EXHIBIT 99.1
PURCHASE AGREEMENT
THIS AGREEMENT, dated as of July 27, 1999, effective as of August 1,
1999, is made by and among CHILDREN'S BROADCASTING CORPORATION, a Minnesota
corporation (referred to herein as "CBC"); HARMONY HOLDINGS, INC., a Delaware
corporation (referred to herein as "HHI"); CURIOUS PICTURES CORPORATION, a New
York corporation (referred to herein as "Curious"); and SUSAN HOLDEN; STEPHEN
OAKES; RICHARD WINKLER; AND DAVID STARR, as individuals (collectively referred
to herein as "CP Management").
W I T N E S S E T H:
THAT, WHEREAS, Curious has currently issued and outstanding 100 shares
of its Common Stock, which shares represent all of the issued and outstanding
Common Stock of Curious;
WHEREAS, pursuant to an Option and Share Transfer Agreement dated as of
December 15, 1996 among CP Management, Curious and HHI ("Option Agreement"), a
copy of which is attached hereto as Exhibit A, HHI is the holder of 99 shares
(or 99%) of Curious and CP Management is the holder of 1 share or 1% of Curious
(the 1 share owned by CP Management shall be referred to herein as the "Curious
Share");
WHEREAS, under the Option Agreement, CP Management has the right, based
upon Curious reaching certain net income levels, to receive shares of Curious up
to an amount not to exceed 50% of the Common Stock of Curious;
WHEREAS, contemporaneously herewith and incorporated herein, CP
Management, Curious and HHI have entered into an agreement whereby the parties
agree that Curious has reached such net income levels; that CP Management
currently has the right to receive 50 shares (or 50%) of the issued and
outstanding common stock of Curious; and that such shares are to be transferred
from HHI to CP Management (the "Curious Agreement");
WHEREAS, contemporaneously herewith and incorporated herein, each
member of CP Management has entered into five (5) year employment agreeements
with Curious; and
WHEREAS, CP Management desires to sell, transfer and assign the Curious
Share and the
Option Agreement to CBC, and CBC desires to purchase such Curious Share and the
Option Agreement, and HHI consents to such sale, transfer and assignment on the
terms and conditions set forth herein; and
NOW, THEREFORE, in consideration of the foregoing and the covenants,
representations and warranties hereinafter in this Agreement set forth, the
parties hereto hereby agree as follows:
1. OWNERSHIP, TRANSFER, SALE AND ASSIGNMENT OF CURIOUS SHARE AND OPTION
AGREEMENT.
(a) CP Management represents that collectively they are the owner
of the Curious Share and none of them owns any other shares of
Curious Common Stock other than the right(s) to receive shares
under the Option Agreement. CP Management and HHI represent
that under the Option Agreement, CP Management has earned the
right to receive 50 shares or 50% of the issued and
outstanding Common Stock of Curious from HHI, and that CP
Management has the right to sell, transfer and assign their
interest in the Option Agreement and the Curious Share to CBC.
(b) Subject to the terms and conditions hereinafter in this
Agreement, CP Management agrees to sell, transfer and deliver
the Curious Share and their entire interest in the Option
Agreement to CBC on the Closing Date (as that term is
hereinafter defined), free and clear of all security
interests, liens and encumbrances, except for any
subordination obligations to Fremont Financial Services, Inc.
2. PURCHASE AND CONSIDERATION.
(a) On the basis of the representations and warranties, and
subject to the terms and conditions set forth in this
Agreement, CBC hereby agrees to purchase and CP Management
agrees to sell, the Curious Share and CP Management's interest
in the Option Agreement on the Closing Date. The total
purchase price for the purchase of the Curious Share and
assignment of the Option Agreement (the "Purchase Price"),
will be the sum of Three Million and no/100 Dollars
($3,000,000.00) consisting of Two Million Seven Hundred
Thousand and no/100 Dollars ($2,700,000.00) for the Option
Agreement and Three Hundred Thousand and no/100 Dollars
($300,000.00) for the Curious Share and payable as follows:
1. The sum of $1,500,000 in cash at Closing (as defined
below) to CP Management ($375,00 to each member); and
2. The execution of a promissory note at Closing in the
amount equal to $1,500,000 ($375,000 to each member)
payable on May 31, 2000 at an interest rate equal to
eight percent (8%) per annum. The interest payments
shall be paid to CP Management in quarterly payments.
In the event any member(s) of CP Management's
employment with Curious is terminated pursuant to
5(b) of his/her employment agreement or any member(s)
of CP Management terminates his/her employment
agreement prior to the payment
of the promissory note, the principal amount of this
promissory note shall be reduced by the sum of
$375,000 for such member(s). Any cancellation or
reduction of the promissory note pursuant to this
section shall be in addition to any other remedies
CBC may have against the members of CP Management and
shall not be deemed to be liquidated damages.
(b) HHI and Curious consent to the sale and purchase of the
Curious Share and Option Agreement as provided in Section
2(a), and the assignment of all of CP Management's rights
therein.
(c) As additional consideration and as an inducement for each
member of CP Management to enter into employment agreements
with Curious, CBC agrees to grant each member of CP Management
a warrant for the purchase of 75,000 shares of CBC's common
stock at a price equal to the ten (10) day average closing
price for the ten (10) trading days preceding the date of
Closing. The warrant shall be in the form attached hereto as
Exhibit B incorporated herein by reference as if set forth in
full.
3. CLOSING.
The closing of the transactions contemplated by this Agreement (the
"Closing") unless otherwise agreed to by the parties, shall take place
at the offices of Curious, 440 Lafayette Street, New York, New York
10003 at 9:00 a.m. on July ___, 1999 (such date of Closing is
hereinafter sometimes referred to as the Closing Date). The Closing
shall be subject to the satisfaction of all of the conditions to CBC's
obligations set forth in Section 8 of this Agreement.
At the Closing:
(i) CP Management shall deliver, assign and transfer (or
request that HHI deliver, assign and transfer) to CBC
certificate(s) representing the Curious Share,
appropriately endorsed or accompanied by a separate
instrument or instruments of assignment in writing,
in proper form for registration of transfer;
(ii) CP Management shall deliver, assign and transfer the
Option Agreement to CBC;
(iii) CBC shall deliver to each member of CP Management a
warrant agreement for the purchase of 75,000 shares,
a form of which is attached hereto as Exhibit B;
(iv) CP Management shall deliver the resignations referred
to in Section 8.4 of this Agreement;
(v) Each member of CP Management shall execute and
deliver the employment agreements in the forms
attached hereto as Exhibits C to F incorporated
herein by reference as if set forth in full;
(vi) $1,500,000 in cash shall be sent by CBC by wire
transfer to such account or accounts in one or more
banks in the United States of America as CP
Management shall specify in writing delivered to CBC
not less than forty eight (48) hours prior to the
Closing Date, otherwise such purchase price shall be
payable by check or checks;
(vii) CBC shall execute a promissory note in the form of
Exhibit G attached hereto and incorporated herein by
reference as if set forth in full in the amount of
$1,500,000 payable to CP Management at eight percent
(8%) interest secured by the Curious Share and the
Option Agreement, subject to subordination
obligations with Fremont Financial Services, Inc.;
(viii) CP Management, HHI and Curious shall deliver an
executed Curious Agreement stating and confirming
that CP Management has the right to receive 50% which
equals 50 shares of the issued and outstanding common
stock of Curious from HHI and consenting to
assignment and transfer of the Option Agreement and
the Curious Share to CBC, a form of which is attached
hereto as Exhibit H; and
(ix) Certified Resolutions of Curious, HHI and CBC
approving the terms of this transaction.
4. REPRESENTATIONS AND WARRANTIES BY HHI.
HHI represents and warrants as follows, which representations and
warranties shall be deemed to have been made again at Closing; that HHI
is a corporation organized and existing in good standing under the laws
of the State of Delaware with full power and authority to enter into
this Agreement to which it is a party and enter into and complete the
transactions contemplated herein and therein; all required corporate
action has been duly and validly taken by HHI to make and carry out
this Agreement and the transactions contemplated herein; this Agreement
constitutes the valid and binding obligation of HHI enforceable in
accordance with its terms; the execution of the Agreement and, the
completion of the transactions herein involved will not result in the
violation of any order, license, permit, rule, judgment or decree to
which HHI is subject or the breach of any contract, agreement or other
commitment to which HHI is a party or by which it or its properties is
bound or conflict with or violate any provision of HHI's Articles of
Incorporation, By-Laws, or other organizational documents; and no other
consent of any kind is required that has not been obtained to make or
carry out the terms of this Agreement.
5. REPRESENTATIONS AND WARRANTIES BY CURIOUS.
Curious represents and warrants as follows, which representations and
warranties shall be deemed to have been made again at Closing, that
Curious is a corporation organized and existing in good standing under
the laws of the State of New York with full power and authority to
enter into this Agreement to which it is a party and enter into and
complete the
transactions contemplated herein and therein; all required corporate
action has been duly and validly taken by Curious to make and carry out
this Agreement and the transactions contemplated herein; this Agreement
constitutes the valid and binding obligation of Curious enforceable in
accordance with its terms; the execution of the Agreement and, the
completion of the transactions herein involved will not result in the
violation of any order, license, permit, rule, judgment or decree to
which Curious is subject or the breach of any contract, agreement or
other commitment to which Curious is a party or by which it or its
properties is bound or conflict with or violate any provision of
Curious' Articles of Incorporation, By-Laws, or other organizational
documents; and no other consent of any kind is required that has not
been obtained to make or carry out the terms of this Agreement; that
there are only 100 issued and outstanding shares of Curious and that
Curious will not issue any additional shares of its Common Stock
without receiving the prior written consent of HHI and CBC; and that
the financial statements prepared by Curious are substantially correct
in all material respects and there has not been any material adverse
change in the financial condition of Curious since the latest financial
statements.
6. REPRESENTATION AND WARRANTIES BY CBC.
CBC represents and warrants as follows, which representations and
warranties shall be deemed to have been made again at Closing, that CBC
is a corporation organized and existing in good standing under the laws
of the State of Minnesota with full power and authority to enter into
this Agreement to which it is a party and enter into and complete the
transactions contemplated herein and therein; all required corporate
action has been duly and validly taken by CBC to make and carry out
this Agreement and the transactions contemplated herein; this Agreement
constitutes the valid and binding obligation of CBC enforceable in
accordance with its terms; the execution of the Agreement and, the
completion of the transactions herein involved will not result in the
violation of any order, license, permit, rule, judgment or decree to
which CBC is subject or the breach of any contract, agreement or other
commitment to which CBC is a party or by which it or its properties is
bound or conflict with or violate any provision of CBC's Articles of
Incorporation, By-Laws, or other organizational documents; that the
Curious Share and Option Agreement are being purchased for CBC's own
account and not with a view to, or for resale; and that the warrants
issued to members of CP Management are duly authorized and upon the
exercise of the warrants will be validly issued non-assessable shares
of CBC.
7. REPRESENTATION AND WARRANTIES BY CP MANAGEMENT.
Each member of CP Management represents and warrants, which
representations and warranties shall be deemed to have been made again
at Closing that each member has the full right, power, authority and
capacity, and is free, without restriction, to enter into and perform
this Agreement; each member of CP Management represents and warrants
that the Curious Share is owned by CP Management that upon the transfer
of the Curious Share to CBC on the Closing Date, CBC will obtain
absolute title to the Curious Share, free and clear of all liens,
pledges, security interests, claims, charges, options, encumbrances or
other adverse claims of any kind whatsoever other than any security
interest which has been granted to Fremont Financial; that CP
Management makes the same warranties and representations with respect
to the Option Agreement, except that the Option Agreement may be
subject to
subordination obligations with Fremont Financial Services, Inc.; that
each member is an accredited investor within the meaning of Regulation
D, Rule 501(a) under the Securities Act 1933, as amended.
8. CONDITION OF CBC'S OBLIGATIONS.
The obligations of CBC to consummate the transactions contemplated by
this Agreement is subject to the fulfillment prior to or on the Closing
Date of the following conditions, any of which may be waived in whole
or in part in writing by CBC:
8.1 The representations and warranties of CP Management, Curious
and HHI shall be true in all material respects as of the
Closing Date with the same effect as though made on and as of
the Closing Date.
8.2 CP Management and HHI shall have performed and complied with
all agreements, covenants or conditions required by this
Agreement to be performed and complied with by them prior to
or as of the Closing Date.
8.3 ACTION BY HHI AND CURIOUS BOARD OF DIRECTORS.
(a) HHI's Board of Directors, prior to the Closing Date,
shall have met and duly adopted resolutions, subject
to the consummation of the transactions contemplated
by this Agreement: (i) to approve the terms of this
transaction; (ii) to amend the Option Agreement to
allow CP Management to freely assign and transfer CP
Management's interest; and (iii) to approve the terms
of the employment agreements.
(b) Curious' Board of Directors, prior to the Closing
Date, shall have met and duly adopted resolutions,
subject to the consummation of the transactions
contemplated by this Agreement: (i) to approve the
terms of this transaction; and (ii) to approve the
terms of the employment agreements.
8.4. RESIGNATIONS OF CP MANAGEMENT FROM CURIOUS BOARD. The members
of Curious' Board of Directors and all of Curious'
subsidiaries (other than Mr. Dahl and Mr. Cameron) shall have
tendered their resignations as directors contemporaneously
upon the Closing.
9. LEGAL FEES.
Provided this transaction is consummated, Curious agrees to pay for any
reasonable legal fees and expenses incurred by CP Management from the
law firm of Wollmuth, Maher & Deutsch, LLP in connection with this
transaction through April 28, 1999, provided that it receives copies of
all such legal bills along with any other reasonably requested backup
documentation. Beginning April 29, 1999, Curious agrees to pay for any
reasonable legal fees and expenses incurred by CP Management in
connection with assignment of the Option Agreement and purchase of the
Curious Share by CBC. Notwithstanding the foregoing, CP Management
shall pay for any legal fees and expenses incurred in connection with
their employment agreements and any and all future issuances of shares,
exercise of put rights and similar
matters that are to the benefit of CP Management. Other than as
provided for herein, each party shall be responsible for its or his/her
own legal fees and expenses.
10. INDEMNIFICATION.
10.1 MUTUAL INDEMNIFICATION. Each party hereby indemnifies and
agrees to hold harmless the other parties from and against all
claims, damages, losses, liabilities, costs and expenses
(including, without limitation, settlement costs and any
legal, accounting or other expenses of investigating or
defending any actions or threatened actions) (hereinafter
sometimes collectively referred to as Losses) in connection
with each of the following:
(a) Any misrepresentation or breach of any representation
or warranty made by such party in this Agreement; and
(b) any breach of any covenant, agreement or obligation
of such party contained in this Agreement, provided,
however, that such party shall not have any
obligation under this Section unless the aggregate
Losses amount to more than $25,000 (if the Losses
exceed $25,000, the indemnification obligations set
forth in this Section shall include all such Losses
and not only those in excess of $25,000).
10.2 CLAIMS FOR INDEMNIFICATION. Whenever any claim shall arise for
indemnification under this section, the indemnified party
(hereinafter sometimes referred to as the Indemnified Party)
shall promptly notify the party against whom indemnification
is sought (hereinafter sometimes referred to as the
Indemnifying Party) of the claim and, when known, the facts
constituting the basis for such claim. In the event of any
such claim for indemnification under this Agreement resulting
from or in connection with any claim or legal proceedings by a
third party, the notice shall specify, if known, the amount or
an estimate of the amount of liability arising therefrom. The
Indemnified Party shall not settle or compromise any claim by
a third party in respect of which it is entitled to
indemnification under this Agreement without the prior written
consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed; provided, however, that if
action or suit shall have been instituted against the
Indemnified Party and the Indemnifying Party shall not have
taken control of such action or suit as provided in this
Section after notification thereof, the Indemnified Party
shall have the right to settle or compromise such claim after
giving notice to the Indemnifying Party as provided in this
Section.
10.3 DEFENSE BY INDEMNIFYING PARTY. In connection with any claim
that may give rise to a right of indemnification under this
Section resulting from or arising out of any claim or legal
proceeding by a person other than the Indemnified Party, the
Indemnifying Party, at its or his/her sole cost and expense,
may, upon written notice to the Indemnified Party, assume the
defense of any such claim or legal proceeding if the
Indemnifying Party acknowledges to the Indemnified Party in
writing the obligation to indemnify the Indemnified Party with
respect to all elements of such claim or legal proceeding. If
the Indemnifying Party shall assume the defense of any such
claim or
legal proceeding, the Indemnifying Party shall select counsel
reasonably acceptable to the Indemnified Party to conduct the
defense of such claim or legal proceeding at the sole cost and
expense of the Indemnifying Party, who shall take all steps
necessary in the defense or settlement thereof. An Indemnified
Party shall be entitled to participate in (but not control)
the defense of any such claim or legal proceeding with its own
counsel and at its own expense. If the Indemnifying Party
shall not assume the defense of such claim or legal proceeding
within 15 days after notice thereof shall have been given to
in accordance with this Section: (a) the Indemnified Party may
defend such claim or legal proceeding in such manner as it may
deem appropriate, including, but not limited to, the
settlement of such claim or legal proceeding, after giving
notice of the same to Indemnifying Party, on terms as the
Indemnified Party may deem appropriate and (b) Indemnifying
Party shall be entitled to participate in (but not control)
the defense of such claim or legal proceeding with their own
counsel at their own expense.
11. MISCELLANEOUS PROVISIONS.
11.1 EXECUTION OF DOCUMENTS. The parties agree to execute all
applications, documents and instruments which may be
reasonably necessary for the consummation of the transactions
contemplated hereunder, or which might be from time to time
reasonably requested by any party hereto in connection
therewith, whether before or after the date of Closing.
11.2 CHANGES, WAIVERS, ETC. Neither this Agreement nor any
provision thereof may be changed, amended, waived, discharged
or terminated orally, but only in writing signed by the party
against which enforcement of the change, amendment, waiver,
discharge or termination is sought.
11.3 NOTICES. All notices, requests, elections, demands and other
communications given pursuant to this Agreement shall be in
writing and shall be duly given when delivered personally or
by facsimile transmission (upon receipt of confirmation) or
when deposited in the mail, certified or registered mail,
postage prepaid, return receipt requested, and shall be
addressed as follows:
If to CBC:
Mr. Christopher T. Dahl
Children's Broadcasting Corporation
5501 Excelsior Boulevard
Minneapolis, Minnesota 55416
Facsimile: (612) 926-7946
with copy to:
Jill Theis, Esq.
Children's Broadcasting Corporation
5501 Excelsior Boulevard
Minneapolis, Minnesota 55416
Facsimile: (612) 925-8845
If to HHI:
Mr. Christopher T. Dahl
Harmony Holdings, Inc,
5501 Excelsior Boulevard
Minneapolis, Minnesota 55416
Facsimile: (612) 926-7946
with copy to:
Jill Theis, Esq.
Harmony Holdings, Inc.
5501 Excelsior Boulevard
Minneapolis, Minnesota 55416
Facsimile: (612) 925-8845
If to Curious:
Mr. Christopher T. Dahl
Curious Pictures Corporation
5501 Excelsior Boulevard
Minneapolis, Minnesota 55416
Facsimile: (612) 926-7946
with copy to:
Jill Theis, Esq.
Curious Pictures Corporation
5501 Excelsior Boulevard
Minneapolis, Minnesota 55416
Facsimile: (612) 925-8845
If to CP Management:
Susan Holden, Stephen Oakes, Richard Winkler, David Starr
c/o Curious Pictures Corporation
440 Lafayette Street
New York, New York 10003
Facsimile: (212) 674-0081
With copy to:
David Wollmuth, Esq.
WOLLMUTH, MAHER & DEUTSCH, LLP
516 Fifth Avenue, 12th Floor
New York, New York 10036
Facsimile: (212) 382-0050
11.4 EXHIBITS. All Exhibits referred to herein are incorporated
into this Agreement by reference for all purposes and shall be
deemed part of this Agreement.
11.5 ASSIGNABILITY. None of the parties may assign their rights or
obligations under this Agreement without the prior written
consent of the other parties which shall not be unreasonably
withheld or delayed, except that CBC, HHI and Curious may make
an assignment to a parent, subsidiary, affiliate or successor
of such party and each member of CP Management may make an
assignment to an entity that is controlled by and 100% owned
by such member.
11.6 BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the representatives, heirs, estates,
successors, and assigns of the parties hereto.
11.7 HEADING. The headings contained in this Agreement are for
reference only and shall not effect in any way the meaning or
interpretation of this Agreement.
11.8 COUNTERPARTS. This Agreement and any other instrument to be
signed by the parties hereto may be executed by the parties,
together or separately, in two or more identical counterparts,
each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
11.9 CLAUSES SEVERABLE. The provisions of this Agreement are
severable. If any provision of this Agreement or the
application thereof to any person or circumstance is held
invalid, the provision or its application shall be modified to
the extent possible to reflect the expressed intent of the
parties but in any event, invalidity shall not affect other
provisions or applications of this Agreement which can be
given effect without the invalid provision or application.
IN WITNESS WHEREOF, the parties hereto, by their properly authorized
representatives, have caused this Agreement to be executed as of the day and
date first above written.
CHILDREN'S BROADCASTING HARMONY HOLDINGS, INC.,
CORPORATION, a Minnesota corporation a Delaware corporation
By: /s/ Christopher T. Dahl By: /s/ James G. Gilbertson
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Its: Chief Executive Officer Its: Chief Operating Officer
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CURIOUS PICTURES CORPORATION
a New York corporation
By: /s/ James G. Gilbertson
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Its: Chief Operating Officer
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CP MANAGEMENT
/s/ Stephen Oakes /s/ Richard Winkler
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Stephen Oakes Richard Winkler
/s/ David Starr /s/ Susan Holden
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David Starr Susan Holden