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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-22250
BRILLIANT DIGITAL ENTERTAINMENT, INC.
(Name of Small Business Issuer In Its Charter)
DELAWARE 95-4592204
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6355 TOPANGA CANYON BOULEVARD, SUITE 120
WOODLAND HILLS, CALIFORNIA 91367
(Address of Principal Executive Offices ) (Zip Code)
(818) 615-1500
(Issuer's telephone Number, Including Area Code)
Securities registered under to Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on which Registered
- ----------------------------- -----------------------
COMMON STOCK, $.001 PAR VALUE AMERICAN STOCK EXCHANGE
Securities registered under to Section 12(g) of the Exchange Act:
NONE
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days.
Yes X No
----- -----
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [X]
The issuer's revenues for the fiscal year ended December 31, 1998 were
$431,000.
At March 19, 1999 the aggregate market value of the voting stock held by
non-affiliates of the issuer was $20,104,667.
At March 19, 1999 the issuer had 9,409,001 shares of Common Stock,
$0.001 par value, issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE>
GENERAL
Brilliant Digital Entertainment, Inc. hereby amends its Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1998, by deleting its
responses for Items 9, 10, 11 and 12 contained in its Annual Report on Form
10-KSB filed April 15, 1999 and replacing such Items as set forth in this
Amendment No. 1 to Form 10-KSB.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to our
directors and executive officers as of April 15, 1999.
NAME AGE POSITION
- ---- --- --------
Mark Dyne........................... 38 Chairman of the Board of
Directors and Chief
Executive Officer
Kevin Bermeister.................... 38 President and Director
Michael Ozen........................ 44 Chief Financial Officer and
Secretary
Mark Miller......................... 39 Vice President, Production
and Operations and
Director
Anthony Rose........................ 34 Vice President, Technology
Diana Maranon (1)................... 40 Director
Ray Musci (1)(2).................... 38 Director
Garth Saloner (2)................... 44 Director
Jeff Scheinrock (1)(2).............. 48 Director
- ----------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
MARK DYNE has served as our Chairman of the Board of Directors and Chief
Executive Officer since October 1996. Mr. Dyne currently is Chairman of the
Board of Directors of Tag-It Pacific, Inc., a position he has held since
September 1997. Mr. Dyne is a director and equity owner of Sega Ozisoft Pty.
Ltd. and previously served as its Co-Chief Executive Officer. Mr. Dyne helped
found Sega Ozisoft in 1982 with Mr. Bermeister. Sega Ozisoft, now a majority
owned subsidiary of Infogrames Entertainment (France), is a computer software
distributor for many leading publishers including, among others, Virgin
Interactive, Accolade, Access, Codemasters and Eidos. Mr. Dyne currently is a
director of Monto Holdings Pty. Ltd. and a co-owner of Packard Bell NEC
Australia Pty. Ltd. Monto is a private investment holding company and Packard
Bell NEC Australia is one of the leading manufacturers and distributors of
personal computers through the Australian mass merchant channel. From June 1995
through May 1997, Mr. Dyne served as a Co-Chief Executive Officer of Sega
Enterprises (Australia) Pty. Ltd., a theme park developer. Sega Enterprises is
owned jointly by Mr. Dyne, Mr. Bermeister, Sega Enterprises Japan, Mitsubishi
Corp. and Mitsui Corp. Mr. Dyne also serves on the Board of Directors of Virgin
Interactive Entertainment Limited, a distributor of computer software programs
and video games, and has an equity interest therein. Mr. Dyne is a member of the
Board of Directors of Sega Gaming Technologies, Inc., a Nevada company in the
business of producing multiplayer casino equipment.
KEVIN BERMEISTER has served as our President since October 1996 and as a
Director since August 1996. Mr. Bermeister is a director and equity owner of
Sega Ozisoft Pty. Ltd. and previously served as its Co-Chief Executive Officer.
Mr. Bermeister helped found Sega Ozisoft in 1982 with Mr. Dyne. Mr. Bermeister
also is a director of Packard Bell NEC Australia Pty. Ltd., Jacfun Pty. Ltd. and
Virgin Interactive Entertainment Limited. Jacfun owns the Darling Harbour
property occupied by the Sega Enterprises (Australia) Pty. Ltd. indoor theme
park in Sydney, Australia.
MICHAEL OZEN has served as our Chief Financial Officer since October 1996
and Secretary since March 1997. Mr. Ozen also serves as a director of both the
Clubhouse Children's Museum and the New Museum for
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<PAGE>
Children. From May 1991 through June 1996, Mr. Ozen served as Manager --
International Taxes at Coopers & Lybrand, LLP. In July 1996, Mr. Ozen became
Director -- International Taxes at Coopers & Lybrand, LLP, a position he held
until October 1996.
MARK MILLER has served as our Vice President, Production and Operations
since October 1996 and as a Director since August 1996. Mr. Miller served as our
President and Chief Financial Officer from August 1996 through September 1996.
Mr. Miller also is Managing Director of BII Australia, a position he has held
since March 1994. From February 1993 through December 1994, Mr. Miller was
Managing Director of Pacific Interactive Education Pty. Limited ("PIE"), where
he was primarily engaged in the development and maintenance of educational and
multimedia software for use by schools and other educational institutions. Mr.
Miller currently is a director of PIE. From 1989 through 1992, Mr. Miller was
Director of Sales and Marketing of Dealing Information Systems Pty. Ltd., a
developer of proprietary modular software treasury systems for managing
financial transactions.
ANTHONY ROSE has served as a consultant to BII Australia since April 1994
and currently serves as our Vice President, Technology. Mr. Rose also is the
owner and director of and, prior to April 1994, was employed by, A.R. Technology
Pty. Ltd. ("A.R. Technology"), an Australian company founded by Mr. Rose in 1988
which is involved in the design and manufacture of digital electronics hardware
and software. A.R. Technology has completed design assignments for Apple, Epson,
Panasonic and other corporations and government institutions. Mr. Rose holds
several international patents relating to anti-virus hardware circuits for
personal computers.
DIANA MARANON has served as a Director since October 1996, and served as
our Secretary from August 1996 until March 1997. Ms. Maranon is the President
and Managing Director of Averil Capital Markets Group, Inc. ("Averil"), a
financial advisory firm, and a member of the National Association of Securities
Dealers. Ms. Maranon serves as a director of Virgin Interactive Entertainment
Limited and Tag-It Pacific, Inc. Prior to founding Averil in 1994, Ms. Maranon
was a Vice President with Wasserstein Perella & Co., Inc. ("Wasserstein"), an
investment banking firm, with whom she started in 1988. At Wasserstein, Ms.
Maranon was responsible for covering companies headquartered in the Western
United States. From 1985 to 1988, Ms. Maranon practiced securities law with
Skadden Arps Slate Meagher & Flom. Ms. Maranon is a member of the California
Bar.
RAY MUSCI has served as a Director since October 1996. From May 1990 to the
present, Mr. Musci has served as the President, Chief Executive Officer and as a
director of Infogrames Entertainment, Inc. (formerly Ocean of America, Inc.), a
company that develops, publishes and distributes software products. From
September 1994 to July 1996, Mr. Musci served as a director of Ocean
International, Ltd., the holding company of Infogrames Entertainment, Inc. From
August 1985 to March 1990, Mr. Musci was Executive Vice President/General
Manager of Data East USA, Inc., a subsidiary of Data East Corp., a Japanese
company, where he established a consumer division to develop, manufacture,
market and distribute consumer video games, entertainment software and
coin-operated video arcade games and pinball machines.
GARTH SALONER has served as a Director since October 1996. From 1990 to the
present, Mr. Saloner has served as the Robert A. Magowan Professor of Strategic
Management and Economics at the Graduate School of Business at Stanford
University. He also has served as Associate Dean for Academic Affairs and
Director of Research and Course Development at the Stanford Graduate School of
Business. From 1982 to 1990 Mr. Saloner taught as a professor in the Economics
Department of the Massachusetts Institute of Technology. Mr. Saloner also is a
director and a member of the audit and compensation committees of Quick Response
Services, Inc., a corporation that provides electronic data interchange services
in the retail market, a director of Charles River Associates, a corporation that
provides economic consulting services, and a director of NextStage
Entertainment, a corporation involved in the construction and management of live
entertainment theatres.
JEFF SCHEINROCK has served as a Director since October 1996. Since May
1997, Mr. Scheinrock has been Chief Executive Officer of Scheinrock Advisory
Group, Inc. From July 1, 1996 until May 2, 1997, Mr. Scheinrock served as Vice
Chairman, Chief Financial Officer and Assistant Secretary of Kistler Aerospace
Corporation, a company involved in the development, marketing and manufacture of
reusable satellite launch vehicles. From March 1, 1989 to July 1, 1996, Mr.
Scheinrock was the Vice Chairman of Finance and Strategic Planning of Packard
Bell NEC. Mr. Scheinrock is a director of SRS Labs, Inc., a corporation listed
on the Nasdaq Stock Market's National Market. Mr. Scheinrock also is a director
of various other private companies.
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<PAGE>
AGREEMENT TO NOMINATE DIRECTORS
We have entered into a stock purchase agreement with a private investor.
The closing of the stock purchase agreement is subject to a number of
conditions, including the election to our Board of Directors of the investor or
his designee for a term ending in 2000. If the stock purchase agreement closes,
the Board of Directors intends to elect the investor or his designee as a Class
I Director. Additionally, if the stock purchase agreement closes, we have agreed
that so long as the investor maintains ownership of at least 5% of our
outstanding equity securities, we will use our best efforts to continue to cause
the investor or his designee to be nominated for election as a director.
BOARD COMMITTEES
The Board of Directors has an Audit Committee and a Compensation Committee.
The Audit Committee currently consists of Messrs. Musci, Saloner and Scheinrock.
The Audit Committee recommends the engagement of our independent public
accountants, reviews the scope of the audit to be conducted by the independent
public accountants and meets with the independent public accountants and our
Chief Financial Officer to review matters relating to our financial statements,
our accounting principles and our system of internal accounting controls, and
the committee reports its recommendations as to the approval of our financial
statements to the Board of Directors.
The Compensation Committee currently consists of Ms. Maranon and Messrs.
Musci and Scheinrock. The Compensation Committee is responsible for considering
and making recommendations to the Board of Directors regarding executive
compensation and is responsible for administering our stock option and executive
incentive compensation plans.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, requires our
executive officers, directors, and persons who own more than ten percent of a
registered class of our equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission (the "SEC").
Executive officers, directors and greater-than-ten percent stockholders are
required by SEC regulations to furnish us with all Section 16(a) forms they
file. Based solely on our review of the copies of the forms received by us and
written representations from certain reporting persons that they have complied
with the relevant filing requirements, we believe that, during the year ended
December 31, 1998, all of our executive officers, directors and greater-than-ten
percent stockholders complied with all Section 16(a) filing requirements.
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<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth, as to our Chief Executive Officer and as to
each of the other four most highly compensated officers whose compensation
exceeded $100,000 during the last fiscal year (the "Named Executive Officers"),
information concerning all compensation paid for services to us in all
capacities during the last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
NUMBER OF
OTHER SECURITIES
FISCAL YEAR ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION (1) ENDED(2) SALARY COMPENSATION OPTIONS(3)
- ------------------------------- ------------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Mark Dyne...................... December 31, 1998 $ 225,000 -- 100,000 (4)
Chief Executive Officer December 31, 1997 $ 225,000 -- --
December 31, 1996 $ 56,250 -- --
June 30, 1996 -- -- --
Kevin Bermeister............... December 31, 1998 $ 225,000 -- 100,000 (4)
President December 31, 1997 $ 225,000 -- --
December 31, 1996 $ 56,250 -- --
June 30, 1996 -- -- --
Michael Ozen................... December 31, 1998 $ 165,000 -- 50,000 (5)
Chief Financial Officer December 31, 1997 $ 165,000 -- --
and Secretary December 31, 1996 $ 41,000 -- 30,000 (6)
June 30, 1996 -- -- --
Mark Miller.................... December 31, 1998 $ 126,000 20,000 (4)
Vice President, Production December 31, 1997 $ 89,000 $ 15,000(7) --
and Operations December 31, 1996 $ 23,000 -- --
June 30, 1996 $ 69,000 -- --
Anthony Rose................... December 31, 1998 $ 107,000 -- 50,000 (5)
Vice President, Technology December 31, 1997 $ 126,000 -- --
December 31, 1996 $ 37,000 -- 30,000 (6)
June 30, 1996 -- -- --
</TABLE>
- ----------------------
(1) For a description of employment agreements between us and certain executive
officers, see "Employment Agreements with Executive Officers" below.
(2) We changed our fiscal year end from June 30 to December 31, effective
December 31, 1996.
(3) In October 1998, all of our then outstanding stock options were repriced
under an option repricing program. For a description of the terms of the
option repricing program, see "Report of the Compensation Committee on
Repricing of Stock Options" below.
(4) These options, which were initially granted in March 1998, were repriced in
October 1998 under our option repricing program.
(5) Consists of options to purchase 30,000 shares and 20,000 shares of Common
Stock granted in October 1996 and March 1998, respectively, all of which
were repriced in October 1998 under our option repricing program.
(6) These options were cancelled in October 1998 in connection with the grant
of a repriced option under our option repricing program.
(7) Consists of motor vehicle and income protection insurance premiums.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding the grant of
stock options made during the fiscal year ended December 31, 1998 to the Named
Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE OR
OPTIONS IN FISCAL BASE EXPIRATION
NAME GRANTED YEAR(1) PRICE(2) DATE
---- ------------- ----- ------- -------
<S> <C> <C> <C> <C>
Mark Dyne.......................... 100,000(3) -- $ 2.75 3/19/08
100,000(4)(5) 22.1% $ 1.50 3/19/08
Kevin Bermeister................... 100,000(3) -- $ 2.75 3/19/08
100,000(4)(5) 22.1% $ 1.50 3/19/08
Michael Ozen....................... 30,000(4)(6) -- $ 1.50 9/30/06
20,000(3) -- $ 2.75 3/19/08
20,000(4)(5) 4.4% $ 1.50 3/19/08
Mark Miller........................ 20,000(3) -- $ 2.75 3/19/08
20,000(4)(5) 3.4% $ 1.50 3/19/08
Anthony Rose....................... 30,000(4)(7) -- $ 1.50 9/11/06
20,000(3) -- $ 2.75 3/19/08
20,000(4)(5) 4.4% $ 1.50 3/19/08
</TABLE>
- ------------------------
(1) Options covering an aggregate of 452,000 shares of Common Stock were
granted to employees during the fiscal year ended December 31, 1998. In
October 1998, options covering an aggregate of 747,000 shares of Common
Stock, including options to purchase the 452,000 shares granted earlier in
the year, were repriced under our option repricing program. The
percentages are based only on options to purchase 452,000 shares initially
granted to employees in fiscal 1998, and do not account for replacement
options granted in fiscal 1998 in connection with our option repricing
program.
(2) The exercise price and tax withholding obligations related to exercise may
be paid by delivery of already owned shares, subject to certain
conditions.
(3) This option, which was granted in March 1998, was cancelled in October
1998 in connection with the grant of a repriced option under our option
repricing program. Prior to its cancellation, this option would have
vested and become exercisable in four equal annual installments,
commencing on January 1, 1999.
(4) This option consists of a repriced option granted in October 1998 under
our option repricing program to replace an existing option to purchase the
same number of shares of Common Stock at a higher exercise price.
(5) This option vests and becomes exercisable as follows: 25% vested on April
1, 1999, and 25% vests on each of January 1, 2000, 2001, and 2002.
(6) This option vests and becomes exercisable as follows: 22,500 shares vested
on March 16, 1999, and 7,500 shares vest on October 1, 1999.
(7) This option vests and becomes exercisable as follows: 18,125 shares vested
on March 17, 1999, and 11,875 shares vest in 19 equal monthly installments
of 625 shares commencing on April 1, 1999.
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<PAGE>
STOCK OPTIONS HELD AT FISCAL YEAR END
The following table sets forth, for those Named Executive Officers who held
stock options at fiscal year end, certain information regarding the number of
shares of Common Stock underlying stock options held at fiscal year end and the
value of options held at fiscal year end based upon the last reported sales
price of the Common Stock on the American Stock Exchange on December 31, 1998
($1.75 per share). No stock options were exercised by any Named Executive
Officer during fiscal 1998.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
NAME DECEMBER 31, 1998 DECEMBER 31, 1998 (1)
- ---- ----------------- ---------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mark Dyne....................... -0- 100,000 -0- $ 25,000
Kevin Bermeister................ -0- 100,000 -0- $ 25,000
Michael Ozen.................... -0- 50,000 -0- $ 12,500
Mark Miller..................... -0- 20,000 -0- $ 5,000
Anthony Rose.................... -0- 50,000 -0- $ 12,500
</TABLE>
- ------------
(1) Based on a closing price of $1.75 per share of Common Stock on December
31, 1998, all options were in-the-money at fiscal year end.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
Effective October 1, 1996, we entered into an employment agreement with
Michael Ozen pursuant to which Mr. Ozen serves as our Chief Financial Officer at
a base salary of $165,000 per year. Mr. Ozen received options to purchase an
aggregate of 30,000 shares of Common Stock which vest in four equal annual
installments commencing on the date of grant. In October 1998, Mr. Ozen's
options were repriced under our option repricing program. Mr. Ozen's employment
is terminable by us at will. In the event we terminate Mr. Ozen's employment
without cause, Mr. Ozen is entitled to three months severance payment (the
"Initial Payment") if termination occurs during the first or second year of
employment (the "Initial Period"), and in addition to the Initial Payment, one
month severance payment for each year served after the Initial Period, not to
exceed an aggregate of 12 months severance payment, if termination occurs after
the Initial Period. For purposes of the agreement, "cause" means the willful
disregard of, or failure to perform, duties where such willful disregard or
failure is not discontinued within a reasonable period of time from receipt of
written notice relating thereto.
A.R. Technology Limited, an Australian corporation of which Anthony Rose is
the sole stockholder, provides the services of Anthony Rose to BII Australia in
exchange for approximately $107,000 per year. The arrangement is terminable at
will by either party upon 30 days prior written notice.
Pacific Interactive Education Pty. Limited ("PIE") provides the services of
Mark Miller to BII Australia. PIE was paid $0, $37,000 and $90,000 during the
period from September 2, 1993 to June 30, 1994, and the years ended June 30,
1995 and 1996, respectively. For the period from July 1, 1996 to December 31,
1996, BII Australia paid PIE $18,000 for the services of Mark Miller. These
amounts include auto allowances, contributions to retirement benefits and profit
included in payments to PIE for purchases of computer equipment. No amounts were
paid to PIE for the services of Mark Miller during fiscal 1997. For fiscal 1998,
BII Australia paid PIE $52,000 for the services of Mark Miller. This amount
represented profit in payments to PIE for purchases of computer equipment. This
arrangement is terminable at will by either party upon 30 days prior written
notice.
STOCK OPTION PLAN
We adopted the Brilliant Digital Entertainment, Inc. 1996 Stock Option Plan
(the "1996 Plan") in September 1996. The purpose of the 1996 Plan is to attract,
retain and motivate certain of our key employees and employees of our
subsidiaries by giving them incentives which are linked directly to increases in
the value of our Common Stock. Each director, officer, employee or consultant of
Brilliant Digital Entertainment or any of our subsidiaries is eligible to be
considered for the grant of awards under the 1996 Plan. The maximum number of
shares of Common Stock that may be issued pursuant to awards granted under the
1996 Plan is 1,080,000, subject to
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<PAGE>
certain adjustments to prevent dilution. Any shares of Common Stock subject to
an award which for any reason expires or terminates unexercised are again
available for issuance under the 1996 Plan. The Board of Directors has approved
an amendment to the 1996 Plan to increase the maximum number of shares of Common
Stock that may be issued pursuant to awards granted under the plan to 2,500,000
shares, which amendment is subject to our stockholders' approval and is being
submitted to our stockholders for approval at our 1999 Annual Meeting.
The 1996 Plan authorizes its administrator to enter into any type of
arrangement with an eligible employee that, by its terms, involves or might
involve the issuance of (1) shares of Common Stock, (2) an option, warrant,
convertible security, stock appreciation right or similar right with an exercise
or conversion privilege at a price related to the Common Stock, or (3) any other
security or benefit with a value derived from the value of the Common Stock. Any
stock option granted may be an incentive stock option within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") or a
nonqualified stock option. The 1996 Plan currently is administered by the
Compensation Committee of the Board of Directors. Subject to the provisions of
the 1996 Plan, the Compensation Committee will have full and final authority to
select the executives and other employees to whom awards will be granted
thereunder, to grant the awards and to determine the terms and conditions of the
awards and the number of shares to be issued pursuant thereto. The maximum
number of shares of Common Stock with respect to which awards may be granted
under the 1996 Plan to any executive or employee during any fiscal year is
100,000, subject to adjustment to prevent dilution.
As of December 31, 1998, 232,000 shares of Common Stock remained available
for grant of awards to eligible participants under the 1996 Plan.
REPORT OF THE COMPENSATION COMMITTEE ON REPRICING OF STOCK OPTIONS
During October 1998, the Compensation Committee of the Board of Directors
approved a stock option repricing program. Under the program, each holder of
stock options granted under the Brilliant Digital Entertainment 1996 Stock
Option Plan, including directors and Named Executive Officers, was entitled to
exchange their existing stock option for a repriced stock option to purchase the
same number of shares at an exercise price of $1.50 per share. The new exercise
price was lower than the exercise price under all of the existing stock options
and was higher than the then market price of $1.125 per share of Common Stock.
As a condition to receiving this more favorable exercise price, each option
holder who elected to participate in the program was required to agree to a less
favorable vesting schedule. Under the repriced options, any shares of Common
Stock which had already vested under the existing stock option could not be
exercised for a period of 120 days from date the option holder elected to
exchange his or her stock option. In addition, any shares under an existing
stock option which were scheduled to vest on January 1, 1999 did not vest under
the repriced option until April 1, 1999. Other than the lower exercise price and
the changes to the vesting schedule, each new stock option issued under the
repricing program has terms substantially equivalent to the terms of the
surrendered option, including the same number of shares and expiration date.
Options to purchase a total of 747,000 shares of Common Stock were eligible to
participate in the program, all of which were exchanged by the holders thereof
for repriced stock options.
The Compensation Committee approved the stock option repricing program as a
result of the significant reduction in the price of our Common Stock in fiscal
1998. The Committee determined that our existing stock options no longer
provided meaningful incentive to the option holders to remain in our employ and
to maximize shareholder value. The existing stock options had exercise prices of
between $2.31 per share and $6.38 per share, which exercise prices exceeded the
trading prices of our Common Stock for a substantial majority of the time from
June 1998 until the date the option repricing program was approved. The
Committee determined that the exchange of new stock options with a lower
exercise price for our existing stock options would once again provide incentive
to our officers, directors and employees to continue to provide services to us
and to maximize shareholder value.
COMPENSATION COMMITTEE
Diana Maranon
Ray Musci
Jeff Scheinrock
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<PAGE>
COMPENSATION OF DIRECTORS
Nonemployee directors of the Company currently are paid $1,500 for their
personal attendance at any meeting of the Board of Directors and $500 for
attendance at any telephonic meeting of the Board of Directors or at any meeting
of a committee of the Board of Directors. Nonemployee directors also received
options to purchase 15,000 shares of Common Stock in fiscal 1998. Directors also
are reimbursed for their reasonable travel expenses incurred in attending Board
or committee meetings.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL STOCKHOLDERS
The following table sets forth as of April 15, 1999 certain information
relating to the ownership of the Common Stock by (i) each person known by us to
be the beneficial owner of more than five percent of the outstanding shares of
our Common Stock, (ii) each of our directors, (iii) each of the Named Executive
Officers, and (iv) all of our executive officers and directors as a group.
Except as may be indicated in the footnotes to the table and subject to
applicable community property laws, each such person has the sole voting and
investment power with respect to the shares owned. The address of each person
listed is in care of Brilliant Digital Entertainment, Inc., 6355 Topanga Canyon
Boulevard, Suite 120, Woodland Hills, California 91367, unless otherwise set
forth below such person's name.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF
COMMON STOCK
BENEFICIALLY
NAME AND ADDRESS OWNED(1) PERCENT(1)
- ---------------- ---------------- ----------
<S> <C> <C>
Insinger Group, as manager of Reefknot Limited (2)........... 1,200,118 12.8 %
One Stokes Place
St. Stephens Green
Dublin 2
Republic of Ireland
Kevin Bermeister (3)......................................... 817,600 8.7
Mark Dyne (3)................................................ 810,600 8.6
Sega Enterprises Limited..................................... 780,001 8.3
2-12 Haneda 1-Chome
Ohta-Ku, Tokyo 144
Japan
Packard Bell NEC, Inc. (4)................................... 600,000 6.0
One Packard Bell Way
Sacramento, California 95828
Mark Miller (5).............................................. 505,013 5.4
Diana Maranon (6)............................................ 84,012 *
Anthony Rose (7)............................................. 38,750 *
Ray Musci (8)................................................ 28,750 *
Garth Saloner (8)............................................ 28,750 *
Jeff Scheinrock (8).......................................... 28,750 *
Michael Ozen (9)............................................. 27,500 *
Directors and executive officers
as a group (9 persons) (10).................................. 2,369,725 24.6 %
</TABLE>
- ------------------------------
* Less than one percent.
(1) Under Rule 13d-3, certain shares may be deemed to be beneficially owned by
more than one person (if, for example, persons share the power to vote or
the power to dispose of the shares). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire the
shares (for example, upon exercise of an option) within 60 days of the date
as of which the information is provided. In computing the percentage
ownership of any person, the amount of shares outstanding is deemed to
include the amount of shares beneficially owned by such person (and only
such person) by reason of these acquisition rights. As a
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result, the percentage of outstanding shares of any person as shown in this
table does not necessarily reflect the person's actual ownership or voting
power with respect to the number of shares of Common Stock actually
outstanding at April 15, 1999.
(2) Insinger Group is the manager of Reefknot Limited, and as such, controls
the disposition and voting of the shares of Common Stock held by Reefknot.
(3) Includes 25,000 shares of Common Stock reserved for issuance upon exercise
of stock options which currently are exercisable.
(4) Consists of 600,000 shares of Common Stock underlying warrants which
currently are exercisable.
(5) Consists of (i) 430,013 shares of Common Stock held by Pacific Interactive
Education Pty. Limited, (ii) 70,000 shares of Common Stock held by the Mark
Miller Family Trust, of which Pacific Interactive Pty. Limited is trustee,
and (iii) 5,000 shares of Common Stock reserved for issuance upon exercise
of stock options which currently are exercisable. Mark Miller and his wife
are the sole stockholders of Pacific Interactive Education Pty. Limited and
Pacific Interactive Pty. Limited.
(6) Consists of (i) 28,750 shares of Common Stock reserved for issuance upon
exercise of stock options which currently are exercisable, and (ii) 55,262
shares of Common Stock underlying warrants which currently are exercisable.
(7) Consists of (i) 20,000 shares of Common Stock held by HiTech Corporation
Limited over which Mr. Rose has exclusive voting and investment power, and
(ii) 18,750 shares of Common Stock reserved for issuance upon exercise of
stock options which currently are exercisable or will become exercisable on
or before June 14, 1999.
(8) Consists of 28,750 shares of Common Stock reserved for issuance upon
exercise of stock options which currently are exercisable.
(9) Consists of 27,500 shares of Common Stock reserved for issuance upon
exercise of stock options which currently are exercisable.
(10) Includes (i) 166,250 shares of Common Stock reserved for issuance upon
exercise of stock options which currently are exercisable or will become
exercisable on or before June 14, 1999, and (ii) 55,262 shares of Common
Stock underlying warrants which currently are exercisable.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Mark Miller, an officer and director of Brilliant Digital Entertainment, is
a shareholder of Multimedia Connexion Pty., Ltd. BII Australia periodically
purchases hardware and software from Multimedia Connexion Pty. Ltd. For the
fiscal years ended December 31, 1997 and 1998, BII Australia purchased computer
equipment totaling $121,000 and $59,000, respectively.
On September 13, 1996, we entered into the SAND Acquisition Agreement with
Sega Ozisoft. Mark Dyne and Kevin Bermeister both currently serve as directors
of Sega Ozisoft and are significant minority shareholders of Sega Ozisoft.
Pursuant to the SAND Acquisition Agreement, we acquired SAND and in
consideration therefor issued a $1,500,000 mandatorily convertible note which,
upon the completion of our initial public offering, was automatically converted
into 780,001 shares of Common Stock. The terms of the SAND Acquisition were
determined by negotiations between Messrs. Dyne and Bermeister and Averil
Capital Markets Group, Inc. on our behalf and by the Board of Directors of Sega
Ozisoft, with Messrs. Dyne and Bermeister abstaining, on behalf of Sega Ozisoft.
The Sand Acquisition Agreement also provides that we shall pay to Sega
Ozisoft a royalty of 12.5% of "Adjusted Gross Receipts" on the CYBERSWINE
multipath movie. "Adjusted Gross Receipts" is defined as the gross receipts
received by us on the CYBERSWINE multipath movie after deducting any royalties
and fees payable to CYBERSWINE licensors. Pursuant to an agreement between Sega
Ozisoft and the licensor of the characters and content of Cyberswine, we will be
required to pay to the CYBERSWINE licensor a royalty of 2% of gross revenues
less cost of goods on all sales of CYBERSWINE products.
Diana Maranon is a director of Brilliant Digital Entertainment. Averil
Capital Markets Group, Inc. ("Averil"), a financial advisory firm founded and
controlled by Ms. Maranon, has, since November 1995, performed services for us
including investigation of strategic alternatives and assistance with our Common
Stock offerings. As consideration for such services, we paid to Averil $25,000
as of June 30, 1996, $200,000 during the six months ended December 31, 1996,
$22,000 for the year ended December 31, 1997, $30,000 for the year ended
December 31, 1998 and $18,750 during the three months ended March 31, 1999, plus
out of pocket expenses, and granted to Chloe Holding, Inc. ("Chloe"), an
affiliate of Averil, currently exercisable warrants to purchase 40,222
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shares of Common Stock with an exercise price of $0.0326 per share. In
connection with our December 1997 offering of Common Stock, we made an
additional cash payment to Averil of $180,000 and granted to Chloe warrants to
purchase 15,040 shares of Common Stock at an exercise price of $5.50 per share.
We entered into an agreement with Packard Bell NEC in September 1996 for
Packard Bell NEC to bundle software for a Multipath Movie title with 80% of the
first 7.4 million multimedia equipped personal computers shipped by Packard Bell
NEC in the United States, Canada, the United Kingdom, Australia, New Zealand and
South Africa over a three-year period which began in August of 1997. Packard
Bell NEC received warrants to purchase 600,000 shares of our Common Stock upon
execution of the agreement.
Under the terms of a September 1997 agreement, we granted to Packard Bell
NEC the right to distribute a version of Cyberswine loaded on the hard drives of
Packard Bell NEC computers. Under the September 1997 agreement, we will receive
a percentage of future revenue from online end users and a minimum fixed fee. We
also granted distribution rights to future Multipath Movie titles for a
percentage of future revenues from end users. In connection with this agreement,
we granted to Packard Bell NEC warrants to purchase 200,000 shares of our Common
Stock, which warrants expired in February 1999 without being exercised.
Certain of our directors and officers, including Mark Dyne and Kevin
Bermeister, are also directors or officers of our potential competitors and/or
strategic partners. These relationships may give rise to conflicts of interest
between us, on the one hand, and one or more of the directors, officers, and/or
their affiliates, on the other hand. Our Certificate of Incorporation provides
that Mark Dyne and Kevin Bermeister are required to present to us any corporate
opportunities for the development of any type of interactive digital
entertainment with the exception of opportunities for participation in the
development by others of interactive digital entertainment where publishing
and/or distribution rights for the product to be developed are offered to
Messrs. Dyne and/or Bermeister solely for Australia, New Zealand and/or Southern
Africa.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BRILLIANT DIGITAL ENTERTAINMENT, INC.
/S/ MICHAEL OZEN
-------------------------------------------------
By: Michael Ozen
Its: Chief Financial Officer (Principal Financial
and Accounting Officer) and Secretary
SIGNATURES
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* Chief Executive Officer April 28, 1999
- --------------------------- and Chairman of the
Mark Dyne Board of Directors
* President and Director April 28, 1999
- ---------------------------
Kevin Bermeister
/S/ MICHAEL OZEN Chief Financial Officer April 28, 1999
- --------------------------- (Principal Financial and
Michael Ozen Accounting Officer) and
Secretary
* Vice President, Operations and April 28, 1999
- --------------------------- Production and Director
Mark Miller
* Director April 28, 1999
- ---------------------------
Diana Maranon
* Director April 28, 1999
- ---------------------------
Ray Musci
* Director April 28, 1999
- ---------------------------
Garth Saloner
* Director April 28, 1999
- ---------------------------
Jeff Scheinrock
* By: /S/ MICHAEL OZEN
--------------------
Michael Ozen,
Attorney-In-Fact
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