As filed with the Securities and Exchange Registration No. 333-
Commission on April 14, 2000.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BRILLIANT DIGITAL ENTERTAINMENT, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 95-4592204
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
6355 TOPANGA CANYON BOULEVARD, SUITE 120
WOODLAND HILLS, CALIFORNIA 91367
(818) 346-3653
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
MARK DYNE, CHIEF EXECUTIVE OFFICER
6355 TOPANGA CANYON BOULEVARD, SUITE 120
WOODLAND HILLS, CALIFORNIA 91367
(818) 346-3653
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent for Service)
COPIES TO:
Murray Markiles, Esq.
John J. McIlvery, Esq.
Troop Steuber Pasich Reddick & Tobey, LLP
2029 Century Park East
Los Angeles, California 90067
(310) 728-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If the only securities on this form are being offered pursuant to dividend
or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<TABLE>
CALCULATION OF REGISTRATION FEE
========================================================================================
<CAPTION>
Proposed
Maximum Proposed
Title of Each Class of Amount To Offering Maximum Amount Of
Securities Be Price Aggregate Registration
To Be Registered Registered(1) Per Unit Offering Price Fee
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001
per share..................... 50,000 $8.25(2) $412,500 $109
========================================================================================
<FN>
(1) In the event of a stock split, stock dividend, or similar transaction
involving the Registrant's common stock, in order to prevent dilution, the
number of shares registered shall automatically be increased to cover the
additional shares in accordance with Rule 416(a) under the Securities Act.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) on the basis of the average high and low prices of
the Registrant's common stock reported on the American Stock Exchange on
April 12, 2000.
</FN>
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE TIME UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
SUBJECT TO COMPLETION - APRIL 14, 2000
PROSPECTUS
BRILLIANT DIGITAL ENTERTAINMENT, INC.
50,000 SHARES OF COMMON STOCK
This is an offering of up to 50,000 shares of common stock of BRILLIANT
DIGITAL ENTERTAINMENT, INC. Continental Capital & Equity Corporation is offering
all of the shares to be sold in this offering. We will not receive any of the
proceeds from the offering.
BRILLIANT'S common stock is traded on the American Stock Exchange under the
symbol "BDE." On April 12, 2000, the closing sale price of the common stock on
the American Stock Exchange was $8.375 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SHARES.
We have registered with the Securities and Exchange Commission the resale
by some of our stockholders of up to 6,588,717 shares of our common stock. The
resale of the 6,588,717 shares may occur concurrently with the resale by the
selling stockholder of the shares to be sold using this prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is _________, 2000
<PAGE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
<S> <C>
PROSPECTUS SUMMARY............................................................3
RISK FACTORS..................................................................4
FORWARD-LOOKING STATEMENTS...................................................11
USE OF PROCEEDS..............................................................11
SELLING STOCKHOLDER..........................................................11
PLAN OF DISTRIBUTION.........................................................13
WHERE YOU CAN FIND MORE INFORMATION..........................................14
LEGAL MATTERS................................................................14
EXPERTS......................................................................14
</TABLE>
Page 2
<PAGE>
PROSPECTUS SUMMARY
ABOUT BRILLIANT DIGITAL ENTERTAINMENT
Brilliant Digital Entertainment is a pioneering entertainment content
provider and 3D animation technology developer for the converging Internet and
television markets. We have expanded our business to include the broadcast and
webcast over the Internet and television, of live auctions through our
subsidiary, The Auctionchannel, Inc.
We use our proprietary software tools to develop and distribute
digitally-animated interactive content for the Internet, including our
Multipath(TM) Movies. We also develop technology and software tools for sale to
others to be used by them in the development of content for the Internet. Our
subsidiary, The Auction Channel, enables viewers to watch auction events on
television or the Internet and use the Internet or their telephone to bid in
real time against bidders present at an auction.
ABOUT THE OFFERING
This prospectus may be used only in connection with the resale by the
selling stockholder, Continental Capital & Equity Corporation, of up to 50,000
shares of the common stock of Brilliant.
We will not receive any proceeds from the sale of the shares of common
stock offered by the selling stockholder using this prospectus. On April 3,
2000, we had 14,361,626 shares of common stock outstanding.
CORPORATE INFORMATION
We are a Delaware corporation that was incorporated in July 1996. We were
formed through the combination of two businesses: Brilliant Interactive Ideas,
Pty. Ltd., an entertainment software developer and producer, and Sega Australia
New Developments, a research and development operation for leading edge software
tools. We acquired Trojan Television Limited in July 1999, and are in the
process of transferring Trojan to our subsidiary, The Auctionchannel, Inc. Our
executive offices are located at 6355 Topanga Canyon Boulevard, Suite 120,
Woodland Hills, California 91367, and our telephone number is (818) 615-1500.
Information on our websites, www.multipathmovies.com and
www.theauctionchannel.com, does not constitute part of this prospectus.
Page 3
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE YOU DECIDE TO BUY
OUR COMMON STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE THE MATERIAL
ONES FACING OUR COMPANY. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR
BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS WOULD LIKELY SUFFER. IF
THIS OCCURS, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY
LOSE ALL OR PART OF THE MONEY YOU PAID TO BUY OUR COMMON STOCK.
WE WILL NOT BE ABLE TO GENERATE REVENUES IF OUR MULTIPATH MOVIES DO NOT ACHIEVE
MARKET ACCEPTANCE.
Each Multipath Movie is an individual artistic work, and its ability to
generate revenues primarily will be determined by consumer reaction, which is
unpredictable. To generate revenues, we must develop stories and characters that
capture the attention and imagination of consumers and license recognized
characters and properties from third parties for use in our Multipath Movies. We
cannot be certain that we will be able to do so. Other factors that influence
our ability to generate revenues from our Multipath Movies include:
o consumer reluctance to initiate time consuming downloads of data
necessary to view our products;
o our marketing strategies;
o the quality of our products and competing products;
o our ability to enter into revenue share agreements with third party
web sites;
o critical reviews; and
o the availability of alternative forms of entertainment and leisure
time activities.
WE HAVE EXPERIENCED, AND MAY CONTINUE TO EXPERIENCE, REDUCED REVENUES DUE TO
DELAYS IN THE INTRODUCTION AND DISTRIBUTION OF OUR PRODUCTS.
We cannot be certain that we will be able to meet our planned release dates
for our new Multipath Movies. If we cannot release an important new product or
webisodes during the scheduled quarter, our revenues would likely be reduced in
that quarter. In the past, we have experienced significant delays in our
introduction of some new products. For instance, delays in duplication,
packaging and distribution caused our first Multipath Movies, CYBERSWINE, POPEYE
AND THE QUEST FOR THE WOOLLY MAMMOTH, NIGHT OF THE WEREWOLF and the HALLOWEEN
PARTY to begin arriving at retailers at the end of December 1997, after the 1997
holiday selling season. Similarly, we experienced distribution delays in the
fourth quarter of 1998 that caused our products to reach retail shelves only at
the end of December, after the 1998 holiday selling season. As a result, we
experienced fewer sales of these products than we would have if the products
were in stores during the holiday selling seasons, which had a materially
adverse effect on our operating results for the 1997 and 1998 fourth quarters.
It is likely in the future that delays will continue to occur and that some new
products will not be released in accordance with our internal development
schedule or the expectations of public market analysts and investors.
WE MAY NOT BE ABLE TO GENERATE SIGNIFICANT DEMAND FOR OUR PRODUCTS VIEWED ON THE
INTERNET UNLESS THERE IS A REDUCTION IN THE TIME IT TAKES TO DOWNLOAD THE
LARGE AMOUNTS OF DATA NECESSARY TO VIEW OUR PRODUCTS ON THE INTERNET.
Our revenue growth depends in part on our ability to distribute our
products for viewing on the Internet. We believe that without reductions in the
time to download Multipath Movies over the Internet, our Multipath Movies may be
unable to gain consumer acceptance. This reduction in download time depends in
part upon advances in compression technology. We have previously experienced
delays in the development of compression technologies, which, we believe,
materially and adversely affected our online sales and results of operations. We
believe that large, time-consuming downloads have previously deterred potential
users of our products and have reduced the effectiveness of our marketing
campaigns at that time. The development of these technologies continues to be a
significant component of our business strategy and a primary focus of our
research and development efforts.
Page 4
<PAGE>
IF WE ARE UNABLE TO RAISE ADDITIONAL FUNDS, WE MAY BE REQUIRED TO DEFER
COMPLETION OF MULTIPATH MOVIE TITLES AND REDUCE OVERHEAD SIGNIFICANTLY.
We believe that our existing funds, cash generated from operations and
proceeds from our future sales of common stock to St. Annes Investments, Ltd.
under the securities purchase agreement we entered into with St. Annes in March
1999 will be sufficient to fund our working capital requirements for at least
the next twelve months. After that period, we may need to raise additional funds
through debt or equity financing or by other means. We cannot be certain that
additional financing will be available at the time we need additional funds or
that, if available, it can be obtained on terms that we deem favorable. If
necessary funds are not available, we may be required to defer completion of
Multipath Movie titles and reduce overhead significantly, which could have a
material adverse effect on our business. Additionally, our stockholders may be
diluted if we raise additional funds through the sale of our stock.
THIRD PARTY WEB SITES AND THE LICENSORS FROM WHOM WE OBTAIN RIGHTS TO OUR
STORIES AND CHARACTERS MAY CAUSE THE DELAY OF THE RELEASE OF OUR PRODUCTS,
WHICH MAY RESULT IN LOWER REVENUES THAN ANTICIPATED.
Our distribution relationships with third party web sites and our licensing
arrangements with companies that own the stories or characters used in many of
our Multipath Movies, contain potentially burdensome provisions. These
provisions may affect our ability to release our products, which would adversely
affect our revenues, for a number of reasons, such as:
o A software distributor or a licensor of a story or character may, in
the exercise of its product approval rights, arbitrarily require
expensive and time consuming changes to our products, which may cause
a delay in the release of the products; and
o A third party web site could delay the inclusion of our content on the
site, and thereby cause a delay in distribution.
WE MAY NOT BE ABLE TO LICENSE STORIES AND CHARACTERS THAT APPEAL TO CONSUMERS
FOR USE IN OUR MULTIPATH MOVIES, WHICH IS NECESSARY FOR OUR MULTIPATH MOVIES
TO HAVE APPEAL IN THE MARKET.
We use stories and characters developed by third parties in our Multipath
Movies. If we cannot license stories and characters that appeal to consumers at
prices or upon terms or conditions that we consider acceptable, we may not be
able to develop Multipath Movies that consumers will watch. To have access to
appealing stories and characters for use in our Multipath Movies, we will need
to continue to develop new relationships and maintain existing relationships
with the licensors of these stories and characters. Many licensors are reluctant
to grant broad licenses covering multiple formats, like the Internet and
television, to companies without a proven track record in the particular
industry. When rights are available, there is often significant competition for
licenses.
IF THE VENDOR WE USE TO DELIVER MULTIPATH MOVIES THROUGH OUR INTERNET SITE
EXPERIENCES AN INTERRUPTION IN SERVICE, WE WILL NOT BE ABLE TO DELIVER MOVIES
THROUGH OUR INTERNET SITE UNTIL SERVICE RESUMES.
We presently use a single vendor to deliver Multipath Movies through our
Internet site. Any significant interruption in service provided by this vendor
could interrupt sales and delivery of Multipath Movies and adversely affect our
ability to conduct this portion of our business and maintain customer
satisfaction.
IF WE CANNOT OBTAIN CD-ROM AND DVD MANUFACTURING AND PACKAGING SERVICES ON A
TIMELY BASIS, WE MAY NOT BE ABLE TO TIMELY DELIVER OUR CD-ROM AND DVD
PRODUCTS TO DISTRIBUTORS AND RETAILERS AND OUR SALES WILL BE ADVERSELY
AFFECTED.
We use third party vendors to press CD-ROM and DVD disks, assemble
purchased product components, print product packaging and user manuals and
package finished products in connection with the retail distribution of our
Multipath Movies. We do not have contractual agreements with any of our third
party vendors, which may result in our inability to secure adequate services in
a timely manner. If we cannot obtain adequate manufacturing services, we will
not be able to timely produce and deliver our CD-ROM and DVD products to
distributors and retail stores for ultimate sale to consumers, which will
adversely affect our sales and operating results.
Page 5
<PAGE>
IF WE ARE UNABLE TO DEVELOP A RETAIL SALES CHANNEL, EFFECTIVELY COMPETE FOR
RETAIL SHELF SPACE AND NEGOTIATE FAVORABLE TERMS WITH RETAILERS, OUR RETAIL
SALES AND OPERATING RESULTS WILL BE ADVERSELY AFFECTED.
We anticipate that a certain amount of Multipath Movies will be made by
traditional retailers. We may not be able to achieve retail sales at prices
favorable to us. We have no prior experience in developing or managing a retail
sales channel or selling products in retail stores. We are currently expending
resources to develop a retail sales channel, which expenditures must be made
before we realize any significant retail sales. The competition for shelf space
in retail stores is intense. We expect that our products will constitute a small
percentage of a retailer's sales volume, and we cannot be certain that retailers
will provide our products with adequate levels of shelf space and promotional
support. Due to the increased competition for limited retail shelf space and
promotional resources, retailers and distributors increasingly are in a better
position to negotiate favorable terms of sale, including terms relating to price
discounts, product return rights and cooperative market development funds.
Increased competition could result in loss of shelf space for our products at
retail stores, as well as significant price competition, any of which could
adversely affect our sales volume and the price we receive for our products.
WE MAY ENCOUNTER PROBLEMS IN CONNECTION WITH OUR ACQUISITION OF THE AUCTION
CHANNEL, WHICH MAY INCREASE THE COSTS OF THE ACQUISITION AND DISTRACT
MANAGEMENT'S ATTENTION FROM OPERATING THE COMBINED BUSINESS.
In July 1999, we acquired Trojan Television Limited, a London-based company
doing business as The Auction Channel. The Auction Channel integrates live
satellite, cable TV and Web broadcasts of auction events conducted by auction
houses, allowing for participants to watch auction events on television and use
the Internet or their telephone to bid simultaneously with people actually
present at the auction house. We have very little experience in acquiring
businesses and will likely encounter difficulties in integrating The Auction
Channel's operations with our existing operations, which may result in
unexpected costs and adversely affect our operating results. In addition, the
integration will require the dedication of management resources, which may
temporarily distract management's attention from the day-to-day operations of
the two companies and adversely affect our operating results. Some of the
difficulties we expect to encounter include, among others, those related to:
o integrating Brilliant's and The Auction Channel's management staffs;
o retaining The Auction Channel's key management and technical
personnel; and
o coordinating the operation of geographically separated organizations
with distinct cultures.
THE AUCTION CHANNEL MAY NEVER BE PROFITABLE, WHICH WILL ADVERSELY AFFECT OUR
CONSOLIDATED OPERATIONS.
The Auction Channel commenced operations in July 1996 and, accordingly, has
a limited operating history upon which to evaluate its future prospects. There
can be no assurance that The Auction Channel will achieve profitability or
implement its business strategy. The Auction Channel had net losses of
approximately $310,000 in fiscal 1997, $485,000 in fiscal 1998, $1,978,000 for
the fiscal year ended June 30, 1999 and $958,000 for the six months ended
December 31, 1999, and an accumulated deficit of $3,731,000 as of December 31,
1999 relating to net losses from the period from July 1, 1996 through December
31, 1999. We expect that The Auction Channel will continue to sustain losses at
least for the next twelve months.
IF THE AUCTION CHANNEL LOSES ITS LICENSE TO THE COMPUTER SOFTWARE AND HARDWARE
TECHNOLOGIES IT USES IN ITS BUSINESS, THE AUCTION CHANNEL MAY NOT BE ABLE TO
CONTINUE TO SELL ITS PRODUCTS AND SERVICES.
Many of the underlying computer software and hardware technologies used by
The Auction Channel are licensed from Articulate UK Limited. The Auction Channel
has, with respect to these technologies, a worldwide license, with rights to
exploit and improve the software, patents, technology, documentation and know
how developed or owned or licensable by Articulate UK. If The Auction Channel
loses its rights to the computer software and hardware technologies it licenses
from Articulate UK as a result of a dispute with Articulate UK or otherwise, The
Auction Channel will not be able to continue to sell its products and services.
If this occurs, The Auction Channel's revenues will be substantially reduced.
Page 6
<PAGE>
PRODUCT RETURNS THAT EXCEED OUR ANTICIPATED RESERVES COULD RESULT IN WORSE THAN
EXPECTED OPERATING RESULTS.
At the time we ship our products to retailers we will establish reserves,
including reserves that estimate the potential for future product returns.
Product returns or price protection concessions that exceed our reserves could
increase the magnitude of quarterly fluctuations in our operating and financial
results. Furthermore, if we incorrectly assess the creditworthiness of customers
who receive our products on credit, we could be required to significantly
increase the reserves previously established. We cannot be certain that any
future write-offs will not occur or that amounts written off will not have a
material adverse effect on our business and depress the market price of our
common stock. Actual returns to date have been within management's estimates.
FLUCTUATIONS IN OPERATING RESULTS MAY RESULT IN UNEXPECTED REDUCTIONS IN REVENUE
AND STOCK PRICE VOLATILITY.
We operate in an industry that is subject to significant fluctuations in
operating results from quarter to quarter, which may lead to unexpected
reductions in revenues and stock price volatility. Factors that may influence
our quarterly operating results include:
o the introduction or enhancement of software products and technology by
us and our competitors;
o our ability to produce and distribute retail packaged versions of
Multipath Movies in advance of peak retail selling seasons;
o our ability to create appealing content which will generate
advertising revenue; and
o our ability to enter into revenue share agreements with third party
web sites.
Additionally, a majority of the unit sales for a product typically occurs
in the quarter in which the product is introduced. As a result, our revenues may
increase significantly in a quarter in which a major product introduction occurs
and may decline in following quarters.
IF WE DO NOT IMPROVE OUR SOFTWARE TOOLS TO PRODUCE NEW, MORE ENHANCED MULTIPATH
MOVIES, OUR REVENUES WILL BE ADVERSELY AFFECTED.
The software tools that enable us to create Multipath Movies have been
developed over the past four years. Additional refinement of these tools are
necessary to continue to enhance the Multipath Movie format. If we cannot
develop improvements to these software tools, our Multipath Movies may not
obtain or maintain market acceptance and our revenues will be adversely
affected.
ERRORS OR DEFECTS IN OUR SOFTWARE TOOLS AND PRODUCTS MAY CAUSE A LOSS OF MARKET
ACCEPTANCE AND RESULT IN FEWER SALES OF OUR PRODUCTS.
Our products are complex and may contain undetected errors or defects when
first introduced or as new versions are released. In the past, we have
discovered software errors in some of our new products and enhancements after
their introduction into the market. Because our products are complex, we
anticipate that software errors and defects will be present in new products or
releases in the future. While to date these errors have not been material,
future errors and defects could result in adverse product reviews and a loss of,
or delay in, market acceptance of our products.
TO DEVELOP PRODUCTS THAT CONSUMERS DESIRE, WE MUST MAKE SUBSTANTIAL INVESTMENTS
IN RESEARCH AND DEVELOPMENT TO KEEP UP WITH THE RAPID TECHNOLOGICAL
DEVELOPMENTS THAT ARE TYPICAL IN OUR INDUSTRY.
The entertainment software market and the PC industry are subject to rapid
technological developments. To develop products that consumers desire, we must
continually improve and enhance our existing products and technologies and
develop new products and technologies that incorporate these technological
developments. We cannot be certain that we will have the financial and technical
resources available to make these improvements. We must make these improvements
while remaining competitive in terms of performance and price. This will require
us to make substantial investments in research and development, often times well
in advance of the widespread release of the products in the market and any
revenues these products may generate.
Page 7
<PAGE>
OUR PROPRIETARY TECHNOLOGY MAY NOT BE ADEQUATELY PROTECTED FROM UNAUTHORIZED USE
BY OTHERS, WHICH COULD INCREASE OUR LITIGATION COSTS AND ADVERSELY AFFECT OUR
SALES.
Our ability to compete with other entertainment software companies depends
in part upon our proprietary technology. Unauthorized use by others of our
proprietary technology could result in an increase in competing products and a
reduction in our sales. We rely on trademark, trade secret and copyright laws to
protect our technology, and require all employees and third-party developers to
sign nondisclosure agreements. We cannot be certain, however, that these
precautions will provide meaningful protection from unauthorized use by others.
We do not copy-protect our software, so it may be possible for unauthorized
third parties to copy our products or to reverse engineer or otherwise obtain
and use information that we regard as proprietary. Our customers may take
inadequate precautions to protect our proprietary information. If we must pursue
litigation in the future to enforce our intellectual property rights, to protect
our trade secrets or to determine the validity and scope of the proprietary
rights of others, we may not prevail and will likely make substantial
expenditures and divert valuable resources. In addition, many foreign countries'
laws may not protect us from improper use of our proprietary technologies
overseas. We may not have adequate remedies if our proprietary rights are
breached or our trade secrets are disclosed.
IF OUR PRODUCTS INFRINGE ANY PROPRIETARY RIGHTS OF OTHERS, A LAWSUIT MAY BE
BROUGHT AGAINST US THAT COULD REQUIRE US TO PAY LARGE LEGAL EXPENSES AND
JUDGMENTS AND REDESIGN OR DISCONTINUE SELLING OUR PRODUCT.
We believe that our products, including our software tools, do not infringe
any valid existing proprietary rights of third parties. Any infringement claims,
however, whether or not meritorious, could result in costly litigation or
require us to enter into royalty or licensing agreements. If we are found to
have infringed the proprietary rights of others, we could be required to pay
damages, redesign the products or discontinue their sale. Any of these outcomes,
individually or collectively, could have a material adverse effect on our
business and financial condition.
OUR STOCK PRICE AND TRADING VOLUME FLUCTUATE WIDELY AND MAY CONTINUE TO DO SO IN
THE FUTURE. AS A RESULT, WE MAY EXPERIENCE SIGNIFICANT DECLINES IN OUR STOCK
PRICE.
The market price and trading volume of our common stock, which trades on
the American Stock Exchange, has been subject to substantial volatility, which
is likely to continue. This volatility may result in significant declines in the
price of our common stock. Factors that may cause these fluctuations include:
o variations in quarterly operating results;
o the gain or loss of significant contracts;
o changes in management;
o announcements of technological innovations or new products by us or
our competitors;
o recommendations by securities industry analysts;
o dilution to existing stockholders resulting from the issuance of
additional shares of common stock; and
o short sales and hedging of our common stock.
Additionally, the stock market has experienced extreme price and trading
volume fluctuations that have affected the market price of securities of many
technology companies. These fluctuations have, at times, been unrelated to the
operating performances of the specific companies whose stock is affected. The
market price and trading volume of our stock may be subject to these
fluctuations.
IF OUR STOCK DOES NOT SUSTAIN A SIGNIFICANT TRADING VOLUME, STOCKHOLDERS MAY BE
UNABLE TO SELL LARGE POSITIONS IN OUR COMMON STOCK.
In the past, our common stock has not experienced significant trading
volume on a consistent basis and has not been actively followed by stock market
analysts. The average trading volume in our common stock may not increase or
sustain its current levels. As a result, we cannot be certain that an adequate
trading market will exist to permit stockholders to sell large positions in our
common stock.
Page 8
<PAGE>
BECAUSE OUR OFFICERS AND DIRECTORS OWN A SIGNIFICANT PORTION OF OUR COMMON
STOCK, THEY MAY BE ABLE TO INFLUENCE STOCKHOLDER VOTES AND DISCOURAGE OTHERS
FROM ATTEMPTING TO ACQUIRE US.
As of March 10, 2000, our officers and directors owned, in total,
approximately 15% of the outstanding shares of our common stock. As a result,
our officers and directors may be able to exert influence over the outcome of
all matters submitted to a vote of the holders of our common stock, including
the election of our Board of Directors. The voting power of these officers and
directors could also discourage others from seeking to acquire control of us
through the purchase of our common stock, which might depress the price of our
common stock.
WE HAVE ADOPTED A NUMBER OF ANTI-TAKEOVER MEASURES THAT MAY DEPRESS THE PRICE OF
OUR COMMON STOCK.
Our adoption of a stockholders' rights plan, our ability to issue up to
700,000 shares of preferred stock and some provisions of our certificate of
incorporation and bylaws and of Delaware law could make it more difficult for a
third party to make an unsolicited takeover attempt of us. These anti-takeover
measures may depress the price of our common stock by making third parties less
able to acquire us by offering to purchase shares of our stock at a premium to
its market price. Our board of directors can issue up to 700,000 shares of
preferred stock and determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by our stockholders. Our board of directors could issue the preferred
stock with voting, liquidation, dividend and other rights superior to the rights
of our common stock. The rights of holders of our common stock will be subject
to, and may be adversely affected by, the rights of holders of the share
purchase rights and of any preferred stock that may be issued in the future. The
issuance of preferred stock, while providing desirable flexibility in connection
with possible acquisitions and other corporate purposes, could make it more
difficult for a third party to acquire a majority of our outstanding voting
stock.
OURSALE OF SHARES TO ST. ANNES AT A PRICE BELOW THE MARKET PRICE OF OUR COMMON
STOCK WILL HAVE A DILUTIVE IMPACT ON OUR STOCKHOLDERS.
We have entered into a securities purchase agreement with St. Annes
Investments, Ltd. that allows us to sell to St. Annes up to $6,000,000 worth of
shares of our common stock at a discount to the then-prevailing market price of
our common stock. If the market price is $4.00 or less, St. Annes will receive a
discount equal to 14% of the market price, and if the market price is greater
than $4.00, St. Annes will receive a discount equal to 12% of the market price.
Additionally, we have agreed to issue to St. Annes as a fee shares of common
stock having an aggregate market price equal to 2% of the purchase price of the
shares of common stock that are issued and sold to St. Annes under the
securities purchase agreement. Accordingly, the issuance of shares under the
securities purchase agreement will have a dilutive impact on our stockholders.
As a result, our net income or loss per share could be materially impact future
periods, and the market price of our common stock could be materially and
adversely affected. As of March 10, 2000, we have sold 230,075 shares of our
common stock for gross proceeds of $1,000,000. We also have issued 4,049 shares
of our common stock to St. Annes as a fee.
The table below sets forth the number of shares and the percentages of our
common stock that St. Annes would own if we elected to sell the remaining
$5,000,000 worth of stock under the purchase agreement. The share amounts and
the percentages include 234,124 shares already issued to St. Annes under the
securities purchase agreement and shares St. Annes will receive as a fee under
the securities purchase agreement. The share amounts and the percentages are
based on our closing share price of $12.63 on March 10, 2000, and on assumed
closing share prices of $9.47, $6.32 and $3.16, which prices represent a 25%,
50% and 75% decline, respectively, in our March 10, 2000 closing share price.
The percentages are also based on 14,251,626 shares of our common stock
outstanding on March 10, 2000.
<TABLE>
<CAPTION>
PERCENTAGE DECLINE PERCENTAGE
IN ASSUMED OF
MARCH 10, 2000 CLOSING SHARES OF OUTSTANDING
CLOSING PRICE PRICE COMMON STOCK COMMON STOCK
-------------------- ------------ -------------- --------------
<S> <C> <C> <C>
-- $12.63 691,908 4.7%
25% $9.47 844,665 5.7%
50% $6.32 1,148,969 7.6%
75% $3.16 2,105,629 13.1%
</TABLE>
Page 9
<PAGE>
WE MAY NOT BE ABLE TO SELL THE ENTIRE $6,000,000 WORTH OF SHARES OF OUR COMMON
STOCK TO ST. ANNES WITHOUT OBTAINING STOCKHOLDER APPROVAL, WHICH MAY REQUIRE
THAT WE SEEK ALTERNATIVE SOURCES OF FINANCING THAT MAY NOT BE AVAILABLE ON
TERMS FAVORABLE TO US.
Under the rules of the American Stock Exchange, we cannot sell to St. Annes
under our securities purchase agreement more than 1,881,800 shares of common
stock unless we obtain stockholder approval of the issuance of shares in excess
of this amount. Accordingly, if the average price at which we sell our stock to
St. Annes under the securities purchase agreement is less than $3.19 per share,
we will not be able to sell the entire $6,000,000 worth of shares of our common
stock to St. Annes without first obtaining stockholder approval. If we are
unable to obtain stockholder approval, or if we choose not to pursue stockholder
approval, we may be required to seek alternative sources of financing to fund
our working capital requirements. We cannot guarantee that additional financing
will be available or that, if available, it can be obtained on terms favorable
to our stockholders and us.
DECREASES IN THE PRICE OF OUR COMMON STOCK COULD INCREASE SHORT SALES OF OUR
COMMON STOCK BY THIRD PARTIES, WHICH COULD RESULT IN FURTHER REDUCTIONS IN
THE PRICE OF OUR COMMON STOCK.
Our sales of common stock to St. Annes at a discount to the market price of
our common stock could result in reductions in the market price of our common
stock. Downward pressure on the price of our common stock could encourage short
sales of the stock by third parties. Material amounts of short selling could
place further downward pressure on the market price of the common stock. A short
sale is a sale of stock that is not owned by the seller. The seller borrows the
stock for delivery at the time of the short sale, and buys back the stock when
it is necessary to return the borrowed shares. If the price of the common stock
declines between the time the seller sells the stock and the time the seller
subsequently repurchases the common stock, then the seller sold the shares for a
higher price than he purchased the shares and may realize a profit.
Page 10
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains statements that constitute forward-looking
statements within the meaning of Section 21E of the Exchange Act of 1934 and
Section 27A of the Securities Act of 1933. The words "expect," "estimate,"
"anticipate," "predict," "believe" and similar expressions and variations
thereof are intended to identify forward-looking statements. Such statements
appear in a number of places in this prospectus and include statements regarding
our intent, belief or current expectations regarding our strategies, plans and
objectives, our product release schedules, our ability to design, develop,
manufacture and market products, our intentions with respect to strategic
acquisitions, and the ability of our products to achieve or maintain commercial
acceptance. Any forward-looking statements are not guarantees of future
performance and involve risks and uncertainties. Actual results may differ
materially from those projected in this prospectus, for the reasons, among
others, described in the Risk Factors section beginning on page 4. You should
read the Risk Factors section carefully, and should not place undue reliance on
any forward-looking statements, which speak only as of the date of this
prospectus. We undertake no obligation to release publicly any updated
information about forward-looking statements to reflect events or circumstances
occurring after the date of this prospectus or to reflect the occurrence of
unanticipated events.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of common
stock offered by the selling stockholder using this prospectus.
SELLING STOCKHOLDER
In December 1999, we entered into an agreement with Continental Capital &
Equity Corporation engaging Continental to provide public relations services. We
have paid Continental $10,000 under the agreement. Additionally, as payment for
$150,000 in services rendered by Continental under the Agreement, we issued
50,000 shares of our common stock to Continental pursuant to a stock purchase
agreement. Under the terms of the stock purchase agreement, if our agreement
with Continental is terminated on or prior to December 31, 2000, we have the
right to repurchase from Continental at a price of $.001 per share the portion
of the 50,000 shares that have not vested as of the termination date. The 50,000
shares vest as follows:
o 36,663 shares vest in eleven consecutive equal monthly installments of
3,333 shares each on the last day of the calendar month, with the
first installment vesting on January 31, 2000; and
o 13,337 shares vest on December 31, 2000.
Continental cannot sell or otherwise transfer any of the shares that have
not vested under the terms of the stock purchase agreement. We agreed to
register these shares on a Form S-3 registration statement for resale by
Continental or any other holders of the shares.
Pursuant to the terms of the marketing agreement, we also issued to
Continental a warrant to purchase up to 240,000 shares of our common stock at
the following purchase prices:
o 25,000 may be purchased at a price of $5.00 per share;
o 50,000 may be purchased at a price of $6.00 per share;
o 75,000 may be purchased at a price of $7.00 per share; and
o 90,000 may be purchased at a price of $8.00 per share.
Continental may not exercise the warrant and purchase any of the shares of
common stock until the warrant has vested. Of the 240,000 shares underlying the
warrant, 25% of the shares at each of the four purchase prices will vest on each
of April 1, 2000, July 1, 2000, October 1, 2000 and January 1, 2001, provided
that certain trading volume conditions have been satisfied as of the applicable
vesting date. We agreed to register all vested shares under the warrant on a
Form S-3 registration statement for resale by Continental or any other holders
of the shares.
Other than the transactions described above, the selling stockholder has
not had any material relationship with us within the last three years.
Page 11
<PAGE>
SELLING STOCKHOLDERS TABLE
The following table contains information about the selling stockholder's
beneficial ownership of our common stock as of March 10, 2000. On March 10,
2000, there were 14,251,626 shares of our common stock outstanding. We do not
know if, when, or in what amounts the selling stockholder will sell shares of
the common stock. Therefore, we cannot estimate how many shares the selling
stockholder will hold after completion of the offering.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED
PRIOR TO OFFERING
------------------- NUMBER OF
SHARES
NAME AND ADDRESS NUMBER PERCENT OFFERED
- ---------------- ------ ------- ----------
<S> <C> <C> <C>
Continental Capital & Equity Corporation ..... 50,000 *% 50,000
195 Wekiva Springs Road
Suite 200
Longwood , FL 32779
- --------------------
* Less than 1%.
</TABLE>
Page 12
<PAGE>
PLAN OF DISTRIBUTION
We are registering the shares of common stock on behalf of the selling
stockholder described in this prospectus. As used in this prospectus, the
selling stockholder includes donees and pledgees selling shares received after
the date of this prospectus from the selling stockholder named in this
prospectus.
We will pay substantially all the expenses incident to the registration,
offering and sale of the shares to the public by the selling stockholder other
than fees, discounts and commissions of underwriters, dealers or agents, if any,
transfer taxes and counsel fees. We also have agreed to indemnify the selling
stockholder and any underwriters against certain liabilities, including
liabilities under the Securities Act.
The shares may be offered and sold by the selling stockholder directly to
purchasers or through one or more underwriters, brokers, dealers or agents, in
one or more types of transactions:
o on the American Stock Exchange,
o in negotiated transactions,
o through put or call options relating to the shares,
o through short sales of shares, or
o a combination of such methods of sale, at market prices prevailing at
the time of sale, or at negotiated prices.
The selling stockholder may also pledge shares under loans, and upon a
default by the selling stockholder, the pledged shares might be sold using this
prospectus. The selling stockholder has advised us that it has not entered into
any agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of its securities, nor is there an underwriter
or coordinating broker acting in connection with the proposed sale of shares by
the selling stockholder.
The selling stockholder and any broker-dealers that act in connection with
the sale of shares might be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act, and any commissions received by the such
broker-dealers and any profit on the resale of the shares sold by them while
acting as principals might be deemed to be underwriting discounts or commissions
under the Securities Act. Because the selling stockholder may be deemed to an
underwriter within the meaning of Section 2(11) of the Securities Act, the
selling stockholder will be subject to the prospectus delivery requirements of
the Securities Act. We have informed the selling stockholder that the
anti-manipulative provisions of Regulation M promulgated under the Securities
Exchange Act may apply to its sales in the market.
If required, the following information will be set forth in an accompanying
prospectus supplement or, if appropriate, a post-effective amendment to the
registration statement:
o the specific shares to be sold,
o the name of the selling stockholder,
o the respective purchase prices and public offering prices,
o the names of any agent, dealer or underwriter, and
o any applicable commissions or discounts.
Page 13
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You can read and copy
these documents at the SEC's Public Reference Room, located at 450 Fifth Street,
NW, Room 1024, Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference room. Our SEC filings are also
available on the SEC's website at "http://www.sec.gov." You can also read our
SEC filings at the American Stock Exchange, 86 Trinity Plaza, New York, New
York.
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring to those documents. The information incorporated by reference is an
important part of this prospectus, and information that we file later with the
SEC will automatically update and supersede the information in this prospectus.
We incorporate by reference the documents listed below and any future filings
made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 until the selling stockholders sell all of the shares:
o Annual Report on Form 10-KSB for the year ended December 31, 1999.
o Description of our capital stock contained in our Registration
Statement on Form 8-A, filed on October 29, 1996, as amended by our
Registration Statement on Form 8-A/A, filed on November 20, 1996.
This prospectus is part of a registration statement we filed with the SEC.
You may request a copy of the above information incorporated by reference, at no
cost, by writing to or calling:
Michael Ozen
Chief Financial Officer
Brilliant Digital Entertainment, Inc.
6355 Topanga Canyon Boulevard, Suite 120
Woodland Hills, California 91367
(818) 615-1500
LEGAL MATTERS
Troop Steuber Pasich Reddick & Tobey, LLP, Los Angeles, California, has
rendered to Brilliant Digital Entertainment, Inc. a legal opinion as to the
validity of the common stock covered by this prospectus.
EXPERTS
The financial statements of Brilliant Digital Entertainment, Inc. as of December
31, 1999 and for each of the two years in the period ended December 31, 1999
incorporated in this prospectus by reference to the Annual Report on Form 10-KSB
of Brilliant Digital Entertainment, Inc. for the fiscal year ended December 31,
1999 have been incorporated in this prospectus in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on their authority as
experts in auditing and accounting.
Page 14
<PAGE>
- --------------------------------------------------------------------------------
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement to this prospectus. We have not
authorized anyone else to provide you with different information. The selling
stockholders should not make an offer of these shares in any state where the
offer is not permitted. You should not assume that the information in this
prospectus or any supplement to this prospectus is accurate as of any date other
than the date on the cover page of this prospectus or any supplement.
- --------------------------------------------------------------------------------
--------------------
BRILLIANT DIGITAL ENTERTAINMENT, INC.
PROSPECTUS
--------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table itemizes the expenses incurred by the Registrant in
connection with the offering. All the amounts shown are estimates except the
Securities and Exchange Commission registration fee.
<TABLE>
<CAPTION>
<S> <C>
Registration fee - Securities and Exchange Commission.. $ 109
Legal Fees and Expenses................................ 2,500
Accounting Fees and Expenses........................... 250
Miscellaneous Expenses................................. 500
---------
TOTAL........................................ $ 3,359
=========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Certificate of Incorporation and its Bylaws provide for
the indemnification by the Registrant of each director, officer and employee of
the Registrant to the fullest extent permitted by the Delaware General
Corporation Law, as the same exists or may hereafter be amended. Section 145 of
the Delaware General Corporation Law provides in relevant part that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe such person's conduct was
unlawful.
In addition, Section 145 provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper. Delaware law further provides that nothing
in the above described provisions shall be deemed exclusive of any other rights
to indemnification or advancement of expenses to which any person may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
The Registrant's Certificate of Incorporation provides that a director of
the Registrant shall not be liable to the Registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director. Section 102(o)(7)
of the Delaware General Corporation Law provides that a provision so limiting
the personal liability of a director shall not eliminate or limit the liability
of a director for, among other things: breach of the duty of loyalty; acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law; unlawful payment of dividends; and transactions from which
the director derived an improper personal benefit.
II-1
<PAGE>
The Registrant has entered into separate but identical indemnity agreements
(the "Indemnity Agreements") with each director of the Registrant and certain
officers of the Registrant (the "Indemnitees"). Pursuant to the terms and
conditions of the Indemnity Agreements, the Registrant indemnified each
Indemnitee against any amounts which he or she becomes legally obligated to pay
in connection with any claim against him or her based upon any action or
inaction which he or she may commit, omit or suffer while acting in his or her
capacity as a director and/or officer of the Registrant or its subsidiaries,
provided, however, that Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Registrant and, with respect to any criminal action, had no reasonable cause
to believe Indemnitee's Conduct was unlawful.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
<S> <C>
5.1 Opinion and Consent of Troop Steuber Pasich Reddick & Tobey, LLP.
10.1 Stock Purchase Agreement, dated as of January 1, 2000, between the
Registrant and Continental Capital & Equity Corporation.
23.1 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Troop Steuber Pasich Reddick & Tobey, LLP (included in
Exhibit
24.1 Power of Attorney (included on signature page).
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to include any material
information with respect to the plan of distribution not previously disclosed in
the Registration Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof; and
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities
II-2
<PAGE>
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of the appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and authorized this Registration Statement
to be signed on its behalf by the undersigned, in the City of Los Angeles, State
of California, on April 14, 2000.
BRILLIANT DIGITAL ENTERTAINMENT, INC.
By: /S/ MICHAEL OZEN
-------------------------------------
Michael Ozen, Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Mark
Dyne and Michael Ozen, and each of them, as his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him and his name, place and stead, in any and all capacities, to sign any or
all amendments (including post effective amendments) to this Registration
Statement and a new Registration Statement filed pursuant to Rule 462(b) of the
Securities Act of 1933 and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the foregoing, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either of them, or
their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/S/ MARK DYNE Chief Executive Officer and Chairman April 14, 2000
- ------------------------------ of the Board of Directors
Mark Dyne
/S/ KEVIN BERMEISTER President and Director April 14, 2000
- ------------------------------
Kevin Bermeister
/S/ MICHAEL OZEN Chief Financial Officer April 14, 2000
- ------------------------------ (Principal Financial and Accounting
Michael Ozen Officer) and Secretary
/S/ MARK MILLER Vice President, Operations and April 14, 2000
- ------------------------------ Production and Director
Mark Miller
/S/ DIANA MARANON Director April 14, 2000
- ------------------------------
Diana Maranon
/S/ RAY MUSCI Director April 14, 2000
- ------------------------------
Ray Musci
/S/ GARTH SALONER Director April 14, 2000
- ------------------------------
Garth Saloner
/S/ JEFF SCHEINROCK Director April 14, 2000
- ------------------------------
Jeff Scheinrock
</TABLE>
II-4
Exhibit 5.1
[Letterhead of Troop Steuber Pasich Reddick & Tobey, LLP]
April 14, 2000
Brilliant Digital Entertainment, Inc.
6355 Topanga Canyon Boulevard, Suite 120
Woodland Hills, CA 91367
Ladies/Gentlemen:
At your request, we have examined the Registration Statement on Form S-3
(the "Registration Statement") to which this letter is attached as Exhibit 5.1
filed by Brilliant Digital Entertainment, Inc., a Delaware corporation (the
"Company"), in order to register under the Securities Act of 1933, as amended
(the "Act"), 50,000 shares of Common Stock of the Company and any additional
shares of Common Stock of the Company which may be registered pursuant to Rule
462(b) under the Act (the "Shares").
We are of the opinion that the Shares have been duly authorized and are
legally and validly issued, fully paid and non-assessable.
We consent to the use of this opinion as an Exhibit to the Registration
Statement and to use of our name in the Prospectus constituting a part thereof.
Respectfully submitted,
/S/ TROOP STEUBER PASICH REDDICK & TOBEY, LLP
TROOP STEUBER PASICH
REDDICK & TOBEY, LLP
BRILLIANT DIGITAL ENTERTAINMENT, INC.
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made and entered as of
the 1st day of January, 2000, by and between Brilliant Digital Entertainment,
Inc., a Delaware corporation (the "Company"), and Continental Capital & Equity
Corporation, a Florida corporation ("Purchaser").
This Agreement is being entered into between the parties pursuant to that
certain Market Access Program Marketing Agreement, dated as of December 16,
1999, between the Company and Purchaser (the "Marketing Agreement"). In
consideration of the mutual covenants and agreements set forth in this Agreement
and in the Marketing Agreement, the parties to this Agreement agree as follows:
1. PURCHASE AND SALE OF SHARES. Purchaser hereby purchases from the
Company, and the Company hereby sells to Purchaser, 50,000 shares (the "Shares")
of the Company's common stock, par value $.001 per share (the "Common Stock").
2. PURCHASE PRICE. The aggregate purchase price for the Shares is $50.00
(or $.001 per share), which amount will be delivered to the Company currently
with the execution and delivery of this Agreement
3. RESTRICTIONS ON THE SHARES.
3.1 RESTRICTIONS ON TRANSFER OF SHARES. None of the Shares shall be
transferred (with or without consideration), sold, offered for sale, assigned,
pledged, hypothecated or otherwise disposed of (each a "Transfer"), and the
Company shall not be required to register any such Transfer and the Company may
instruct its transfer agent not to register any such Transfer, unless and until
all of the following events shall have occurred:
(a) The Shares are Transferred pursuant to and in conformity with
(i) (x) an effective registration statement filed with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Act of 1933,
as amended (the "Act"); or (y) an exemption from registration under the Act; and
(ii) the securities laws of any state of the United States; and
(b) Purchaser has, prior to the Transfer of such Shares, and if
requested by the Company, provided all relevant information to the Company's
counsel so that upon the Company's request, the Company's counsel is able to,
and actually prepares and delivers to the Company a written opinion that the
proposed Transfer is (i) (x) pursuant to a registration statement which has been
filed with the Commission and is then effective; or (y) exempt from registration
under the Act as then in effect, and the Rules and Regulations of the Commission
thereunder; and (ii) is either qualified or registered under any applicable
state securities laws, or exempt from such qualification or registration. The
Company shall bear all reasonable costs of preparing such opinion.
3.2 ADDITIONAL RESTRICTIONS ON TRANSFER OF NON-VESTED SHARES.
Purchaser agrees, for itself and for its heirs, successors and assigns, that
Purchaser shall have no right or power under any circumstance to Transfer any
interest in Shares which are "Non-Vested Shares," as determined by this Section
3.2, except to the Company. As used in this Agreement, "Vested Shares" means all
Shares which Purchaser has the right to Transfer at a specified point in time
and "Non-
<PAGE>
Vested Shares" means all Shares which Purchaser does not have the right to
Transfer at a specified point in time. The vesting schedule is set forth in
Section 3.3.
3.3 DETERMINATION OF VESTED SHARES. The Shares which shall be "Vested
Shares" shall be determined solely on the basis of the length of time that
Purchaser continues to provide services to the Company under the Marketing
Agreement, as follows:
(a) 36,663 Shares shall become Vested Shares in eleven
consecutive equal monthly installments of 3,333 Shares each on the last day of
the calendar month, with the first installment vesting on January 31, 2000, so
long as Purchaser has been providing and is continuing to provide services to
the Company under the Marketing Agreement on the last day of such calendar
month; and
(b) 13,337 Shares shall become Vested Shares on December 31,
2000, so long as Purchaser has been providing and is continuing to provide
services to the Company under the Marketing Agreement on December 31, 2000.
3.4 OBLIGATION TO RESELL SHARES. On the termination of Purchaser's
"engagement by the Company" (as defined in Section 3.5 below), for any reason,
whether with or without cause, the Company shall have the right to repurchase
from Purchaser and Purchaser shall be obligated to sell to the Company, all or
any of Purchaser's Non-Vested Shares at a purchase price of $.001 per share (the
"Repurchase Price"). Within 45 days of the date of the termination of
Purchaser's engagement by the Company, the Company shall deliver to Purchaser a
written notice specifying the number of Shares the Company desires to repurchase
under this Agreement, and the place, time and date (which in no event shall be
later than 30 days from the date of the Company's notice) of the closing of such
sale and purchase. At the closing, the Company agrees to deliver the Repurchase
Price to Purchaser for the number of Shares specified in the notice, and
Purchaser agrees to deliver to the Company a certificate or certificates
representing the number of Shares specified in the notice (except to the extent
all or any portion of such Shares are held in escrow pursuant to Section 3.6
below, in which case such Shares shall be delivered to the Company in accordance
with Section 3.6), together with collateral instruments of transfer executed in
blank.
3.5 ENGAGEMENT. Purchaser shall be considered to be in "ENGAGEMENT BY
THE COMPANY" while Purchaser is continuously engaged as an independent
contractor to the Company under the terms of the Marketing Agreement. This
Agreement shall not obligate the Company or any other entity to continue to
engage Purchaser as an independent contractor for any period of time. The term
of Purchaser's engagement by the Company as an independent contractor, and the
Company's and Purchaser's right to terminate that engagement, with or without
cause, shall be determined under the terms of the Marketing Agreement and not
this Agreement.
3.6 RETENTION OF SHARES IN ESCROW. Purchaser agrees that each
certificate representing the Shares issued to Purchaser hereunder, or deemed to
be issued to Purchaser hereunder, shall be delivered to Troop Steuber Pasich
Reddick & Tobey, LLP, counsel to the Company ("Troop"), to be held Troop in
escrow in accordance with the terms of this Section 3.6. Purchaser agrees to
execute in blank collateral instruments of transfer reasonably requested by the
Company to enable the Company to repurchase Non-Vested Shares in accordance with
the terms of this Agreement. The Company shall instruct Troop to hold the Shares
in escrow and to release the Shares upon written instructions executed by the
Company as follows:
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(a) Any Non-Vested Shares repurchased by the Company pursuant to
the terms of this Agreement shall be released from escrow and delivered to the
Company upon receipt by Troop of written instructions executed by the Company;
(b) 10,000 of the Shares shall not be deposited into escrow and
shall be delivered to Purchaser as soon as practicable following execution of
this Agreement;
(c) Provided that following Shares have not previously been
released from escrow and delivered to the Company pursuant to Section 3.6(a)
above, 10,000 of the Shares shall be released from escrow and delivered to
Purchaser upon receipt by Troop of written instructions executed by the Company
on each of April 1, 2000, July 1, 2000, October 1, 2000 and December 31, 2000.
Nothing in this Section 3.6 shall in any way affect the determination
of whether Shares are Vested Shares or Non-Vested Shares, and the parties
acknowledge that Shares may be released from escrow prior to the date upon which
such Shares become Vested Shares under the terms of this Agreement.
3.7 NON-COMPLYING TRANSFERS. Every attempted Transfer of any shares of
the Stock in violation of this Section 3 shall be null and void AB INITIO, and
of no force or effect.
4. LEGENDS ON STOCK CERTIFICATES. Purchaser agrees that the Company may
place on each certificate representing Shares legends in substantially the
following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR ANY STATE SECURITIES LAWS, HAVE BEEN TAKEN FOR INVESTMENT, AND
MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT REGISTRATION IS NOT REQUIRED."
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED
OF EXCEPT IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE REGISTERED HOLDER OF THIS CERTIFICATE, WHICH
AGREEMENT PROVIDES, AMONG OTHER THINGS, THAT THE COMPANY HAS A RIGHT
TO REPURCHASE THE SECURITIES EVIDENCED BY THIS CERTIFICATE. A COPY
OF THAT AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE
COMPANY."
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser has been
advised that the Common Stock has not been registered under the Act, nor
qualified under any state Blue Sky law, on the ground that no distribution or
public offering of the Common Stock is to be effected,
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and that in this connection the Company is relying in part on the
representations of Purchaser set forth in this Section 5. Purchaser represents
that:
5.1 INVESTMENT INTENT. Purchaser is acquiring the Shares solely for
its own account, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of the Shares, except pursuant to a
registration statement under the Act as contemplated by the Marketing Agreement.
5.2 ECONOMIC RISK. Purchaser is able to bear the economic risk of an
investment in the Shares acquired by it pursuant to this Agreement and can
afford to sustain a total loss on such investment.
5.3 SOPHISTICATION. Purchaser (i) has a preexisting personal or
business relationship with the Company or its officers and/or directors, and
(ii) is an experienced and sophisticated investor, is able to fend for itself in
the transactions contemplated by this Agreement, and has such knowledge and
experience in financial and business matters that it is capable of evaluating
the risks and merits of acquiring the Shares. Purchaser has had, during the
course of this transaction and prior to its purchase of the Shares, the
opportunity to ask questions of, and receive answers from, the Company and its
management concerning the Company and the terms and conditions of this
Agreement. Purchaser hereby acknowledges that it has received all such
information as it considers necessary for evaluating the risks and merits of
acquiring the Shares and for verifying the accuracy of any information furnished
to it or to which it had access.
5.4 ACCREDITED INVESTOR. Purchaser is an "accredited investor" for
purposes of Regulation D promulgated by the Commission under the Act.
6. GENERAL PROVISIONS.
6.1 FURTHER ASSURANCES. Purchaser shall promptly take all actions and
execute all documents requested by the Company which the Company deems to be
reasonably necessary to effectuate the terms and intent of this Agreement.
6.2 NOTICES. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be given to the parties
hereto as follows:
(a) If to the Company, to:
Brilliant Digital Entertainment, Inc.
6355 Topanga Canyon Blvd., Suite 120
Woodland Hills, CA 91367
Facsimile: (818) 712-0810
Attn: Chief Financial Officer
(b) If to Purchaser, to:
Continental Capital & Equity Corporation
195 Wekiva Springs Road, Suite 200
Longwood, FL 32779
Facsimile: (407) 682-2544
Attn:
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or at such other address or addresses as may have been furnished by either such
party in writing to the other party hereto. Any such notice request, demand or
other communication shall be effective (i) if given by mail, 72 hours after such
communication is deposited in the mail by certified or registered mail, return
receipt requested, postage pre-paid, addressed as aforesaid, or (ii) if given by
any other means, when delivered at the address specified in this Section 6.2.
6.3 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
6.4 GOVERNING LAW. THIS AGREMEENT IS MADE AND ENTERED INTO IN THE
STATE OF CALIFORNIA AND THE LAWS OF SAID STATE SHALL GOVERN THE VALIDITY AND
INTERPRETATION HEREOF AND THE PERFORMANCE BY THE PARTIES HERETO OF THEIR
RESPECTIVE DUTIES AND OBLIGATIONS HEREUNDER.
6.5 SEVERABILITY. Should any paragraph or any part of a paragraph
within this Agreement be rendered void, invalid or unenforceable by any Court of
law for any reason, such invalidity or unenforceability shall not void or render
invalid or unenforceable any other paragraph or part of a paragraph in this
Agreement.
6.6 ATTORNEY'S FEES. In the event that any action, suit or proceeding
is instituted upon any breach of this Agreement, the prevailing party shall be
paid by the other party thereto an amount equal to all of the prevailing party's
costs and expenses, including attorneys' fees incurred in each and every such
action, suit or proceeding (including any and all appeals or petitions
therefrom). As used in this Agreement, "attorneys' fees" shall mean the full and
actual cost of any legal services actually performed in connection with the
matter involved calculated on the basis of the usual fee charged by the attorney
performing such services and shall not be limited to "reasonable attorneys'
fees" as defined in any statute or rule of court.
6.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed as original but all of which
together shall constitute one and the same instrument.
6.8 MISCELLANEOUS. Title and captions contained in this Agreement are
inserted for convenience and reference only and do not constitute a part of this
Agreement for any purpose.
6.10 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder may be assigned, by operation of law or
otherwise, in whole or in part, by Purchaser without the prior written consent
of the Company.
6.9 ENTIRE AGREEMENT. This Agreement and the Marketing Agreement
constitute the full and entire understanding and agreement between the parties
with regard to the subject hereof and thereof.
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IN WITNESS WHEREOF, this Agreement has been executed by the parties with
the intent that it be effective as of the date first above written.
BRILLIANT DIGITAL ENTERTAINMENT, INC.
a Delaware corporation
By: /S/ MICHAEL OZEN
------------------------------
Michael Ozen
Its: Chief Financial Officer
CONTINTENTAL CAPITAL & EQUITY CORPORATION,
a Florida corporation
By: /S/ P. MANION
------------------------------
Its: PRESIDENT
-----------------------------
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Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Brilliant Digital Entertainment, Inc.
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated March 29, 2000, relating to the
financial statements, which appears in Brilliant Digital Entertainment, Inc.'s
Annual Report on Form 10-KSB for the year ended December 31, 1999. We also
consent to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
April 14, 2000
