan, Professional Association.* 8 Opinion of Briggs and Morgan, Professional Association regarding tax matters.* 23.1 Consent of Briggs and Morgan, Professional Association (included in Exhibit 5 hereto). 23.2 Consent of BDO Seidman, LLP for iNTELEFILM. 23.3 Consent of BDO Seidman, LLP for Harmony. 24 Powers of Attorney.* 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery. 99.3 Form of Letter to Clients.
- --------------- * Previously filed. II-5 EX-23.2 2 ex23-2.txt CONSENT OF BDO SEIDMAN, LLP FOR INTELEFILIM 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS iNTELEFILM Corporation Minneapolis, Minnesota We hereby consent to the incorporation by reference in the Prospectus constituting a part of this Registration Statement on Form S-4 of our report dated February 8, 2000 except notes 8 and 10 dated March 17, 2000, relating to the consolidated financial statements of iNTELEFILM Corporation appearing in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999. We also consent to the reference to us under the caption "Experts" in the Prospectus. /s/ BDO Seidman, LLP BDO SEIDMAN, LLP Milwaukee, Wisconsin August 9, 2000. EX-23.3 3 ex23-3.txt CONSENT OF BDO SEIDMAN, LLP FOR HARMONY 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Harmony Holdings, Inc. Minneapolis, Minnesota We hereby consent to the incorporation by reference in the Prospectus constituting a part of this Registration Statement on Form S-4 of iNTELEFILM Corporation of our report dated August 20, 1999, except for note 7 which is dated September 27, 1999, relating to the consolidated financial statements of Harmony Holdings, Inc. appearing in the Company's Annual Report on Forms 10-K for the year ended June 30, 1999. Our report contains an explanatory paragraph regarding Harmony Holdings, Inc.'s ability to continue as a going concern. We also consent to the reference to us under the caption "Experts" in the Prospectus. /s/ BDO Seidman, LLP BDO SEIDMAN, LLP Milwaukee, Wisconsin August 9, 2000. EX-99.1 4 ex99-1.txt LETTER OF TRANSMITTAL 1 EXHIBIT-99.1 FORM OF LETTER OF TRANSMITTAL OFFER TO EXCHANGE ONE SHARE OF COMMON STOCK OF iNTELEFILM CORPORATION FOR EVERY 13.75 OUTSTANDING SHARES OF COMMON STOCK OF HARMONY HOLDINGS, INC. PURSUANT TO THE PROSPECTUS DATED , 2000 THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, MINNEAPOLIS TIME, ON , , 2000, UNLESS THE OFFER IS EXTENDED. The exchange agent for the offer is: WELLS FARGO BANK MINNESOTA, N.A.
BY OVERNIGHT, CERTIFIED OR BY MAIL BY HAND EXPRESS MAIL DELIVERY Wells Fargo Bank Minnesota, N.A. Wells Fargo Bank Minnesota, N.A. Wells Fargo Bank Minnesota, N.A. Attention: Neal Freese Attention: Neal Freese Attention: Neal Freese 161 North Concord Exchange 161 North Concord Exchange 161 North Concord Exchange South St. Paul, MN 55075 South St. Paul, MN 55075 South St. Paul, MN 55075 BY FACSIMILE TRANSMISSION Wells Fargo Bank Minnesota, N.A. Attention: Neal Freese (800) 468-9716 (phone) (651) 450-4033 (fax)
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY TO THE EXCHANGE AGENT. YOU MUST SIGN THIS LETTER OF TRANSMITTAL WHERE INDICATED BELOW AND COMPLETE THE SUBSTITUTE W-9 FORM PROVIDED BELOW. THE INSTRUCTIONS CONTAINED WITHIN THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. 2 This Letter of Transmittal is to be used by stockholders of Harmony Holdings, Inc. ("Harmony") if certificates for Harmony Shares (as such term is defined below) are to be forwarded herewith or, unless an Agent's Message (as defined in Instruction 2 below) is utilized, if delivery of Harmony Shares is to be made by book-entry transfer to an account maintained by the exchange agent at The Depository Trust Company (the "Book-Entry Transfer Facility"), pursuant to the procedures set forth under "The iNTELEFILM offer -- Procedure for tendering" in the Prospectus. Stockholders who deliver Harmony Shares by book-entry transfer are referred to herein as "Book-Entry Stockholders" and other stockholders who deliver Harmony Shares are referred to herein as "Certificate Stockholders." Stockholders whose certificates for Harmony Shares are not immediately available or who cannot deliver their certificates and all other documents required hereby to the exchange agent on or prior to the expiration date (as set forth in the Prospectus), or who cannot comply with the book-entry transfer procedures on a timely basis, may nevertheless tender their Harmony Shares according to the guaranteed delivery procedures set forth under "The iNTELEFILM offer -- Guaranteed delivery" in the Prospectus. See Instruction 2. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY WILL NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT FOR THIS OFFER (AS DEFINED HEREIN). [ ] CHECK HERE IF HARMONY SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution: ---------------------------------------------------------------------------- DTC Account Number: ---------------------------------------------------------------------------- Transaction Code Number: ---------------------------------------------------------------------------- [ ] CHECK HERE IF TENDERED HARMONY SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of Registered Owner(s): ---------------------------------------------------------------------------- Window Ticket Number (if any): ---------------------------------------------------------------------------- Date of Execution of Notice of Guaranteed Delivery: -------------------------------------------------------------- Name of Institution which Guaranteed Delivery: ------------------------------------------------------------------- 2 3
- ---------------------------------------------------------------------------------------------------------------------- DESCRIPTION OF SHARES TENDERED - ---------------------------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) SHARES TENDERED APPEAR(S) ON SHARE CERTIFICATE(S)) (ATTACHED SIGNED LIST IF NECESSARY) - ---------------------------------------------------------------------------------------------------------------------- TOTAL NUMBER OF SHARES REPRESENTED BY NUMBER CERTIFICATE SHARE OF SHARES NUMBER(S)(1) CERTIFICATE(S)(1) TENDERED(2) - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- TOTAL SHARES - ---------------------------------------------------------------------------------------------------------------------- (1) Need not be completed by Book-Entry Shareholders. (2) Unless otherwise indicated, it will be assumed that all Shares represented by Share certificates delivered to the exchange Agent are being tendered hereby. See Instruction 4. - ----------------------------------------------------------------------------------------------------------------------
3 4 NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL CAREFULLY. Ladies and Gentlemen: The undersigned hereby delivers to iNTELEFILM Corporation, a Minnesota corporation ("iNTELEFILM"), the above-described shares of common stock, par value $0.01 per share (the "Harmony Shares"), of Harmony Holdings, Inc., a Delaware corporation ("Harmony"), pursuant to iNTELEFILM's offer to exchange one share of common stock, par value $0.02 per share, of iNTELEFILM ("iNTELEFILM Shares") for every 13.75 shares outstanding Harmony Shares upon the terms and subject to the conditions set forth in the Prospectus, dated , 2000 (the "Prospectus"), receipt of which is hereby acknowledged, and this Letter of Transmittal (which, together with the Prospectus and any amendments or supplements hereto or thereto, collectively constitute the "Offer"). The undersigned understands that iNTELEFILM reserves the right to transfer or assign, in whole at any time, or in part from time to time, to one or more of its affiliates, the right to purchase all or any portion of the Harmony Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve iNTELEFILM of its obligations under the Offer and will in no way prejudice the rights of tendering stockholders to receive iNTELEFILM Shares for Harmony Shares validly tendered and accepted for exchange pursuant to the Offer. Receipt of the Offer is hereby acknowledged. Upon the terms and subject to the conditions of the Offer (and if the Offer is extended or amended, the terms of any such extension or amendment), subject to, and effective upon, acceptance of the Harmony Shares tendered herewith in accordance with the terms of the Offer, the undersigned hereby sells, assigns and transfers to, or upon the order of, iNTELEFILM, all right, title and interest in and to all of the Harmony Shares that are being tendered hereby (and any and all non-cash dividends, distributions, rights, other Harmony Shares or other securities issued or issuable in respect thereof on or after , 2000 (collectively, "Distributions")) and irrevocably constitutes and appoints the exchange agent the true and lawful agent and attorney-in-fact of the undersigned with respect to such Harmony Shares (and all Distributions), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) deliver certificates for such Harmony Shares (and any and all Distributions), or transfer ownership of such Harmony Shares (and any and all Distributions) on the account books maintained by the Book-Entry Transfer Facility, together, in any such case, with all accompanying evidences of transfer and authenticity, to or upon the order of iNTELEFILM, (b) present such Harmony Shares (and any and all Distributions) for transfer on the books of Harmony, and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Harmony Shares (and any and all Distributions), all in accordance with the terms of the Offer. By executing this Letter of Transmittal, the undersigned hereby irrevocably appoints Jill J. Theis and Richard A. Wiethorn in their respective capacities, and any individual who shall thereafter succeed to any such office, and each of them, as the attorneys-in-fact and proxies of the undersigned, each with full power of substitution and resubstitution, to vote at any annual or special meeting of Harmony's stockholders or any adjournment or postponement thereof or otherwise in such manner as each such attorney-in-fact and proxy or his or her substitute shall in his or her sole discretion deem proper with respect to, to execute any written consent concerning any matter as each such attorney-in-fact and proxy or his or her substitute shall in his or her sole discretion deem proper with respect to, and to otherwise act as each such attorney-in-fact and proxy or his or her substitute shall in his or her sole discretion deem proper with respect to, all of the Harmony Shares (and any and all Distributions) tendered hereby and accepted for exchange by iNTELEFILM. This appointment will be effective if and when, and only to the extent that, iNTELEFILM accepts such Harmony Shares for exchange pursuant to the Offer. This power of attorney and proxy are irrevocable and are granted in consideration of the acceptance for exchange of such Harmony Shares in accordance with the terms of the Offer. Such acceptance for exchange shall, without further action, revoke any prior powers of attorney and proxies granted by the undersigned at any time with respect to such Harmony Shares (and any and all Distributions), and no subsequent powers of attorney, proxies, consents or revocations may be given by the undersigned with respect thereto (and, if given, will not be deemed effective). iNTELEFILM reserves the right 4 5 to require that, in order for Harmony Shares (or other Distributions) to be deemed validly tendered, immediately upon iNTELEFILM's acceptance for exchange of such Harmony Shares, iNTELEFILM must be able to exercise full voting, consent and other rights with respect to such Harmony Shares (and any and all Distributions), including voting at any meeting of Harmony's stockholders. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Harmony Shares tendered hereby and all Distributions, that the undersigned owns the Harmony Shares tendered hereby, and that when the same are accepted for exchange by iNTELEFILM, iNTELEFILM will acquire good, marketable and unencumbered title thereto and to all Distributions, free and clear of all liens, restrictions, charges and encumbrances and the same will not be subject to any adverse claims. The undersigned will, upon request, execute and deliver any additional documents deemed by the exchange agent or iNTELEFILM to be necessary or desirable to complete the sale, assignment and transfer of the Harmony Shares tendered hereby and all Distributions. In addition, the undersigned shall remit and transfer promptly to the exchange agent for the account of iNTELEFILM all Distributions in respect of the Harmony Shares tendered hereby, accompanied by appropriate documentation of transfer, and, pending such remittance and transfer or appropriate assurance thereof, iNTELEFILM shall be entitled to all rights and privileges as owner of each such Distribution and may choose not to exchange the Harmony Shares tendered hereby or may reduce from the total consideration due, the amount or value of such Distribution as determined by iNTELEFILM in its sole discretion. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, personal representatives, trustees in bankruptcy, successors and assigns of the undersigned. Except as stated in the Prospectus this tender is irrevocable. The undersigned understands that the valid tender of Harmony Shares pursuant to any one of the procedures described in "The iNTELEFILM offer-Procedure for tendering" of the Prospectus and in the Instructions hereto will constitute a binding agreement between the undersigned and iNTELEFILM upon the terms and subject to the conditions of the Offer (and if the Offer is extended or amended, the terms or conditions of any such extension or amendment). The undersigned recognizes that under certain circumstances set forth in the Prospectus, iNTELEFILM may not be required to accept for exchange any of the Harmony Shares tendered hereby. Unless otherwise indicated under "Special Issuance Instructions," please issue the iNTELEFILM Shares and a check for cash (including any cash in lieu of fractional iNTELEFILM Shares), and return any certificates for Harmony Shares not tendered or not accepted for exchange in the name(s) of the registered holder(s) appearing above under "Description of Shares Tendered." Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail the iNTELEFILM Shares and a check for cash (including any cash in lieu of fractional iNTELEFILM Shares) and return any certificates for Harmony Shares not tendered or not accepted for exchange (and any accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing above under "Description of Shares Tendered." In the event that the boxes entitled "Special Issuance Instructions" and "Special Delivery Instructions" are both completed, please issue the iNTELEFILM Shares and a check for cash (including any cash in lieu of fractional iNTELEFILM Shares), and issue certificates for Harmony Shares not so tendered or accepted, in the name of, and deliver said certificates and return such certificates to, the person or persons so indicated. Unless otherwise indicated herein in the box entitled "Special Issuance Instructions," please credit any Harmony Shares tendered herewith by book-entry transfer that are not accepted or exchange by crediting the account at the Book-Entry Transfer Facility designated above. The undersigned recognizes that iNTELEFILM has no obligation, pursuant to the "Special Issuance Instructions," to transfer any Harmony Shares from the name of the registered holder thereof if iNTELEFILM does not accept for exchange any of the Harmony Shares so tendered. 5 6 - ------------------------------------------------------------ SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) - ------------------------------------------------------------ To be completed ONLY if the iNTELEFILM Shares are to be issued in name of someone other than the undersigned, if certificates for the Harmony Shares not tendered or not accepted for exchange are to be issued in the name of someone other than the undersigned, or if Harmony Shares tendered hereby and delivered by book-entry transfer that are not accepted for exchange are to be returned by credit to an account maintained at a Book-Entry Transfer Facility other than the account indicated above. Issue check and the share certificate(s) to: Name(s) ----------------------------------------------- ----------------------------------------------------------- (SEE PLEASE PRINT) Address ------------------------------------------------- ----------------------------------------------------------- (INCLUDE ZIP CODE) ----------------------------------------------------------- (TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER) (SEE SUBSTITUTE FORM W-9) Credit the Harmony Shares delivered by book-entry transfer and not purchased to the Book-Entry Transfer Facility account: ----------------------------------------------------------- (ACCOUNT NUMBER) - ------------------------------------------------------------ - ------------------------------------------------------------ SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) - ------------------------------------------------------------ To be completed ONLY if certificates for the Harmony Shares not tendered or not accepted for exchange and the iNTELEFILM Shares are to be sent to someone other than the undersigned or to the undersigned at an address other than that shown under "Description of Shares Tendered." Mail check and the share certificates to: Name(s) ----------------------------------------------- (SEE PLEASE PRINT) ----------------------------------------------------------- Address ------------------------------------------------- ----------------------------------------------------------- (INCLUDE ZIP CODE) - ------------------------------------------------------------ 6 7 IMPORTANT STOCKHOLDERS SIGN HERE (ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (SIGNATURE(S) OF STOCKHOLDER(S)) Dated - --------------------------- , 2000 (Must be signed by registered holder(s) exactly as name(s) appear(s) on the share certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please provide the following information and see Instruction 5.) Name(s) ------------------------------------------------------------------------ - -------------------------------------------------------------------------------- (SEE PLEASE PRINT) Name of Firm --------------------------------------------------------------------- - -------------------------------------------------------------------------------- Capacity (full title) ----------------------------------------------------------------- Address------------------------------------------------------------------------- (SEE INSTRUCTION 5) - -------------------------------------------------------------------------------- (INCLUDE ZIP CODE) Daytime Area Code and Telephone Number ---------------------------------------------- - -------------------------------------------------------------------------------- Taxpayer Identification or Social Security Number ----------------------------------------------------------------- (SEE SUBSTITUTE FORM W-9) GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) FOR USE BY ELIGIBLE INSTITUTIONS ONLY, PLACE MEDALLION GUARANTEE IN SPACE BELOW Authorized Signature ---------------------------------------------------------------- Name(s) ------------------------------------------------------------------------ - -------------------------------------------------------------------------------- 7 8 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. No signature guarantee is required on this Letter of Transmittal (a) if this Letter of Transmittal is signed by the registered holder(s) (which term, for purposes of this Instruction 1, includes any participant in any of the Book-Entry Transfer Facility's systems whose name appears on a security position listing as the owner of the Harmony Shares) of Harmony Shares tendered herewith, unless such registered holder(s) has completed either the box entitled "Special Issuance Instructions" or the box entitled "Special Delivery Instructions" on the Letter of Transmittal or (b) if such Harmony Shares are tendered for the account of a financial institution (including most commercial banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program (an "Eligible Institution"). In all other cases, all signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution. See Instruction 5. 2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARES; GUARANTEED DELIVERY PROCEDURES. This Letter of Transmittal is to be completed by stockholders of Harmony either if Harmony Share certificates are to be forwarded herewith or, unless an Agent's Message is utilized, if delivery of Harmony Shares is to be made by book-entry transfer pursuant to the procedures set forth herein and in "The iNTELEFILM offer -- Procedure for tendering" of the Prospectus. For a stockholder to validly tender Harmony Shares pursuant to the Offer, either (a) a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), together with any required signature guarantees or an Agent's Message (in connection with book-entry transfer) and any other required documents, must be received by the exchange agent at one of its addresses set forth herein prior to the expiration date and either (x) certificates for tendered Harmony Shares must be received by the exchange agent at one of such addresses prior to the expiration date or (y) Harmony Shares must be delivered pursuant to the procedures for book-entry transfer set forth herein and in "The iNTELEFILM offer -- Procedure for tendering" of the Prospectus and a Book-Entry Confirmation must be received by the exchange agent prior to the expiration date or (b) the tendering stockholder must comply with the guaranteed delivery procedures set forth herein and in "The iNTELEFILM offer-Guaranteed delivery" of the Prospectus. Stockholders whose certificates for Harmony Shares are not immediately available or who cannot deliver their certificates and all other required documents to the exchange agent prior to the expiration date or who cannot comply with the book-entry transfer procedures on a timely basis may tender their Harmony Shares by properly completing and duly executing the Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedure set forth herein and in "The iNTELEFILM offer-Guaranteed delivery" of the Prospectus. Pursuant to such guaranteed delivery procedures, (a) such tender must be made by or through an Eligible Institution, (b) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by iNTELEFILM, must be received by the exchange agent prior to the expiration date and (c) the certificates for all tendered Harmony Shares, in proper form for transfer (or a Book-Entry Confirmation with respect to all tendered Harmony Shares), together with a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message, and any other required documents, must be received by the exchange agent within three Nasdaq National Market trading days after the date of execution of such Notice of Guaranteed Delivery. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility to, and received by, the exchange agent and forming a part of a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has received an express acknowledgment from the participant in such Book-Entry Transfer Facility tendering the Harmony Shares, that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that iNTELEFILM may enforce such agreement against the participant. 8 9 The signatures on this Letter of Transmittal cover the Harmony Shares tendered hereby. THE METHOD OF DELIVERY OF THE HARMONY SHARES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. THE HARMONY SHARES WILL BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT (INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. No alternative, conditional or contingent tenders will be accepted, and no fractional Harmony Shares will be purchased. All tendering stockholders, by executing this Letter of Transmittal (or a manually signed facsimile thereof), waive any right to receive any notice of acceptance of their Harmony Shares for exchange. 3. INADEQUATE SPACE. If the space provided herein under "Description of Shares Tendered" is inadequate, the number of Harmony shares tendered and the Share certificate numbers with respect to such Harmony Shares should be listed on a separate signed schedule attached hereto. 4. PARTIAL TENDERS. (Not applicable to stockholders who tender by book-entry transfer). If fewer than all the Harmony shares evidenced by any Share certificate delivered to the exchange agent herewith are to be tendered hereby, fill in the number of Harmony Shares that are to be tendered in the box entitled "Number of Shares Tendered." In any such case, new certificate(s) for the remainder of the Harmony Shares that were evidenced by the old certificates will be sent to the registered holder, unless otherwise provided in the appropriate box on this Letter of Transmittal, as soon as practicable after the expiration date or the termination of the Offer. All Harmony Shares represented by certificates delivered to the exchange agent will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Harmony Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificate(s) without alteration, enlargement or any change whatsoever. If any of the Harmony Shares tendered hereby are held of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any of the tendered Harmony Shares are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal or any share certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to iNTELEFILM of the authority of such person so to act must be submitted. If this Letter of Transmittal is signed by the registered holder(s) of the Harmony Shares listed and transmitted hereby, no endorsements of share certificates or separate stock powers are required unless payment or certificates for Harmony Shares not tendered or not accepted for exchange are to be issued in the name of a person other than the registered holder(s). Signatures on any such share certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Harmony Shares evidenced by certificates listed and transmitted hereby, the share certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on the share certificates. Signature(s) on any such share certificates or stock powers must 9 10 be guaranteed by an Eligible Institution. 6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction 6, iNTELEFILM will pay all stock transfer taxes with respect to the transfer and sale of any Harmony Shares to it or its order pursuant to the Offer. If, however, delivery of the consideration in respect of the Offer is to be made, or (in the circumstances where permitted hereby) if certificates for Harmony Shares not tendered or not accepted for exchange are to be registered in the name of, any person other than the registered holder(s), or if tendered certificates are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s) or such other person) payable on account of the transfer to such other person will be deducted from the overall consideration paid, unless evidence satisfactory to iNTELEFILM of the payment of such taxes, or exemption therefrom, is submitted. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the share certificates evidencing the Harmony Shares tendered hereby. 7. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If certificates for iNTELEFILM Shares and a check for cash (including any cash in lieu of fractional iNTELEFILM Shares), and certificates for Harmony Shares not accepted for exchange or not tendered are to be issued in the name of and/or returned to, a person other than the signer of this Letter of Transmittal or if a check is to be sent, and/or such certificates are to be returned, to a person other than the signer of this Letter of Transmittal, or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Any stockholder(s) delivering Harmony Shares by book-entry transfer may request that Harmony Shares not purchased be credited to such account maintained at the Book-Entry Transfer Facility as such stockholder(s) may designate in the box entitled "Special Issuance Instructions." If no such instructions are given, any such Harmony Shares not purchased will be returned by crediting the account at the Book-Entry Transfer Facility designated above as the account from which such Harmony Shares were delivered. 8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance or additional copies of the Prospectus, this Letter of Transmittal, the Notice of Guaranteed Delivery and the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 may be directed to the information agent at the address and phone number set forth below, or from brokers, dealers, commercial banks or trust companies. 9. WAIVER OF CONDITIONS. iNTELEFILM reserves the absolute right in its sole discretion to waive, at any time or from time to time, any of the specified conditions of the Offer (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), in whole or in part, in the case of any Harmony Shares tendered. 10. SUBSTITUTE FORM W-9. Each tendering stockholder is required to provide the exchange agent with a correct Taxpayer Identification Number ("TIN"), generally the stockholder's social security or federal employer identification number, on Substitute Form W-9 below. In addition, payments of cash in exchange for Harmony Shares and, if applicable, in lieu of fractional iNTELEFILM Shares that are made to such stockholder with respect to Harmony Shares accepted pursuant to the Offer may be subject to backup withholding of 31%. The box in Part 3 of the form may be checked if the tendering stockholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future. If the box in Part 3 is checked and the exchange agent is not provided with a TIN within 60 days, the exchange agent must withhold 31% of all payments of cash thereafter until a TIN is provided to the exchange agent. In addition, the exchange agent may backup withhold during the 60 day period under certain circumstances. The stockholder is required to give the exchange agent the social security number or employer identification number of the record owner of the Harmony Shares or the last transferee appearing on the stock powers attached to, or endorsed on, the Harmony Shares. If the Harmony Shares are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute 10 11 Form W-9 for additional guidance on which number to report. See Instruction 8. 11. LOST, DESTROYED OR STOLEN SHARE CERTIFICATES. If any certificate(s) representing Harmony Shares has been lost, destroyed or stolen, the stockholder should promptly notify Harmony's transfer agent. The stockholder will then be instructed as to the steps that must be taken in order to replace the share certificate(s). This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost, destroyed or stolen share certificates have been followed. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A MANUALLY SIGNED FACSIMILE HEREOF) TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES, OR, IN THE CASE OF A BOOK-ENTRY TRANSFER, AN AGENT'S MESSAGE, AND ANY OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE AND EITHER CERTIFICATES FOR TENDERED HARMONY SHARES MUST BE RECEIVED BY THE EXCHANGE AGENT OR HARMONY SHARES MUST BE DELIVERED PURSUANT TO THE PROCEDURES FOR BOOK-ENTRY TRANSFER, IN EACH CASE PRIOR TO THE EXPIRATION DATE, OR THE TENDERING STOCKHOLDER MUST COMPLY WITH THE PROCEDURES FOR GUARANTEED DELIVERY. IMPORTANT TAX INFORMATION Certain stockholders (including, among others, corporations and certain foreign individuals) are not subject to backup withholding. In order for a foreign individual to qualify as an exempt recipient, that stockholder must submit a Form W-8 or successor form, signed under penalties of perjury, attesting to that individual's exempt status. A Form W-8 can be obtained from the exchange agent. Consult the Guidelines for Certificate of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. See Instruction 8. Backup withholding is not an additional tax. Rather the tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. 11 12 TO BE COMPLETED BY ALL TENDERING STOCKHOLDERS (SEE INSTRUCTION 10) - ----------------------------------------------------------------------------------------------------------------------------------- PAYER'S NAME: WELLS FARGO BANK MINNESOTA, N.A. - ----------------------------------------------------------------------------------------------------------------------------------- SUBSTITUTE PART 1-- Please provide your TIN in the box at FORM W-9 right and certify by signing and dating below. --------------------------------- DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE Social Security Number(s) or --------------------------------- Employer Identification Number(s) ------------------------------------------------------------------------------------------- PAYER'S REQUEST FOR TAXPAYER PART 2 -- Certification -- UNDER PENALTIES OF IDENTIFICATION NUMBER ("TIN") PERJURY, I CERTIFY THAT: PART 3 -- (1) The number shown on this form is my correct TIN Awaiting TIN (or I am waiting for a number to be issued for me), and [ ] (2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. - ----------------------------------------------------------------------------------------------------------------------------------- CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. - ----------------------------------------------------------------------------------------------------------------------------------- SIGNATURE --------------------------------------------------------------------- DATE ------------------------ , 2000 - -----------------------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50 PENALTY IMPOSED BY THE INTERNAL REVENUE SERVICE AND BACKUP WITHHOLDING OF 31% OF CASH PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9. - -------------------------------------------------------------------------------- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a TIN has not been issued to me, and either (1) I have mailed or delivered an application to receive a TIN to the appropriate Internal Revenue Service Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a TIN to the exchange agent by the time of payment, 31% of all reportable payments made to me thereafter will be withheld, but that such amounts will be refunded to me if I provide a certified TIN to the exchange agent within sixty (60) days. - ------------------------------------------------------------ ------------------------------ , 2000 Signature Date
- -------------------------------------------------------------------------------- 12 13 Questions and requests for assistance or additional copies of the Prospectus, this Letter of Transmittal and other tender offer materials may be directed to the information agent as set forth below: The information agent for the Offer is: Georgeson Shareholder Communications, Inc. 17 State Street, 10th Floor New York, New York 10004 (800)-223-2064 13 EX-99.2 5 ex99-2.txt NOTICE OF GUARANTEED DELIVERY 1 EXHIBIT-99.2 FORM OF NOTICE OF GUARANTEED DELIVERY FOR TENDER OF SHARES OF COMMON STOCK OF HARMONY HOLDINGS, INC. TO iNTELEFILM CORPORATION (NOT TO BE USED FOR SIGNATURE GUARANTEES) This Notice of Guaranteed Delivery, or a form substantially equivalent hereto, must be used to accept the Offer (as defined below) if certificates representing shares of common stock, par value $0.01 per share (the "Harmony Shares"), of Harmony Holdings, Inc., a Delaware corporation, are not immediately available, if the procedure for book-entry transfer cannot be completed prior to the expiration date (as defined in "The iNTELEFILM Offer" in the Prospectus), or if time will not permit all required documents to reach the exchange agent prior to the expiration date. Such form may be delivered by hand, transmitted by facsimile transmission or mailed to the exchange agent. See "The iNTELEFILM offer-Guaranteed delivery" in the Prospectus. The exchange agent for the Offer is: WELLS FARGO BANK MINNESOTA, N.A.
BY OVERNIGHT, CERTIFIED OR BY MAIL BY HAND EXPRESS MAIL DELIVERY Wells Fargo Bank Minnesota, Wells Fargo Bank Minnesota, Wells Fargo Bank Minnesota, N.A. N.A. N.A. Attention: Neal Freese Attention: Neal Freese Attention: Neal Freese 161 North Concord Exchange 161 North Concord Exchange 161 North Concord Exchange South St. Paul, MN 55075 South St. Paul, MN 55075 South St. Paul, MN 55075 BY FACSIMILE TRANSMISSION Wells Fargo Bank Minnesota, N.A. Attention: Neal Freese (800) 468-9716 (phone) (651) 450-4033 (fax)
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THIS FORM IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL. 2 Ladies and Gentlemen: The undersigned hereby tenders to iNTELEFILM Corporation, a Minnesota corporation, upon the terms and subject to the conditions set forth in iNTELEFILM's Prospectus dated , 2000, and the related Letter of Transmittal (which, together with any amendments or supplements thereto, constitute the "Offer"), receipt of which is hereby acknowledged, the number of Harmony Shares set forth below, pursuant to the guaranteed delivery procedures set forth in "The iNTELEFILM offer-Guaranteed delivery" in the Prospectus. Number of Shares: ----------------------------------------------------------- Certificate Nos. (if available): - ------------------------------------------------------------ - ------------------------------------------------------------ Check box if Harmony Shares will be tendered by book-entry transfer: [ ] Account Number: ----------------------------------------------------------- Date: , 2000 ----------------------------------------------- Name(s) of Record Holder(s): - ------------------------------------------------------------ - ------------------------------------------------------------ PLEASE PRINT Address(es): - ------------------------------------------------------------ - ------------------------------------------------------------ - ------------------------------------------------------------ ZIP CODE Area Code and Tel. No.: - ------------------------------------------------------------ - ------------------------------------------------------------ - ------------------------------------------------------------ Signature(s) - ------------------------------------------------------------ - ------------------------------------------------------------ - ------------------------------------------------------------ Date: , 2000 ----------------------------------------------- 2 3 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEES) The undersigned, a participant in the Security Transfer Agents Medallion Program, guarantees to deliver to the exchange agent either certificates representing the Harmony Shares tendered hereby, in proper form for transfer, or confirmation of book-entry transfer of such Harmony Shares into the exchange agent's account at The Depository Trust Company, in each case with delivery of a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), with any required signature guarantees, or an Agent's Message (as defined in the Prospectus), and any other documents required by the Letter of Transmittal, within three Nasdaq National Market trading days after the date hereof. The eligible institution that completes this form must communicate the guarantee to the exchange agent and must deliver the Letter of Transmittal and certificates for Harmony Shares to the exchange agent within the time period shown herein. Failure to do so could result in a financial loss to such eligible institution. Name of Firm: ----------------------------------------------------------- - ------------------------------------------------------------ ADDRESS: - ------------------------------------------------------------ CITY, STATE - ------------------------------------------------------------ ZIP CODE - ------------------------------------------------------------ AUTHORIZED SIGNATURE - ------------------------------------------------------------ PLEASE PRINT Area Code and Tel. No.: ----------------------------------------------------------- Dated: , 2000 ----------------------------------------------- NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE. CERTIFICATES SHOULD BE SENT ONLY WITH YOUR LETTER OF TRANSMITTAL. 3 EX-99.3 6 ex99-3.txt LETTER TO CLIENTS 1 EXHIBIT-99.3 FORM OF LETTER TO CLIENTS OFFER TO EXCHANGE ONE SHARE OF COMMON STOCK OF iNTELEFILM CORPORATION FOR EVERY 13.75 OUTSTANDING SHARES OF COMMON STOCK OF HARMONY HOLDINGS, INC. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, MINNEAPOLIS TIME, ON , 2000, UNLESS THE OFFER IS EXTENDED. , 2000 To Our Clients: Enclosed for your consideration are the Prospectus, dated , 2000, and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer") in connection with the offer by iNTELEFILM Corporation, a Minnesota corporation ("iNTELEFILM"), to exchange one share of iNTELEFILM common stock, par value $0.02 per share (the "iNTELEFILM Common Stock"), for every 13.75 outstanding shares of common stock, par value $0.01 per share (the "Harmony Shares"), of Harmony Holdings, Inc., a Delaware corporation ("Harmony"). We are the holder of record of Harmony Shares held for your account. A tender of such Harmony Shares can be made only by us as the holder of record and pursuant to your instructions. The enclosed Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender Harmony Shares held by us for your account. We request instructions as to whether you wish us to tender any or all of the Harmony Shares, held by us for your account, upon the terms and subject to the conditions set forth in the Offer. Your attention is invited to the following: 1. The consideration per 13.75 Harmony Shares is one share of iNTELEFILM Common Stock. 2. The Offer is being made for all outstanding Harmony Shares. 3. The Offer and withdrawal rights will expire at 12:00 midnight, Minneapolis time, on , , 2000, unless the Offer is extended. 4. The Offer is subject to various conditions set forth in the Prospectus, which you should review in detail. 5. Any stock transfer taxes applicable to the sale of Harmony Shares to iNTELEFILM pursuant to the Offer will be paid by iNTELEFILM, except as otherwise provided in Instruction 6 of the Letter of Transmittal. Except as disclosed in the Prospectus, iNTELEFILM is not aware of any state in which the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. In any jurisdiction in which the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer will be deemed to be made on behalf of iNTELEFILM by one or more registered brokers or dealers licensed under the laws of such jurisdiction. If you wish to have us tender any or all of your Harmony Shares, please so instruct us by completing, executing and returning to us the instruction form set forth on the reverse side of this letter. An envelope to return your instructions to us is enclosed. If you authorize the tender of your Harmony Shares, all such Harmony Shares will be tendered unless otherwise specified on the reverse side of this letter. Your instructions should be forwarded to us in sufficient time to permit us to submit a tender on your behalf prior to the expiration of the Offer. 2 INSTRUCTIONS WITH RESPECT TO THE OFFER TO EXCHANGE ONE SHARE OF COMMON STOCK OF iNTELEFILM CORPORATION FOR EVERY 13.75 OUTSTANDING SHARES OF COMMON STOCK OF HARMONY HOLDINGS, INC. The undersigned acknowledge(s) receipt of your letter and the enclosed Prospectus dated , 2000, and the related Letter of Transmittal in connection with the Offer by iNTELEFILM Corporation, a Minnesota corporation, to exchange one share of iNTELEFILM common stock, par value $0.02 per share, for every 13.75 outstanding shares of common stock, par value $0.01 per share, of Harmony Holdings, Inc., a Delaware corporation (the "Harmony Shares"). This will instruct you to tender the number of Harmony Shares indicated below (or if no number is indicated below, all Harmony Shares) held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer. Number of Harmony Shares to be ------------------------------------------------------------------- Tendered:* Shares ------------------------------------------------------------------- SIGNATURE(S) Dated:, 2000 ------------------------------------------------------------------- PRINT NAME(S) ------------------------------------------------------------------- ------------------------------------------------------------------- ADDRESS(ES) ------------------------------------------------------------------- AREA CODE AND TELEPHONE NUMBER - -------------------------------------------------------- TAX ID OR SOCIAL SECURITY NUMBER
* Unless otherwise indicated, it will be assumed that all Harmony Shares held by us for your account are to be tendered. PLEASE RETURN THIS FORM TO THE BROKERAGE FIRM MAINTAINING YOUR ACCOUNT 2 -----END PRIVACY-ENHANCED MESSAGE-----