As filed with the Securities and Exchange Commission on December 1, 1998
Registration No. 333-______
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BIG ENTERTAINMENT, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 65-0385686
- --------------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
2255 Glades Road, Suite 237 West Mitchell Rubenstein
Boca Raton, Florida 33431 Chief Executive Officer
(561) 998-8000 Big Entertainment, Inc.
- --------------------------------------- 2255 Glades Road, Suite 237 West
(Address, including zip code and Boca Raton, Florida 33431
telephone number, including area code, Telephone No. (561) 998-8000
of registrant's principal offices) Facsimile No. (561) 998-2974
---------------------------------------
(Name, address, including zip code, and
telephone number, including area code,
of agent for service)
COPIES OF COMMUNICATIONS TO:
Dale S. Bergman, P.A.
Nina S. Gordon, P.A.
Broad and Cassel
201 South Biscayne Boulevard
Suite 3000
Miami, Florida 33131
Telephone No. (305) 373-9400
Facsimile No. (305) 373-9443
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Approximate date of commencement of proposed sale to the public:
From time to time after this Registration Statement becomes effective.
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If the only securities being registered 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 delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SHARES AMOUNT TO OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED BE REGISTERED PER SHARE(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
Common Stock, 620,384(13) $3.4978 $2,169,979.16 $603.25
$.01 par value(2) shares
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Common Stock, 113,071(13) $4.6266 $523,134.29 $145.43
$.01 par value(3) shares
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Common Stock, 133,333(13) $5.00 $666,665.00 $185.33
$.01 par value(4) shares
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Common Stock, 167,517 $4.35 $728,698.95 $202.58
$.01 par value(5)(6) shares
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Common Stock, 112,345 $5.25625 $590,513.41 $164.16
$.01 par value(7)(6) shares
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Common Stock, 33,833 $5.625 $190,310.63 $52.91
$.01 par value(8)(6) shares
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Common Stock, 22,722 $6.75 $153,373.50 $42.64
$.01 par value(9)(6) shares
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Common Stock, 25,000 $5.175 $129,375.00 $35.97
$.01 par value(10)(6) shares
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Common Stock, 16,667 $6.255 $104,252.09 $28.98
$.01 par value(11)(6) shares
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Common Stock, 20,000 $7.00 $140,000.00 $38.92
$.01 par value(12) shares
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Total Fee: $1,500.17
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<FN>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Represents shares issuable upon the conversion of 200 outstanding shares
of the Company's 7% Series D Convertible Preferred Stock at a maximum
conversion price of $3.4978 per share.
(3) Represents shares issuable upon the conversion of 50 outstanding shares of
the Company's 7% Series D Convertible Preferred Stock at a maximum
conversion price of $4.6266 per share.
(4) Represents shares issuable upon the conversion of 50 outstanding shares of
the Company's 7% Series D-2 Convertible Preferred Stock at a maximum
conversion price of $5.00 per share.
(5) Represents shares issuable upon the exercise of a warrant issued by the
Company having an exercise price of $4.35 per share.
(6) Also includes such additional shares as may be issuable as a result of the
anti-dilution provisions of said warrant.
(7) Represents shares issuable upon the exercise of a warrant issued by the
Company having an exercise price of $5.25625 per share. Also includes such
additional shares as may be issuable as a result of the anti-dilution
provisions of said warrant.
(8) Represents shares issuable upon the exercise of a warrant issued by the
Company having a maximum exercise price of $5.625 per share. Also includes
such additional shares as may be issuable as a result of the anti-dilution
provisions of said warrant.
(9) Represents shares issuable upon the exercise of a warrant issued by the
Company having a maximum exercise price of $6.75 per share. Also includes
such additional shares as may be issuable as a result of the anti-dilution
provisions of said warrant.
(10) Represents shares issuable upon the exercise of a warrant issued by the
Company having a maximum exercise price of $5.175 per share. Also includes
such additional shares as may be issuable as a result of the anti-dilution
provisions of said warrant.
(11) Represents shares issuable upon the exercise of a warrant issued by the
Company having a maximum exercise price of $6.255 per share. Also includes
such additional shares as may be issuable as a result of the anti-dilution
provisions of said warrant.
(12) Represents shares issuable as dividends to the holder of the Company's 4%
$100 Series C Convertible Preferred Stock.
(13) In order to provide for (i) fluctuations in the market price of the Common
Stock, (ii) provisions for determining the conversion price of the Series
D and the Series D-2 Preferred Stock, and (iii) for shares of Common Stock
which may be issued in payment of dividends of the Series D and the Series
D-2 Preferred Stock, the aggregate number of shares of Common Stock
registered hereby exceeds the aggregate number of such shares issuable
upon conversion of shares of Series D and the Series D-2 Preferred Stock
at the respective conversion prices in effect on the date hereof. See
"Description of Securities."
</FN>
</TABLE>
This Registration Statement also includes an indeterminate number of
shares of Common Stock that may become issuable to prevent dilution resulting
from stock splits, stock dividends and conversion price or exercise price
adjustments, which are included pursuant to Rule 416 under the Securities Act of
1933, as amended.
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<PAGE>
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment 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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER 1, 1998
PROSPECTUS
1,264,872 SHARES
BIG ENTERTAINMENT, INC.
COMMON STOCK
This Prospectus relates to a total of 1,264,872 shares of Common Stock of Big
Entertainment, Inc., a Florida corporation ("Big Entertainment" or the
"Company"), consisting of: 733,455 shares of Common Stock issuable to the
holders of the outstanding shares of the Company's 7% Series D Convertible
Preferred Stock (the "Series D Preferred Stock") either upon conversion of the
Series D Preferred Stock or as dividends thereon; 133,333 shares of Common Stock
issuable to the holder of the outstanding shares of the Company's 7% Series D-2
Convertible Preferred Stock (the "Series D-2 Preferred Stock") either upon
conversion of the Series D-2 Preferred Stock or as dividends thereon; 378,084
shares of Common Stock issuable upon the exercise of warrants to purchase Common
Stock; and 20,000 shares of Common Stock to be issued as stock dividends to the
holder of the Company's 4% $100 Series C Convertible Preferred Stock (the
"Series C Preferred Stock"). The shares covered by this Prospectus may be sold
from time to time by the holders of the shares (the "Selling Shareholders"). The
Company is registering these shares pursuant to its commitments with the Selling
Shareholders to register them, and will pay the expenses of registering the
shares. The Company will not receive any proceeds from the sales of the shares,
but will receive approximately $1,896,500 from the exercise of the warrants if
the cashless exercise provisions of the warrants are not used.
The Selling Shareholders may from time to time sell all or a portion of
the offered shares in transactions in the over-the-counter market, on the Nasdaq
SmallCap Market, the Boston Stock Exchange, the Philadelphia Stock Exchange, or
on any other exchange on which the Company's Common Stock may then be listed.
These transactions may be privately negotiated or otherwise, at market prices
prevailing at the time of sale or other prices. The Selling Shareholders may
sell the shares to or through broker-dealers who may be paid through
underwriting discounts, concessions or commissions from the Selling Shareholders
and/or purchasers of the shares for acting as agents (and such compensation may
be in excess of customary commissions). The Selling Shareholders and any
participating broker-dealers may be deemed to be "underwriters" as defined in
the Securities Act of 1933, as amended (the "Securities Act"). Neither the
Company nor the Selling Shareholders can estimate at the present time the amount
of commissions or discounts, if any, that will be paid by the Selling
Shareholders on account of their sales of the shares. The Company will indemnify
the Selling Shareholders against certain liabilities, including certain
liabilities under the Securities Act. See "Plan of Distribution."
Big Entertainment's Common Stock is quoted on the Nasdaq SmallCap
Market under the symbol "BIGE" and is listed on the Boston and Philadelphia
Stock Exchanges under the symbol "BIG." On November 30, 1998, the last reported
sales price of Big Entertainment's Common Stock on the Nasdaq SmallCap Market
was $15.00 per share.
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YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 3
OF THIS PROSPECTUS.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED
WHETHER THIS PROSPECTUS IS COMPLETE OR ACCURATE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
YOU SHOULD ONLY RELY ON THE INFORMATION INCORPORATED BY REFERENCE OR PROVIDED IN
THIS PROSPECTUS OR ANY SUPPLEMENT. WE HAVE NOT AUTHORIZED ANYONE ELSE TO PROVIDE
YOU WITH DIFFERENT INFORMATION. THE COMMON STOCK IS NOT BEING OFFERED IN ANY
STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION IN THIS PROSPECTUS OR ANY SUPPLEMENT IS ACCURATE AS OF ANY DATE
OTHER THAN THE DATE ON THE FRONT OF THOSE DOCUMENTS.
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The date of this Prospectus is December ____, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
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BIG ENTERTAINMENT...........................................................1
FORWARD-LOOKING STATEMENTS..................................................3
RISK FACTORS................................................................3
USE OF PROCEEDS.............................................................9
SELLING SHAREHOLDERS.......................................................10
PLAN OF DISTRIBUTION.......................................................12
DESCRIPTION OF SECURITIES..................................................13
LEGAL MATTERS..............................................................16
EXPERTS....................................................................16
WHERE YOU CAN FIND MORE INFORMATION........................................17
<PAGE>
BIG ENTERTAINMENT
THIS IS ONLY A SUMMARY AND DOES NOT CONTAIN ALL THE INFORMATION THAT
MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE MORE DETAILED INFORMATION CONTAINED
LATER IN THIS PROSPECTUS AND ALL OTHER INFORMATION, INCLUDING THE FINANCIAL
INFORMATION AND STATEMENTS WITH NOTES, INCORPORATED BY REFERENCE INTO THIS
PROSPECTUS AS DISCUSSED IN THE "WHERE YOU CAN FIND MORE INFORMATION" SECTION OF
THIS PROSPECTUS.
GENERAL
Big Entertainment is a diversified entertainment company presently
engaged in the development and licensing of intellectual properties, the
development and licensing of books and the operation of entertainment-related
retail stores. Big Entertainment conducts these activities through the Company
and its subsidiaries, including 51%-owned Tekno Books as well as through a joint
venture known as NetCo Partners, in which the Company has a 50% ownership
interest.
The Company has just launched "WWW.BIGE.COM," which the Company intends
to be the world's largest online entertainment studio store selling licensed
branded merchandise from Hollywood studios, television networks, and popular
culture, although there can be no assurances that this goal will be achieved.
The Company's online Internet studio store will carry merchandise from more than
150 film and television titles and from popular culture. In addition,
"WWW.BIGE.COM" will be the exclusive movie merchandise store on "USATODAY.COM,"
one of the most frequently visited sites on the Internet, and on FILM.COM, a
part of Real Networks. The new Internet studio store is owned by the Company's
wholly-owned subsidiary, Big Online, Inc.
The Company has agreed to contribute its intellectual properties, but
not its online business, to a newly formed entity, Huge Entertainment. When this
transaction is completed, the Company will have a 51.75% ownership interest in
Huge Entertainment (on a pre-IPO basis). Plans are for Huge Entertainment to go
public in an IPO and for shareholders of Big Entertainment to receive shares in
Huge Entertainment, although there can be no assurances that these transactions
will be completed as planned. All of the Company's intellectual properties
activities will then be conducted through Huge Entertainment.
Until the Company completes the Huge Entertainment transaction, the
Company operates through three divisions: its intellectual properties division;
Big Online, Inc., the owner of "WWW.BIGE.COM" which has just begun operations;
and its entertainment retail division.
INTERNET E-COMMERCE STORE - "WWW.BIGE.COM." The new online store,
"WWW.BIGE.COM," has just been launched with a product line that includes branded
licensed merchandise from Hollywood studios, television networks, and popular
culture, such as Southpark, Wrestling, Rug Rats, Star Trek, and Teletubbies. The
Company has entered into an agreement with USA Today Information Network to be
the exclusive e-commerce movie merchandise store on the newspaper's frequently
visited (estimated 6 million visitors per month) web site "WWW.USATODAY.COM."
The Company's e-commerce web site will appear on usatoday.com's Homefront Page
as well as the Front Pages of the Movies, Entertainment and Life sections of
"WWW.USATODAY.COM." The owner of USA Today is Gannett Co., Inc., a shareholder
in the Company. The Company has also entered into an agreement to become the
movie merchandise store for "FILM.COM," a division of Real Networks and a
leading Internet site for film reviews and presentations of trailers and short
films. The Company is currently engaged in discussions to expand its e-commerce
presence with other major search engines and portal companies; such discussions
are presently ongoing and there can be no assurances that these discussions will
result in any definitive agreements or ventures for e-commerce merchandising.
THE INTELLECTUAL PROPERTIES DIVISION. The intellectual properties
division owns the exclusive rights to certain original characters and concepts
created by best-selling authors and media celebrities and it licenses such
rights across all media, including books, films and television, multi-media
software, toys and other products. The Company and NetCo Partners acquire the
rights to these intellectual properties pursuant to agreements that generally
grant them the exclusive rights to the intellectual properties and the right to
use the creator's name in the titles of the intellectual properties (such as
MICKEY SPILLANE'S MIKE DANGER and LEONARD NIMOY'S PRIMORTALS). The intellectual
properties division also includes a book development and book licensing
operation that develops and executes book projects, typically with best-selling
authors, and then licenses the books
-1-
<PAGE>
for publication with book publishers such as HarperCollins, Bantam Doubleday
Dell, Random House, Simon & Schuster, Viking Press and Warner Books.
THE ENTERTAINMENT RETAIL DIVISION. The entertainment retail division
operates a chain of retail studio stores and "Super/bullet/Kiosks" that sell
entertainment-related merchandise. In addition, the Company has an agreement
with The ABC Television Network, a division of The Walt Disney Company, under
which the entertainment retail division runs ABC video clips on the television
monitors in the Super/bullet/Kiosks in exchange for promotional and advertising
spots on ABC affiliate television stations. The Company has substantially
curtailed its traditional retail operations during 1998 and is currently
focusing on the operation of its new Internet-based retailing venture,
"WWW.BIGE.COM." See "Mall-based Retail Stores and Kiosks" in the "Risk Factors"
section of this Prospectus.
The executive offices of the Company are located at 2255 Glades Road,
Suite 237 West, Boca Raton, Florida 33431, and its telephone number is (561)
998-8000.
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<PAGE>
FORWARD-LOOKING STATEMENTS
The Company cautions you that certain important factors may affect its
actual results and could cause those results to differ materially from any
forward-looking statements made in this Prospectus or that are otherwise made by
or on behalf of the Company. "Forward-looking statements" are not based on
historical facts and are typically phrased using words such as "may," "will,"
"expect," "believe," "anticipate," "intend," "could," "estimate" or "continue"
and similar expressions or variations. Differences in actual results can be
caused by factors such as those discussed in the section captioned "Risk
Factors" below as well as those discussed elsewhere in this Prospectus and in
the Company's filings with the SEC.
RISK FACTORS
THE SHARES OFFERED ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
BEFORE INVESTING, YOU SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH BELOW AS
WELL AS THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS.
LIMITED OPERATING HISTORY. The Company began generating revenues and
emerged from the development stage in the fourth quarter of 1994. Accordingly,
the Company has a limited operating history from which to evaluate its
prospects. You must consider the Company's prospects in light of the numerous
risks, expenses, problems and difficulties typically encountered in connection
with the establishment of a business, the development and introduction of new
lines of business and products, and the competitive environment in which the
Company operates. The Company cannot assure you that it will be able to
successfully implement its current operating plan.
OPERATING LOSSES AND ACCUMULATED DEFICIT. The Company has incurred
significant net losses since its inception, including net losses of $2,995,347
and $6,655,609 for the years ended December 31, 1997 and 1996, respectively, and
$6,362,573 and $3,249,323 for the nine months ended September 30, 1998 and 1997,
respectively. The Company had accumulated deficits of $25,223,610 and
$21,992,633 at December 31, 1997 and 1996, respectively, and $31,773,334 and
$25,407,639 at September 30, 1998 and 1997, respectively.
The Company has made several modifications to its initial business plan
in an effort to reverse these ongoing losses. During 1997, the Company stopped
publishing comic books, an activity that required a substantial amount of
resources and was not profitable. Essentially all of the overhead associated
with comic book publishing was eliminated by the second quarter of 1997.
At the same time, the Company decided to expand its retail operations
and initiated this expansion with the development of three prototype in-line
retail stores which opened in the fourth quarter of 1997. The Company spent
substantial resources in developing the prototype in-line stores, including
professional fees and expenses incurred to design the new stores, the hiring of
additional field and administrative personnel, selection and acquisition of new
hardware and software for a new retail accounting and merchandising system to be
implemented, and other capital expenditures. During 1998, the Company further
evaluated its mall-based retail business, and closed 21 of its marginal kiosk
units. The Company also has curtailed its retail store expansion plans and
instead plans to focus its future efforts in the retail area on the operation of
its new e-commerce Internet studio store, "WWW.BIGE.COM." The Company is
currently attempting to sell its
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<PAGE>
remaining retail mall-based business, but plans to retain its e-commerce
Internet business. There can be no assurances, however, that the Company will be
able to accomplish these plans.
In addition, the Company continues to acquire and develop its base of
intellectual properties and negotiate additional licensing agreements. These
activities are not capital intensive but require a substantial amount of time
from its senior executives. While the Company believes these measures will
reverse operating losses, it cannot assure that the revenues generated by the
intellectual property, retail stores and its new e-commerce venture will offset
the associated expenses.
AVAILABILITY OF CASH AND WORKING CAPITAL. The Company's cash and cash
equivalents totaled $887,153 at December 31, 1997 and $1,675,852 at December 31,
1996. The Company had working capital deficit of $491,513 at December 31, 1997
compared to working capital of $1,285,093 at December 31, 1996. At September 30,
1998, the Company had cash and cash equivalents of $200,889 and a working
capital deficit of $373,113. The $3 million in gross proceeds from the issuance
of the Company's Series D and Series D-2 Convertible Preferred Stock were not
received until after September 30, 1998. During the year ended December 31,
1997, the Company used $4,012,481 of cash to fund its operating activities and
incurred a net loss of $2,995,347 during such period. Net cash used in operating
activities during the nine months ended September 30, 1998 was $3,625,395, and
the Company's net loss during such period was $6,362,573.
The long-term financial success of the Company depends on its ability
to generate enough revenue to offset operating expenses. The Company continues
to seek additional financing to fund its growth plan and for working capital.
This additional financing may result in dilution to the Company's shareholders.
Based on the Company's currently proposed plans and assumptions relating to its
operations, the Company believes that anticipated cash flows when combined with
other potential sources of capital will be enough to meet its working capital
requirements for approximately the next 12 months. If the Company's plans change
or its assumptions prove to be inaccurate, the Company may need to seek further
financing or curtail its operations. The Company cannot assure you that any
additional financing will be available or if available, that it will be on
favorable terms.
MALL-BASED RETAIL STORES AND KIOSKS. The success of the Company's
entertainment retail division depends on its ability to operate Big
Entertainment studio stores and kiosks profitably. The Company has closed 21
marginal kiosk locations to date in 1998 and currently has 15 mall-based retail
stores and kiosks in operation. The Company plans to close additional kiosk
locations after the 1998 holiday season, as the Company plans to focus its
retail activities through its new e-commerce Internet studio store,
"WWW.BIGE.COM." The Company has been evaluating the results of its studio store
and kiosk operations and has made modifications and curtailed operating and
administrative costs where appropriate. It is uncertain whether the Company will
be successful in the future operation of its mall-based studio stores and
kiosks, or whether these operations will be further curtailed or eliminated in
the future. The Company is currently marketing its retail operations for sale
(other than the Internet studio store, which the Company plans to retain),
although the Company cannot assure you that it will be able to sell the retail
operation for a price and on terms that will be attractive to the Company.
-4-
<PAGE>
COMPETITION. Competition is intense in the entertainment industry. In
the licensing market, the Company has numerous competitors, and many of them
have more financial resources than the Company. The Company's entertainment
retail division competes for sales with specialty stores and other retail
outlets offering entertainment merchandise. The Company's new e-commerce
Internet studio store, "WWW.BIGE.COM," competes for sales with numerous other
Internet-based retail businesses throughout the World Wide Web. The number of
web sites competing for consumers' attention and spending has increased and is
expected to continue to increase. The Company's e-commerce web site, like its
studio stores and kiosks, also compete with conventional store-based and catalog
retailers. Increased competition could result in price reductions, reduced
margins or inability to obtain sufficient market share to be successful, any of
which could adversely affect the Company's business. The Company cannot assure
that it will be able to compete successfully in any of these markets.
IMPACT OF THE YEAR 2000. The Year 2000 issue is the result of computer
programs and other business systems being written using two digits rather than
four to represent the year. Many of the time-sensitive applications and business
systems of the Company and its vendors may recognize a date using "00" as the
year 1900 rather than the Year 2000, which could result in system failure or
disruption of operations. The Year 2000 problem will impact the Company. An
assessment of the Year 2000 exposure has been made by the Company and the plans
to resolve the related issues are being implemented. The Company believes it
will be able to achieve Year 2000 compliance in a timely manner. The Company has
also made inquiries of significant vendors to ensure that the Company'
operations are not disrupted through these relationships and that the Year 2000
issues are resolved in a timely manner. The Company believes that it will
satisfactorily resolve all significant Year 2000 problems and that the related
costs will not be material. Estimates of Year 2000 related costs are based on
numerous assumptions, including the continued availability of certain resources,
the ability to correct all relevant applications and third party remediation
plans. There is no guarantee that the estimates will be achieved and actual
costs could differ materially from those anticipated.
LACK OF OPERATING HISTORY, POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
AND UNPREDICTABILITY OF FUTURE REVENUE RELATED TO E-COMMERCE. The Company's
e-commerce store division has only recently commenced operations and there is no
operating history from which to evaluate its prospects. As with the Company
overall, the e-commerce store division's prospects must be considered in light
of the numerous risks, expenses, problems and difficulties typically encountered
in establishing a new business and developing and introducing new products. The
Company's e-commerce store operating results may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside the
Company's control. These factors include but are not limited to the level of
Internet usage and traffic levels on the Company's web site, both of which can
fluctuate significantly as a result of various unpredictable events. Examples of
these events are the Company's ability to enter into or renew key agreements
such as the Company's recent agreement with USA Today Information Network, the
amount and timing of the Company's costs related to marketing efforts or other
initiatives, fees paid by the Company for distribution or other costs incurred
by the Company as it expands its operations, new products or services introduced
by the Company or the Company's competitors, technical difficulties or system
downtime affecting the Internet generally or the operation of the Company's web
site, and economic conditions specific to the Internet as well as general
economic conditions. Therefore, the
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<PAGE>
Company's operating results for any particular period may not be indicative of
future operating results.
SYSTEM RISKS. The Company's hardware and software used in its
e-commerce system, or that of its host and/or affiliates, could be damaged by
fire, floods, earthquakes, power loss, telecommunications failures, break-ins
and similar events. The Company's web site could also be affected by computer
viruses, electronic break-ins or other similar disruptive problems. These system
problems could have adverse effects on the Company's business. Insurance may not
adequately compensate the Company for any losses that may occur due to any
failures or interruptions in its systems. The Company does not presently have a
formal system disaster recovery plan.
The Company's web site must accommodate a high volume of traffic and
deliver frequently updated information. The Company's web site may experience
slower response times or decreased traffic for a variety of reasons. The
Company's web site could experience disruptions or interruptions in service due
to the failure or delay in transmissions over the Internet. In addition, the
Company's customers generally depend on Internet service providers, online
service providers and other web site operators for access to the Company's web
site. Such operators and providers have experienced significant outages in the
past, and could experience outages, delays and other difficulties due to system
failures unrelated to the Company's systems. Moreover, the World Wide Web's
infrastructure may not be able to support continued growth in its use. Any of
these problems could adversely affect the Company's business.
RISKS RELATING TO TECHNOLOGICAL CHANGE. E-commerce is characterized by
rapidly changing technology, evolving industry standards and frequent new
product announcements. To be successful, the Company must adapt to this rapidly
changing market by continually improving the performance, features and
reliability of its online services. The Company could also incur substantial
costs if it needs to modify its services or infrastructure in order to adapt to
these changes. The Company's business could be adversely affected if it incurs
significant costs without adequate results or cannot adapt to these changes.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES. There are currently few
laws or regulations that specifically regulate communications or commerce on the
Internet. However, laws and regulations may be adopted in the future that
address issues such as user privacy, pricing, and the characteristics and
quality of products and services. For example, although it was held
unconstitutional, the Telecommunications Act of 1996 prohibited the transmission
over the Internet of certain types of information and content. In addition,
several telecommunications carriers are seeking to have telecommunications over
the Internet regulated by the Federal Communications Commission ("FCC") in the
same manner as other telecommunications services and some local telephone
carriers have petitioned the FCC to regulate Internet service providers and
online services providers in a manner similar to long distance telephone
carriers. Any new laws or regulations relating to the Internet could adversely
affect the Company's business.
SECURITY RISKS. A significant barrier to electronic commerce and
communications over the World Wide Web has been the need for secure transmission
of confidential information as is necessary for transaction processing. Internet
usage could decline if any well-publicized compromise of security occurred. The
Company may incur additional costs to protect against the threat of security
breaches or to alleviate problems caused by such breaches. If a third person
were
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able to misappropriate the Company's users' personal information or credit card
information, the Company could be subjected to claims, litigation or other
potential liabilities.
DEPENDENCE ON RELATIONSHIPS WITH CREATORS. The success of the Company
depends in part on the Company entering into agreements with additional
best-selling authors and media celebrities to create intellectual properties.
The ability of the Company to do so depends in part upon personal relationships
with such persons by certain members of the Company's management. The Company
could be adversely affected by the loss of the services of one or more of such
persons, any adverse change in these relationships or the failure to continue to
develop such relationships.
TRADEMARKS AND PROPRIETARY RIGHTS. The Company's intellectual
properties are the principal assets of the Company's intellectual property
division. The Company has filed federal trademark registration applications for
its existing trademarks and files applications for trademark and copyright
protection for each of its intellectual properties. Although to date the Company
has approximately 30 U.S. registered trademarks and applications to register
additional trademarks are pending, there can be no assurance that any such
additional applications will be approved, or that the Company will have the
resources necessary to enforce its proprietary rights against infringement by
others. The Company could be adversely affected if it is unable to protect or
enforce its proprietary rights.
DEPENDENCE ON MANAGEMENT. Mitchell Rubenstein, the Company's Chairman
of the Board and Chief Executive Officer, and Laurie S. Silvers, the Company's
Vice Chairman and President, have been primarily responsible for the
organization of the Company and the development of its business. They have both
renewed their employment agreements with the Company, each for an additional
five-year term. Their employment agreements provide, among other things, that
the Company's termination of either of their agreements without "cause" will
also constitute a termination of the other agreement without "cause" (as defined
in such agreements), and that termination without cause entitles each to receive
his or her salary for the remainder of the original term of employment. The
Company is the beneficiary of $1,000,000 in key man insurance on the lives of
each of these executives, of which $500,000 per policy has been pledged to one
of the Company's senior creditors. The loss of the services of either of these
individuals would adversely affect the Company. The Company's future success
will also be dependent upon its ability to attract and retain other qualified
and creative management, administrative and other personnel.
DIVIDENDS. The Company has not paid any cash dividends on its Common
Stock since its inception. Dividends on the Company's Series A Preferred Stock
and Series B Preferred Stock are payable solely in shares of Common Stock. The
Company's outstanding Series C Preferred Stock accrues dividends at the annual
rate of 4%, payable in cash or in stock, and its outstanding Series D Preferred
Stock and the Series D-2 Preferred Stock accrue dividends at the annual rate of
7%, payable in cash or in stock at the time of conversion. The Company intends
to retain earnings remaining after payment of such cash dividends to finance the
development and expansion of its business.
TRADING MARKET FOR COMMON STOCK. The Company's Common Stock is quoted
on the Nasdaq SmallCap Market and the Boston and Philadelphia Stock Exchanges.
Historically there has been a relatively limited trading market for Big
Entertainment's Common Stock, and it is uncertain whether a more active trading
market for the Common Stock will develop or, if developed, that it would be
sustained.
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POTENTIAL VOLATILITY OF STOCK PRICE. The market price of the Common
Stock could be subject to significant fluctuation in response to the Company's
operating results and other factors, including general price fluctuations in
securities markets. From time to time the stock markets have experienced extreme
price and volume fluctuations. This volatility has had significant effects on
the market prices of securities issued by many companies, especially smaller
public companies, often for reasons unrelated to their operating performance.
SHARES ELIGIBLE FOR FUTURE SALE. As of the date of this Prospectus,
approximately 3,887,270 shares of Common Stock held by existing shareholders and
186,405 shares of Common Stock held in escrow constitute "restricted shares" as
defined in Rule 144 under the Securities Act, and may only be sold if such
shares are registered under the Securities Act or sold in accordance with Rule
144 or another exemption from registration under the Securities Act. Sales under
Rule 144 are subject to the satisfaction of certain holding periods, volume
limitations, manner of sale requirements, and the availability of current public
information about the Company. Substantially all of the Company's restricted
shares of Common Stock are either eligible for sale pursuant to Rule 144 or have
been registered under the Securities Act for resale by the holders, including
the Common Stock covered by this Prospectus, which will permit the sale of
registered shares of Common Stock in the open market or in privately negotiated
transactions without compliance with the requirements of Rule 144. The Company
is unable to estimate the amount, timing or nature of future sales of
outstanding Common Stock. Sales of substantial amounts of the Common Stock in
the public market may have an adverse effect on the market price thereof.
EFFECT OF OUTSTANDING OPTIONS, WARRANTS AND CONVERTIBLE SECURITIES. As
of the date of this Prospectus, the Company has outstanding options and warrants
to purchase an aggregate of 2,441,964 shares of Common Stock, 217,600 shares of
Series A Preferred Stock and 122,846 shares of Series B Preferred Stock, each
convertible into a like number of shares of Common Stock, 20,000 shares of
Series C Preferred Stock convertible into 500,000 shares of Common Stock, 250
shares of Series D Preferred Stock convertible into a maximum of 708,455 shares
of Common Stock and 50 shares of Series D-2 Preferred Stock convertible into a
maximum of 100,000 shares of Common Stock. As long as these options, warrants
and convertible securities remain unexercised or are not converted, the terms
under which the Company could obtain additional capital may be adversely
affected. Moreover, the holders of the options, warrants and convertible
securities may be expected to exercise or convert them at a time when the
Company would, in all likelihood, be able to obtain any needed capital by a new
offering of its securities on terms more favorable than those provided by these
securities.
ANTI-TAKEOVER PROVISIONS. The Company's Articles of Incorporation
authorize the issuance of "blank check" preferred stock with such designations,
rights and preferences as may be determined from time to time by the Company's
Board of Directors. Accordingly, the Board of Directors can, without shareholder
approval, issue shares of preferred stock with dividend, liquidation,
conversion, voting or other rights that could adversely affect the voting power
or other rights of the holders of the Company's Common Stock. Preferred stock
could also be issued to discourage, delay or prevent a change in control of the
Company, although the Company does not currently intend to issue any additional
series of its preferred stock.
The Company has adopted a Shareholders' Rights Plan and in September
1996 declared a dividend of one right (a "Right") for each outstanding share of
Common Stock. Each holder of a
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Right has the right to purchase from the Company one share of Common Stock at a
price of $25.00 per share upon the occurrence of specific events. See
"Description of Capital Stock -- Shareholders' Rights Plan." These Rights may
cause substantial dilution to a person or group that attempts to acquire the
Company in a manner or on terms not approved by the Board of Directors. The
Shareholders' Rights Plan is intended to encourage a person interested in
acquiring the Company to negotiate with, and to obtain the approval of, the
Board of Directors. The Shareholders' Rights Plan, however, may discourage a
future acquisition of the Company, including an acquisition in which
shareholders might otherwise receive a premium for their shares. As a result,
shareholders who might desire to participate in such a transaction may not have
the opportunity to do so.
Florida has enacted legislation that may deter or frustrate takeovers
of Florida corporations. The Florida Control Share Act generally provides that
shares acquired in excess of certain specified thresholds will not possess any
voting rights unless approved by a majority vote of a corporation's
disinterested shareholders. The Florida Affiliated Transactions Act generally
requires supermajority approval by disinterested shareholders of certain
specified transactions between a public corporation and holders of more than 10%
of the outstanding voting shares of the corporation (or their affiliates).
Florida law and the Company's Articles of Incorporation also authorize the
Company to indemnify the Company's directors, officers, employees and agents.
The Company has entered into agreements with each of its directors and certain
of its officers providing for indemnification to the fullest extent permitted by
law.
USE OF PROCEEDS
The Company will receive no proceeds from the sale of any of or all of
the shares being offered by the Selling Shareholders under this Prospectus, but
it will receive approximately $1,896,500 upon the exercise of the warrants for
which the underlying shares of Common Stock are being registered under this
Prospectus. The Company estimates it will spend approximately $20,000 in
connection with the registration of the offered shares.
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SELLING SHAREHOLDERS
The Selling Shareholders have not been employed by, held office in, or
had any other material relationship with the Company or any of its affiliates
within the past three years. The following table sets forth certain information
with respect to the ownership of the Company's Common Stock by the Selling
Shareholders as of the date of this Prospectus.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF COMMON STOCK
OWNERSHIP OF COMMON AFTER OFFERING
STOCK PRIOR TO OFFERING NUMBER OF (1)
------------------------------- SHARES OFFERED -------------------------------
NAME AND ADDRESS OF SELLING SHAREHOLDERS SHARES PERCENTAGE HEREBY SHARES PERCENTAGE
- ----------------------------------------- --------------- ------------ ---------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
KA Investments LDC 414,509(2) 4.999% 900,246(3) 0 *
c/o Deephaven Capital
Management LLC
1712 Hopkins Crossroads
Minnetonka, MN 55305
Mr. Zubair Kazi 164,626(4) 2% 169,626(3) 0 *
3671 Sunswept Drive
Studio City, CA 91604
Deephaven Opportunity 141,667(5) 2% 175,000(3) 0 *
Master Fund L.P.
c/o Deephaven Capital
Management LLC
1712 Hopkins Crossroads
Minnetonka, MN 55305
Auric Partners Limited 500,000(6) 6% 20,000(7) 500,000 6%
7575 East Fulton Road
Ada, MI 49355
<FN>
- -------------------------
* Less than 1%.
(1) Assumes that all shares offered hereby are sold under this offering and
that no other shares of Common Stock are acquired or disposed of by the
Selling Shareholders prior to the termination of this offering. Because
the Selling Shareholders may sell all, some or none of their shares or
may acquire or dispose of other shares of Common Stock, no reliable
estimate can be made of the aggregate number of shares that will actually
be sold under this offering or the number or percentage of shares of
Common Stock that the Selling Shareholders will actually own upon
completion of this offering.
(2) The terms of the Series D Preferred Stock restrict the ability of the
holders thereof to convert shares of the Series D Preferred Stock (and
receive shares of Common Stock in payment of dividends thereon) to the
extent that the number of shares of Common Stock beneficially owned by
them and their affiliates after such conversion exceeds 4.999% of the
then issued and outstanding shares of Common Stock following such
conversion. Subject to this limitation, the shares listed in this table
as being beneficially owned by KA Investments LDC consist of 600,384
shares of Common Stock issuable upon conversion of 200 outstanding shares
of the Company's Series D Preferred Stock at a maximum conversion price
of $3.4978 per share, 167,517 shares of Common Stock issuable upon the
exercise of a warrant having a maximum exercise price of $4.35 per share,
and 112,345 shares of Common Stock issuable upon the exercise of a
warrant having a maximum exercise price of $5.25625 per share. Because
the number of shares of Common Stock issuable as a result of the
foregoing is dependent in part upon the market price of the Common Stock
prior to the date of issuance, the actual number of shares of Common
Stock that will be issued to KA Investments LDC and, consequently, the
number of shares of Common Stock that will be beneficially owned by KA
Investments LDC, will fluctuate daily and cannot be determined at this
time.
(3) Represents shares of Common Stock issuable upon conversion in full of the
Preferred Stock, as payment of dividends thereunder and exercise in full
of the warrants. Because the actual number of shares of Common Stock
issuable as a result of the foregoing is dependent in part upon the
market price of the Common Stock prior to the date of issuance, the
actual number of shares of Common Stock that will be issued and,
consequently, offered for sale under this Registration Statement, cannot
be determined at this time. Accordingly, the Company has contractually
agreed to include herein the listed number of shares of Common Stock
issuable upon conversion of the Preferred Stock, payment of dividends
thereunder and upon exercise of the warrants.
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(4) Consists of 108,071 shares of Common Stock issuable upon conversion of 50
shares of the Company's Series D Preferred Stock at a maximum conversion
price of $4.6266 per share, 33,833 shares of Common Stock issuable upon
the exercise of a warrant having a maximum exercise price of $5.625 per
share, and 22,722 shares of Common Stock issuable upon the exercise of a
warrant having a maximum exercise price of $6.75 per share. The terms of
the Series D Preferred Stock restrict the ability of the holders thereof
to convert shares of the Series D Preferred Stock (and receive shares of
Common Stock in payment of dividends thereon) to the extent that the
number of shares of Common Stock beneficially owned by them and their
affiliates after such conversion exceeds 4.9999% of the then issued and
outstanding shares of Common Stock following such conversion.
(5) Consists of 100,000 shares of Common Stock issuable upon conversion of 50
outstanding shares of the Company's Series D-2 Preferred Stock at a
maximum conversion price of $5.00 per share, 25,000 shares of Common
Stock issuable upon the exercise of a warrant having a maximum exercise
price of $5.175 per share, and 16,667 shares of Common Stock issuable
upon the exercise of a warrant having a maximum exercise price of $6.255
per share. The terms of the Series D-2 Preferred Stock restrict the
ability of the holder thereof to convert shares of the Series D-2
Preferred Stock (and receive shares of Common Stock in payment of
dividends thereon) to the extent that the number of shares of Common
Stock beneficially owned by it and its affiliates after such conversion
exceeds 4.999% of the then issued and outstanding shares of Common Stock
following such conversion.
(6) Consists of shares of Common Stock issuable upon conversion of all 20,000
outstanding shares of the Company's Series C Preferred Stock.
(7) Consists of shares of Common Stock issuable as quarterly dividends on the
Company's Series C Preferred Stock.
</FN>
</TABLE>
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PLAN OF DISTRIBUTION
The Selling Shareholders, their pledgees, donees, transferees or other
successors-in-interest, may, from time to time, sell all or a portion of the
shares of Common Stock being registered hereunder in privately negotiated
transactions or otherwise, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such market prices or at
negotiated prices. The shares may be sold by the Selling Shareholders by one or
more of the following methods, without limitation: (a) block trades in which the
broker or dealer so engaged will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction, (b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus, (c) an exchange
distribution in accordance with the rules of the applicable exchange, (d)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers, (e) privately negotiated transactions, (f) short sales, (g) a
combination of any such methods of sale and (h) any other method permitted
pursuant to applicable law.
From time to time the Selling Shareholders may engage in short sales,
short sales against the box, puts and calls and other transactions in securities
of the Company or derivatives thereof, and may sell and deliver the shares in
connection therewith or in settlement of securities loans. If the Selling
Shareholders engage in such transactions, the applicable conversion price may be
affected. From time to time the Selling Shareholders may pledge their shares
pursuant to the margin provisions of its customer agreements with its brokers.
Upon a default by the Selling Shareholders, the brokers may offer and sell the
pledged shares from time to time.
In effecting sales, brokers and dealers engaged by the Selling
Shareholders may arrange for other brokers or dealers to participate in such
sales. Brokers or dealers may receive commissions or discounts from the Selling
Shareholders (or, if any such broker-dealer acts as agent for the purchaser of
such shares, from such purchaser) in amounts to be negotiated which are not
expected to exceed those customary in the types of transactions involved.
Broker-dealers may agree with the Selling Shareholders to sell a specified
number of such shares at a stipulated price per share, and to the extent such
broker-dealer is unable to do so acting as agent for a Selling Shareholder, to
purchase as principal any unsold shares at the price required to fulfill the
broker-dealer commitment to the Selling Shareholders. Broker-dealers who acquire
shares as principal may thereafter resell such shares from time to time in
transactions (which may involve block transactions and sales to and through
other broker-dealers, including transactions of the nature described above) in
the over-the-counter market or otherwise at prices and on terms then prevailing
at the time of sale, at prices then related to the then-current market price or
in negotiated transactions and, in connection with such resales, may pay to or
receive from the purchasers of such shares commissions as described above. The
Selling Shareholders may also sell the shares in accordance with Rule 144 under
the Securities Act, rather than pursuant to this Prospectus.
The Selling Shareholders and any broker-dealers or agents that
participate with the Selling Shareholders in sales of the shares may be deemed
to be "underwriters" within the meaning of the Securities Act in connection with
such sales. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
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Neither the Company nor the Selling Shareholders can estimate at the
present time the amount of commissions or discounts, if any, that will be paid
by the Selling Shareholders on account of their sales of the shares from time to
time.
Under the securities laws of certain states, the shares may be sold in
such states only through registered or licensed broker-dealers or pursuant to
available exemptions from such requirements. In addition, in certain states the
shares may not be sold therein unless the shares have been registered or
qualified for sale in such state or an exemption from such requirement is
available and is complied with.
The Company is required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements of counsel to the
Selling Shareholders. The Company has agreed to indemnify the Selling
Shareholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act. Although the Company will pay certain
expenses in connection with this offering, estimated to be approximately
$20,000, it will not pay for any underwriting commissions and discounts, if any,
or counsel fees or other expenses of the Selling Shareholders. The Selling
Shareholders have also agreed to indemnify the Company, its directors, officers,
agents and representatives against certain liabilities, including certain
liabilities under the Securities Act.
The Selling Shareholders and other persons participating in the
distribution of the shares offered hereby are subject to the applicable
requirements of Regulation M promulgated under the Exchange Act in connection
with sales of the shares.
DESCRIPTION OF SECURITIES
GENERAL
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, par value $.01 per share, and 1,000,000 shares of Preferred Stock,
par value $.01 per share. As of November 20, 1998, 7,875,674 shares of Common
Stock and an aggregate of 360,746 shares of Preferred Stock were outstanding,
and 186,405 shares of Common Stock were issued and held in escrow. The transfer
agent for the Common Stock is American Stock Transfer & Trust Company, New York,
New York.
COMMON STOCK
Each share of Common Stock entitles the holder to one vote on all
matters submitted to a vote of the shareholders. The holders of Common Stock are
entitled to receive dividends, when, as and if declared by the Board of
Directors, in its discretion, from funds legally available therefor. Upon
liquidation or dissolution of the Company, the holders of Common Stock are
entitled to share ratably in the assets of the Company, if any, legally
available for distribution to shareholders after the payment of all debts and
liabilities of the Company and the liquidation preference of any outstanding
shares of the Company's Preferred Stock. The Common Stock has no preemptive
rights and no subscription, redemption or conversion privileges. The Common
Stock does not have cumulative voting rights, which means that the holders of a
majority of the outstanding shares of Common Stock voting for the election of
directors will be able to elect all members of the Board of
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Directors. A majority vote will also be sufficient for other actions that
require the vote or concurrence of shareholders. All of the outstanding shares
of Common Stock are, and the shares to be sold in this offering will be, when
issued and paid for, fully paid and nonassessable.
PREFERRED STOCK
GENERAL. The Board of Directors has the authority to issue up to
1,000,000 shares of Preferred Stock in one or more series and to fix the number
of shares constituting any such series, the voting powers, designations,
preferences and relative participation, optional or other special rights and
qualifications, limitations or restrictions thereof, including the dividend
rights and dividend rate, terms of redemption (including sinking fund
provisions), redemption price or prices, conversion rights and liquidation
preferences of the shares constituting any series, without any further vote or
action by the shareholders. The issuance of Preferred Stock by the Board of
Directors could affect the rights of the holders of Common Stock. For example,
an issuance could result in a class of securities outstanding that would have
preferences with respect to voting rights and dividends, and in liquidation,
over the Common Stock, and could (upon conversion or otherwise) enjoy all of the
rights of Common Stock.
SERIES A PREFERRED STOCK. The Company has designated 217,600 shares of
Preferred Stock as the Company's Series A Variable Rate Convertible Preferred
Stock (the "Series A Preferred Stock"), all of which are issued and outstanding.
The Series A Preferred Stock has a stated value of $6.25 per share and accrues
non-cash dividends, payable quarterly in shares of Common Stock based on
prevailing market prices for the Common Stock. The dividends accrue on the
stated value of the outstanding shares of Series A Preferred Stock at a variable
rate equal to a specified bank prime rate (7.75% as of the date of this
Prospectus). The Series A Preferred Stock is convertible into a like number of
shares of Common Stock and it is redeemable at the Company's option for $7.1875
per share in cash. The holders of the Series A Preferred Stock will be entitled
to vote together with the holders of Common Stock on all matters, with each
share of Series A Preferred Stock having one vote. The Series A Preferred Stock
will have a liquidation preference of $7.1825 per share over the Common Stock.
The Company and certain holders of Common Stock (Mitchell Rubenstein, Laurie S.
Silvers, Martin H. Greenberg and Asbury Park Press, Inc.) agreed in connection
with the sale of the Series A Preferred Stock that the Company shall appoint one
nominee of Tekno Simon, LLC, the holder of all outstanding shares of the Series
A Preferred Stock, to the Company's Board of Directors and that these
shareholders shall vote their shares for election of such nominee to the
Company's Board of Directors. The current nominee is Deborah J. Simon, who was
appointed to the Board in November 1996.
SERIES B PREFERRED STOCK. The Company has designated 142,223 shares of
Preferred Stock as its Series B Variable Rate Convertible Preferred Stock (the
"Series B Preferred Stock") of which 122,846 shares are outstanding. The terms
of the Series B Preferred Stock are identical to those of the Series A Preferred
Stock, except that the stated value of the Series B Preferred Stock is $5.21 per
share.
SERIES C PREFERRED STOCK. The Company has designated 100,000 shares of
its Preferred Stock as Series C Preferred Stock, 20,000 of which shares are
issued and outstanding. Holders of Series C Preferred Stock are entitled to
quarterly dividends, payable in cash or common stock, at the annual rate of 4%.
The Series C Preferred Stock is convertible into an aggregate of 500,000 shares
of Common Stock and has a liquidation preference of $100 per share over the
Common Stock. The
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Series C Preferred Stock ranks junior to the Series A Preferred Stock and Series
B Preferred Stock as to payment of dividends and liquidation rights. Each share
of Series C Preferred Stock is entitled to one vote per share, together with the
holders of shares of the Company's Common Stock, Series A Preferred Stock and
Series B Preferred Stock, as a single class on all matters presented to a vote
of the Company's shareholders, except as otherwise expressly required by law.
SERIES D PREFERRED STOCK. The Company has designated 1,000 shares of its
Preferred Stock as Series D Preferred Stock, 250 shares of which are issued and
outstanding. Holders of Series D Preferred Stock are entitled to cumulative
dividends at the annual rate of 7% payable in cash or in shares of Common Stock
on each conversion date. Shares of Series D Preferred Stock are convertible by
the holder thereof into shares of Common Stock at a conversion price equal to
105% of the closing bid price as reported by NASDAQ for the five trading days
immediately preceding the closing of the sale of the preferred shares. Shares of
Series D Preferred Stock shall be automatically converted into shares of Common
Stock on the earlier to occur of (i) September 30, 2001, (ii) the third trading
day immediately preceding the closing of the first sale under a bona fide
underwritten initial public offering of the Common Stock of Huge Entertainment,
Inc. with net proceeds to Huge Entertainment, Inc. (or any successor of Huge
Entertainment, Inc.) of at least $10,000,000, or (iii) the 10th trading day
immediately preceding the closing of a transaction resulting in a change of
control of the Company. The terms of the Series D Preferred Stock restrict the
ability of the holders thereof to convert shares of the Series D Preferred Stock
(and receive shares of Common Stock in payment of dividends thereon) to the
extent that the number of shares of Common Stock beneficially owned by them and
their affiliates after such conversion exceeds 4.999% of the then issued and
outstanding shares of Common Stock following such conversion. The Company has
the option to redeem all or any portion of the shares of Series D Preferred
Stock that are outstanding at the time for a cash redemption price per share
which is equivalent to a 20% premium over the value that the holders of the
shares of said Preferred Stock would realize if the shares of Series D Preferred
Stock were converted into shares of Common Stock at the time of redemption. The
purchase agreements pursuant to which the outstanding shares of Series D
Preferred Stock were issued also provide for the contingent issuance of shares
of the Company's Common Stock to the holders of Series D Preferred Stock based
on the market value of the Company's Common Stock relative to the conversion
price on the 150th, 240th and 365th day following the closing. These
contingently issuable shares are to be issued if the average closing bid price
for the Company's Common Stock for the 10-day trading period preceding the dates
noted above is less than 116% of the conversion price in effect on the dates
noted above. Upon any liquidation, dissolution or winding up of the Company,
holders of Series D Preferred Stock are entitled to payment of the $10,000
stated value for each such share held plus all due but unpaid dividends before
any payment is made to holders of Common Stock. The Series D Preferred Stock
carries no voting rights, and ranks junior to the Series A, B and C Preferred
Stock.
SERIES D-2 PREFERRED STOCK. The Company has designated 50 shares of its
Preferred Stock as Series D-2 Preferred Stock, all 50 shares of which are issued
and outstanding. Holders of Series D-2 Preferred Stock are entitled to
cumulative dividends at the annual rate of 7% payable in cash or in shares of
Common Stock on each conversion date. Shares of Series D-2 Preferred Stock are
convertible by the holder thereof into shares of Common Stock at a conversion
ratio equal to a fraction, the numerator of which is aggregate stated value of
such shares of Series D-2 Preferred Stock plus accrued but unpaid dividends, and
the denominator of which is the conversion price at the time of conversion. The
conversion price is initially set at $5.00, based on the market price of the
Common Stock as of the date the transaction was agreed to. Shares of Series D-2
Preferred
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Stock shall be automatically converted into shares of Common Stock on the
earlier to occur of (i) November 18, 2001, (ii) the third trading day
immediately preceding the closing of the first sale under a bona fide
underwritten initial public offering of the Common Stock of Huge Entertainment,
Inc. with net proceeds to Huge Entertainment, Inc. (or any successor of Huge
Entertainment, Inc.) of at least $10,000,000, or (iii) the 10th trading day
immediately preceding the closing of a transaction resulting in a change of
control of the Company. The terms of the Series D-2 Preferred Stock restrict the
ability of the holders thereof to convert shares of the Series D-2 Preferred
Stock (and receive shares of Common Stock in payment of dividends thereon) to
the extent that the number of shares of Common Stock beneficially owned by them
and their affiliates exceeds 4.999% of the then issued and outstanding shares of
Common Stock following such conversion. The Company has the option to redeem all
or any portion of the shares of Series D-2 Preferred Stock that are outstanding
at the time for a cash redemption price per share which is equivalent to a 20%
premium over the value that the holders of the shares of said Preferred Stock
would realize if the shares of Series D-2 Preferred Stock were converted into
shares of Common Stock at the time of redemption. The purchase agreements
pursuant to which the outstanding shares of Series D-2 Preferred Stock were
issued also provide for the contingent issuance of shares of the Company's
Common Stock to the holders of Series D-2 Preferred Stock based on the market
value of the Company's Common Stock relative to the conversion price on the
150th, 240th and 365th day following the closing. These contingently issuable
shares are to be issued if the average closing bid price for the Company's
Common Stock for the 10-day trading period preceding the dates noted above is
less than 116% of the conversion price in effect on the dates noted above. Upon
any liquidation, dissolution or winding up of the Company, holders of Series D
Preferred Stock are entitled to payment of the $10,000 stated value for each
such share held plus all due but unpaid dividends before any payment is made to
holders of Common Stock. The Series D-2 Preferred Stock carries no voting
rights, and ranks junior to the Series A, B, C and D Preferred Stock.
LEGAL MATTERS
The validity of the Shares is being passed upon for the Company by
Broad and Cassel, a partnership including professional associations, 201 South
Biscayne Boulevard, Suite 3000, Miami, Florida 33131.
EXPERTS
The financial statements of the Company incorporated by reference in
this Prospectus from the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1997 have been audited by Arthur Andersen LLP, independent
certified public accountants, as indicated in their report with respect thereto,
and are incorporated herein in reliance upon the report of Arthur Andersen LLP
as experts in accounting and auditing.
-16-
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
The Company files annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any report
or document we file at the public reference facilities maintained by the SEC at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the SEC's
regional offices located at Seven World Trade Center, Suite 1300, New York, New
York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Please call the SEC at 1-800-SEC-0880 for more information about the public
reference rooms. Our SEC filings are also available from the SEC's website
located at HTTP://WWW.SEC.GOV.
Quotations for the prices of the Company's Common Stock appear on the
Nasdaq SmallCap Market, and reports, proxy statements and other information
about the Company can also be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006. Quotations also appear on the Boston and Philadelphia Stock Exchanges and
the previously mentioned information may be inspected at One Boston Place,
Boston, Massachusetts 02108, and 1900 Market Street, Philadelphia, Pennsylvania
19103, respectively.
The SEC allows companies to "incorporate by reference" the information
filed with it, which means that companies can disclose important information to
you by referring you to those documents. The information incorporated by
reference is considered to be part of this Prospectus, and later information
that the Company files with the SEC will automatically update and supersede this
information. The Company incorporates by reference the following filings 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 (the "Exchange Act"): the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1997 and the Company's
Quarterly Reports on Form 10-QSB for the quarterly periods ended March 31, 1998,
June 30, 1998 and September 30, 1998.
We have has filed with the SEC a Registration Statement on Form S-3
under the Securities Act with respect to the Common Stock covered by this
Prospectus. This Prospectus, which is a part of the Registration Statement, does
not contain all the information set forth in, or annexed as exhibits to, the
Registration Statement, as permitted by the SEC's rules and regulations. For
further information with respect to the Company and the Common Stock offered
under this Prospectus, please refer to the Registration Statement, including the
exhibits. Copies of the Registration Statement, including exhibits, may be
obtained from the SEC's public reference facilities listed above upon payment of
the fees prescribed by the SEC, or may be examined without charge at these
facilities. Statements concerning any document filed as an exhibit are not
necessarily complete and, in each instance, we refer you to the copy of the
document filed as an exhibit to the Registration Statement.
We will provide, without charge, to each person to whom a copy of this
Prospectus is delivered, upon request, a copy of any or all of the information
incorporated herein by reference. Exhibits to any of the documents, however,
will not be provided unless such exhibits are specifically incorporated by
reference into such documents. The requests should be addressed to: Mitchell
Rubenstein, Chief Executive Officer, Big Entertainment, Inc., 2255 Glades Road,
Suite 237 West, Boca Raton, Florida 33431, telephone number (561) 998-8000.
-17-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company estimates that its expenses in connection with this
registration statement will be as follows:
Securities and Exchange Commission registration fee..... $ 1,500.17
Legal fees and expenses................................. 10,000.00
Accounting fees and expenses............................ 5,000.00
Miscellaneous........................................... 3,499.83
--------
Total.......................................... $20,000.00
==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has authority under Section 607.0850 of the Florida
Business Corporation Act (the "FBCA") to indemnify its directors and officers to
the extent provided for in the FBCA. The Company's Amended and Restated Articles
of Incorporation provide that the Company shall indemnify and may insure its
officers and directors to the fullest extent permitted by law. The Company has
also entered into agreements with each of its directors and executive officers
wherein it has agreed to indemnify each of them to the fullest extent permitted
by law.
The provisions of the FBCA that authorize indemnification do not
eliminate the duty of care of a director, and in appropriate circumstances,
equitable remedies such as injunctive or other forms of nonmonetary relief will
remain available under Florida law. In addition, each director will continue to
be subject to liability for (a) violations of criminal laws, unless the director
had reasonable cause to believe his conduct was lawful or had no reasonable
cause to believe his conduct was unlawful, (b) deriving an improper personal
benefit from a transaction, (c) voting for or assenting to an unlawful
distribution, and (d) willful misconduct or conscious disregard for the best
interests of the Company in a proceeding by or in the right of the Company to
procure a judgment in its favor or in a proceeding by or in the right of a
shareholder. The statute does not affect a director's responsibilities under any
other law, such as the federal securities laws. The effect of the foregoing is
to require the Company to indemnify the officers and directors of the Company
for any claim arising against such persons in their official capacities if such
person acted in good faith and in a manner that he 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 his
conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
II-1
<PAGE>
Pursuant to certain registration rights agreements, each of the Company
and the Selling Shareholders has agreed to indemnify the others and their
directors, officers, agents and representatives (and with respect to the
indemnification by the Company, any underwriters) against certain civil
liabilities that may be incurred in connection with this offering, including
certain liabilities under the Securities Act.
ITEM 16. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
4.1 Articles of Incorporation of the Company, as amended.(1)
4.2 Articles of Amendment to Articles of Incorporation dated
November 25, 1998.
5.1 Opinion of Broad and Cassel.
10.1 Preferred Stock Purchase Agreement dated as of September 30,
1998.(1)
10.2 Preferred Stock Purchase Agreement dated as of November 6,
1998.(1)
10.3 Preferred Stock Purchase Agreement dated as of November 18,
1998.
23.1 Consent of Broad and Cassel (included in Exhibit 5.1 hereto).
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (included at Page II-4 of this Registration
Statement).
- ------------------------
(1) Incorporated by reference from the Company's Quarterly Report on Form
10-QSB for the quarterly period ended September 30, 1998.
ITEM 17. UNDERTAKINGS.
(a) RULE 415 OFFERING. The undersigned Registrant hereby
undertakes to:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section
10(a)(3) of the Securities Act.
(ii) Reflect in the prospectus any facts or
events which, individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total dollar value
of securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.
II-2
<PAGE>
(iii) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial BONA
FIDE offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(b) REQUEST FOR ACCELERATION OF EFFECTIVE DATE. 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 Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) FILINGS INCORPORATING SUBSEQUENT EXCHANGE ACT DOCUMENTS BY
REFERENCE. 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 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.
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 has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boca Raton, State of Florida, on this 1st day of
December, 1998.
BIG ENTERTAINMENT, INC.
By: /s/ MITCHELL RUBENSTEIN
------------------------------
Mitchell Rubenstein
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Mitchell Rubenstein his or her
true and lawful attorney-in-fact, each acting alone, with full powers of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments, including any
post-effective amendments, to this Registration Statement, and to file the same,
with exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact or his substitute, acting alone, 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 indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ MITCHELL RUBENSTEIN Chairman of the Board and Chief November 25, 1998
- --------------------------------- Executive Officer (Principal
MITCHELL RUBENSTEIN executive officer)
/s/ LAURIE S. SILVERS Vice Chairman of the Board and November 25, 1998
- --------------------------------- President
LAURIE S. SILVERS
/s/ MARCI L. YUNES Chief Financial Officer November 25, 1998
- --------------------------------- (Principal financial and
MARCI L. YUNES accounting officer)
Director November __, 1998
- ---------------------------------
LAWRENCE GOULD
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ MARTIN H. GREENBERG Director November 25, 1998
- ---------------------------------
MARTIN H. GREENBERG
/s/ HARRY T. HOFFMAN Director November 25, 1998
- ---------------------------------
HARRY T. HOFFMAN
Director November __, 1998
- ---------------------------------
E. DONALD LASS
/s/ JULES L. PLANGERE Director November 25, 1998
- ---------------------------------
JULES L. PLANGERE
Director November __, 1998
- ---------------------------------
DEBORAH J. SIMON
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX*
EXHIBIT DESCRIPTION
- ------- -----------
4.2 Articles of Amendment to Articles of Incorporation dated
November 25, 1998.
5.1 Opinion and Consent of Broad and Cassel.
10.3 Preferred Stock Purchase Agreement dated as of November 18,
1998.
23.2 Consent of Arthur Andersen LLP.
- ----------
* The other exhibits listed in Part II of this Registration Statement are
incorporated by reference as noted in Part II.
EXHIBIT 4.2
ARTICLES OF AMENDMENT
TO ARTICLES OF INCORPORATION
OF
BIG ENTERTAINMENT, INC.
FOR
DESIGNATION OF PREFERENCES, RIGHTS AND LIMITATIONS
OF 7% SERIES D-2 CONVERTIBLE PREFERRED STOCK
Pursuant to the provisions of Sections 607.0602 and 607.1006 of the
Florida Business Corporation Act, Big Entertainment, Inc. (the "Company"), a
corporation organized and existing under the Florida Business Corporation Act,
hereby adopts the following Articles of Amendment to its Articles of
Incorporation. The amendment was adopted by unanimous written consent of the
Board of Directors on September 30, 1998.
FIRST: DESIGNATION OF 7% SERIES D-2 CONVERTIBLE PREFERRED STOCK
Of the 1,000,000 shares of Preferred Stock, par value $.01 per share,
authorized pursuant to Article III of the Company's Articles of Incorporation,
50 of such shares are hereby designated as the 7% Series D-2 Convertible
Preferred Stock (the "Preferred Stock").
The powers, designations, preferences, and relative, participating,
optional or other special rights of the Preferred Stock authorized hereunder and
the qualifications, limitations and restrictions of such preferences and rights
are as set forth on Exhibit A hereto.
IN WITNESS WHEREOF, these Articles of Amendment to Articles of
Incorporation have been executed by the undersigned duly authorized officer of
the Company as of the 25th day of November, 1998.
BIG ENTERTAINMENT, INC.
By: /s/ MITCHELL RUBENSTEIN
------------------------------------
Mitchell Rubenstein, Chairman of the
Board and Chief Executive Officer
THIS DOCUMENT PREPARED BY:
NINA S. GORDON, P.A.
BROAD AND CASSEL
FLORIDA BAR NO. 435309
201 S. BISCAYNE BOULEVARD
SUITE 3000
MIAMI, FLORIDA 33131
(305) 373-9400
<PAGE>
EXHIBIT A
TERMS OF PREFERRED STOCK
Section 1. DESIGNATION, AMOUNT AND PAR VALUE. The series of
preferred stock shall be designated as 7% Series D-2 Convertible Preferred Stock
(the "PREFERRED STOCK") and the number of shares so designated shall be 50
(which shall not be subject to increase without the consent of the holders of
the Preferred Stock (each, a "HOLDER" and collectively, the "HOLDERS")); Each
share of Preferred Stock shall have a par value of $.01 and a stated value of
$10,000 (the "STATED VALUE"). The Preferred Stock ranks on parity with the
Company's currently issued and outstanding 7% Series D Convertible Preferred
Stock with respect to dividend, voting and liquidation rights.
Section 2. DIVIDENDS.
(a) Holders shall be entitled to receive, when and as declared
by the Board of Directors out of funds legally available therefor, and the
Company shall pay, cumulative dividends at the rate per share (as a percentage
of the Stated Value per share) equal to 7% per annum, payable on each Conversion
Date (as defined in Section 5(a)(i)), in cash or shares of Common Stock (as
defined in Section 9) at, subject to the terms and conditions set forth herein,
the option of the Company. Dividends on the Preferred Stock shall be calculated
on the basis of a 360-day year, shall accrue daily commencing on the Original
Issue Date (as defined in Section 9), and shall be deemed to accrue from such
date whether or not earned or declared and whether or not there are profits,
surplus or other funds of the Company legally available for the payment of
dividends. A party that holds shares of Preferred Stock on a Conversion Date
will be entitled to receive such dividend payment and any other accrued and
unpaid dividends which accrued prior to such Conversion Date, without regard to
any sale or disposition of such Preferred Stock subsequent to the applicable
record date. All overdue accrued and unpaid dividends and other amounts due
herewith shall entail a late fee at the rate of 18% per annum (to accrue daily,
from the date such dividend is due hereunder through and including the date of
payment). Except as otherwise provided herein, if at any time the Company pays
less than the total amount of dividends then accrued on account of the Preferred
Stock, such payment shall be distributed ratably among the Holders based upon
the number of shares held by each Holder. If dividends are paid in shares of
Common Stock, the number of shares of Common Stock issuable on account of such
dividend shall equal the cash amount of such dividend on such Conversion Date
divided by the Conversion Price (as defined below) on such date. Payment of
dividends hereunder in shares of Common Stock is subject to the provisions of
Section 5(a)(iii)(D).
(b) Notwithstanding anything to the contrary contained herein,
the Company may not issue shares of Common Stock in payment of dividends on the
Preferred Stock (and must deliver cash in respect thereof) if:
(i) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes is insufficient to pay such
dividends in shares of Common Stock;
<PAGE>
(ii) such shares of Common Stock are not either
registered for resale pursuant to an effective Underlying Securities
Registration Statement (as defined in Section 9) or may not be sold without
volume restrictions pursuant to Rule 144 promulgated under the Securities Act of
1933, as amended (the "SECURITIES ACT"), as determined by counsel to the Company
pursuant to a written opinion letter, addressed to the Company's transfer agent
in the form and substance acceptable to the Holders and such transfer agent;
(iii) the Common Stock is not then listed for trading
on the Nasdaq SmallCap Market ("NASDAQ") or on the New York Stock Exchange,
American Stock Exchange or the Nasdaq National Market (each a "SUBSEQUENT
MARKET");
(iv) the Company has failed to timely satisfy its
conversion obligations hereunder; or
(v) the issuance of such shares of Common Stock would
result in the recipient thereof beneficially owning, as determined in accordance
with Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), more than 4.999% of the then issued and
outstanding shares of Common Stock.
(c) Except for the Company's stock purchase program announced
in September, 1998, so long as any Preferred Stock shall remain outstanding,
neither the Company nor any subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities, nor shall the
Company directly or indirectly pay or declare any dividend or make any
distribution (other than a dividend or distribution described in Section 5)
upon, nor shall any distribution be made in respect of, any Junior Securities
(as defined in Section 9), nor shall any monies be set aside for or applied to
the purchase or redemption (through a sinking fund or otherwise) of any Junior
Securities or shares pari passu with the Preferred Stock.
Section 3. VOTING RIGHTS. Except as otherwise provided herein
and as otherwise required by law, the Preferred Stock shall have no voting
rights. However, so long as any shares of Preferred Stock are outstanding, the
Company shall not and shall cause its subsidiaries not to, without the
affirmative vote of the Holders of all of the shares of the Preferred Stock then
outstanding, (a) alter or change adversely the powers, preferences or rights
given to the Preferred Stock, (b) alter or amend these Articles of Amendment,
(c) authorize or create any class of stock ranking as to dividends or
distribution of assets upon a Liquidation (as defined in Section 4) senior to or
otherwise pari passu with or senior to the Preferred Stock, (d) amend its
Articles of Incorporation, bylaws or other charter documents so as to affect
adversely any rights of any Holders, (e) increase the authorized number of
shares of Preferred Stock, or (f) enter into any agreement with respect to the
foregoing.
Section 4. LIQUIDATION. Upon any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary (a "LIQUIDATION"),
the Holders shall be entitled to receive out of the assets of the Company,
whether such assets are capital or surplus, for each share of Preferred Stock an
amount equal to the Stated Value plus all due but unpaid dividends per share,
whether declared or not, before any distribution or payment shall be made to the
holders of any
2
<PAGE>
Junior Securities, and if the assets of the Company shall be insufficient to pay
in full such amounts, then the entire assets to be distributed to the Holders
shall be distributed among the Holders ratably in accordance with the respective
amounts that would be payable on such shares if all amounts payable thereon were
paid in full. A sale, conveyance or disposition of all or substantially all of
the assets of the Company or the effectuation by the Company of a transaction or
series of related transactions in which more than 33% of the voting power of the
Company is disposed of, or a consolidation or merger of the Company with or into
any other company or companies shall not be treated as a Liquidation, but
instead shall be subject to the provisions of Section 5. The Company shall mail
written notice of any such Liquidation, not less than 45 days prior to the
payment date stated therein, to each record Holder.
Section 5. CONVERSION.
(a)(i) CONVERSIONS AT OPTION OF HOLDER. Each share of
Preferred Stock shall be convertible into shares of Common Stock (subject to the
limitations set forth in Section 5(a)(iii) hereof) at the Conversion Ratio (as
defined in Section 9), at the option of the Holder, at any time and from time to
time, from and after December 31, 1998 (the "INITIAL CONVERSION DATE"). Holders
shall effect conversions by surrendering the certificate or certificates
representing the shares of Preferred Stock to be converted to the Company,
together with the form of conversion notice attached hereto as EXHIBIT A (a
"CONVERSION NOTICE"). Each Conversion Notice shall specify the number of shares
of Preferred Stock to be converted and the date on which such conversion is to
be effected, which date may not be prior to the date the Holder delivers such
Conversion Notice by facsimile (the "CONVERSION DATE"). If no Conversion Date is
specified in a Conversion Notice, the Conversion Date shall be the date that the
Conversion Notice is deemed delivered hereunder. If the Holder is converting
less than all shares of Preferred Stock represented by the certificate or
certificates tendered by the Holder with the Conversion Notice, or if a
conversion hereunder cannot be effected in full for any reason, the Company
shall promptly deliver to such Holder (in the manner and within the time set
forth in Section 5(b)) a certificate for such number of shares as have not been
converted.
(ii) AUTOMATIC CONVERSION. Subject to the provisions
in this paragraph, all outstanding shares of Preferred Stock for which
conversion notices have not previously been received or for which redemption has
not been made or required hereunder shall be automatically converted on the
earlier to occur of (i) November 18, 2001, (ii) the third (3rd) Trading Day
immediately preceding the closing of the first sale under a bona fide
underwritten initial public offering of the common stock of Huge Entertainment,
Inc. (or any successor thereto) with net proceeds to Huge Entertainment, Inc.
(or any successor thereto) of at least $10,000,000 or (iii) the tenth (10th)
Trading Day immediately preceding the closing of a Change of Control Transaction
(such date the "AUTOMATIC CONVERSION DATE"), at the Conversion Price on the
Automatic Conversion Date. The conversion contemplated by this paragraph shall
not occur if (a) either (1) an Underlying Securities Registration Statement is
not then effective or (2) the Holder is not permitted to resell Underlying
Shares pursuant to Rule 144(k) promulgated under the Securities Act, without
volume restrictions, as evidenced by an opinion letter of counsel acceptable to
the Holder and the transfer agent for the Common Stock; (b) there are not
sufficient shares of Common Stock authorized and reserved for issuance upon such
conversion; or (c) the Company shall have defaulted on its covenants and
obligations hereunder or under the Purchase Agreement or Registration Rights
3
<PAGE>
Agreement. Notwithstanding the foregoing, the period for conversion under this
Section shall be extended (on a day-for-day basis) and therefore the Automatic
Conversion Date shall be deemed to be the date which is the number of Trading
Days that the Purchaser is unable to resell Underlying Shares under an
Underlying Securities Registration Statement due to (a) the Common Stock not
being listed for trading on the NASDAQ or any Subsequent Market, (b) the failure
of an Underlying Securities Registration Statement to be declared effective by
the Securities and Exchange Commission (the "COMMISSION") by the Filing Date (as
defined in the Registration Rights Agreement), or (c) if an Underlying
Securities Registration Statement shall have been declared effective by the
Commission, (x) the failure of such Underlying Securities Registration Statement
to remain effective at all times thereafter as to all Underlying Shares, or (y)
the suspension of the Holder's ability to resell Underlying Shares thereunder
after the Automatic Conversion Date originally noted above.
(iii) CERTAIN CONVERSION RESTRICTIONS.
(A) The Holder agrees not to convert shares of
Preferred Stock to the extent such conversion would result in the Holder
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules thereunder) in excess of 4.999% of the then issued
and outstanding shares of Common Stock, including shares issuable upon
conversion of the shares of Preferred Stock held by such Holder after
application of this Section. To the extent that the limitation contained in this
Section applies, the determination of whether shares of Preferred Stock are
convertible (in relation to other securities owned by a Holder) and of which
shares of Preferred Stock are convertible shall be in the sole discretion of the
Holder, and the submission of shares of Preferred Stock for conversion shall be
deemed to be the Holder's determination of whether such shares of Preferred
Stock are convertible (in relation to other securities owned by the Holder) and
of which portion of such shares of Preferred Stock are convertible, in each case
subject to such aggregate percentage limitation, and the Company shall have no
obligation to verify or confirm the accuracy of such determination. Nothing
contained herein shall be deemed to restrict the right of the Holder to convert
shares of Preferred Stock at such time as such conversion will not violate the
provisions of this Section. The provisions of this Section will not apply to any
conversion pursuant to Section 5 (a)(ii) hereof, and may be waived by a Holder
(but only as to itself and not to any other Holder) upon not less than 75 days
prior notice to the Company (in which case, the Holder shall make such filings
with the Commission as are required by applicable law), and the provisions of
this Section shall continue to apply until such 75th day (or later, if stated in
the notice of waiver). Other Holders shall be unaffected by any such waiver.
(B) The Holder agrees not to convert shares of
Preferred Stock to the extent such conversion would result in the Holder
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules thereunder) in excess of 9.999% of the then issued
and outstanding shares of Common Stock, including shares issuable upon
conversion of the shares of Preferred Stock held by such Holder after
application of this Section. To the extent that the limitation contained in this
Section applies, the determination of whether shares of Preferred Stock are
convertible (in relation to other securities owned by a Holder) and of which
shares of Preferred Stock are convertible shall be in the sole discretion of the
Holder, and the submission of shares of Preferred Stock for conversion shall be
deemed to be the Holder's determination of whether
4
<PAGE>
such shares of Preferred Stock are convertible (in relation to other securities
owned by the Holder) and of which portion of such shares of Preferred Stock are
convertible, in each case subject to such aggregate percentage limitation, and
the Company shall have no obligation to verify or confirm the accuracy of such
determination. Nothing contained herein shall be deemed to restrict the right of
the Holder to convert shares of Preferred Stock at such time as such conversion
will not violate the provisions of this Section. The provisions of this Section
will not apply to any conversion pursuant to Section 5 (a)(ii) hereof, and may
be waived by a Holder (but only as to itself and not to any other Holder) upon
not less than 75 days prior notice to the Company (in which case, the Holder
shall make such filings with the Commission as are required by applicable law),
and the provisions of this Section shall continue to apply until such 75th day
(or later, if stated in the notice of waiver). Other Holders shall be unaffected
by any such waiver.
(C) Conversions of shares of Preferred Stock shall be
limited as follows: (1) from the Initial Conversion Date through the 30th day
thereafter, the Holder may convert up to 50% of shares of Preferred Stock issued
to it on the Original Issue Date; and (2) from and after the 30th day after the
Initial Conversion Date, no restrictions under this Section 5(a)(iii)(C) shall
apply to the shares of Preferred Stock which may be converted by a Holder.
(D) If on any Conversion Date (A) the Common Stock is
listed for trading on NASDAQ or the Nasdaq National Market, (B) the Conversion
Price then in effect is such that the aggregate number of shares of Common Stock
that would then be issuable upon conversion in full of all then outstanding
shares of Preferred Stock and as payment of dividends thereon in shares of
Common Stock, together with any shares of Common Stock previously issued upon
conversion of shares of Preferred Stock and as payment of dividends thereon,
would equal or exceed 20% of the number of shares of Common Stock outstanding on
the Original Issue Date (such number of shares as would not equal or exceed such
20% limit, the "ISSUABLE MAXIMUM"), and (C) the Company shall not have
previously obtained the vote of shareholders (the "SHAREHOLDER APPROVAL"), if
any, as may be required by the applicable rules and regulations of The Nasdaq
Stock Market (or any successor entity) applicable to approve the issuance of
shares of Common Stock in excess of the Issuable Maximum in a private placement
whereby shares of Common Stock are deemed to have been issued at a price that is
less than the greater of book or fair market value of the Common Stock, then the
Company shall issue to the Holder so requesting a conversion a number of shares
of Common Stock equals such Holder's pro rata portion of the Issuable Maximum
and, with respect to the remainder of the shares of Preferred Stock then held by
such Holder for which a conversion in accordance with the Conversion Price would
result in an issuance of Common Stock in excess of such Holder's pro rata
portion of the Issuable Maximum (the "EXCESS PRINCIPAL"), the converting Holder
shall have the option to require the Company to either (1) use its best efforts
to obtain the Shareholder Approval applicable to such issuance as soon as is
possible, but in any event not later than the 60th day after such request, or
(2)(i) issue and deliver to such Holder a number of shares of Common Stock as
equals (x) the Excess Principal, plus accrued dividends on all shares of
Preferred Stock being converted, divided by (y) the Conversion Price, and (ii)
cash in an amount equal to the product of (x) the Per Share Market Value on the
Conversion Date and (y) a number of shares of Common Stock as equals the Excess
Principal divided by the Conversion Price (such amount of cash being hereinafter
referred to as the "DISCOUNT EQUIVALENT"), or (3) pay cash to the converting
Holder in an amount equal to the Mandatory Redemption Amount for the shares of
Common Stock otherwise
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issuable on account of the Excess Principal. If the Company fails to pay the
Discount Equivalent or the Mandatory Redemption Amount, as the case may be, in
full pursuant to this Section within seven (7) days after the date payable, the
Company will pay interest thereon at a rate of 18% per annum to the converting
Holder, accruing daily from the Conversion Date until such amount, plus all such
interest thereon, is paid in full.
(b) (i) Not later than three (3) Trading Days after any
Conversion Date, the Company will deliver to the Holder (i) a certificate or
certificates which shall be free of restrictive legends and trading restrictions
(other than those required by Section 3.1(b) of the Purchase Agreement)
representing the number of shares of Common Stock being acquired upon the
conversion of shares of Preferred Stock (subject to the limitations set forth in
Section 5(a)(iii) hereof), (ii) one or more certificates representing the number
of shares of Preferred Stock not converted, (iii) a bank check in the amount of
accrued and unpaid dividends (if the Company has elected to pay accrued
dividends in cash), and (iv) if the Company has elected and is permitted
hereunder to pay accrued dividends in shares of Common Stock, certificates,
which shall be free of restrictive legends and trading restrictions (other than
those required by Section 3.1 (b) of the Purchase Agreement), representing such
shares of Common Stock; PROVIDED, HOWEVER, that the Company shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon conversion of any shares of Preferred Stock until certificates evidencing
such shares of Preferred Stock are either delivered for conversion to the
Company or any transfer agent for the Preferred Stock or Common Stock, or the
Holder of such Preferred Stock notifies the Company that such certificates have
been lost, stolen or destroyed and provides a bond (or other adequate security)
reasonably satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection therewith. The Company shall, upon request of the
Holder, if available, use its best efforts to deliver any certificate or
certificates required to be delivered by the Company under this Section
electronically through the Depository Trust Corporation or another established
clearing corporation performing similar functions. If in the case of any
Conversion Notice such certificate or certificates, including for purposes
hereof, any shares of Common Stock to be issued on the Conversion Date on
account of accrued but unpaid dividends hereunder, are not delivered to or as
directed by the applicable Holder by the third (3rd) Trading Day after the
Conversion Date, the Holder shall be entitled by written notice to the Company
at any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company shall
immediately return the certificates representing the shares of Preferred Stock
tendered for conversion.
(ii) If the Company fails to deliver to the Holder
such certificate or certificates pursuant to Section 5(b)(i), including for
purposes hereof, any shares of Common Stock to be issued on the Conversion Date
on account of accrued but unpaid dividends hereunder, by the third (3rd) Trading
Day after the Conversion Date, the Company shall pay to such Holder, in cash, as
liquidated damages and not as a penalty, $2,500 for each day after such third
(3rd) Trading Day until such certificates are delivered. Nothing herein shall
limit a Holder's right to pursue actual damages for the Company's failure to
deliver certificates representing shares of Common Stock upon conversion within
the period specified herein and such Holder shall have the right to pursue all
remedies available to it at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief. The exercise of any
such rights shall not prohibit the Holders
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from seeking to enforce damages pursuant to any other Section hereof or under
applicable law. Further, if the Company shall not have delivered any cash due in
respect of conversions of Preferred Stock or as payment of dividends thereon by
the third (3rd) Trading Day after the Conversion Date, the Holder may, by notice
to the Company, require the Company to issue Underlying Shares pursuant to
Section 5(c), except that for such purpose the Conversion Price applicable
thereto shall be the lesser of the Conversion Price on the Conversion Date and
the Conversion Price on the date of such Holder demand. Any such Underlying
Shares will be subject to the provision of this Section.
(iii) In addition to any other rights available to
the Holder, if the Company fails to deliver to the Holder such certificate or
certificates pursuant to Section 5(b)(i), including for purposes hereof, any
shares of Common Stock to be issued on the Conversion Date on account of accrued
but unpaid dividends hereunder, by the third (3rd) Trading Day after the
Conversion Date, and if after such third (3rd) Trading Day the Holder purchases
(in an open market transaction or otherwise) shares of Common Stock to deliver
in satisfaction of a sale by such Holder of the Underlying Shares which the
Holder anticipated receiving upon such conversion (a "BUY-IN"), then the Company
shall pay in cash to the Holder (in addition to any remedies available to or
elected by the Holder) the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (y) the aggregate stated value of the shares of Preferred
Stock for which such conversion was not timely honored. For example, if the
Holder purchases shares of Common Stock having a total purchase price of $11,000
to cover a Buy-In with respect to an attempted conversion of $10,000 aggregate
stated value of the shares of Preferred Stock, the Company shall be required to
pay the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
(c) (i) (A) The conversion price (the "CONVERSION PRICE") in
effect on any Conversion Date shall be $5.00.
(B) If: (a) an Underlying Securities Registration
Statement is not filed on or prior to the Filing Date (as defined in the
Registration Rights Agreement) (if the Company files such Underlying Securities
Registration Statement without affording the Holder the opportunity to review
and comment on the same as required by Section 3(a) of the Registration Rights
Agreement, the Company shall not be deemed to have satisfied this clause (a)),
or (b) the Company fails to file with the Commission a request for acceleration
in accordance with Rule 12d1-2 promulgated under the Exchange Act, within five
(5) days of the date that the Company is notified (orally or in writing,
whichever is earlier) by the Commission that an Underlying Securities
Registration Statement will not be "reviewed," or not subject to further review,
or (c) the Underlying Securities Registration Statement is not declared
effective by the Commission on or prior to the Effectiveness Date (as defined in
the Registration Rights Agreement), or (d) such Underlying Securities
Registration Statement is filed with and declared effective by the Commission
but thereafter ceases to be effective as to all Registrable Securities (as
defined in the Registration Rights Agreement) at any time prior to the
expiration of the "Effectiveness Period" (as defined in the Registration Rights
Agreement), without being succeeded within 15 days by an amendment to such
Underlying Securities Registration Statement or a subsequent Underlying
Securities Registration Statement filed with and declared effective by the
Commission, or (e) trading in the Common Stock shall be suspended from
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the NASDAQ or a Subsequent Market for more than three (3) Trading Days (which
need not be consecutive Trading Days), (f) the conversion rights of the Holders
are suspended for any reason or (g) an amendment to the Underlying Securities
Registration Statement is not filed by the Company with the Commission within 15
days of the Commission's notifying the Company that such amendment is required
in order for the Underlying Securities Registration Statement to be declared
effective (any such failure or breach being referred to as an "EVENT," and for
purposes of clauses (a), (c), (f) the date on which such Event occurs, or for
purposes of clause (b) the date on which such five (5) day period is exceeded,
or for purposes of clauses (d) and (g) the date which such 15 day-period is
exceeded, or for purposes of clause (e) the date on which such three (3) Trading
Day-period is exceeded, being referred to as "EVENT DATE"), then the Company
shall, on the first day of each monthly anniversary of the Event Date and until
such time as the applicable Event is cured, pay to the Holder 2.0% of the
aggregate Stated Value of the shares of Preferred Stock then held by such
Holder, in cash, as liquidated damages and not as a penalty. The provisions of
this Section are not exclusive and shall in no way limit the Company's
obligations under the Registration Rights Agreement.
(ii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall (a) pay a stock dividend or otherwise
make a distribution or distributions on shares of its Junior Securities or pari
passu securities payable in shares of Common Stock, (b) subdivide outstanding
shares of Common Stock into a larger number of shares, (c) combine outstanding
shares of Common Stock into a smaller number of shares, or (d) issue by
reclassification of shares of Common Stock any shares of capital stock of the
Company, the Conversion Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding before such
event and of which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this Section
5(c)(ii) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
(iii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall issue rights, warrants or options to all
holders of Common Stock entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the Per Share Market Value at the
record date mentioned below, then the Conversion Price shall be multiplied by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such rights, warrants or
options, plus the number of shares of Common Stock which the aggregate offering
price of the total number of shares so offered would purchase at such Per Share
Market Value, and the denominator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to such issuance plus the
number of shares of Common Stock offered for subscription or purchase. Such
adjustment shall be made whenever such rights or warrants are issued, and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants. However, upon the
expiration of any right, warrant or option to purchase shares of Common Stock
the issuance of which resulted in an adjustment in the Conversion Price pursuant
to this Section 5(c)(iii), if any such right, warrant or option shall expire and
shall not have been exercised, the Conversion Price shall immediately upon such
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expiration shall be recomputed and effective immediately upon such expiration
shall be increased to the price which it would have been (but reflecting any
other adjustments in the Conversion Price made pursuant to the provisions of
this Section 5 upon the issuance of other rights or warrants) had the adjustment
of the Conversion Price made upon the issuance of such rights, warrants, or
options been made on the basis of offering for subscription or purchase only
that number of shares of Common Stock actually purchased upon the exercise of
such rights, warrants or options actually exercised.
(iv) Except as contemplated by Schedule 2.1(c) to the
Purchase Agreement, if the Company or any subsidiary thereof, as applicable with
respect to Common Stock Equivalents (as defined below), at any time while any
shares of Preferred Stock are outstanding, shall, issue shares of Common Stock
or rights, warrants, options or other securities or debt that is convertible
into or exchangeable for shares of Common Stock ("COMMON STOCK EQUIVALENTS")
entitling any Person to acquire shares of Common Stock at a price per share less
than the Per Share Market Value on the Original Issue Date, then the Conversion
Price shall be multiplied by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to the issuance
of shares of Common Stock or such Common Stock Equivalents plus the number of
shares of Common Stock which the offering price for such shares of Common Stock
or Common Stock Equivalents would purchase at the Conversion Price, and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding immediately prior to such issuance plus the number of shares of
Common Stock so issued or issuable, provided, that for purposes hereof, all
shares of Common Stock that are issuable upon exercise or exchange of Common
Stock Equivalents shall be deemed outstanding immediately after the issuance of
such Common Stock Equivalents. Such adjustment shall be made whenever such
shares of Common Stock or Common Stock Equivalents are issued.
(v) If the Company, at any time while shares of
Preferred Stock are outstanding, shall distribute to all holders of Common Stock
(and not to Holders) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security (excluding those referred to
in Sections 5(c)(ii)-(iv) above), then in each such case the Conversion Price at
which each share of Preferred Stock shall thereafter be convertible shall be
determined by multiplying the Conversion Price in effect immediately prior to
the record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Per Share
Market Value of Common Stock determined as of the record date mentioned above,
and of which the numerator shall be such Per Share Market Value of the Common
Stock on such record date less the then fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed applicable
to one outstanding share of Common Stock as determined by the Board of Directors
in good faith; PROVIDED, HOWEVER, that in the event of a distribution exceeding
ten percent (10%) of the net assets of the Company, if the Holders of a majority
in interest of the Preferred Stock dispute such valuation, such fair market
value shall be determined by a nationally recognized or major regional
investment banking firm or firm of independent certified public accountants of
recognized standing (which may be the firm that regularly examines the financial
statements of the Company) (an "APPRAISER") selected in good faith by the
Company, subject to approval by the Holders of a majority in interest of the
shares of Preferred Stock then outstanding whose approval shall not be
unreasonably withheld or delayed. The adjustments shall be described in a
statement provided to the Holders of the portion of assets or evidences of
indebtedness so
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distributed or such subscription rights applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.
(vi) All calculations under this Section 5 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Conversion Price is adjusted
pursuant to Section 5(c)(ii),(iii),(iv), or (v) the Company shall promptly mail
to each Holder, a notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.
(viii) In case of any reclassification of the Common
Stock, or any compulsory share exchange pursuant to which the Common Stock is
converted into other securities, cash or property (other than compulsory share
exchanges which constitute Change of Control Transactions), the Holders of the
Preferred Stock then outstanding shall have the right thereafter to convert such
shares only into the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common Stock following such
reclassification or share exchange, and the Holders of the Preferred Stock shall
be entitled upon such event to receive such amount of securities, cash or
property as a holder of the number of shares of the Common Stock of the Company
into which such shares of Preferred Stock could have been converted immediately
prior to such reclassification or share exchange would have been entitled. This
provision shall similarly apply to successive reclassifications or share
exchanges.
(ix) If (a) the Company shall declare a dividend (or
any other distribution) on its Common Stock, (b) the Company shall declare a
special nonrecurring cash dividend on or a redemption of its Common Stock, (c)
the Company shall authorize the granting to all holders of the Common Stock
rights or warrants to subscribe for or purchase any shares of capital stock of
any class or of any rights, (d) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock of
the Company, any consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets of the Company, of
any compulsory share of exchange whereby the Common Stock is converted into
other securities, cash or property, or (e) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding up of the affairs
of the Company; then the Company shall cause to be filed at each office or
agency maintained for the purpose of conversion of Preferred Stock, and shall
cause to be mailed to the Holders at their last addresses as they shall appear
upon the stock books of the Company, at least 20 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange;
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PROVIDED, HOWEVER, that the failure to mail such notice or any defect therein or
in the mailing thereof shall not affect the validity of the corporate action
required to be specified in such notice. Holders are entitled to convert shares
of Preferred Stock during the 20-day period commencing the date of such notice
to the effective date of the event triggering such notice.
(d) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued Common Stock solely for
the purpose of issuance upon conversion of Preferred Stock and payment of
dividends on Preferred Stock, each as herein provided, free from preemptive
rights or any other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of Common Stock as shall (subject
to any additional requirements of the Company as to reservation of such shares
set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 5(a) and Section 5(c)) upon the
conversion of all outstanding shares of Preferred Stock and payment of dividends
hereunder. The Company covenants that all shares of Common Stock that shall be
so issuable shall, upon issue, be duly and validly authorized, issued and fully
paid, nonassessable and freely tradeable, subject to the legend requirements of
Section 3.1 (b) of the Purchase Agreement.
(e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of Common
Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Per Share Market Value at such time. If
the Company elects not, or is unable, to make such a cash payment, the Holder of
a share of Preferred Stock shall be entitled to receive, in lieu of the final
fraction of a share, one whole share of Common Stock.
(f) The issuance of certificates for shares of Common Stock on
conversion of Preferred Stock shall be made without charge to the Holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the Company
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of such shares of Preferred
Stock so converted and the Company shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
(g) Shares of Preferred Stock converted into Common Stock
shall be canceled. The Company may not reissue any shares of Preferred Stock.
(h) Any and all notices or other communications or deliveries
to be provided by the Holders of the Preferred Stock hereunder, including,
without limitation, any Conversion Notice, shall be in writing and delivered
personally, by facsimile or sent by a nationally recognized overnight courier
service, addressed to the attention of the Chief Executive Officer of the
Company at the facsimile telephone number or address of the principal place of
business of the Company as set forth in the Purchase Agreement. Any and all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile or sent by
a nationally recognized overnight courier service, addressed to each Holder at
the
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facsimile telephone number or address of such Holder appearing on the books of
the Company, or if no such facsimile telephone number or address appears, at the
principal place of business of the Holder. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the earliest of (i)
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to
8:00 p.m. (Minnetonka, Minnesota time), (ii) the date after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section later than 8:00 p.m.
(Minnetonka, Minnesota time) on any date and earlier than 11:59 p.m.
(Minnetonka, Minnesota time) on such date, (iii) upon receipt, if sent by a
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given.
Section 6. REDEMPTION UPON TRIGGERING EVENTS.
(a) Upon the occurrence of a Triggering Event, each Holder
shall (in addition to all other rights it may have hereunder or under applicable
law), has the right, exercisable at the sole option of such Holder, to require
the Company to redeem all or a portion of the Preferred Stock then held by such
Holder for a redemption price, in cash, equal to the sum of (i) the Mandatory
Redemption Amount plus (ii) the product of (A) the number of Underlying Shares
issued in respect of conversions or as payment of dividends hereunder and then
held by the Holder and (B) the Per Share Market Value on the date such
redemption is demanded or the date the redemption price hereunder is paid in
full, whichever is greater. If the Company fails to pay the redemption price
hereunder in full pursuant to this Section within seven (7) days after the date
of a demand therefor, the Company will pay interest thereon at a rate of 18% per
annum, accruing daily from such seventh day until the redemption price, plus all
such interest thereon, is paid in full. For purposes of this Section, a share of
Preferred Stock is outstanding until such date as the Holder shall have received
Underlying Shares upon a conversion (or attempted conversion) thereof.
A "Triggering Event" means any one or more of the following
events (whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgement, decree or order of
any court, or any order, rule or regulation of any administrative or
governmental body):
(i) the failure of an Underlying Securities
Registration Statement to be declared effective by the Commission on or prior to
the 180th day after the Original Issue Date;
(ii) if, during the Effectiveness Period, the
effectiveness of the Underlying Securities Registration Statement lapses for any
reason, or the Holder shall not be permitted to resell Registrable Securities
under the Underlying Securities Registration Statement;
(iii) the failure of the Common Stock to be listed
for trading on the NASDAQ or on a Subsequent Market or the suspension of the
Common Stock from trading on the NASDAQ or on a Subsequent Market, in either
case, for more than three (3) Trading Days (which need not be consecutive
Trading Days);
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(iv) the Company shall fail for any reason to deliver
certificates representing Underlying Shares issuable upon a conversion hereunder
that comply with the provisions hereof prior to the 12th day after the
Conversion Date or the Company shall provide notice to any Holder, including by
way of public announcement, at any time, of its intention not to comply with
requests for conversion of any Preferred Stock in accordance with the terms
hereof;
(v) an Event shall not have been cured to the
satisfaction of the Holder prior to the expiration of thirty (30) days from the
Event Date relating thereto (other than an Event resulting from a failure of an
Underlying Securities Registration Statement to be declared effective by the
Commission on or prior to the Effectiveness Date;
(vi) the Company shall fail for any reason to deliver
the certificate or certificates required pursuant to Section 5(b)(iii) or the
cash pursuant to a Buy-In within ten (10) days after notice is deemed delivered
hereunder; or
(vii) subject to the provisions set forth in the
Purchase Agreement, the Company shall fail to have available a sufficient number
of authorized and unreserved shares of Common Stock to issue to such Holder upon
a conversion hereunder.
Section 7. OPTIONAL REDEMPTION.
(a) The Company shall have the right, exercisable at any time
upon 10 Trading Days' notice (an "OPTIONAL REDEMPTION NOTICE") to the Holders of
the Preferred Stock given at any time after the Original Issue Date to redeem
all or any portion of the shares of Preferred Stock which have not previously
been converted or redeemed, at a price equal to the Optional Redemption Price
(as defined below), PROVIDED, that the Company shall not be entitled to deliver
an Optional Redemption Notice to the Holders if: (i) the number of shares of
Common Stock at the time authorized, unissued and unreserved for all purposes is
insufficient to satisfy the Company's conversion obligations of all shares of
Preferred Stock then outstanding, or (ii) the Underlying Shares then outstanding
are not registered for resale pursuant to an effective Underlying Securities
Registration Statement and may not be sold without volume restrictions pursuant
to Rule 144 promulgated under the Securities Act, as determined by counsel to
the Company pursuant to a written opinion letter, addressed to the Company's
transfer agent in the form and substance acceptable to the Holders and such
transfer agent, or (iii) the Common Stock is not then listed for trading on the
NASDAQ or a Subsequent Market. The entire Optional Redemption Price shall be
paid in cash. Holders may convert (and the Company shall honor such conversions
in accordance with the terms hereof) any shares of Preferred Stock, including
shares subject to an Optional Redemption Notice, during the period from the date
thereof through the 10th Trading Day after the receipt of an Optional Redemption
Notice.
(b) If any portion of the Optional Redemption Price shall not
be paid by the Company by the 10th Trading Day after the delivery of an Optional
Redemption Notice, interest shall accrue thereon at the rate of 18% per annum
until the Optional Redemption Price plus all such interest is paid in full. In
addition, if any portion of the Optional Redemption Price remains unpaid after
the date due, the Holder of the Preferred Stock subject to such redemption may
elect, by written
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notice to the Company given at any time thereafter, to either (i) demand
conversion of all or any portion of the shares of Preferred Stock for which such
Optional Redemption Price, plus interest thereof, has not been paid in full (the
"UNPAID REDEMPTION SHARES"), in which event the Per Share Market Value for such
shares shall be the lower of the Per Share Market Value calculated on the date
the Optional Redemption Price was originally due and the Per Share Market Value
as of the Holder's written demand for conversion, or (ii) invalidate AB INITIO
such redemption, notwithstanding anything herein contained to the contrary. If
the Holder elects option (i) above, the Company shall within three (3) Trading
Days of its receipt of such election deliver to the Holder the shares of Common
Stock issuable upon conversion of the Unpaid Redemption Shares subject to such
Holder conversion demand and otherwise perform its obligations hereunder with
respect thereto; or, if the Holder elects option (ii) above, the Company shall
promptly, and in any event not later than three (3) Trading Days from receipt of
Holder's notice of such election, return to the Holder all of the Unpaid
Redemption Shares.
(c) The "OPTIONAL REDEMPTION PRICE" shall equal the sum of (i)
the product of (A) the number of shares of Preferred Stock to be redeemed and
(B) the product of (1) 120% of the average Per Share Market Value for the five
(5) Trading Days immediately preceding (x) the date of the Optional Redemption
Notice or (y) the date of payment in full by the Company of the Optional
Redemption Price, whichever is greater, and (2) the Conversion Ratio calculated
on the date of the Optional Redemption Notice, and (ii) all other amounts,
costs, expenses and liquidated damages due in respect of such shares of
Preferred Stock.
SECTION 8. [INTENTIONALLY OMITTED]
Section 9. DEFINITIONS. For the purposes hereof, the following
terms shall have the following meanings:
"CHANGE OF CONTROL TRANSACTION" means the occurrence of any of
(i) an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act),
other than an acquisition after the date hereof by any existing shareholder of
the Company who owns more than 7% of the voting securities of the Company as of
the Original Issue Date, of in excess of 33% of the voting securities of the
Company, (ii) a replacement of more than one-half of the members of the
Company's board of directors which is not approved by those individuals who are
members of the board of directors on the date hereof in one or a series of
related transactions, (iii) the merger of the Company with or into another
entity, consolidation or sale of all or substantially all of the assets of the
Company in one or a series of related transactions, unless following such
transaction, the holders of the Company's securities continue to hold at least
66% of such securities following such transaction or (iv) the execution by the
Company of an agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth above in (i), (ii) or (iii).
"COMMON STOCK" means the Company's common stock, par value
$.01 per share, and stock of any other class into which such shares may
hereafter have been reclassified or changed.
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"CONVERSION RATIO" means, at any time, a fraction, the
numerator of which is Stated Value plus accrued but unpaid dividends (including
any accrued but unpaid late fees thereon) but only to the extent not paid in
shares of Common Stock in accordance with the terms hereof, and the denominator
of which is the Conversion Price at such time.
"JUNIOR SECURITIES" means the Common Stock and all other
equity securities of the Company which are junior in rights and liquidation
preference to the Preferred Stock.
"MANDATORY REDEMPTION AMOUNT" for each share of Preferred
Stock means the sum of (i) the greater of (A) 115% of the Stated Value and all
accrued dividends with respect to such share, and (B) the product of (a) the Per
Share Market Value on the Trading Day immediately preceding (x) the date of the
Triggering Event or the Conversion Date, as the case may be, or (y) the date of
payment in full by the Company of the applicable redemption price, whichever is
greater, and (b) the Conversion Ratio calculated on the date of the Triggering
Event, or the Conversion Date, as the case may be, and (ii) all other amounts,
costs, expenses and liquidated damages due in respect of such shares of
Preferred Stock.
"ORIGINAL ISSUE DATE" shall mean the date of the first
issuance of any shares of the Preferred Stock regardless of the number of
transfers of any particular shares of Preferred Stock and regardless of the
number of certificates which may be issued to evidence such Preferred Stock.
"PER SHARE MARKET VALUE" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the NASDAQ or on
such Subsequent Market on which the Common Stock is then listed or quoted, or if
there is no such price on such date, then the closing bid price on the NASDAQ or
on such Subsequent Market on which the Common Stock is then listed or quoted on
the date nearest preceding such date, or (b) if the Common Stock is not then
listed or quoted on the NASDAQ or on a Subsequent Market, the closing bid price
for a share of Common Stock in the over-the-counter market, as reported by the
National Quotation Bureau Incorporated or similar organization or agency
succeeding to its functions of reporting prices) at the close of business on
such date, or (c) if the Common Stock is not then reported by the National
Quotation Bureau Incorporated (or similar organization or agency succeeding to
its functions of reporting prices), then the average of the "Pink Sheet" quotes
for the relevant conversion period, as determined in good faith by the Holder,
or (d) if the Common Stock is not then publicly traded the fair market value of
a share of Common Stock as determined by an Appraiser selected in good faith by
the Holders of a majority of the shares of the Preferred Stock.
"PERSON" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"PURCHASE AGREEMENT" means the Convertible Preferred Stock
Purchase Agreement, dated as of November 18, 1998, between the Company and the
original Holder of the Preferred Stock.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of November 18, 1998, between the Company and the original
Holder of the Preferred Stock.
15
<PAGE>
"TRADING DAY" means (a) a day on which the Common Stock is
traded on the NASDAQ or on such Subsequent Market on which the Common Stock is
then listed or quoted, or (b) if the Common Stock is not listed on the NASDAQ or
on a Subsequent Market, a day on which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (c) if the
Common Stock is not quoted on the OTC Bulletin Board, a day on which the Common
Stock is quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
its functions of reporting prices); PROVIDED, HOWEVER, that in the event that
the Common Stock is not listed or quoted as set forth in (a), (b) and (c)
hereof, then Trading Day shall mean any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"UNDERLYING SECURITIES REGISTRATION STATEMENT" means a
registration statement that meets the requirement of the Registration Rights
Agreement and registers the resale of all Underlying Shares by the recipient
thereof, who shall be named as a "selling stockholder" thereunder.
"UNDERLYING SHARES" means, collectively, the shares of Common
Stock into which the shares of Preferred Stock are convertible and the shares of
Common Stock issuable upon payment of dividends thereon in accordance with the
terms hereof.
16
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to convert shares of Preferred Stock)
The undersigned hereby elects to convert the number of shares of 7% Series D-2
Convertible Preferred Stock indicated below, into shares of Common Stock, par
value $.01 per share (the "COMMON STOCK"), of Big Entertainment, Inc. (the
"COMPANY") according to the conditions hereof, as of the date written below. If
shares are to be issued in the name of a person other than undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the Holder for
any conversion, except for such transfer taxes, if any.
Conversion calculations:
___________________________________________________
Date to Effect Conversion
___________________________________________________
Number of Shares of Preferred Stock to Be Converted
___________________________________________________
Number of Shares of Common Stock to Be Issued
___________________________________________________
Applicable Conversion Price
___________________________________________________
Signature
___________________________________________________
Name
___________________________________________________
Address
EXHIBIT 5.1
BROAD AND CASSEL
ATTORNEYS AT LAW
BOCA RATON . FT. LAUDERDALE . MIAMI . ORLANDO . TALLAHASSEE . TAMPA .
WEST PALM BEACH
SUITE 3000
MIAMI CENTER
201 SOUTH BISCAYNE BOULEVARD
MIAMI, FLORIDA 33131
(305) 373-9400
FAX (305) 373-9443
December 1, 1998
Big Entertainment, Inc.
2255 Glades Road, #237W
Boca Raton, Florida 33431-7383
Re: Big Entertainment, Inc. (the "Company")
REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
You have requested our opinion with respect to the shares of the
Company's common stock, par value $.01 per share (the "Common Stock"), included
in the Registration Statement on Form S-3 (the "Form S-3") filed with the U.S.
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended (the "Securities Act").
As counsel to the Company, we have examined the original or certified
copies of such records of the Company, and such agreements, certificates of
public officials, certificates of officers or representatives of the Company and
others, and such other documents as we deem relevant and necessary for the
opinions expressed in this letter. In such examination, we have assumed the
genuineness of all signatures on original documents, and the conformity to
original documents of all copies submitted to us as conformed or photostatic
copies. As to various questions of fact material to such opinions, we have
relied upon statements or certificates of officials and representatives of the
Company and others.
Based on, and subject to the foregoing, we are of the opinion that the
shares of Common Stock being registered in the Form S-3 that are (i) issuable
upon conversion of shares of the Company's 7% Series D and 7% Series D-2
Convertible Preferred Stock (together, the "Preferred Stock") or as "Adjustment
Shares" as defined in the Convertible Preferred Stock Purchase Agreements by and
between the Company and the respective holders of the Preferred Stock, (ii)
issuable as share dividends to holders of the Preferred Stock, or (iii) issuable
upon exercise of certain warrants to purchase shares of Common Stock, as the
case may be, shall, upon such issuance as described in the Form S-3, be duly and
validly issued and fully paid and nonassessable.
<PAGE>
Big Entertainment, Inc.
Page 2
In rendering this opinion, we advise you that members of this Firm are
members of the Bar of the State of Florida, and we express no opinion herein
concerning the applicability or effect of any laws of any other jurisdiction,
except the securities laws of the United States of America referred to herein.
This opinion has been prepared and is to be construed in accordance
with the Report on Standards for Florida Opinions, dated April 8, 1991, as
amended and supplemented, issued by the Business Law Section of The Florida Bar
(the "Report"). The Report is incorporated by reference into this opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Form S-3. We also consent to the use of our name under the caption "Legal
Matters" in the Prospectus constituting part of the Form S-3. In giving such
consent, we do not thereby admit that we are included within the category of
persons whose consent is required under Section 7 of the Securities Act, or the
rules and regulations promulgated thereunder.
Very truly yours,
/s/ BROAD AND CASSEL
--------------------
BROAD AND CASSEL
EXHIBIT 10.3
===============================================================================
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Between
BIG ENTERTAINMENT, INC.
and
DEEPHAVEN OPPORTUNITY MASTER FUND L.P.
Dated as of November 18, 1998
===============================================================================
<PAGE>
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this "AGREEMENT"),
dated as of November 18, 1998, between Big Entertainment, Inc., a Florida
corporation (the "COMPANY"), and Deephaven Opportunity Master Fund L.P., a
British Virgin Islands limited partnership (the "PURCHASER").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchaser and the
Purchaser desires to purchase from the Company shares of the Company's Series
D-2 Convertible Preferred Stock, par value $.01 per share (the "PREFERRED
STOCK"), which are convertible into shares of the Company's common stock, $.01
par value per share (the "COMMON STOCK").
IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy are
hereby acknowledged, the Company and Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
1.1 THE CLOSING.
(a) THE CLOSING. (i) Subject to the terms and conditions set
forth in this Agreement, the Company shall issue and sell to the Purchaser and
the Purchaser shall purchase 50 shares of Preferred Stock (the "SHARES") for an
aggregate purchase price of $500,000. The purchase price per Share shall be
$10,000. The closing of the purchase and sale of the Preferred Stock (the
"CLOSING") shall take place at the offices of Robinson Silverman Pearce Aronsohn
& Berman LLP ("ROBINSON SILVERMAN"), 1290 Avenue of the Americas, New York, New
York 10104, immediately following the execution hereof or such later date as the
parties shall agree. The date of the Closing is hereinafter referred to as the
"CLOSING DATE."
(ii) At the Closing, the parties shall deliver or shall cause
to be delivered to the following: (A) the Company shall deliver (1) stock
certificates representing the Shares, registered in the name of the Purchaser,
(2) a common stock purchase warrant, in the form of EXHIBIT D-1, registered in
the name of the Purchaser, pursuant to which the Purchaser shall have the right
at any time and from time to time thereafter through the fifth anniversary date
of the issuance thereof to acquire 25,000 shares of Common Stock at an exercise
price per share of $5.175, subject to adjustment (the "FIRST WARRANT"), (3) a
common stock purchase warrant, in the form of EXHIBIT D-2, registered in the
name of the Purchaser, pursuant to which the Purchaser shall have the right at
any time and from time to time thereafter through the fifth anniversary date of
the issuance thereof to acquire 16,667 shares of Common Stock at an exercise
price per share of $6.255, subject to adjustment (the "SECOND WARRANT" and,
together with the First Warrant, the "WARRANTS"), (4) the legal opinion of
Broad & Cassel, outside counsel to the Company, substantially in the form of
EXHIBIT C, and (5) all other documents, instruments and writings required to
have been delivered at or prior to the Closing by the Company pursuant to this
Agreement, including an executed Registration Rights Agreement, dated the date
hereof, between the Company and the Purchaser, in
<PAGE>
the form of EXHIBIT B (the "REGISTRATION RIGHTS AGREEMENT"), and the Irrevocable
Transfer Agent Instructions, in the form of EXHIBIT E, delivered to and
acknowledged by the Company's transfer agent (the "TRANSFER AGENT
INSTRUCTIONS"); and (B) the Purchaser shall deliver (1) $500,000 in United
States dollars in immediately available funds by wire transfer to an account
designated in writing by the Company for such purpose, and (2) all documents,
instruments and writings required to have been delivered at or prior to the
Closing by the Purchaser pursuant to this Agreement, including, without
limitation, an executed Registration Rights Agreement.
1.2 TERMS OF PREFERRED STOCK. The Preferred Stock shall have
the rights preferences and privileges set forth in EXHIBIT A, and shall be
incorporated into the Articles of Amendment ("ARTICLES OF AMENDMENT") which
shall be filed on or prior to the Closing Date by the Company with the
Department of State of Florida, in form and substance mutually agreed to by the
parties.
1.3 CERTAIN DEFINED TERMS. For purposes of this Agreement,
CONVERSION PRICE," "INITIAL CONVERSION DATE," "ORIGINAL ISSUE DATE," "STATED
VALUE" and "TRADING DAY" shall have the meanings set forth in Exhibit A;
"BUSINESS DAY" shall mean any day except Saturday, Sunday and any day which
shall be a federal legal holiday in the United States of America or a day on
which banking institutions in the State of New York are authorized or required
by law or other governmental action to close.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
makes the following representations and warranties to the Purchaser:
(a) ORGANIZATION AND QUALIFICATION. The Company is a corporation,
duly incorporated, validly existing and in good standing under the laws of the
State of Florida, with the requisite corporate power and authority to own and
use its properties and assets and to carry on its business as currently
conducted. The Company has no subsidiaries other than as set forth in SCHEDULE
2.1(A) (collectively the "SUBSIDIARIES"). Each of the Subsidiaries is an entity,
duly incorporated or otherwise organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization (as
applicable), with the full power and authority to own and use its properties and
assets and to carry on its business as currently conducted. Each of the Company
and the Subsidiaries is duly qualified to do business and is in good standing as
a foreign corporation or other entity in each jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not, individually or in the aggregate, (x) adversely
affect the legality, validity or enforceability of the Securities (as defined
below) or any of this Agreement, the Articles of Amendment, the Registration
Rights Agreement or the Warrants (collectively, the "TRANSACTION DOCUMENTS"),
(y) have or result in a material adverse effect on the results of operations,
assets, prospects, or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (z) adversely impair the Company's ability
to perform fully on a
-2-
<PAGE>
timely basis its obligations under any of the Transaction Documents (any of (x),
(y) or (z), a "MATERIAL ADVERSE EFFECT").
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents, and otherwise to carry out
its obligations thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company, except for any of the Required Approvals (as hereinafter defined). Each
of the Transaction Documents has been duly executed by the Company and, when
delivered in accordance with the terms hereof, will constitute the valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms. Neither the Company nor any Subsidiary is in violation of any of
the provisions of its respective articles of incorporation, by-laws or other
charter documents.
(c) CAPITALIZATION. The number of authorized, issued and outstanding
capital stock of the Company is set forth in SCHEDULE 2.1(C). No shares of
Common Stock are entitled to preemptive or similar rights, nor is any holder of
the Common Stock entitled to statutory preemptive or similar rights arising out
of any agreement or understanding with the Company by virtue of any of the
Transaction Documents. Except as disclosed in SCHEDULE 2.1(C) or as a result of
the purchase and sale of the Shares and the Warrants and the issuance of
Adjustment Shares (as defined in Section 3.16), if any, there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to securities, rights or obligations convertible
into or exchangeable for, or giving any Person any right to subscribe for or
acquire any shares of Common Stock, or contracts, commitments, understandings,
or arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. To the knowledge of the Company,
except as specifically disclosed in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1997, Quarterly Reports on Form 10-QSB for the
quarters ended March 31, 1998 and June 30, 1998 and Proxy Statement for the July
1998 Annual Meeting of Shareholders (collectively, the "Current SEC Reports") or
SCHEDULE 2.1(C), no Person or group of related Persons beneficially owns (as
determined pursuant to Rule 13d-3 promulgated under the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT")) or has the right to acquire by
agreement with or by obligation binding upon the Company beneficial ownership of
in excess of 5% of the Common Stock. A "PERSON" means an individual or
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
(d) ISSUANCE OF THE SHARES, THE WARRANTS AND THE ADJUSTMENT SHARES.
The Shares and the Warrants are duly authorized, and, when issued and paid for
in accordance with the terms hereof, shall have been duly and validly issued,
and, in the case of the Shares, fully paid and nonassessable, free and clear of
all liens, encumbrances and rights of first refusal of any kind (collectively,
"LIENS"). The Company has on the date hereof an adequate reserve of duly
authorized shares of Common Stock, reserved for issuance to the Purchaser and
the holders of the Shares and the Warrants, to enable it to perform its
conversion, exercise and other obligations under this
-3-
<PAGE>
Agreement, the Articles of Amendment and the Warrants. Such initial number of
reserved and available shares of Common Stock is not less than the sum of the
number of shares of Common Stock which would be issuable on the Closing Date (i)
upon conversion in full of the Shares and payment of dividends thereunder,
assuming the Shares are outstanding for three years, all dividends for such
three year period is paid in shares of Common Stock and that such conversion
occurred at the lowest possible Conversion Price pursuant to Section 5(c)(i) of
the Articles of Amendment, (ii) upon exercise of the Warrants, assuming the
Warrants are exercised at the lowest possible Exercise Price (as defined in the
Warrants), and (iii) as Adjustment Shares, assuming that the Adjustment Price
(as defined in Section 3.16) is equal to one half of the lowest possible
Conversion Price pursuant to Section 5(c)(i) of the Articles of Amendment (such
number of shares of Common Stock, the "INITIAL MINIMUM"). All such
authorized shares of Common Stock have been duly reserved for issuance to the
Purchaser and the holders of such Shares and Warrants. The Adjustment Shares and
the shares of Common Stock issuable upon conversion of the Shares, as payment of
dividends thereon and upon exercise of the Warrants are collectively referred to
herein as the "UNDERLYING SHARES." The Shares, the Warrants and the Underlying
Shares are, collectively, the "SECURITIES." When issued in accordance with this
Agreement, the Articles of Amendment and the Warrants, in accordance with their
respective terms, the Underlying Shares will be duly authorized, validly issued,
fully paid and nonassessable, free and clear of all Liens.
(e) NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its articles of incorporation, bylaws or other charter
documents (each as amended through the date hereof), or (ii) subject to
obtaining the Required Approvals (as defined below), conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, indenture or instrument (evidencing
a Company debt or otherwise) to which the Company or any Subsidiary is a party
or by which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company is subject (including Federal and state
securities laws and regulations), or by which any property or asset of the
Company is bound or affected, except in the case of each of clauses (ii) and
(iii), as could not, individually or in the aggregate, reasonably be expected to
have or result in a Material Adverse Effect. The business of the Company is not
being conducted in violation of any law, ordinance or regulation of any
governmental authority, except for violations which, individually or in the
aggregate, could reasonably be expected to not have or result in a Material
Adverse Effect.
(f) FILINGS, CONSENTS AND APPROVALS. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
give any notice to, or make any filing or registration with, any court or other
Federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filing of the Articles of Amendment
with the Secretary of State of Florida, (ii) the filings required pursuant to
Section 3.12, (iii) the filing of the Underlying Securities Registration
Statement with the Securities and Exchange Commission (the "COMMISSION")
-4-
<PAGE>
meeting the requirements set forth in the Registration Rights Agreement and
covering the resale of the Underlying Shares by the Purchaser, (iv) the
application(s) to the Nasdaq Stock Market, Inc for the listing of the Underlying
Shares for trading on the Nasdaq SmallCap Market ("NASDAQ") (and with any
other national securities exchange or market on which the Common Stock is then
listed), (v) applicable Blue Sky filings as required by the Registration Rights
Agreement and, and (vi) in all other cases where the failure to obtain such
consent, waiver, authorization or order, or to give such notice or make such
filing or registration could not reasonably be expected to have or result in,
individually or in the aggregate, a Material Adverse Effect (the consents,
waivers, authorizations, orders, notices and filings referred to in (i)-(vi) of
this Section are collectively, the "REQUIRED APPROVALS").
(g) LITIGATION; PROCEEDINGS. Except as specifically disclosed in the
SEC Documents, there is no action, suit, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries or any of their respective
properties before or by any court, governmental or administrative agency or
regulatory authority (Federal, state, county, local or foreign) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, individually or in
the aggregate, reasonably be expected to have or result in a Material Adverse
Effect.
(h) NO DEFAULT OR VIOLATION. Neither the Company nor any Subsidiary
(i) is in default under or in violation of (and no event has occurred which has
not been waived which, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that it is
in violation of, any indenture, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties is
bound, (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is in violation of any statute, rule or regulation
of any governmental authority, except as could not individually or in the
aggregate, have or result in a Material Adverse Effect.
(i) PRIVATE OFFERING. Assuming the accuracy of the representations
and warranties of the Purchaser set forth in Sections 2.2(b)-(g), the offer,
issuance and sale of the Securities to the Purchaser as contemplated hereby are
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "SECURITIES ACT"). Neither the Company nor any Person acting on
its behalf has taken any action that could subject the offering, issuance or
sale of the Securities to the registration requirements of the Securities Act.
(j) SEC DOCUMENTS; FINANCIAL STATEMENTS. The Company has filed all
reports required to be filed by it under the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the three years preceding the date hereof
(or such shorter period as the Company was required by law to file such
material) (the foregoing materials being collectively referred to herein as the
"SEC DOCUMENTS" and, together with the Schedules to this Agreement the
"DISCLOSURE MATERIALS") on a timely basis or has received a valid extension of
such time of filing and has filed any such SEC Documents prior to the expiration
of any such extension. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Securities Act
-5-
<PAGE>
and the Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Documents, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. All material
agreements to which the Company is a party or to which the property or assets of
the Company are subject and which were required to have been filed as exhibits
to the SEC Documents have been so filed. The financial statements of the Company
included in the SEC Documents comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing. Such financial statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis ("GAAP") during the periods involved, except
as may be otherwise specified in such financial statements or the notes thereto,
and fairly present in all material respects the financial position of the
Company and its consolidated subsidiaries as of and for the dates thereof and
the results of operations and cash flows for the periods then ended, subject, in
the case of unaudited statements, to normal, immaterial, year-end audit
adjustments. Since December 31, 1997 except as specifically disclosed in the
Current SEC Reports or as set forth on Schedule 2.1(j), (a) there has been no
event, occurrence or development that has had or that could have or result in a
Material Adverse Effect, (b) the Company has not incurred any liabilities
(contingent or otherwise) other than (x) liabilities incurred in the ordinary
course of business consistent with past practice and (y) liabilities not
required to be reflected in the Company's financial statements pursuant to GAAP
or required to be disclosed in filings made with the Commission, (c) the Company
has not altered its method of accounting or the identity of its auditors and (d)
the Company has not declared or made any payment or distribution of cash or
other property to its stockholders or officers or directors (other than in
compliance with existing Company stock option plans or salary paid in accordance
with existing employment agreements or otherwise made in the ordinary course
consistent with prior practice) with respect to its capital stock, or purchased,
redeemed (or made any agreements to purchase or redeem) any shares of its
capital stock. The Company last filed audited financial statements with the
Commission for the year ended December 31, 1997, and has not received any
comments from the Commission in respect thereof.
(k) INVESTMENT COMPANY. The Company is not, and is not an Affiliate
(as defined in Rule 405 under the Securities Act) of, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(l) CERTAIN FEES. Except for certain fees payable by the Company to
the parties set forth on Schedule 2.1(l), no fees or commissions will be payable
by the Company to any broker, financial advisor or consultant, finder, placement
agent, investment banker, or bank with respect to the transactions contemplated
by this Agreement. The Purchaser shall have no obligation with respect to any
fees or with respect to any claims made by or on behalf of other Persons for
fees of a type contemplated in this Section that may be due in connection with
the transactions contemplated by this Agreement. The Company shall indemnify and
hold harmless the Purchaser, its employees, officers, directors, agents, and
partners, and their respective Affiliates, from and against all claims, losses,
damages, costs (including the costs of preparation and attorney's fees) and
expenses suffered in respect of any such claimed or existing fees, as such fees
and expenses are incurred.
-6-
<PAGE>
(m) SOLICITATION MATERIALS. Neither the Company nor any Person
acting on the Company's behalf has solicited any offer to buy or sell the
Securities by means of any form of general solicitation or advertising.
(n) FORM S-3 ELIGIBILITY. The Company is eligible to register
securities for resale with the Commission under Form S-3 promulgated under the
Securities Act.
(o) EXCLUSIVITY. The Company shall not issue and sell the Shares to
any Person other than the Purchaser other than with the specific prior written
consent of the Purchaser.
(p) SENIORITY. Except as set forth on Schedule 2.1(p), no class of
equity securities of the Company is senior to the Shares in right of payment,
whether upon liquidation, dissolution, or otherwise.
(q) LISTING AND MAINTENANCE REQUIREMENTS COMPLIANCE. The Company has
not, in the two years preceding the date hereof, received notice (written or
oral) from the NASDAQ or any other stock exchange, market or trading facility on
which the Common Stock is or has been listed (or on which it has been quoted) to
the effect that the Company is not in compliance with the listing or maintenance
requirements of such exchange or market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance
with all such maintenance requirements.
(r) PATENTS AND TRADEMARKS. The Company has, or has rights to use,
all patents, patent applications, trademarks, trademark applications, service
marks, trade names, copyrights, licenses and rights (collectively, the
"INTELLECTUAL PROPERTY RIGHTS") which are necessary or material for use in
connection with its business, and which the failure to so have could reasonably
be expected to have a Material Adverse Effect. To the best knowledge of the
Company, all such Intellectual Property Rights are enforceable and there is no
existing infringement by another Person of any of the Intellectual Property
Rights.
(s) REGISTRATION RIGHTS; RIGHTS OF PARTICIPATION. Except as set
forth on SCHEDULE 6(B) to the Registration Rights Agreement, (i) the Company has
not granted or agreed to grant to any Person any rights (including "piggy-back"
registration rights) to have any securities of the Company registered with the
Commission or any other governmental authority which has not been satisfied and
(ii) no Person, has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents.
(t) REGULATORY PERMITS. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate Federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses as described in the SEC Documents, except where the failure to
possess such permits, individually or in the aggregate could reasonably be
expected to have or result in a Material Adverse Effect ("MATERIAL PERMITS"),
and neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material Permit.
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(u) TITLE. Neither the Company nor any of its Subsidiaries own
any real property. The Company and the Subsidiaries have good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all Liens,
except for liens, claims or encumbrances as do not materially affect the value
of such property and do not interfere with the use made and proposed to be made
of such property by the Company and its Subsidiaries. Any real property and
facilities held under lease by the Company and its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and its Subsidiaries.
(v) DISCLOSURE. The Company confirms that it has not provided the
Purchaser or its agents or counsel with any information that constitutes or
might constitute material non-public information. The Company understands and
confirms that the Purchaser shall be relying on the foregoing representations in
effecting transactions in securities of the Company. All disclosure provided to
the Purchaser regarding the Company, its business and the transactions
contemplated hereby, including the Schedules to this Agreement, furnished by or
on behalf of the Company are true and correct and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
hereby represents and warrants to the Company as follows:
(a) ORGANIZATION; AUTHORITY. The Purchaser is a limited
partnership duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation with the requisite corporate power and
authority, to enter into and to consummate the transactions contemplated by the
Transaction Documents and otherwise to carry out its obligations thereunder. The
purchase by the Purchaser of the Securities hereunder has been duly authorized
by all necessary action on the part of the Purchaser. Each of this Agreement and
the Registration Rights Agreement has been duly executed and delivered by the
Purchaser and constitutes the valid and legally binding obligation of the
Purchaser, enforceable against it in accordance with its terms.
(b) INVESTMENT INTENT. The Purchaser is acquiring the Securities
for its own account for investment purposes only and not with a view to or for
distributing or reselling such Securities or any part thereof or interest
therein, without prejudice, however, to the Purchaser's right, subject to the
provisions of this Agreement and the Registration Rights Agreement, at all times
to sell or otherwise dispose of all or any part of such Securities pursuant to
an effective registration statement under the Securities Act and in compliance
with applicable state securities laws or under an exemption from such
registration.
(c) PURCHASER STATUS. At the time the Purchaser was offered the
Shares, the Warrants and the Adjustment Shares, it was, and at the date hereof
it is, and at each exercise date under the Warrants, it will be, an "accredited
investor" as defined in Rule 501(a) under the Securities Act.
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(d) EXPERIENCE OF THE PURCHASER. The Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.
(e) ABILITY OF THE PURCHASER TO BEAR RISK OF INVESTMENT. The
Purchaser is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such investment.
(f) ACCESS TO INFORMATION. The Purchaser acknowledges receipt of
the Disclosure Materials and further acknowledges that it has reviewed the
Disclosure Materials and has been afforded (i) the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment and to verify the
accuracy and completeness of the information contained in the Disclosure
Materials. Neither such inquiries nor any other investigation conducted by or on
behalf of such Purchaser or its representatives or counsel shall modify, amend
or affect such Purchaser's right to rely on the truth, accuracy and completeness
of the Disclosure Materials and the Company's representations and warranties
contained in the Transaction Documents.
(g) GENERAL SOLICITATION. The Purchaser is not purchasing the
Shares as a result of or subsequent to any advertisement, article, notice or
other communication regarding the Shares published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar.
(h) RELIANCE. The Purchaser understands and acknowledges that (i)
the Securities are being offered and sold to it without registration under the
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and the Purchaser hereby consents to such
reliance.
The Company acknowledges and agrees that the Purchaser makes no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 TRANSFER RESTRICTIONS. (a) Securities may only be disposed of
pursuant to an effective registration statement under the Securities Act, to the
Company or pursuant to an available
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exemption from or in a transaction not subject to the registration requirements
of the Securities Act. In connection with any transfer of Securities other than
pursuant to an effective registration statement or to the Company, except as
otherwise set forth herein, the Company may require the transferor thereof to
provide to the Company an opinion of counsel selected by the transferor, the
form and substance of which opinion shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require registration of such
transferred securities under the Securities Act. Notwithstanding the foregoing,
the Company hereby consents to and agrees to register on the books of the
Company and with any transfer agent for the securities of the Company any
transfer of Securities by the Purchaser to an Affiliate of the Purchaser or to a
fund under common management with the Purchaser, and any transfer among any such
Affiliates or funds, provided that transferee certifies to the Company that it
is an "accredited investor" as defined in Rule 501(a) under the Securities Act
and that it is acquiring the Securities solely for investment purposes. Any such
transferee shall agree in writing to be bound by the terms of this Agreement and
shall have the rights of the Purchaser under this Agreement and the Registration
Rights Agreement.
(b) The Purchaser agrees to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
THE PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE SHARES OF
PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE ARE SET FORTH IN A
DESIGNATION OF PREFERENCES, RIGHTS AND LIMITATIONS FILED WITH THE FLORIDA
DEPARTMENT OF STATE, A COPY OF WHICH MAY BE OBTAINED FROM THE CORPORATION.
Underlying Shares shall not contain the legend set forth above
nor any other legend if the conversion of Shares, the payment of dividends
thereon, the exercise of Warrants, the issuance of Adjustment Shares or other
issuances of Underlying Shares as contemplated hereby, by the Articles of
Amendment or the Warrants occurs at any time while an Underlying Securities
Registration Statement is effective under the Securities Act or, in the event
there is not an effective Underlying Securities Registration Statement at such
time, if in the opinion of counsel to the Company such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
Company shall cause its counsel to issue the legal opinion included in the
Transfer Agent Instructions to the
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Company's transfer agent on the day that the Underlying Securities
Registration Statement is declared effective by the Commission. The Company
agrees that, in the event any Underlying Shares are issued with a legend in
accordance with this Section 3.1(b), it will provide the Purchaser, upon
request, with a certificate or certificates representing such Underlying Shares,
free from such legend at such time as such legend would not have been required
under this Section 3.1(b) had such issuance occurred on the date of such
request. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company which enlarge the restrictions
of transfer set forth in this Section.
3.2 ACKNOWLEDGMENT OF DILUTION. The Company acknowledges that the
issuance of the Adjustment Shares and the Underlying Shares issuable upon
conversion of the Shares and payment of dividends thereon in accordance with the
terms of the Articles of Amendment, and upon exercise of the Warrants in
accordance with their terms, may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligation to issue Underlying Shares
pursuant to Section 3.16 and upon (x) conversion of the Shares and payment of
dividends thereon in accordance with the terms of the Articles of Amendment, and
(y) exercise of the Warrants in accordance with their terms, is unconditional
and absolute, subject to the limitations set forth herein, in the Articles of
Amendment or pursuant to the Warrants, regardless of the effect of any such
dilution.
3.3 FURNISHING OF INFORMATION. As long as the Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act. As long as the Purchaser owns Securities, if
the Company is not required to file reports pursuant to such sections, it will
prepare and furnish to the Purchaser and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act such information as is
required for the Purchaser to sell the Securities under Rule 144 promulgated
under the Securities Act. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell Underlying
Shares without registration under the Securities Act within the limitation of
the exemptions provided by Rule 144 promulgated under the Securities Act,
including the legal opinion referenced above in this Section. Upon the request
of any such Person, the Company shall deliver to such Person a written
certification of a duly authorized officer as to whether it has complied with
such requirements.
3.4 BLUE SKY LAWS. In accordance with the Registration Rights
Agreement, the Company shall qualify or exempt the issuance and sale of the
Underlying Shares under the securities or Blue Sky laws of such jurisdictions as
the Purchaser may reasonably request and shall continue such qualification or
exemption at all times until the Purchaser notifies the Company in writing that
it no longer owns Securities; PROVIDED, HOWEVER, that neither the Company nor
its Subsidiaries shall be required in connection therewith to qualify as a
foreign corporation where they are not now so qualified or to take any action
that would subject the Company to general service of process in any such
jurisdiction where it is not then subject.
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3.5 INTEGRATION. The Company shall not, and shall use its best
efforts to ensure that, no Affiliate shall, sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchaser.
3.6 INCREASE IN AUTHORIZED SHARES. If on any date the Company would
be precluded from issuing the full number of Underlying Shares as would then be
issuable (a) upon a conversion in full of the then outstanding Shares and as
payment of all accrued and then unpaid dividends thereon in shares of Common
Stock, (b) upon exercise in full of the then unexercised portion of the
Warrants, and (c) as Adjustment Shares, assuming that the applicable Adjustment
Price is one half of the lowest possible Conversion Price pursuant to Section
5(c)(i) of the Articles of Amendment (the "CURRENT REQUIRED MINIMUM"), due to
the unavailability of a sufficient number of authorized but unissued or reserved
shares of Common Stock, then the Board of Directors of the Company shall
promptly (and in any case, subject to clearance of the Company's proxy
materials by the Commission, within 30 Business Days from such date) prepare and
mail to the stockholders of the Company proxy materials requesting authorization
to amend the Company's Articles of Incorporation to increase the number of
shares of Common Stock which the Company is authorized to issue to at least such
number of shares as reasonably requested by the Purchaser in order to provide
for such number of authorized and unissued shares of Common Stock to enable the
Company to comply with its issuance, conversion, exercise and reservation of
shares obligations as set forth in this Agreement, the Articles of Amendment and
the Warrants (the sum of (x) the number of shares of Common Stock then
authorized, (y) the number of shares of Common Stock then outstanding plus all
shares of Common Stock issuable upon exercise of all outstanding options,
warrants and convertible instruments, and (z) the Current Required Minimum
(provided that, for purposes of such calculation, the number of Adjustment
Shares to be issued shall equal the greater of the number provided in clause (c)
above in this Section and the number of Adjustment Shares as would be issuable
based upon the formula set forth in Section 3.16 assuming that such issuance
would occur on each determination date), shall be a reasonable number). In
connection therewith, the Board of Directors shall (a) adopt proper resolutions
authorizing such increase, (b) recommend to and otherwise use its best efforts
to promptly and duly obtain stockholder approval to carry out such resolutions
(and hold a special meeting of the stockholders no later than the 60th day after
mailing of the proxy materials relating to such meeting) and (c) within five (5)
Business Days of obtaining such stockholder authorization, file an appropriate
amendment to the Company's Articles of Incorporation to evidence such increase.
3.7 LISTING AND RESERVATION OF UNDERLYING SHARES. (a) The Company
shall (i) not later than the fifth Business Day following the Original Issue
Date prepare and file with the NASDAQ (and such other national securities
exchange or market or trading or quotation facility on which the Common Stock is
then listed) an additional shares listing application covering a number of
shares of Common Stock which is not less than the Initial Minimum, (ii) take all
steps necessary to cause such shares to be approved for listing in the NASDAQ
(as well as on any such other national securities exchange or market or trading
or quotation facility on which the Common Stock is then listed) as soon as
possible thereafter, and (iii) provide to the Purchaser evidence of such
listing, and the Company shall maintain the listing of its Common Stock thereon.
The parties hereto agree that
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as of the date hereof the Initial Minimum shall be 200,000 shares of Common
Stock, provided however that at any time the Per Share Market Value of the
Common Stock falls below $3.50 per share, then the Company shall take all
necessary actions to immediately list an additional 75,000 Underlying Shares.
(b) The Company shall maintain a reserve of Common Stock for
issuance pursuant to Section 3.16, and upon conversion of the Shares and for
payment of dividends thereupon in shares of Common Stock and upon exercise of
the Warrants in accordance with this Agreement, the Articles of Amendment and
the Warrants, respectively, in such amount as may be required to fulfill its
obligations in full under the Transaction Documents, which reserve shall equal
no less than the Current Required Minimum (provided that, for purposes of such
calculation, the number of Adjustment Shares to be issued shall equal the
greater of the number provided in clause (c) of Section 3.6 and the number of
Adjustment Shares as would be issuable based upon the formula set forth in
Section 3.16 assuming that such issuance would occur on each determination
date).
3.8 CONVERSION AND EXERCISE PROCEDURES. The Transfer Agent
Instructions, Conversion Notice (as defined in EXHIBIT A) and Notice of Exercise
under the Warrants set forth the totality of the procedures with respect to the
conversion of the Shares and exercise of the Warrants, including the form of
legal opinion, if necessary, that shall be rendered to the Company's transfer
agent and such other information and instructions as may be necessary to enable
the Purchaser to convert its Shares and exercise the Warrants as contemplated in
the Articles of Amendment and the Warrants (as applicable).
3.9 NOTICE OF BREACHES. (a) Each of the Company and the Purchaser
shall give prompt written notice to the other of any breach by it of any
representation, warranty or other agreement contained in any Transaction
Document, as well as any events or occurrences arising after the date hereof
which would reasonably be likely to cause any representation or warranty or
other agreement of such party, as the case may be, contained therein to be
incorrect or breached as of the Closing Date. However, no disclosure by either
party pursuant to this Section shall be deemed to cure any breach of any
representation, warranty or other agreement contained in any Transaction
Document.
(b) Notwithstanding the generality of Section 3.9(a), the Company
shall promptly notify the Purchaser of any notice or claim (written or oral)
that it receives from any lender of the Company to the effect that the
consummation of the transactions contemplated by the Transaction Documents
violates or would violate any written agreement or understanding between such
lender and the Company, and the Company shall promptly furnish by facsimile to
the holders of the Securities a copy of any written statement in support of or
relating to such claim or notice.
3.10 CONVERSION AND EXERCISE OBLIGATIONS OF THE COMPANY. The Company
shall honor conversions of the Shares and exercises of the Warrants and shall
deliver Underlying Shares in accordance with the respective terms, conditions
and time periods set forth in the Articles of Amendment and the Warrants,
respectively.
3.11 [INTENTIONALLY OMITTED]
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3.12 [INTENTIONALLY OMITTED]
3.13 USE OF PROCEEDS. The Company shall use the net proceeds from
the sale of the Securities hereunder for working capital purposes. Pending
application of the proceeds of this placement in the manner permitted hereby,
the Company will invest such proceeds in interest-bearing accounts and/or
short-term, investment grade interest bearing securities.
3.14 [INTENTIONALLY OMITTED]
3.15 REIMBURSEMENT. If the Purchaser, other than by reason of its
gross negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by or against any Person, including
stockholders of the Company, in connection with or as a result of the
consummation of the transactions contemplated by Transaction Documents, the
Company will reimburse the Purchaser for its reasonable legal and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith, as such expenses are incurred. In addition, other than with respect
to any matter in which the Purchaser is a named party, the Company will pay the
Purchaser the charges, as reasonably determined by the Purchaser, for the time
of any officers or employees of the Purchaser devoted to appearing and preparing
to appear as witnesses, assisting in preparation for hearings, trials or
pretrial matters, or otherwise with respect to inquiries, hearings, trials, and
other proceedings relating to the subject matter of this Agreement. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchaser who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchaser and any such Affiliate, and shall be binding upon and inure
to the benefit of any successors, assigns, heirs and personal representatives of
the Company, the Purchaser and any such Affiliate and any such Person. The
Company also agrees that neither the Purchaser nor any such Affiliates,
partners, directors, agents, employees or controlling persons shall have any
liability to the Company or any person asserting claims on behalf of or in right
of the Company in connection with or as a result of the consummation of the
Transaction Documents except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Company result from the gross negligence
or willful misconduct of the Purchaser or entity in connection with the
transactions contemplated by this Agreement.
3.16 ISSUANCE OF ADJUSTMENT SHARES. (a) If the average Per Share
Market Value for the ten (10) Trading Days commencing the 150th day after the
Closing Date (the "FIRST ADJUSTMENT PRICE") is less than 116% of the
Conversion Price then in effect (the "FIRST ADJUSTED CONVERSION PRICE"),
then the Company shall, within thirteen (13) Trading Days following such 150th
day, issue to the Purchaser for no additional consideration such number of
shares of Common Stock (the "FIRST ADJUSTMENT SHARES") as equals the
quotient obtained by dividing (i) the product of (A) the First Adjusted
Conversion Price, minus the First Adjustment Price and (B) an amount equal to
(x) the quotient obtained by dividing (1) the lesser of (I) 1/3 of the number of
Shares acquired by the Purchaser on the Closing Date multiplied by the Stated
Value or (II) the aggregate number of Shares held by the Purchaser on the 150th
day after the Closing Date multiplied by the Stated Value (such lesser value
shall be referred to herein as the "FIRST REPRICED SHARE VALUE") by (2) the
Conversion
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Price then in effect, less (y) the number of shares of Common Stock held by the
Purchaser in a short position on the 150th day after the Closing Date and (ii)
the First Adjustment Price.
(b) If the average Per Share Market Value for the ten (10) Trading
Days commencing the 240th day after the Closing Date (the "SECOND ADJUSTMENT
PRICE") is less than 116% of the Conversion Price then i effect (the "SECOND
ADJUSTED CONVERSION PRICE"), then the Company shall, within thirteen (13)
Trading Days following such 240th day, issue to the Purchaser for no additional
consideration such number of shares of Common Stock (the "SECOND ADJUSTMENT
SHARES") as equals the quotient obtained by dividing (i) th product of (A) the
Second Adjusted Conversion Price, minus the Second Adjustment Price and (B) an
amount equal to (x) the quotient obtained by dividing (1) the lesser of (I) 1/3
of the number of Shares acquired by the Purchaser on the Closing Date multiplied
by the Stated Value or (II) the aggregate number of Shares held by the Purchaser
on the 150th day after the Closing Date multiplied by the Stated Value less the
First Repriced Share Value referred to in Section 3.16(a) above (such lesser
value shall be referred to herein as the "SECOND REPRICED SHARE VALUE"),
provided, however that in the event that the Second Repriced Share Value is
greater than the aggregate number of Shares held by the Purchaser on the 240th
day after the Closing Date multiplied by the Stated Value, the Second Repriced
Share Value shall equal the aggregate number of Shares held by the Purchaser on
the 240th day after the Closing Date multiplied by the Stated Value, by (2) the
Conversion Price then in effect, less (y) the number of shares of Common Stock
held by the Purchaser in a short position on the 240th day after the Closing
Date and (ii) the Second Adjustment Price.
(c) If the average Per Share Market Value for the ten (10) Trading
Days commencing the 365th day after the Closing Date (the "THIRD ADJUSTMENT
PRICE," and together with the First Adjustment Price and the Second Adjustment
Price, the "ADJUSTMENT PRICE") is less than 116% of the Conversion Price
then in effect (the "THIRD ADJUSTED CONVERSION PRICE"), then the Company
shall, within thirteen (13) Trading Days following such 365th day, issue to the
Purchaser for no additional consideration such number of shares of Common Stock
(the "THIRD ADJUSTMENT SHARES," and together with the First Adjustment
Shares and the Second Adjustment Shares, the "ADJUSTMENT SHARES") as equals
the quotient obtained by dividing (i) the product of (A) the Third Adjusted
Conversion Price, minus the Third Adjustment Price and (B) an amount equal to
(x) the quotient obtained by dividing (1) the lesser of (I) 1/3 of the number of
Shares acquired by the Purchaser on the Closing Date multiplied by the Stated
Value or (II) the aggregate number of Shares held by the Purchaser on the 240th
day after the Closing Date multiplied by the Stated Value less the Second
Repriced Share Value referred to in Section 3.16(b) above (such lesser value
shall be referred to herein as the "THIRD REPRICED SHARE VALUE"), provided,
however that in the event that the Third Repriced Share Value is greater than
the aggregate number of Shares held by the Purchaser on the 365th day after the
Closing Date multiplied by the Stated Value, the Third Repriced Share Value
shall equal the aggregate number of Shares held by the Purchaser on the 365th
day after the Closing Date multiplied by the Stated Value, by (2) the Conversion
Price then in effect, less (y) the number of shares of Common Stock held by the
Purchaser in a short position on the 365th day after the Closing Date and (ii)
the Third Adjustment Price.
3.17 TRADING RESTRICTIONS. The Purchaser shall not establish a short
position in the Common Stock and the Company shall not purchase any shares of
Common Stock during the ten
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(10) Trading Days in which an Adjustment Price is determined pursuant to Section
3.16. Nothing herein shall preclude the Purchaser from maintaining short
positions in the securities of the Company established prior to or after the
expiration of any such periods.
ARTICLE IV
MISCELLANEOUS
4.1. FEES AND EXPENSES. At the Closing, the Company shall pay
$10,000 to Robinson Silverman in connection with the preparation and negotiation
of the Transaction Documents. Other than the amount contemplated in the
immediately preceding sentence, and except as otherwise set forth in the
Registration Rights Agreement, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all stamp and
other taxes and duties levied in connection with the issuance of the Securities.
4.1. ENTIRE AGREEMENT; AMENDMENTS. The Transaction Documents
together with the Exhibits and Schedules thereto, and the Transfer Agent
Instructions contain the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters, which the parties acknowledge
have been merged into such documents, exhibits and schedules.
4.2. NOTICES. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile with a
receipt of confirmation at the facsimile telephone number specified in this
Section prior to 7:00 p.m. (Minnetonka, Minnesota time) on a Business Day, (ii)
the Business Day after the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Agreement later than 7:00 p.m. (Minnetonka, Minnesota time) on any date and
earlier than 10:59 p.m. (Minnetonka, Minnesota time) on such date, (iii) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such
notice is required to be given. The address for such notices and communications
shall be as follows:
If to the Company: Big Entertainment, Inc.
2255 Glades Road, Suite 237 West
Boca Raton, Florida, 33431
Facsimile No.: (561) 998-2974
Attn: Chief Executive Officer
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With copies to: Broad and Cassel
201 S. Biscayne Boulevard
Miami, Florida 33131
Facsimile No.: (305) 373-9493
Attn: Dale S. Bergman, Esq.
If to the Purchaser: Deephaven Opportunity Master Fund L.P.
c/o Deephaven Capital Management LLC
1712 Hopkins Crossroads
Minnetonka, MN 55305
Facsimile No.: (612) 542-4244
Attn: Bruce Lieberman
With copies to: Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Kenneth L. Henderson, Esq.
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.3. AMENDMENTS; WAIVERS. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchaser; or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
4.4. HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
4.5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Purchaser. Except as set
forth in Section 3.1(a), the Purchaser may not assign this Agreement or any of
the rights or obligations hereunder (other than to an Affiliate of the
Purchaser) without the consent of the Company, except that the Purchaser may
assign its rights hereunder and under the Transaction Documents without the
consent of the Company as long as such assignee demonstrates to the reasonable
satisfaction of the Company its satisfaction of the representations and
warranties set forth in Section 2.2. This provision shall not limit the
Purchaser's right to transfer securities or transfer or assign rights hereunder
or under the Registration Rights Agreement.
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4.6. NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
4.7. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
4.8. SURVIVAL. The representations, warranties, agreements and
covenants contained herein shall survive the Closing and the delivery and
conversion or exercise (as the case may be) of the Adjustment Shares, the Shares
and the Warrants.
4.9. EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
4.10. PUBLICITY. The Company and the Purchaser shall consult with
each other in issuing any press releases or otherwise making public statements
or filings and other communications with the Commission or any regulatory agency
or stock market or trading facility with respect to the transactions
contemplated hereby and neither party shall issue any such press release or
otherwise make any such public statement, filings or other communications
without the prior written consent of the other, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be required
if such disclosure is required by law, in which such case the disclosing party
shall provide the other party with prior notice of such public statement, filing
or other communication. Notwithstanding the foregoing, the Company shall not
publicly disclose or include the name of the Purchaser in any filing with the
Commission, or any regulatory agency, trading facility or stock market without
the prior written consent of the Purchaser, except to the extent such disclosure
(but not any disclosure as to the controlling Persons thereof) is required by
law, in which case the Company shall provide the Purchaser with prior notice of
such disclosure.
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4.11. SEVERABILITY. In case any one or more of the provisions of
this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
4.12. REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchaser
will be entitled to specific performance of the obligations of the Company under
the Transaction Documents. Each of the Company and the Purchaser agree that
monetary damages may not be adequate compensation for any loss incurred by
reason of any breach of its obligations described in the foregoing sentence and
hereby agrees to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Preferred Stock Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
BIG ENTERTAINMENT, INC.
By: /s/ MITCHELL RUBENSTEIN
-------------------------------
Name: Mitchell Rubenstein
Title: Chief Executive Officer
DEEPHAVEN OPPORTUNITY MASTER FUND L.P.
By: KAE Investment Advisers LLC,
its Managing General Partner
By: /s/
---------------------------------------
Name:
Title:
EXHIBIT 23.2
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated March 20, 1998
included in Big Entertainment, Inc.'s Form 10-K for the year ended December 31,
1997 and to all references to our Firm included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
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ARTHUR ANDERSEN LLP
Miami, Florida,
December 1, 1998.
