-----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, K0vsh/+b1u02uqSTEIf9IjPKfqxb3MDXluB2R8iG1Cq1rYAO2ihdgMScQhufFSW0 dHLFpGyInXmhPzwvh/a3wQ== 0000950137-02-001284.txt : 20020415 0000950137-02-001284.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950137-02-001284 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20020228 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20020314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTELEFILM CORP CENTRAL INDEX KEY: 0000882160 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE PRODUCTION [7812] IRS NUMBER: 411663712 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-21534 FILM NUMBER: 02575461 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 8-K 1 c68117e8-k.txt CURRENT REPORT ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 February 28, 2002 Date of Report (Date of earliest event reported) INTELEFILM CORPORATION (Exact name of registrant as specified in its charter) MINNESOTA 0-21534 41-1663712 (State or other jurisdiction (Commission File No.) (IRS Employer ID No.) of incorporation) 6385 Old Shady Oak Road, Suite 290, Eden Prairie, Minnesota 55344 (Address of principal executive offices) (952) 925-8840 (Registrant's telephone number, including area code) ================================================================================ ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS The Registrant announced on February 28, 2002 that it had completed the sale of the stock of its commercial production subsidiaries, Curious Pictures Corporation ("Curious") and DCODE, Inc. ("DCODE") to a group led by the existing management of Curious (the "Curious Management Group"). The Curious Management Group paid approximately $5,100,000, consisting of cash of $2,000,000, a promissory note for $500,000, extinguishment of the an existing put right held by the existing management of Curious with a value of approximately $1,200,000, and extinguishment of approximately $1,400,000 of inter-company indebtedness. The promissory note is secured by a lien on the assets of Curious subordinated to a bank working capital line of up to $500,000. The subordinated creditors, consisting of the Registrant, a private financing source and the Curious Mangement Group, also entered into an intercreditor agreement. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Financial Statements of Business Acquired Not applicable. (b) Pro Forma Financial Information The following un-audited pro forma condensed financial statements are filed with this report: Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2001 Pro Forma Condensed Consolidated Statements of Income: Year Ended December 31, 2000 Nine Months Ended September 30, 2001 This un-audited pro forma financial information sets forth the impact of the sale of the stock of the Registrant's commercial production subsidiaries, Curious and DCODE, to the Curious Management Group. The total value of the transaction is approximately $5,100,000 in proceeds to the Company, consisting of cash of $2,000,000, a promissory note for $500,000, extinguishment of the an existing put right held by the existing management of Curious with a value of approximately $1,200,000 and extinguishment of approximately $1,400,000 of inter-company indebtedness. The promissory note is due with principle payments of $250,000 at each of its first and second anniversary dates, and is also subject to earlier prepayment based on a net income formula. The Company will use the sale proceeds for working capital. The sale transaction was consummated on February 28, 2002. The pro forma adjustments are based upon information currently available and on certain assumptions, described within the footnotes to the pro forma financial statements that management of the Company believes are necessary and reasonable for a fair presentation of the pro forma financial information. The pro forma financial information and accompanying notes should be read in conjunction with the historical consolidated financial statements of the Company for the fiscal year ended December 31, 2000 and for the interim period ended September 30, 2001. The objective of the un-audited pro forma financial information is to show what the significant effects on the historical financial statements might have been had the sale of Curious Pictures, Inc. occurred, for balance sheet purposes, on September 30, 2001, and, for statement of operations purposes, on January 1, 2000. However, the pro forma balance sheets are not necessarily indicative of the effects of the Company's financial position that would have been attained had the transaction occurred earlier. The un-audited pro forma statements of operations and balance sheets do not purport to present the Company'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 date. STATEMENTS OF OPERATIONS:
Pro forma adjustments for Pro forma after sale of the sale of the stock of stock of Curious Curious iNTELEFILM Pictures Corp & Pictures Corp & Corporation DCODE, Inc. DCODE, Inc. ----------------------------------------------------------------------- ----------------- Nine months ended September 30, 2001: Revenues $31,695,953 $(13,759,533)(1) $ 17,936,420 Operating expenses 39,783,004 (14,083,956)(1) 25,699,048 ----------------------------------------------------------------------- ----------------- Income (loss) from operations (8,087,051) (324,423) (7,762,628) Other income (expense) 50,358 (2,122) 52,480 Minority interest 160,000 -- 160,000 Interest income (expense) - net (468,559) (109,928)(2) (358,631) ----------------------------------------------------------------------- ----------------- Net income (loss) $(8,345,252) $ (436,473) $ (7,908,779) ======================================================================= ================= Basic and diluted net loss per share $ (1.24) $ (1.18) ========== ============ Weighted average number of shares outstanding 6,712,000 6,712,000 ========== ============
(1) To eliminate the revenue and operating expenses of Curious Pictures Corporation & DCODE, Inc. (2) To eliminate interest expense totaling $93,885 associated with a line of credit utilized in the operations of Curious Pictures; to add miscellaneous interest income of $2,707; and to add $18,750 of interest income related to note receivable.
Pro forma adjustments for Pro forma after sale of the sale of the stock of stock of Curious Curious iNTELEFILM Pictures Corp & Pictures Corp & Corporation DCODE, Inc. DCODE, Inc. ------------------------------------------------------------------------- ----------------- Year Ended December 31, 2000 Revenues $ 66,997,559 (21,915,297)(1) $ 45,082,262 Operating expenses 77,831,077 (21,608,778)(1) 56,222,299 ----------------------------------------------------------------------- ----------------- Income (loss) from operations (10,833,518) 306,519 (11,140,037) Other income (expense) (259,724) (47,935)(1) (211,789) Interest income (expense) - net 148,751 (67,172)(2) 215,923 ----------------------------------------------------------------------- ----------------- Net income (loss) (10,944,491) $ 191,412 $(11,135,903) ======================================================================= ================= Basic and diluted net loss per share $ (1.70) $ (1.73) ========== ============ Weighted average number of shares outstanding 6,437,000 6,437,000 ========== ============
(1) To eliminate the revenue, and operating and other expenses of Curious Pictures Corp & DCODE Inc.. (2) To eliminate interest expense totaling $42,172 associated with a line of credit utilized in the operations of Curious Pictures Corp and to increase interest income by $25,000 related to $500,000 note receivable BALANCE SHEET:
Pro forma adjustments for Pro forma after sale of the sale of the stock of stock of Curious Curious iNTELEFILM Pictures Corp & Pictures Corp & Corporation DCODE, Inc. DCODE, Inc. ------------------------------------------------------------------------ ----------------- September 30, 2001 Current assets 7,569,016 (1,022,361)(1)(2)(3) 6,546,655 Property and equipment - net 2,606,902 (1,873,297)(1) 733,605 Intangible assets - net 5,197,508 (3,979,059)(1) 1,218,449 Note receivable -- 500,000 (3) 500,000 --------------------------------- ----------------- Total assets 15,373,426 (6,374,717) 8,998,709 ================================= ================= Current liabilities 11,837,294 (2,505,256)(2)(3) 9,332,038 Long-term debt 420,223 -- 420,223 Minority interest 1,322,484 (802,435)(2) 520,049 Shareholders' equity 1,793,425 (3,067,026) (1,273,601) --------------------------------- ----------------- Total liabilities and shareholders' equity 15,373,426 (6,374,717) 8,998,709 ================================= =================
(1) To eliminate the assets of Curious Pictures Corp and DCODE Inc. (2) To eliminate the liabilities of Curious Pictures, Inc., which were assumed by virtue of the purchase of the common stock, and to eliminate the minority interest associated with stock options earned by the Curious Management Group, which were cancelled pursuant to the sale transaction. (3) To reflect receipt of the sale proceeds of $2,000,000 in cash and a note receivable of $500,000 net of an accrual for estimated disposition costs and reserves of $322,500. (c) Exhibits 10.1 Merger Agreement, dated as of February 28, 2002 among Curious Holdings LLC, the purchaser, Curious Pictures Corporation and DCODE, Inc, the targets, and iNTELEFILM Corporation and Harmony Holdings, Inc., the sellers 10.2 Subordination and Intercreditor dated as of February 28, 2002 by and among CM Opportunity Fund, LLC, iNTELEFILM Corporation, Curious Holdings LLC, and Susan Holden, Stephen Oakes, Richard Winkler and David Starr, the management team. 10.3 Promissory Note made Curious Holdings, LLC for the benefit of the iNTELEFILM Corporation dated February 28, 2002. 99.1 Press Release dated February 28, 2002 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: February 28, 2002 iNTELEFILM Corporation /s/ Mark A Cohn ------------------------------------- Mark A. Cohn ITS: Chief Executive Officer EXHIBIT INDEX
10.1 Merger Agreement, dated as of February 28, 2002 among Curious Holdings LLC, the purchaser, Curious Pictures Corporation and DCODE, Inc, the targets, and iNTELEFILM Corporation and Harmony Holdings, Inc., the sellers 10.2 Subordination and Intercreditor dated as of February 28, 2002 by and among CM Opportunity Fund, LLC, iNTELEFILM Corporation, Curious Holdings LLC, and Susan Holden, Stephen Oakes, Richard Winkler and David Starr, the management team. 10.3 Promissory Note made Curious Holdings, LLC for the benefit of the iNTELEFILM Corporation dated February 28, 2002. 99.1 Press Release dated February 28, 2002
EX-10.1 3 c68117ex10-1.txt MERGER AGREEMENT EXECUTION COPY Exhibit 10.1 MERGER AGREEMENT (this "Agreement"), dated as of February 28, 2002 among Curious Holdings LLC (the "Purchaser"), Curious Pictures Corporation, a New York corporation ("Curious"), DCODE, Inc., a Minnesota corporation ("DCODE" and, together with Curious, the "Targets" and each individually a "Target"), and each of iNTELEFILM Corporation, f/k/a Children's Broadcasting Corporation, a Minnesota corporation ("Intelefilm"), and its subsidiary, Harmony Holdings, Inc. ("Harmony" and, together with Intelefilm, the "Sellers" and, each individually, a "Seller"). WHEREAS, the Purchaser desires to purchase from the Sellers, and the Sellers desire, jointly and severally, to sell to the Purchaser, the Targets pursuant to the Merger of Curious and DCODE (each as defined herein) into the Purchaser on the following terms and conditions. NOW, THEREFORE, in consideration of the premises and the respective agreements hereinafter set forth, the parties hereto agree as follows: ARTICLE i DEFINED TERMS Section 1.01 Defined Terms. The following terms, not defined elsewhere in this Agreement, shall have the following meanings: "Act" shall mean the Delaware Limited Liability Company Act. "BCL" shall mean the New York Business Corporation Law. "Closing" shall have the meaning set forth in Section 2.05 hereof. "Closing Date" shall have the meaning set forth in Section 2.05 hereof. "Consideration" shall mean the Curious Purchase Price and the DCODE Purchase Price. "Curious" shall mean Curious Pictures Corporation, a New York corporation. "Curious Shares" shall mean all of the issued and outstanding shares of common stock, no par value per share, of Curious, including without limitation all such shares owned by the Sellers. "DCODE" shall mean DCODE, Inc., a Minnesota corporation. "DCODE Shares" shall mean all of the issued and outstanding shares of common stock, no par value per share, of DCODE, including without limitation all such shares owned by the Sellers. "Effective Time" shall have the meaning set forth in Section 2.05 hereof. "Encumbrances" shall mean, to the extent applicable, all liens (including liens for Taxes), mortgages, security interests, charges, claims, leases, survey exceptions, options, rights of first refusal or first offer, easements, restrictions, rights-of-way or other similar encumbrances of any nature whatsoever. "Furious" shall mean Furious Pictures Corporation, a New York corporation and a wholly-owned subsidiary of Curious. "Furious Shares" shall mean all issued and outstanding shares of common stock, $0.01 par value per share, of Furious, including without limitation all such shares owned by Curious and, indirectly, the Sellers. "Merger" shall mean the merger of each of Curious and DCODE into the Purchaser. "Shares" shall mean the Curious Shares, the Furious Shares and the DCODE Shares. "Targets" shall mean Curious and DCODE, and "Target" shall mean any of the foregoing. "Taxes" shall mean all taxes on or measured by net income, gross profits or net profits, together with any interest and any penalties, additions to tax or additional amounts imposed by any taxing authority, domestic or foreign. ARTICLE II MERGER AND STOCK PURCHASE Section 2.01 Consent; Place of Formation and Principal Offices. (a) Each of the Sellers, the Targets and the Purchaser hereby agrees to the Merger of Curious and DCODE into the Purchaser, subject to the terms and conditions set forth herein. At the Effective Time (as hereinafter defined) of the Merger, each of Curious and DCODE will be merged with and into the Purchaser in accordance with the provisions of the Act, the BCL and, with respect to DCODE, the laws of the State of Minnesota. Pursuant to the Merger the Furious Shares will be transferred to the Purchaser and Furious shall become a wholly-owned subsidiary 2 of the Purchaser. The Purchaser shall be the surviving company of the Merger, and the separate existence of Curious and DCODE shall cease. The terms and conditions of the Merger hereby agreed upon and the manner of carrying the same into effect shall be as hereinafter set forth. (b) The name and place of formation of each party is as follows: Name Place Curious Holdings LLC Delaware Curious Pictures Corporation New York DCODE, Inc. Minnesota (c) The principal office of the Targets and Furious in the State of New York are located at 440 Lafayette Street, New York, NY 10003. (d) The principal offices of the Purchaser is as follows: the principal office of the Purchaser in the State of Delaware is located at Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle and the principal office of Furious in the State of New York is located at 440 Lafayette Street, New York, NY 10003. (e) The limited liability company agreement of the Purchaser, as in effect immediately prior to the Effective Time, shall be the limited liability company agreement. The charter documents of Furious, as in effect immediately prior to the Effective Time, shall continue to be the charter documents of Furious. Section 2.02 Approvals. The terms and conditions of the transaction set forth herein have been authorized and approved by each company party to this Agreement, and, with respect to each Target and Furious, its respective shareholders. Section 2.03 Capitalization. (a) All units issued and outstanding in the Purchaser are held by the Purchaser, and there is no other equity issued and outstanding. (b) All Shares of the Targets and Furious are held by the following persons as follows: Intelefilm 51% Harmony 49% ------------ TOTAL 100% There is no other equity of the Targets or Furious issued and outstanding. Section 2.04 Consideration. (a) The consideration (the "Curious Purchase Price") to be paid for Curious shall be: 3 (i) $1,000,000 (less the $200,000 deposit previously made by the Purchaser to the Sellers) in cash payable on the Closing Date by check or wire transfer to an account designated by the Sellers to the Purchaser at least five days prior to the Closing Date upon evidence of the Effective Time (the "Seller Account"); (ii) a $500,000 Promissory Note in the form attached hereto as Exhibit A (the "Note") bearing interest at 5% per annum and payable upon the sooner of (A) such time as the aggregate net working capital of the Purchaser is positive and then at a rate equivalent to 25% of the aggregate after-tax net income (including without limitation taxes allocable to members, in the case of entities treated as partnerships for tax purposes) of the Purchaser, payable within 45 days of each quarter's end or (B) the first and second anniversary of the Closing Date in equal installments of $250,000 in principal plus interest (less, on each such date, any amounts previously paid pursuant to the previous clause (A)); and (iii) the forgiveness of all of the intercompany debt between Curious and Intelefilm, Harmony and their affiliated companies, excluding the intercompany debt between Curious and DCODE (which intercompany debt is hereby forgiven by the Sellers). (b) The consideration (the "DCODE Purchase Price") to be paid for DCODE shall be: (i) $1,000,000 in cash payable by check or wire transfer to the Seller Account on the Closing Date upon evidence of the Effective Time; and (ii) the forgiveness of all of the intercompany debt between DCODE and Intelefilm, Harmony and their affiliated companies, excluding the intercompany debt between Curious and DCODE (which intercompany debt is hereby forgiven by the Sellers). (c) The Purchaser shall assume no responsibility to allocate the Purchase Price among the Sellers, and the Sellers shall be solely responsible for such allocation. Section 2.05 The Closing; Manner of Effectuating the Merger and the Purchase; Effective Time. (a) The closing (the "Closing") shall take place at the offices of Wollmuth Maher & Deutsch LLP, 500 Fifth Avenue, New York, New York, on the date hereof (the "Closing Date"). At the Closing, simultaneous with the filing of the Certificate of Merger in the forms of Exhibit B-1 and Exhibit B-2 attached hereto (the "Merger Certificates"), each Seller shall surrender its certificate or certificates representing the Shares of each Target, with such stock powers executed in blank or otherwise in proper form for transfer to the Purchaser as the Purchaser may reasonably request in exchange for the portion of the Consideration into which the Shares represented by such certificate or certificates shall have been converted or exchanged pursuant to this Agreement. Upon such surrender, the Sellers shall be entitled to receive in exchange therefor a portion of the Consideration to which the Sellers shall have become entitled pursuant to the provisions of this Agreement and the certificates so surrendered (other than the Furious Shares, which shall remain outstanding and held by the Purchaser) shall forthwith be canceled. No interest will be paid or accrued on any cash constituting Consideration. Until surrendered in accordance with the provisions of this Agreement, each certificate representing Shares shall represent for all purposes only the right to receive the Consideration provided for by this Agreement, without interest. 4 (b) At the Effective Time, each of Curious and DCODE shall be merged with and into the Purchaser; and thereupon, all issued and outstanding Curious Shares and DCODE Shares (and any and all options and convertible securities therefore) shall be canceled and cease to exist except with respect to the right to receive a proportionate share of the Consideration as set forth below, and the Purchaser shall possess any and all purposes and powers of the relevant Targets; and all leases, licenses, property, rights, privileges and powers of whatever nature and description of each Target shall be transferred to, vested in and devolved upon the Purchaser, without further act or deed, subject to all of the debts and obligations of any of the Targets. (c) The Merger shall become effective upon acceptance of the Merger Certificates, together with any necessary fees, by the Secretary of State of the State of Delaware (the "Effective Time"). Section 2.06 Further Assurances. From and after the Closing, upon written request from the Purchaser, each Seller shall execute, acknowledge and deliver all such further acts, assurances, deeds, assignments, transfers, conveyances and other instruments and papers as may be reasonably required to effectuate the Merger and the transactions contemplated hereby and release any and all liens in respect of or relating to the Targets and Furious. ARTICLE III Representations and Warranties of THE SELLERS Each of the Sellers, jointly and severally, represents and warrants to the Purchaser as of the date hereof, as of the Closing Date and as of the Effective Time as follows (such representations and warranties being to the best knowledge of the Sellers after due inquiry and in reliance on the representations of Purchaser set forth in Section 4.06, except with respect to the representations and warranties contained in Sections 3.01, 3.02, 3.03, 3.04, 3.05, 3.06, 3.11, 3.12, 3.13, 3.14 and 3.15 which shall not be qualified by such knowledge or reliance except as otherwise expressly stated therein): Section 3.01 Corporate Existence and Power. Each Seller, each Target and Furious is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of formation. Each Seller, each Target and Furious has all requisite corporate power and authority to own and lease its properties, to carry on its business as presently conducted and to carry out the transactions contemplated hereby. Each Seller, each Target and Furious is duly qualified to do business and is in good standing in each jurisdiction in which such qualification is necessary because of the property owned, leased or operated by it or because of the nature of its businesses as now being conducted. 5 Section 3.02 Authorization; Non-Contravention. The execution, delivery and performance by each Seller, each Target and Furious of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of each Seller, each Target and Furious and its respective stockholders and this Agreement has been duly executed and delivered by each Seller, each Target and Furious and is in full force and effect. This Agreement constitutes the valid and binding obligations of each Seller, each Target and Furious, enforceable in accordance with its terms. The execution, delivery and performance of this Agreement, and compliance with the provisions hereof by each Seller, each Target and Furious will not (a) violate any law or statute or order, judgment or decree of any court, administrative agency or other governmental body applicable to the Sellers, the Targets or Furious, (b) conflict in any respect with or result in any breach of any of the terms or provisions or constitute (with due notice or lapse of time, or both) a default under the Certificate of Incorporation or By-laws of the Sellers, the Targets or Furious, (c) result in a breach or violation of, or a default under, or acceleration of any obligations pursuant to any note, indenture, mortgage, lease, agreement, contract, understanding, arrangement or instrument to which any Seller, or the Sellers' knowledge, any Target or Furious, is a party, or (d) result in the creation or imposition of any Encumbrance of any nature whatsoever upon any of the properties or assets of any Seller, any Target or Furious. Section 3.03 No Consents. No notices, reports or other filings are required to be made by any Seller or Target with, nor are any consents, registrations, approvals, permits or authorizations required to be obtained by any Seller, any Target or Furious from, any governmental authority or third party for the valid authorization, execution and delivery by the Sellers, the Targets and Furious of this Agreement or for the performance by each Seller, each Target and Furious of its obligations hereunder. Section 3.04 Valid Title and No Encumbrances. The Sellers have, and will have immediately prior to both the Effective Time and the Closing Date, good and valid title to all Shares free and clear of all Encumbrances. Except as set forth on Schedule 3.04 attached hereto, there are no Encumbrances on the assets or properties of any of the Targets. Section 3.05 Taxes. The Sellers have filed all Tax Returns and paid all Taxes shown thereon to be due, if any, that are required to have been filed on or before the date hereof with appropriate Federal, state, foreign, county and local governmental agencies or instrumentalities, in each case with respect to the Targets and Furious. As of the date hereof, there are not pending or, to the best knowledge of the Sellers, threatened, any audits, examinations, investigations or other proceedings in respect of Taxes or Tax matters with respect to the Targets or Furious. There are not, to the best knowledge of the Sellers, any unresolved questions or claims concerning the Targets' or Furious' Tax liability. None of the Targets or Furious has any liability with respect to any income, payroll (as it relates to staff payroll administered by the Sellers' Minneapolis office), withholding, franchise or similar Taxes. As used in this Agreement, the term "Tax Return" includes all returns and reports (including elections, declarations, disclosures, schedules, estimates and information returns) required to be supplied to a Tax authority relating to Taxes. The Sellers shall be responsible for the payment of all Taxes and the filing of all Tax Returns with respect to the Targets and Furious through the Effective Time. 6 Section 3.06 Capitalization. (a) As of the date hereof: (i) all of the issued and outstanding shares of capital stock of each Target and Furious were duly authorized for issuance and are validly issued, fully paid and non-assessable; (ii) Schedule 3.06 attached hereto fully and accurately describes the capital structure of each Target and Furious and, except as set forth on Schedule 3.06, there are no outstanding securities of any Target or Furious convertible into or evidencing the right to purchase or subscribe for any shares of capital stock of any Target or Furious, there are no outstanding or authorized options, warrants, calls, subscription rights, commitments or other agreements of any character requiring, and there are no securities outstanding which upon conversion or exchange would require, the issuance, sale or transfer of any additional shares of capital stock of any Target or Furious or other equity securities of any Target or Furious or other securities convertible into, exchangeable for or evidencing the right to subscribe for or purchase shares of capital stock of any Target or Furious or other equity securities of any Target or Furious, or any stock appreciation rights, phantom stock or similar equity equivalent rights issued by or binding upon any Target or Furious; (iii) there are no voting trusts or other voting agreements with respect to the capital stock of any Target or Furious or other ownership interests of any Target or Furious or any agreement relating to the issuance, sale, redemption, transfer or other disposition of any such interests of any Target or Furious to which any Target or Furious is a party, or of which the Sellers have knowledge; and (iv) no Target or Furious has any subsidiaries except that Furious is a wholly-owned subsidiary of Curious. Section 3.07. Conduct of Business and Financial Statements. (a) The Sellers and each Target and Furious have been and are in compliance with all federal, state and local laws, statutes, ordinances, rules and regulations as of the date hereof and as of the Effective Time and the Closing Date, the failure to comply with which could materially adversely affect the business, assets, operations, earnings, prospects or condition (financial or otherwise) of the Targets, Furious or the Purchaser. Each of the Sellers, the Targets and Furious has materially complied with the rules and regulations of all governmental agencies having authority over its business or its operations, including without limitation, agencies concerned with intra-state and interstate commerce, occupational safety, environmental protection and employment practices, except where the failure to comply would not have a material adverse effect on the business, operations, earnings, assets or condition (financial or otherwise) of the Targets, Furious or the Purchaser. The Sellers have no knowledge of and have not received any notice of violation of any such rule or regulation during the two years prior to the date hereof which could result in any liability of any Target, Furious or the Purchaser for penalties of damages or which could subject any Target, Furious or the Purchaser to any injunction or government writ, order or decree. There are no facts, events or conditions that could interfere with, prevent continued compliance with or give rise to any material liability under any federal, state or local governmental laws, statutes, ordinances or regulations applicable to the business, operations, earnings, assets or condition (financial or otherwise) of any of the Targets or Furious. 7 (b) The consolidated balance sheet and related statements of income and loss of the Sellers (including information therein with respect to the Targets and Furious) for the years ended December 31, 2001 and December 31, 2000, and unaudited financial statements with respect to interim periods (collectively, the "Financial Statements") have been prepared in accordance with the United States generally accepted accounting principles ("GAAP") applied on a basis consistent with prior periods and fairly present the consolidated financial position of the Sellers, the Targets and Furious as of the dates thereof (subject, in the case of unaudited interim statements to normal year-end adjustments and the absence of certain footnote disclosures). (c) None of the Targets or Furious is a party to any non-competition agreement or any other agreement or arrangement that materially limits the Targets, Furious or any of their respective affiliates, or that would, after the date hereof similarly limit the Purchaser, Furious or any successor thereto, from engaging or competing in any line of business or in any geographic area after giving effect to the transactions contemplated hereby. (d) None of the Targets or Furious has made any distribution or other payments to the Sellers since January 31, 2002. Section 3.08. Absence of Undisclosed Liabilities; Affiliate Transactions. (a) Except for matters reflected or reserved against in the unaudited balance sheet as of December 31, 2001 and included in the Financial Statements specifically with respect to the Targets and Furious, none of the Targets or Furious had at such date or has incurred since that date any liabilities, obligations (whether absolute, accrued, contingent or otherwise) or contingencies of any nature due to actions of the Sellers, except (i) liabilities, obligations or contingencies (A) which are accrued or reserved against in the Financial Statements or reflected in the notes thereto or (B) which were incurred after December 31, 2001 in the ordinary course of business and consistent with past practices; or (ii) liabilities, obligations or contingencies which are of a nature not required to be reflected in the consolidated financial statements of the Sellers, the Targets and Furious prepared in accordance with GAAP consistently applied and which were incurred in the ordinary course of business. (b) Except as set forth in Schedule 3.08 attached hereto, there are no transactions, agreements, arrangements or understandings between the Sellers and their shareholders and affiliates, on the one hand, and the Targets or Furious and their affiliates. Section 3.09 Properties; Agreements. None of the Targets or Furious owns, and since its inception has not owned, any real property. Each Target and Furious has good and marketable title to (or valid leasehold or contractual interests in) all personal property used in its business, free and 8 clear of any Encumbrances. All machinery, equipment, furniture, fixtures and other personal property of each Target and Furious is in good operating condition and fit for operation in the ordinary course of business (subject to normal wear and tear) with no defects that could reasonably be expected to interfere with the conduct of normal operations of such equipment, furniture, fixtures and other personal property and are suitable for the purposes for which they are currently being used. All agreements and contracts to which the Targets and Furious are a party are in full force and effect. Section 3.10 Intellectual Property. Each Target and Furious owns, or has the right to use, all patents, patent applications, trademarks, service names, trade names, copyrights, licenses, trade secrets or other proprietary rights necessary to conduct its business as now being conducted and as proposed to be conducted by the Purchaser without any conflict or infringement of the rights of others and, except as set forth on Schedule 3.10, the Sellers have not received a notice that it is infringing upon or otherwise acting adversely to the right or claimed right of any person under or with respect to any of the foregoing, and to the Sellers' knowledge there is no basis for any such claim. The Sellers are not aware of any violation by a third party of any of any Target's or Furious' patents, trademarks, service marks, trade names, copyrights, trade secrets or other proprietary rights. Section 3.11 Employee Benefit Plans. Except as set forth on Schedule 3.11, the Sellers do not maintain on behalf of either Targets or Furious, and to the knowledge of Sellers neither Targets nor Furious maintain, any bonus, deferred compensation, pension, retirement, profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock purchase, restricted stock and stock option plans, any employment or severance contracts, health and medical insurance plans, life insurance and disability insurance plans, or other material employee benefit plans, contracts or arrangements which cover employees or former employees of the Targets or Furious including, but not limited to, "employee benefit plans" within the meaning of Section 3(3) of ERISA. Section 3.12 Litigation. Except as set forth on Schedule 3.12, there are no actions, suits, proceedings or investigations pending nor, to the best knowledge of the Sellers, threatened against any of the Sellers, the Targets or Furious by or before any court or governmental agency, which would adversely affect the Purchaser's operation of the Targets as merged into the Purchaser, the operation of Furious as a subsidiary of the Purchaser, or the consummation of the transactions contemplated hereby. Section 3.13 Brokers. No Person engaged by the Sellers is or will be entitled to a broker's, finder's, investment banker's, financial adviser's or similar fee from the Purchaser or Furious in connection with this Agreement or any of the transactions contemplated hereby (provided that the Sellers have agreed to pay Richard Alan Incorporated ("RAI") the amount of Thirty Seven Thousand Five Hundred Dollars ($37,500.00), payable (i) $25,000.00 at the Closing and (ii) payment of $12,500.00 upon receipt of such payment of the Note that represents the principal payment of the Note between $237,500.00 and $250,000.00; and provided further that the Purchaser is hereby directed and authorized by the Sellers to make said payments to RAI directly out of the proceeds due to the Sellers). 9 Section 3.14 SEC Filings. As of the filing dates (or to the extent amended or superseded by a subsequent filing, with respect to the information in such subsequent filing, or as of the date of the subsequent filing) thereof, the Sellers' filings and reports filed with the Securities and Exchange Commission did not or will not (as the case may be) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Section 3.15 No Misrepresentation. The representations and warranties of the Sellers in this Agreement (including the Schedules and Exhibits hereto and as qualified by knowledge or reliance as set forth therein) as of the date hereof contain no untrue statement of a material fact nor omit a material fact necessary in order to make the statements contained herein not misleading. ARTICLE IV Representations and Warranties of THE PURCHASER The Purchaser represents and warrants to the Sellers as of the date hereof and as of the Closing Date and the Effective Time as follows: Section 4.01 Corporate Existence and Power. The Purchaser is a limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of formation. The Purchaser has all requisite corporate power and authority to own and lease its properties, to carry on its business as presently conducted and to carry out the transactions contemplated hereby. The Purchaser is duly qualified to do business and is in good standing in each jurisdiction in which such qualification is necessary because of the property owned, leased or operated by it or because of the nature of its businesses as now being conducted. Section 4.02 Authorization; Non-Contravention. The execution, delivery and performance by the Purchaser of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of the Purchaser and this Agreement has been duly executed and delivered by the Purchaser and is in full force and effect. This Agreement constitutes the valid and binding obligations of the Purchaser, enforceable in accordance with its terms. The execution, delivery and performance of this Agreement, and compliance with the provisions hereof by the Purchaser will not (a) violate any law or statute or order, judgment or decree of any court, administrative agency or other governmental body applicable to the Purchaser, (b) conflict in any respect with or result in any breach of any of the terms or provisions or constitute (with due notice or lapse of time, or 10 both) a default under the constitutive documents of the Purchaser, (c) result in a breach or violation of, or a default under, or acceleration of any obligations pursuant to any note, indenture, mortgage, lease, agreement, contract, understanding, arrangement or instrument to which the Purchaser is a party, or (d) result in the creation or imposition of any Encumbrance of any nature whatsoever upon any of the properties or assets of the Purchaser. Section 4.03 No Consents. No notices, reports or other filings are required to be made by the Purchaser with, nor are any consents, registrations, approvals, permits or authorizations required to be obtained by the Purchaser from, any governmental authority or third party for the valid authorization, execution and delivery by the Purchaser of this Agreement or for the performance by the Purchaser of its obligations hereunder. Section 4.04 Litigation. There are no actions, suits, proceedings or investigations pending nor, to the best knowledge of the Purchaser, threatened against the Purchaser by or before any court or governmental agency, which would adversely affect the consummation of the transactions contemplated hereby. Section 4.05 Brokers. No Person engaged by the Purchaser is or will be entitled to a broker's, finder's, investment banker's, financial adviser's or similar fee from the Sellers in connection with this Agreement or any of the transactions contemplated hereby. Section 4.06 Disclosure. Each of Susan Holden, Stephen Oakes, Richard Winkler and David Starr, members of Purchaser, is familiar with the affairs and financial condition of the Targets and/or Furious, and has no knowledge of any material event or condition affecting the business, assets or prospects of the Targets and/or Furious, the existence or occurrence of which would result in a breach of the Sellers' representations and warranties contained herein, including but not limited to any liability relating to real property, personal property, environmental matters, ERISA Plans and other employee benefit plans, financial matters, tax matters (other than income taxes in the control of the Sellers) and intellectual property. In entering into this Agreement and consummating the transactions contemplated hereby, the Purchaser is not relying on any representation or warranty of Sellers or any other person, except as otherwise expressly provided in this Agreement. ARTICLE V CONDITIONS TO CLOSING Section 5.01 Closing Conditions of all Parties. The obligation of all parties hereto to effect the Merger, the Purchase and the other transactions contemplated by this Agreement is subject to there being no provision of any applicable law or regulation and no judgment, injunction, order or decree prohibiting the consummation of the Merger or the Purchase. 11 Section 5.02 Closing Conditions of the Purchaser. The obligation of the Purchaser to effect the Merger, the Purchase and the other transactions contemplated by this Agreement is subject to the fulfillment on or prior to the Closing Date and the Effective Time of each of the following conditions (all or any of which may be waived by the Purchaser in its sole discretion): (a) Performance of Obligations; Representations and Warranties. The Sellers, the Targets and Furious shall have performed and complied in all material respects with all covenants and agreements contained in this Agreement that are required to be performed or complied with by the relevant party prior to or at the Closing or the Effective Time. The Sellers' representations and warranties contained in this Agreement shall be true and correct in all material respects as of the Closing Date and the Effective Time, as applicable, or in the case of representations and warranties made as of a specified date earlier than the Closing Date, shall have been true and correct in all material respects on and as of such date. (b) Employment Agreements. The Purchaser shall have entered into employment agreements with each of Susan Holden, Stephen Oakes, Richard Winkler and David Starr (collectively, the "Curious Management") in form and substance satisfactory to such parties. (c) Financing. The Purchaser shall have obtained financing in respect of the payment of the Consideration on terms satisfactory to the Curious Management. (d) Delivery of Shares. The Sellers shall deliver to the Purchaser all Shares of Furious and the Targets as well as the complete and correct minute books, stock ledgers, and stock transfer records of Furious and the Targets. (e) Security Releases and UCC Termination Statements. With respect to any outstanding liens, Sellers shall deliver to the Purchaser evidence of the termination of security interests with respect to such liens and the Purchaser's and Sellers' ability and authority to file UCC termination statements terminating all security interests in the Shares or assets of Furious and the Targets. (f) The Purchaser shall have received an opinion of counsel to the Sellers in form and substance satisfactory to the Purchaser. (g) Ancillary Documents. The Purchaser shall have received such other documentation with respect to the Sellers, the Targets and Furious reasonably satisfactory to the Purchaser and evidencing the existence of such entities and their authority to enter into this Agreement and consummate the transactions contemplated hereby. Section 5.03 Closing Conditions of the Sellers. The obligation of the Sellers to effect the Merger, the Purchase and the other transactions contemplated by this Agreement is subject to the fulfillment on or prior to the Closing Date and the Effective Time of each of the following conditions (all or any of which may be waived by the Sellers in their sole discretion): 12 (a) Performance of Obligations; Representations and Warranties. The Purchaser shall have performed and complied in all material respects with all covenants and agreements contained in this Agreement that are required to be performed or complied with by the Purchaser prior to or at the Closing or the Effective Time. The Purchaser's representations and warranties contained in this Agreement shall be true and correct in all material respects as of the Closing Date and the Effective Time, as applicable, or in the case of representations and warranties made as of a specified date earlier than the Closing Date, shall have been true and correct in all material respects on and as of such date. (b) Waiver of Option Rights. Curious Management shall have surrendered their right, pursuant to Section 1.2 of the Curious Stock Agreement dated as of July 27, 1999 among the Seller, Curious and Curious Management, to require Intelefilm to purchase shares of Curious capital stock held by Curious Management as evidenced by the concurrent execution of the Waiver of Option Rights Agreement. (c) Ancillary Documents. The Sellers shall have received such other documentation with respect to the Purchaser reasonably satisfactory to the Sellers and evidencing the existence of the Purchaser and its authority to enter into this Agreement and consummate the transactions contemplated hereby. ARTICLE VI Miscellaneous Section 6.01 Notices. Any notice, request or other document to be given hereunder to a party hereto shall be effective when received and shall be given in writing and delivered in person or sent by overnight courier, registered or certified mail, postage prepaid, or by telecopy (receipt confirmed) as follows: If to the Purchaser, addressed to it at: --------------------------------------- Curious Holdings LLC 440 Lafayette Street New York, New York 10003 Attention: Susan Holden Tel: (212) 674-1400 Fax: (212) 674-0081 with a copy to: Wollmuth Maher & Deutsch LLP 500 Fifth Avenue, 12th floor New York, New York 10110 Attention: Mason H. Drake, Esq. Tel: (212) 382-3300 Fax: (212) 382-0050 13 and If to the Sellers, addressed to them at: --------------------------------------- the addresses and to the attention of the persons listed on the signature page hereto. Any party hereto may change its address for receiving notices, requests and other documents by giving written notice of such change to the other parties hereto. Section 6.02 Indemnification. (a) Each Seller hereby agrees, jointly and severally, to indemnify and hold harmless the Purchaser and its members, affiliates (including the lenders to the Purchaser related to this transaction), directors, officers, employees and other agents and representatives (collectively, the "Purchaser Indemnified Parties") from and against any and all liabilities, judgments, claims, settlements, losses, damages, reasonable fees (including attorneys' and other experts' fees and disbursements), Encumbrances, taxes, penalties, obligations and expenses (collectively, "Losses") incurred or suffered by any such person or entity arising from, by reason of or in connection with any misrepresentation or breach of any representation, warranty (subject, for the avoidance of doubt, to any knowledge qualifiers or reliance set forth in such representations and warranties) or covenant of such Seller pursuant to this Agreement or any certificate or other document delivered by such Seller under this Agreement. (b) The Purchaser hereby agrees to indemnify and hold harmless the Sellers and their respective affiliates, directors, officers, employees and other agents and representatives (collectively, the "Seller Indemnified Parties") from and against any and all Losses incurred or suffered by any such person or entity arising from, by reason of or in connection with any misrepresentation or breach of any representation, warranty (subject, for the avoidance of doubt, to any knowledge qualifiers or reliance set forth in such representations and warranties) or covenant of the Purchaser pursuant to this Agreement or any certificate or other document delivered by the Purchaser under this Agreement. Section 6.03 Survival. Except with respect to the representations and warranties of the Sellers set forth in Sections 3.02, 3.04, 3.05 and 3.06 which shall continue to remain in effect indefinitely, the representations and warranties of the parties contained in this Agreement shall survive the Closing and remain in full force and effect for three (3) years from the Effective Date; provided that such period shall be extended with respect to any claim for indemnification brought prior to the expiration of such three-year survival period. Section 6.04 Expenses. The Purchaser, on the one hand, and the Sellers, on the other hand, shall bear their own expenses in connection with the preparation of and consummation of the transactions contemplated by this Agreement 14 Section 6.05 Governing Law; Choice of Forum. This Agreement shall be governed by and construed in accordance with the laws of the State of New York (without regard to conflict of laws doctrines). The parties agree that the exclusive place of jurisdiction for any action, suit or proceeding relating to this Agreement shall be in the courts of the United States of America sitting in the Borough of Manhattan in the City of New York or, if such courts shall not have jurisdiction over the subject matter thereof, in the courts of the State of New York sitting therein, and each such party hereby irrevocably and unconditionally agrees to submit to the jurisdiction of such courts for purposes of any such action, suit or proceeding. If such state court also does not have jurisdiction over the subject matter thereof, then such an action, suit or proceeding may be brought in the federal or state courts located in the states of the principal place of business of any party hereto. Each party irrevocably waives any objection it may have to the venue of any action, suit or proceeding brought in such courts or to the convenience of the forum. Final judgment in any such action, suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment, a certified or true copy of which shall be conclusive evidence of the fact and the amount of any indebtedness or liability of any party therein described. Section 6.06 Assignment. Except as otherwise provided herein, this Agreement may not be assigned by operation of law or otherwise, and any attempted assignment shall be null and void. The Purchaser may assign all of its rights under this Agreement to any Affiliate; provided such Affiliate assumes all of the obligations of the Purchaser hereunder; and provided further that the Purchaser shall remain liable for such Affiliate's failure to meet any of the obligations of Purchaser hereunder. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors, assigns and legal representatives. This Agreement shall be for the sole benefit of the parties to this Agreement and their respective heirs, successors, assigns and legal representatives and is not intended, nor shall be construed, to give any Person, other than the parties hereto and their respective heirs, successors, assigns and legal representatives, any legal or equitable right, remedy or claim hereunder. Section 6.07 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but both of which together shall constitute one and the same instrument. Section 6.08 Entire Agreement; Amendments. This Agreement, together with the schedules and exhibits and the agreements, certificates and instruments delivered pursuant hereto, contain the entire agreement among the parties hereto, and supersede all prior agreements and undertakings (written and oral) between the parties hereto, relating to the subject matter hereof, including without limitation existing employment agreements. This Agreement, and any provision hereof, may only be amended, modified or waived in writing signed by the party against whom enforcement of such amendment, modification or waiver is sought. 15 Section 6.09 Press Releases. The parties hereto shall not make any public announcement or press release regarding the transactions contemplated hereby until mutually agreed as to substance and timing. 16 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. Curious Holdings LLC By: /s/ Susan Holden ----------------------------------- Name: Susan Holden Title: CFO iNTELEFILM Corporation By: /s/ Richard A. Wiethorn ----------------------------------- Name: Richard A. Wiethorn Title: CFO Address: 6385 Old Shady Oak Rd. Eden Prairie, MN 55344 Harmony Holdings, Inc. By: /s/ Richard A. Wiethorn ----------------------------------- Name: Richard A. Wiethorn Title: CFO Address: Same as Intelefilm Curious Pictures Corporation By: /s/ Richard A. Wiethorn ----------------------------------- Name: Richard A. Wiethorn Title: VP Finance Address: Same as Intelefilm DCODE, Inc. By: /s/ Richard A. Wiethorn ----------------------------------- Name: Richard A. Wiethorn Title: CFO Address: Same as Intelefilm 17 EX-10.2 4 c68117ex10-2.txt SUBORDINATION AND INTERCREDITOR Exhibit 10.2 SUBORDINATION AND INTERCREDITOR AGREEMENT This SUBORDINATION AND INTERCREDITOR AGREEMENT (the "Agreement") dated as of February 28, 2002 by and among CM Opportunity Fund, LLC, a Delaware limited liability company ("Carl Marks"), iNTELEFILM Corporation, a Minnesota corporation formerly known as the Children's Broadcasting Corporation ("Intelefilm"), Curious Holdings LLC, a Delaware limited liability company (the "Company"), and Susan Holden, Stephen Oakes, Richard Winkler and David Starr (the "Senior Management Team"). Capitalized terms not defined herein shall have the meanings set forth in the Senior Secured Loan and Investment Agreement dated the date hereof by and among Carl Marks, the Company and the Senior Management Team ("Senior Loan Agreement"). BACKGROUND WHEREAS, pursuant to a Merger Agreement dated as of February 28, 2002, by and among the Company, Curious Pictures Corporation, a New York corporation ("Curious"), DCODE, Inc., a Minnesota corporation ("DCODE"), Furious Pictures Corporation, a New York corporation and a wholly-owned subsidiary of Curious ("Furious"), Intelefilm and Harmony Holdings, Inc., a Delaware corporation ("Harmony"), Curious and DCODE are merging with and into the Company, with the Company being the surviving corporation of the merger ("Merger"); WHEREAS, on the date hereof and in connection with the Merger, the Company is issuing to Carl Marks a $1,500,000 senior secured note in the form of Exhibit A ("Carl Marks Note") pursuant to the terms and conditions of the Carl Marks Note and the Senior Loan Agreement; WHEREAS, on the date hereof and in connection with the Merger, the Company is issuing to Intelefilm a promissory note in the principal amount of $500,000 in the form of Exhibit B ("Intelefilm Note"); WHEREAS, the Senior Management Team is lending to the Company an aggregate of $500,000 divided pro rata among the Senior Management Team members pursuant to the terms and conditions of one note in the form of Exhibit C ("Senior Management Team Note");and WHEREAS, the Company, Carl Marks, Intelefilm and the Senior Management Team are entering into this Agreement to provide for the priority, repayment and subordination rights among the Company and the parties hereto with respect to their debt instruments. AGREEMENTS NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. definitions. 1.1 General Terms. For purposes of this Agreement, unless otherwise defined herein or in the Senior Loan Agreement, the following terms shall have the following meanings: "Collateral" shall mean all of the property and interests in property, tangible or intangible, real or personal, now owned or hereafter acquired by the Company in or upon which any lenders at any time have a lien, and including, without limitation, all proceeds and products of such property and interests in property. The Carl Marks Note and Intelefilm Note contain descriptions of such Collateral in their security interests' sections. "Holders of Senior Secured Indebtedness" shall mean Carl Marks and Intelefilm. "Holders of Subordinated Indebtedness" shall mean the members of the Senior Management Team. "Lenders" shall mean Carl Marks, Intelefilm and the members of the Senior Management Team, and each of any individuals or entities named in or which hereafter become a party to this Agreement. "Lien" shall mean any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, security interest, encumbrance (including, but not limited to, easements, rights of way and the like), lien (statutory or other), security agreement or transfer intended as security, including without limitation, any conditional sale or other title retention agreement, the interest of a lessor under a capital lease or any financing lease having substantially the same economic effect as any of the foregoing. "Loans" shall mean the loans made by the Company evidenced by the Carl Marks Note, the Intelefilm Note and the Senior Management Team Note. "Operating Agreement" means the Company's limited liability company operating agreement dated the date hereof between the Company, Carl Marks and the Senior Management Team. "Person" shall mean an individual, a partnership, a corporation (including a business trust), a joint stock company, a trust (including a designated business trust), an unincorporated association, a joint venture, a limited liability company, a limited liability partnership or other entity or a government or any agency, instrumentality or political subdivision thereof. 2 "Sale, Liquidation or Dissolution Event" shall mean the sale, liquidation, dissolution or other event constituting a Change of Control of the Company. "Change in Control" of the Company means (i) a Sale as defined in the Operating Agreement, (ii) the consummation by the Company of a merger, reorganization, consolidation or similar transaction to which the Company is a party unless the individuals and entities who were the beneficial owners (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended ("Exchange Act")) of the equity securities of the Company that are entitled to vote generally in the election of managers or directors (collectively, "Voting Securities") immediately prior to the effective date of the merger would have beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) immediately after the effective date of the merger of more than fifty percent (50%) of the total combined voting power of the equity securities entitled to vote generally in the election of managers or directors of the limited liability company or the corporation resulting from the merger in substantially the same proportions relative to each other as their ownership of Voting Securities immediately prior to the effective date of the merger; (ii) the acquisition (other than directly from the Company) by any person or entity, or group of associated persons or entities acting in concert of direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of securities of the Company representing fifty percent (50%) or more of the total combined voting power of the Company's then issued and outstanding securities; or (iii) the consummation by the Company of the sale of all or substantially all of the assets of the Company to any person or entity which is not a wholly-owned subsidiary of the Company. "Senior Indebtedness" shall mean the obligations of the Company to Carl Marks and Intelefilm, evidenced by the Carl Marks Note and Intelefilm Note, respectively, and includes all amendments, substitutions, extensions, increases, refinancings, and other similar actions taken with respect to such obligations. Senior Indebtedness shall continue to constitute Senior Indebtedness, notwithstanding the fact that such Senior Indebtedness or any claim for such Senior Indebtedness is subordinated, avoided or disallowed under the federal Bankruptcy Code or other applicable law. 2. Security Interests of Lenders. (a) Pursuant to the Intelefilm Note, the Company has granted to Intelefilm a first priority security interest (as to $500,000 plus interest as provided in the Intelefilm Note) in and to all of its assets as security for the repayment of the Intelefilm Note. Intelefilm is filing a UCC-1 in the State of Delaware to evidence its security interest. Intelefilm agrees to file this Agreement with such UCC-1 filing. (b) Pursuant to the Carl Marks Note, the Company has granted a second priority security interest to Carl Marks in and to all of its assets as security for the repayment of the Carl Marks Note. Carl Marks is filing a UCC-1 in the State of Delaware to evidence its security interest. Carl Marks agrees to file this Agreement with such UCC-1 filing. 3 (c) Pursuant to the Senior Management Team Note, the Company has granted a third priority security interest to the Senior Management Team Members (as to $500,000 plus interest as provided in the Senior Management Team Notes) in and to all of its assets as security for the repayment of the Senior Management Team Note. The Senior Management Team Members are filing a UCC-1 in the State of Delaware to evidence their security interest. The Senior Management Team Members agree to file this Agreement with such UCC-1 filing. 3. Intercreditor and Subordination Provisions 3.1 Loans; Acknowledgment of Liens. The Company acknowledges that the Lenders have made their respective Loans to the Company described in the "BACKGROUND" section of this Agreement. Each Lender hereby agrees and acknowledges that the other Lenders have been granted a Lien upon the Collateral pursuant to their respective Notes. Prior to the date hereof, except as provided in Section 2, no Lender has filed a UCC-1 evidencing the Liens. 3.2 Priority. (a) Notwithstanding the order of time of attachment, or the order, time or manner of perfection, or the order or time of filing or recordation of any document or instrument, or other method of perfecting a lien in favor of each Lender in any Collateral, and notwithstanding any conflicting terms or conditions which may be contained in any of the Notes, the Liens granted by the Company in favor of Intelefilm held by it pursuant to the Intelefilm Note (as to $500,000 plus interest) have and shall have priority over the Liens of Carl Marks evidenced by the Carl Marks Note and such Liens of Carl Marks are and shall be, in all respects, subject and subordinate to the Liens of Intelefilm as to $500,000 plus interest. (b) Notwithstanding the order or time of attachment, or the order, time or manner of perfection, or the order or time of filing or recordation of any document or instrument, or other method of perfecting a Lien in favor of each Lender in any Collateral, and notwithstanding any conflicting terms or conditions which may be contained in any of the Notes, the Liens granted by the Company in favor of Carl Marks and Intelefilm hereto have and shall have priority over the Liens of the Senior Management Team granted pursuant to the Senior Management Team Note and such Liens of the Senior Management Team are and shall be, in all respects, subject and subordinate to the Liens of the Holders of the Senior Indebtedness therein to the full extent of the Senior Indebtedness outstanding from time to time. (c) Any and all payments by the Company on the Loans, including any payments by the Company to its creditors upon a Sale, Liquidation or Dissolution Event, shall be made in the order of priority set forth in this Section 3.2. 4 Except as expressly set forth herein, notwithstanding the foregoing, no Lender shall be required to deliver to any other Lender or to hold in trust as specified above any amount paid or prepaid by Company (and not obtained by it through any sale of or other realization upon any Collateral or by enforcement of its rights under any Note) in accordance with the terms of this Agreement. 3.3 No Alteration of Priority. The Lien priorities provided in Section 3.2 hereof shall not be altered or otherwise affected by any amendment, modification, supplement, extension, renewal, restatement or refinancing of any Senior Indebtedness, or any indebtedness payable under the Notes, nor by any action or inaction which any Holder of Senior Indebtedness or Holder of Subordinated Indebtedness may take or fail to take in respect of the Collateral. 3.4 Perfection. Each Lender shall be solely responsible for perfecting and maintaining the perfection of its Lien in and to each item constituting the Collateral in which such Lender has been granted a Lien. The foregoing provisions of this Agreement are intended solely to govern the respective Lien and repayment priorities as between the Lenders and except as expressly otherwise provided herein, shall not impose on the Holders of Senior Indebtedness any obligations in respect of the disposition of proceeds of foreclosure on any Collateral which would conflict with prior perfected claims therein in favor of any other Person. Each Lender agrees that it will not contest the validity, perfection, priority or enforceability of the Liens of (a) the Holders of Senior Indebtedness in the Collateral and that as between the Holders of Senior Indebtedness and any other Lender, the terms of this Agreement shall govern even if part or all of the Loans or the Liens of the Holders of Senior Indebtedness securing payment and performance thereof are avoided, disallowed, set aside or otherwise invalidated in any judicial proceeding or otherwise and (b) each Lender in the Collateral and that as among the Lenders, the terms of this Agreement shall govern even if part or all of the Loans or the Liens of the Lenders securing payment and performance of the Loans are voided, disallowed, set aside or otherwise invalidated in any judicial proceeding or otherwise. 3.5 Other Agreements. (a) Each of the Lenders hereby covenants and agrees that it (i) will not accept any guaranty of any of the Loans or other obligations of the Company to such Lender unless such guaranty otherwise guaranties the payment of all of the Loans in accordance with the terms and conditions of this Agreement, (ii) will not take any security interest in or Lien on any assets of Company, or any subsidiary thereof, to secure any of the Loans unless such security interest or Lien secures the payment of all of the Loans in accordance with the terms and conditions of this Agreement, and (iii) will not accept prepayment on its Loan without the written consent of the other Lenders. (b) Each Lender agrees that, notwithstanding any provision of this Agreement or any Note, any sums and amounts received by such Lender in connection with such Lender's Loan shall be applied to the payment of its Loan as follows: first, to the payment of all amounts due to such Lender under its Note, other than principal and interest obligations on such Loan, second, to the payment of all accrued but unpaid interest owed to such Lender by the Company, and third, to the payment of all Loans owed to such Lender consisting of principal. 5 (c) Any Lender may purchase Collateral at any public sale of such Collateral pursuant to its Note and may make payment on account thereof by using any Loan then due and payable to such Lender by Company as a credit against the purchase price to the extent, but only to the extent, approved by the other Lenders, provided that no Lender shall withhold its consent if such amount to be credited against the purchase price of the Collateral would have been a permitted payment to such Lender under this Agreement. (d) No Lender shall amend its respective Loan or Note without first obtaining the prior written consent of the other Lenders, which consent shall not be unreasonably withheld, delayed or conditioned, except if such amendment accelerates the payment of principal or interest, then such consent shall be solely at the Lender's discretion. (e) The parties hereto acknowledge and agree that the terms and conditions of the Senior Loan Agreement are fully incorporated by reference as if stated herein and shall be used in construing and interpreting this Agreement and the Carl Marks Note. 3.6 Subordination Provisions. (a) The Senior Management Team Note ("Subordinated Obligations") shall be subordinate and junior in right of payment and collection to the prior indefeasible payment in full in cash to the Holders of Senior Indebtedness of the principal, interest (including interest accruing after the bankruptcy of the Company), fees and all other amounts owing on the Intelefilm Note and Carl Marks Note ("Senior Obligations"), upon the terms and to the extent set forth herein. Except as otherwise provided in this Agreement, until such time that all amounts due in respect of the Senior Obligations have been indefeasibly paid in full in cash, the Company shall not make, and the Senior Management Team ("Junior Creditor") shall not receive, accept or retain, directly or indirectly, any payment in respect of the Subordinated Obligations or any security therefor, other than scheduled payments of interest. Notwithstanding the foregoing, provided that no Event of Default shall have occurred or would occur after giving effect thereto, the Company may make and the Junior Creditor may receive the payments in accordance with the terms of the Senior Management Team Note. Following the occurrence of an event of default, the Company shall not be permitted to make and the Junior Creditor shall not be permitted to receive any further payments with respect to the Subordinated Obligations without the express written consent of the holders of Senior Obligations. (b) The Junior Creditor does hereby collaterally transfer and assign all right, title and interest in and to, and grant a security interest in, the Subordinated Obligations to Carl Marks and Intelefilm (the "Senior Creditor"). The Junior Creditor authorizes the Senior Creditor to file a financing statement, and any amendments thereto, with respect to any Subordinated Obligations, if the Senior Creditor deems such a filing is advisable to protect the rights granted to it hereunder. 6 (c) In the event that the Junior Creditor obtains any payment from or on behalf of the Company with respect to the Subordinated Obligations which it is not expressly permitted to receive pursuant to Section 3.6(a) hereof, the Junior Creditor will hold such proceeds in trust for the benefit of the Senior Creditor, and immediately deliver all such proceeds to the Senior Creditor without counterclaim, deferral, deduction or setoff. (d) In the event of any litigation, bankruptcy, collection or any other similar proceeding with respect to the Company, the priorities set forth in this Agreement shall continue to be operative and the provisions of this Agreement shall continue to be applicable in any such proceeding. Upon any distribution of the assets of the Company, or readjustment of the indebtedness of the Company, whether by reason of reorganization, liquidation, bankruptcy, dissolution, assignment for the benefit of creditors or any other action or proceeding involving the readjustment of any or all of the Subordinated Obligations, or the application of assets of the Company to the payment or liquidation thereof, either in whole or in part, the Senior Creditor shall be entitled to receive payment in full in cash of all of the Senior Obligations prior to the payment of all or any of the Subordinated Obligations, and in order to enable the Senior Creditor to assert and enforce its rights hereunder in any such action or proceeding, or upon the happening of any such event, the Senior Creditor is hereby irrevocably authorized and empowered, in the Senior Creditor's sole discretion to make and present, for and on behalf of the Junior Creditor, such proofs of claims against the Company on account of all or any of the Subordinated Obligations and to vote the full amount of such claims in any such proceeding, in each case, as the Senior Creditor may deem advisable, and to receive and to apply the same on account of the Senior Obligations in such order and priority as the Senior Creditor may determine. Upon any distribution of assets to the Junior Creditor in violation of this Section 3.6(d), the Junior Creditor shall hold such distribution in trust for the benefit of the Senior Creditor and shall immediately deliver such distribution to the Senior Creditor without counterclaim, deferral, deduction or setoff. (e) The Carl Marks Note shall be subordinate and junior in right of payment and collection to the prior indefeasible payment in full in cash to Intelefilm of the principal, interest (including interest accruing after the bankruptcy of the Company), fees and all other amounts owing on the Intelefilm Note, upon the terms and to the extent set forth herein. Except as otherwise provided in this Agreement, until such time that all amounts due in respect of the Intelefilm Note have been indefeasibly paid in full in cash, the Company shall not make, and Carl Marks shall not receive, accept or retain, directly or indirectly, any payment in respect of the Carl Marks Note or any security therefor. Notwithstanding the foregoing, provided that no event of default shall 7 have occurred or would occur after giving effect thereto, the Company may make and Carl Marks may receive the payments in accordance with the terms of the Carl Marks Note. Following the occurrence of an event of default, the Company shall not be permitted to make and Carl Marks shall not be permitted to receive any further payments with respect to the Carl Marks Note without the express written consent of Intelefilm. (f) In the event that Carl Marks obtains any payment from or on behalf of the Company with respect to the Carl Marks Note which it is not expressly permitted to receive pursuant to Section 3.6(e) hereof, Carl Marks will hold such proceeds in trust for the benefit of Intelefilm, and immediately deliver all such proceeds to Intelefilm without counterclaim, deferral, deduction or setoff. 3.7 Further Assurances. Upon the request of the Senior Creditor from time to time, the Junior Creditor shall (i) execute whatever assignments, instruments and/or documents may be required by the Senior Creditor in order to enable the Senior Creditor to enforce its rights hereunder and to collect any and all payments or disbursements which may be made in violation of this Agreement at any time on account of all or any of Subordinated Obligations and (ii) further execute whatever instruments and/or documents may be required by the Senior Creditor in order to confirm that any Subordinated Obligations incurred after the date hereof are confirmed to be subject to the terms of this Agreement. 3.8 Assignment of Obligations; No Amendments. The Junior Creditor shall not directly or indirectly sell, transfer, assign, dispose of, encumber or subordinate at any time while this Agreement remains in effect, any right, claim or interest of any kind in or to any of the Subordinated Obligations, whether principal or interest or otherwise, to or in favor of the Company, or to or in favor of any other Person. The Junior Creditor represents and warrants that currently and at no times hereafter will the Subordinated Obligations or any part thereof be represented by any note, other negotiable instruments or other writings, except notes, other negotiable instruments or other writings endorsed and delivered to the Senior Creditor. The Junior Creditor agrees that their books and records shall appropriately indicate that the Subordinated Obligations are subject to this Agreement. The Junior Creditor shall not amend, waive, supplement or otherwise modify the terms of any of the Subordinated Obligations without the prior written consent of the Senior Creditor. 3.9 Carl Marks Appointed Agent for Lenders. Carl Marks is hereby appointed agent of the Lenders for purposes of this Agreement. Carl Marks agrees that the terms of the Carl Marks Note and Senior Management Team Note cannot be amended without the consent of Intelefilm. Upon a default by the Company under the Intelefilm Note, Carl Marks shall take such actions consistent with Intelefilm's rights under this Agreement. 8 4. Miscellaneous. 4.1 Survival of Rights. The right of each Lender to enforce the provisions of this Agreement shall not be prejudiced or impaired by any act or omitted act of the Company, or any other Lender, including forbearance, waiver, consent, compromise, amendment, extension, renewal, or taking or release of security in respect of any Loans or noncompliance by the Company with such provisions, regardless of the actual or imputed knowledge of Lenders. 4.2 Notice of Default and Certain Events. Each Lender and the Company shall undertake in good faith to notify the other of the occurrence of any of the following: (a) the obtaining of actual knowledge of the occurrence of any default under any Note, Loan or the Senior Loan Agreement; (b) the acceleration of any Senior Indebtedness or of any of the indebtedness payable under the Intelefilm Note, the Carl Marks Note, or the Senior Loan Agreement; (c) not less than ten (10) days prior written notice from a Lender of its intention to accelerate any of the indebtedness payable under the Intelefilm Note, the Carl Marks Note, or the Senior Loan Agreement or exercise such Lender's rights in connection with a default by Company under the Intelefilm Note, the Carl Marks Note, or the Senior Loan Agreement; (d) the granting by Lenders and/or the holder of any Senior Indebtedness of any waiver of any event of default under any agreement evidencing Senior Indebtedness or the granting by Lender of any waiver of any "default" or "event of default" under the Intelefilm Note, the Carl Marks Note, or the Senior Loan Agreement; (e) the payment in full by Company (whether as a result of refinancing or otherwise) of all Senior Indebtedness; or (f) the sale or liquidation of, or realization upon, any Collateral. The failure of any party to give such notice shall not affect the relative Lien priorities as provided in this Agreement. 4.3 Notices. Any notice or other communication required or permitted pursuant to this Agreement shall be deemed given (a) when personally delivered, (b) on the earlier of actual receipt thereof or three (3) days following posting thereof by certified or registered mail, postage prepaid, (c) upon actual receipt thereof when sent by a recognized overnight delivery service or (d) upon actual receipt thereof when sent by telecopier to the number set forth below 9 with electronic confirmation of receipt, in each case addressed to such party at its address or telecopier number set forth below or at such other address or telecopier number as has been furnished in writing by a party to the other by like notice: (a) if to the Company, at Curious Holdings LLC, 440 Lafayette Street, 6th Floor, New York, New York 10003, Facsimile: (212) ___-____, Attention: Susan Holden, or such other address and/or fax number as may be furnished to the Lenders by the Company, with a copy to Wollmuth Maher & Deutsch LLP, 500 Fifth Avenue, ___Floor, New York, New York 10110, Attention: David A. Wollmuth, Esq., Telecopy No: 212-382-0050. (b) if to the Lenders, to CM Opportunity Management Company, L.P., 135 East 57th Street, 27th Floor, New York, New York 10022, as Lender and agent for Lenders, Attention: Howard Davidoff, Facsimile No.: 212-980-2630, and a copy to: Paul, Hastings, Janofsky & Walker LLP, 399 Park Avenue, New York, New York 10022, Attention: Thomas More Griffin, Esq., Telecopy No. (212) 319-4090. Each party to this Agreement agrees that e-mail notification is not permitted hereunder and does not constitute notice under this Agreement. 4.4 Binding Effect; Other Matters. This Agreement shall be a continuing agreement, shall be binding upon and shall inure to the benefit of the parties hereto from time to time and their respective successors and assigns, shall be irrevocable and shall remain in full force and effect until the Senior Indebtedness shall have been satisfied or paid in full, and all other Loans have been repaid in full, but shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any amount paid by or on behalf of Company with regard to the Senior Indebtedness or Loans is rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of Company, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee, custodian, or similar officer, for the Company or any substantial part of its property, or otherwise, all as though such payments had not been made. No action which Lenders, Holders of Senior Indebtedness or Company may take or refrain from taking with respect to the Senior Indebtedness, including any amendments thereto, shall affect the provisions of this Agreement or the obligations of Lenders. Any waiver or amendment hereunder must be evidenced by a signed writing of the party to be bound thereby, and shall only be effective in the specific instance. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. The headings in this Agreement are for convenience of reference only, and shall not alter or otherwise affect the meaning hereof. 5. Proceedings. ANY JUDICIAL PROCEEDING BROUGHT BY OR AGAINST ANY LENDER OR THE COMPANY WITH RESPECT TO THIS AGREEMENT OR ANY RELATED AGREEMENT MAY BE BROUGHT IN ANY COURT OF COMPETENT JURISDICTION IN STATE OF NEW YORK, NEW 10 YORK CITY, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT EACH PARTY THERETO ACCEPTS FOR THEMSELVES AND IN CONNECTION WITH THEIR PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREE TO BE BOUND BY ANY FINAL JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF LENDER TO BRING PROCEEDINGS AGAINST ANY OTHER LENDER OR THE COMPANY IN ANY COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY ANY LENDER AGAINST THE COMPANY INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER OR CLAIM IN ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT OR ANY RELATED AGREEMENT, SHALL BE BROUGHT ONLY IN A COURT LOCATED IN THE CITY OF NEW YORK, STATE OF NEW YORK. EACH LENDER AND THE COMPANY WAIVE ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED HEREUNDER AND SHALL NOT ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE OR BASED UPON FORUM NON CONVENIENS. 6. Waiver Of Jury Trial. EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF ANY LENDER OR THE COMPANY OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENTS OR AGREEMENT EXECUTED OR DELIVERED BY THEM IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY HERETO HEREBY AGREES AND CONSENTS THAT ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT JURY, AND THAT ANY OF THEM MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THEIR CONSENT TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 7. Counterparts; Facsimile. This Agreement may be executed by the parties hereto in one or more counterparts, each of which shall be deemed an original and all of which when taken together shall constitute one and the same agreement. Any signature delivered by a party by facsimile transmission shall be deemed to be an original signature hereto. 11 IN WITNESS WHEREOF, the undersigned have entered into this Subordination and Intercreditor Agreement as of this [28] day of February, 2002. CURIOUS HOLDINGS LLC By: /s/ Susan Holden --------------------------------------- Name: Susan Holden Title:CFO CM OPPORTUNITY FUND, LLC By: CM Opportunity Management Company, L.P. Its Manager By: CM Manager I, LLC, Its General Partner By: /s/ Robert Davidoff --------------------------------------- Name: Robert Davidoff Title: Managing Director iNTELEFILM CORPORATION By: /s/ Richard A. Wiethorn --------------------------------------- Name: Richard A. Wiethorn Title: CFO /s/ Susan Holden ------------------------------------------- Susan Holden /s/ Stephen Oakes ------------------------------------------- Stephen Oakes /s/ Richard Winkler ------------------------------------------- Richard Winkler /s/ David Starr ------------------------------------------- David Starr EX-10.3 5 c68117ex10-3.txt PROMISSORY NOTE EXECUTION COPY Exhibit 10.3 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT. THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. PROMISSORY NOTE $500,000 New York, New York (Original Principal Amount) February 28, 02 FOR VALUE RECEIVED, the adequacy of which is hereby acknowledged, the undersigned, Curious Holdings LLC (the "Maker"), a Delaware limited liability company, hereby promises to pay to iNTELEFILM Corporation (the "Payee"), whose address is 6385 Old Shady Oak Road, Suite 290, Eden Prairie, Minnesota 55344, the principal sum of Five Hundred Thousand Dollars ($500,000), together with simple interest on the unpaid and outstanding portion thereof at a rate of 5% per annum (which interest shall accrue quarterly and be payable on the last day of each calendar quarter commencing March 31, 2002, provided that if such date is not a business day, payments of such interest shall be made on the next succeeding business day). Subject to the mandatory prepayments set forth herein, the principal and any remaining accrued interest on this Note shall be due and payable in full on February 28, 2004 (the "Maturity Date"). Payments due hereunder shall be paid in lawful money of the United States of America (or by wire transfer or certified check payable in such money) at Payee's address (as given above) or at such other place as Payee or any other holder of this Note may from time to time have designated by prior written notice to Maker. 1. Prepayment; Mandatory Prepayments. Maker shall have the right prior to the Maturity Date to repay all or any part of the principal amount of this Note and accrued but unpaid interest thereon without premium or penalty. Maker shall be obligated to prepay a portion of the outstanding principal and accrued but unpaid interest on this Note as follows: on the earlier of (A) such time as the aggregate net working capital of Maker and its subsidiaries existing on the date hereof (the "Subsidiaries") is positive and then at a rate equivalent to 25% of the aggregate after-tax net income (including without limitation taxes allocable to members, in the case of entities treated as partnerships for tax purposes) of the Subsidiaries, payable quarterly in arrears within 45 days of each quarter's end or (B) the first and second anniversary of the Closing Date in equal installments of $250,000 in principal plus interest (less, on each such date, any amounts previously paid pursuant to the previous clause (A)). 2. Seniority to Other Notes and Subordination to Commercial Debt. This Note shall be senior in right of payment to the notes that shall be executed in connection with financing the acquisition of Curious Pictures, Furious Pictures and DCODE, Inc., by and between (i) CM Opportunity Fund, LLC and Maker in the principal amount of One Million Five Hundred Thousand Dollars ($1,500,000); and (ii) the Curious management executives and Maker in the principal amount of Five Hundred Thousand Dollars ($500,000). However, each of Maker and Payee (and each successor or permitted assignee or transferee of Payee) hereby agrees that the payment of principal and interest on this Note shall be subordinated and junior in right of payment to any senior bank debt for working capital obtained by the Company after the date hereof in a maximum amount of $500,000, provided that such working capital facility shall not prohibit Maker from making scheduled payments hereunder. 3. Allocation. All payments made hereunder (whether in prepayment or otherwise) shall first be applied against any interest then due hereunder and shall then be applied against principal. 4. Events of Default. The following shall constitute Events of Default: (a) Maker shall fail to pay when due any payment of principal or interest due under this Note or, within five business days of becoming due, any other amount payable to Payee hereunder; (b) Written admission by Maker of its inability to pay its debts as they become due, an assignment by Maker for the benefit of creditors, the institution of proceedings by Maker under the Federal Bankruptcy Code or any state law relating to relief of debtors, or the institution of such proceedings by another party against Maker which is not subsequently dismissed within sixty (60) days of the filing of same, or the seizure of substantially all of the assets of Maker; (c) Failure to provide financial information of Targets and Furious reasonably necessary to calculate the net working capital and net after-tax income of Maker allocable to Targets and Furious within 45 days of each quarter's end after written notice from Payee and 10 days' opportunity to cure such failure; (d) The sale of all or substantially all of Maker's assets or the liquidation or dissolution of the Maker; or (e) The merger or consolidation of the Maker with or into another entity unless (i) the unitholders of Maker prior to such merger or consolidation own more than fifty percent of the voting control of the surviving or resulting entity, (ii) the creditworthiness of the surviving or resulting entity will be equal to or superior to that of Maker or (iii) such merger or consolidation is consummated merely to change the form of or jurisdiction of Maker. 2 If an Event of Default should occur, Payee, at its option, may declare the outstanding principal balance of and all accrued but unpaid interest on this Note to be immediately due and payable without presentment, demand, protest, or notice of any kind, all of which are hereby expressly waived. Further, Maker agrees to pay all fees, costs and expenses, including reasonable attorneys' fees and legal expenses, incurred by Payee in endeavoring to collect any amounts payable hereunder which are not paid when due, whether by acceleration or otherwise. 5. Waiver. No delay or omission of Payee in exercising any right or power hereunder shall impair such right or power or be a waiver of any default or an acquiescence therein; and no single or partial exercise of any such right or power shall preclude other or further exercise thereof, or the exercise of any other right; and no waiver shall be valid unless in writing signed by Payee, and then only to the extent specifically set forth in such writing. All remedies hereunder or by law afforded shall be cumulative and shall be available to Payee until the principal amount of and all interest on this Note have been paid in full. 6. Payee Representations. (a) Payee represents that Payee is an "accredited investor" as such term is defined in Rule 501 of Regulation D ("Regulation D") promulgated under the Securities Act of 1933, as amended (the "Securities Act") and that Payee (i) is able to bear the economic risk of an investment in the Note for an indefinite period and (ii) understands and acknowledges that this Note has not been registered nor is it intended to be registered under the Securities Act. (b) Payee represents that Payee has been furnished by Maker during the course of this transaction with all information regarding Maker which Payee has requested or desired to know, has been afforded the opportunity to ask questions of and receive answers from duly authorized officers of Maker concerning Maker and has received any additional information which Payee has requested. (c) Payee represents that Payee has full power and authority (corporate, statutory and otherwise) to execute and deliver this Note, this Note constitutes the legal, valid and binding obligation of Payee, enforceable against Payee in accordance with its terms and Payee is authorized and qualified to become an investor in the Company and the person signing this Agreement on behalf of such entity has been duly authorized by such entity to do so. 7. Security. (a) Creation of Security Interest. In order to secure the payment of the principal and interest and all other obligations of Maker hereunder now or hereafter owed by Maker to Payee (the "Secured Obligations") and subject to the subordination set forth in Section 2 above, Maker hereby grants to Payee (or its designee) (the "Secured Party") a security interest in the property of Maker described below (the "Collateral") on the terms and conditions set forth in this Note (it being understood that in the event Maker 3 requires additional debt financing and, as a condition to such debt financing the lender thereof requires Payee to subordinate its security interest to such lender, Payee shall execute and deliver subordination agreements reasonably acceptable to all parties): (i) all equipment in all of its forms, wherever located, now or hereafter existing, all parts thereof and all accessions thereto; (ii) all inventory in all of its forms, wherever located, now or hereafter existing, including, but not limited to, (A) all raw materials and work in process therefor, finished goods thereof, and materials used or consumed in the manufacture or production thereof; (B) goods in which Maker has an interest in mass or a joint or other interest or right of any kind (including, without limitation, goods in which Maker has an interest or right as consignee); and (C) goods which are returned to or repossessed by Maker and all accessions thereto and products thereof and documents therefor; (iii) all accounts, accounts receivable, contract rights, chattel paper, documents, instruments, deposit accounts, general intangibles, tax refunds and other obligations of any kind owing to Maker, now or hereafter existing, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services, and all rights now or hereafter existing in and to all security agreements, leases, subleases, and other contracts securing or otherwise relating to any such accounts, contract rights, chattel paper, documents, instruments, deposit accounts, general intangibles, or obligations; (iv) all intellectual property of any kind or nature whatsoever, including without limitation patents, patent applications, copyrights, copyright applications, trademarks and service marks and applications therefore, mask works, net lists and trade secrets; (v) all other general intangibles, whether now existing or hereafter arising and wherever arising, including, but not limited to, all (A) partnership, corporate, and other interests in and to any person or entity; (B) letters of authorization, permits, licenses, consents, contract rights, franchises, documents, certificates, records, customer lists, customer and supplier contracts, easements, variances, certifications and approvals of tribunals, bills of lading (negotiable and non-negotiable), warehouse receipts, any claim of Maker against any lender, liquidated or unliquidated, and other rights, privileges and goodwill obtained or used in connection with any property of Maker; (C) rights of Maker under any equipment leases; and (D) tax refunds and other refunds or rights to receive payment from U.S. federal, state or local governments or foreign governments or other tribunals; (vi) all bank accounts, deposit accounts, and margin accounts, maintained by Maker with financial institutions, brokers, dealers, and all other persons or entities relating to commodities and/or securities, including all funds held therein and all certificates and instruments, if any, from time to time representing or evidencing such accounts; (vii) all investment property (as defined in Section 9-115 of the New York Uniform Commercial Code); 4 (viii) to the extent it is possible to create a security interest or perfect a security interest in such Collateral by filing a UCC-1 financing statement centrally, or in the case of dual filing states, centrally and at the county level, as applicable, all of Maker's fixtures now existing or hereafter acquired, all substitutes and replacements therefor, all accessions and attachments thereto, and all tools, parts, and equipment now or hereafter added to or used in connection with the fixtures on or above all real property now owned or hereafter acquired by Maker; (ix) all records and documents relating to any and all of the foregoing, including, without limitation, records of account, whether in the form of writing, microfilm, microfiche, tape, or electronic media; and (x) all substitutes and replacements for, accessions, attachments, and other additions to tools, parts, and equipment used in connection with, and all proceeds, products, and increases of, any and all of the foregoing Collateral, in whatever form, whether cash or noncash; interest, premium, and principal payments, redemption proceeds and subscription rights, and shares or other proceeds of conversions or splits of any securities in Collateral, and returned or repossessed Collateral; and, to the extent not otherwise included, all (A) payments under insurance, or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral, (B) cash and (C) security for the payment of any of the Collateral, and all goods which gave or will give rise to any of the Collateral or are evidenced, identified, or represented therein or thereby. (b) Uniform Commercial Code Security Agreement. This Section is intended to be a security agreement pursuant to the Uniform Commercial Code for any of the items specified above as part of the Collateral which, under applicable law, may be subject to a security interest pursuant to the Uniform Commercial Code, and Maker hereby grants Payee a security interest in said items subject to the subordination set forth in Section 2 above. Maker agrees that Payee may file any appropriate document in the appropriate index as a financing statement for any of the items specified above as part of the Collateral. In addition, Maker agrees to execute and deliver to Payee, upon Payee's request, any financing statements, as well as extensions, renewals and amendments thereof, and reproductions of this Agreement in such form as Payee may reasonably require to perfect a security interest with respect to said items. Maker shall pay all costs of filing such financing statements and any extensions, renewals, amendments, and releases thereof, and shall pay all reasonable costs and expenses of any record searches for financing statements Payee may reasonably require. Without the prior written consent of Payee, Maker shall not create or suffer to be created pursuant to the Uniform Commercial Code any other security interest in the Collateral, other than the Security Interests of Secured Party, including replacements and additions thereto. Upon the occurrence and during the continuation of an Event of Default, each Secured Party shall have the remedies of a Payee under the Uniform Commercial Code and, at Secured Party's option, may also invoke the other remedies provided in this Note as to such items. In exercising any of said remedies, Secured Party may proceed against the items of real property and any items of personal property specified above as part of the Collateral separately or together and in any order whatsoever, without in any way affecting the availability of Secured Party's remedies under the Uniform Commercial Code or of the other remedies provided in this Agreement. 5 (c) Rights of Secured Party. (i) Upon the occurrence and during the continuation of an Event of Default, Secured Party may require Maker to assemble the Collateral and make it available to Secured Party at the place to be designated by Secured Party which is reasonably convenient to the parties. Secured Party may sell all or any part of the Collateral as a whole or in parcels either by public auction, private sale, or other method of disposition. Secured Party may bid at any public sale on all or any portion of the Collateral. Unless the Collateral is perishable or threatens to decline speedily in value or is of the type customarily sold on a recognized market, Secured Party shall give Maker reasonable notice of the time and place of any public sale or of the time after which any private sale or other disposition of the Collateral is to be made, and notice given at least 10 days before the time of the sale or other disposition shall be conclusively presumed to be reasonable. A public sale in the following fashion shall be conclusively presumed to be reasonable: (A) Notice shall be given at least 10 days before the date of sale by publication once in a newspaper of general circulation published in the county in which the sale is to be held; (B) The sale shall be held in a county in which the Collateral or any part is located or in a county in which Maker has a place of business; (C) Payment shall be in cash or by certified check immediately following the close of the sale; (D) The sale shall be by auction; and (E) The Collateral may be sold as is and without any preparation for sale. (ii) Notwithstanding any provision of this Agreement, Secured Party shall be under no obligation to offer to sell the Collateral. In the event Secured Party offer to sell the Collateral, Secured Party will be under no obligation to consummate a sale of the Collateral if, in their reasonable business judgment, none of the offers received by them reasonably approximates the fair value of the Collateral. (iii) In the event Secured Party elects not to sell the Collateral, Secured Party may elect to follow the procedures set forth in the Uniform Commercial Code for retaining the Collateral in satisfaction of Maker's obligation, subject to Maker's rights under such procedures. 8. Notices. All notices, requests, demands or other communications required or permitted hereunder shall be in writing, addressed to the appropriate party as follows: (i) If to Maker, to: Address: 440 Lafayette Street, 6th Floor New York, New York 10003 Attention: Susan Holden Telecopy Number: (212) 674-0081 6 (ii) If to Payee, to its address set forth above Telecopy Number: (952) 925-8863 or to such other address as may have been designated in prior notice. Notices may be sent by (a) overnight courier, (b) facsimile transmission (with immediate telephonic confirmation thereafter), or (c) registered or certified mail, postage prepaid, return receipt requested; and shall be deemed given (i) in the case of overnight courier, the next business day after the day sent, (ii) in the case of facsimile transmissions, on the date sent if telephonically confirmed, and (iii) in the case of mailing, three (3) business days after being mailed by registered or certified mail, and otherwise notices shall be deemed to have been given when received. 9. Assignment. Except as otherwise provided herein, prior to Maturity or an Event of Default, any attempt by Payee to assign its rights or delegate its duties under this Note without the prior written consent of Maker will be void. Thereafter, any assignment shall be permitted without the consent of Maker. 10. Binding Effect. The terms and provisions of this Note shall be binding upon Maker and its successors and permitted assigns, and shall inure to the benefit of Payee and its successors and assigns, and any subsequent holder of this Note. 11. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflicts of laws principles thereof. 12. Headings. The section headings contained in this Note are intended solely for convenience of reference and do not themselves constitute a part of this Note. 13. Severability. If any provision of this Note or the application thereof to any person or circumstance should, for any reason and to any extent, be invalid or unenforceable, the remainder of this Note and the application of such provision to other persons or circumstances shall not be affected thereby, but rather shall be enforced to the greatest extent permitted by law. 14. Consent to Suit; Waiver of Jury Trial. Maker hereby irrevocably authorizes and empowers any attorney-at-law to appear for Maker in any action upon or in connection with this Note at any time after this Note becomes due, as herein provided, in any court in or of the State of New York, and waives issuance and service of process with respect thereto. Maker hereby waives the right to a trial by jury with respect to any action upon or in connection with this Note. 7 IN WITNESS WHEREOF, Maker has executed this Note as of the date first above written. CURIOUS HOLDINGS LLC By: /s/ Susan Holden ----------------------------------- Accepted and agreed: iNTELEFILM CORPORATION By /s/ Richard A. Wiethorn, its CFO ------------------------------------- 8 EX-99.1 6 c68117ex99-1.txt PRESS RELEASE NEWS RELEASE Exhibit 99.1 For: iNTELEFILM Corporation Crosstown Corporate Center 6385 Old Shady Oak Rd, #290 Eden Prairie, MN 55344 Mark A. Cohn, Chairman, CEO and President 952-925-8840 iNTELEFILM ANNOUNCES SALE OF CURIOUS PICTURES and DCODE Minneapolis, MN, February 27, 2002 - iNTELEFILM Corporation (FILM) announced today that it has closed on the sale of Curious Pictures, the last of its commercial production subsidiaries, and DCODE, its advertising agency subsidiary, to a group led by the management team. The total value of the transaction is approximately $5.1 million, including $2,000,000 in cash, $500,000 in notes and the balance in extinguishment of certain liabilities. The Company has also modified $1.5 million in existing bridge debt financing to allow the continuance of the financing after the sale. "We are pleased to have closed on the sale of Curious Pictures and DCODE and to have the continued support of our bridge debt holders. The sale ends the Company's strategy of being a diversified media holding company. This shift in strategy results in a single business focus on webADTV, our majority-owned digital asset management company. The Company is considering alternatives for raising additional capital as we must improve our capital structure to increase our prospects for success in this business. As to Curious and DCODE, we wish the management team continued success with their businesses," said Mark A. Cohn, Chairman and CEO of iNTELEFILM. "In nine years, we have been fortunate enough to flourish thanks to clients in the ad world, television audiences and consumers. Our community of talented directors, artists and production staff has made this possible. Intelefilm offered us great optimism and opportunity but our respective business directions diverged and we agreed that independence was the right path for Curious Pictures," according to the President of Curious Pictures, Steve Oakes. About iNTELEFILM iNTELEFILM Corporation FILM, based in Minneapolis, is the majority owner of webADTV, a technology company competing the media asset management space. iNTELEFILM trades on the Over-the-Counter Bulletin Board under the symbol "FILM." Additional information on the Company can be found in the Company's filings with the Securities and Exchange Commission and on the Company's website: www.intelefilm.com. About Curious Pictures Curious Pictures produces television commercials; develops, produces and markets episodic television series; and manufactures and sells toys under the name Curious Toys. Its overseas television production partners include Filmtecknarna (Sweden) and Tomato (United Kingdom). Television series produced to date include "Sheep in the Big City" for the Cartoon Network, now in its second season, "A Little Curious" for HBO, and "Avenue Amy" for the Oxygen Network. Commercial production clients include Wendy's, Levi's, Nike and Microsoft. The Museum Of Modern Art in New York has two commercials from Curious Pictures in their collection. About DCODE Led by Bill Perna, Dcode is a hybrid production company/creative services agency that provides strategic and creative promotional outsourcing solutions for advertising agencies and their clients. -----END PRIVACY-ENHANCED MESSAGE-----