U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
COMMISSION FILE NO. 0-22908
BIG ENTERTAINMENT, INC.
(Exact name of small business issuer as specified in its charter)
FLORIDA 65-0385686
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2255 GLADES ROAD, SUITE 237 WEST
BOCA RATON, FLORIDA 33431
(Address of principal executive offices) (Zip code)
(561) 998-8000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
--- ---
As of August 10, 1999, the number of shares outstanding of the issuer's
common stock, $.01 par value, was 13,683,584.
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BIG ENTERTAINMENT, INC.
TABLE OF CONTENTS
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PAGE(S)
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<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 1999
(unaudited) and December 31, 1998...................................... 3
Consolidated Statements of Operations for the Six and Three
Months ended June 30, 1999 and 1998 (unaudited) ....................... 4
Consolidated Statement of Shareholders' Equity for the
Six Months ended June 30, 1999 (unaudited)............................. 5
Consolidated Statements of Cash Flows for the Six
Months ended June 30, 1999 and 1998 (unaudited)........................ 6
Notes to Consolidated Financial Statements (unaudited)................. 7-14
ITEM 2. MANAGEMENT'S DISCUSSION OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................... 15-27
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS............................. 28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................... 29-30
Signature ...................................................................... 31
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<TABLE>
<CAPTION>
BIG ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1999 1998
-------------- ---------------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,827,332 $ 729,334
Receivables, net 1,044,400 568,779
Merchandise inventories 1,102,930 1,176,356
Prepaid expenses 616,189 501,501
Other receivables - 250,000
Other current assets 93,901 139,974
-------------- ---------------
Total current assets 7,684,752 3,365,944
PROPERTY AND EQUIPMENT, net 4,113,785 3,145,201
INVESTMENT IN NETCO PARTNERS 1,583,221 1,004,673
INTANGIBLE ASSETS, net 4,537,837 151,405
GOODWILL, net 39,624,554 306,377
OTHER ASSETS 487,788 596,221
-------------- ---------------
TOTAL ASSETS $ 58,031,937 $ 8,569,821
============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 791,169 $ 1,496,376
Revolving line of credit - 758,917
Accrued professional fees 147,918 192,151
Other accrued expenses 1,355,975 1,174,136
Deferred revenue 119,370 89,632
Loan from shareholder/officer - 100,000
Note payable 1,928,138 -
Current portion of capital lease obligations 817,004 882,185
-------------- ---------------
Total current liabilities 5,159,574 4,693,397
-------------- ---------------
CAPITAL LEASE OBLIGATIONS, less current portion 1,439,963 1,741,062
-------------- ---------------
DEFERRED REVENUE 376,860 376,860
-------------- ---------------
MINORITY INTEREST 310,399 235,067
-------------- ---------------
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 539,127 shares authorized; none outstanding - -
Series A variable rate convertible preferred stock, $6.25 stated value, 217,600 shares
authorized; 217,600 shares issued and outstanding at December 31,1998. - 1,360,000
Series B variable rate convertible preferred stock, $5.21 stated value, 142,223 shares
authorized; 122,846 shares issued and outstanding at December 31,1998. - 640,000
Series C, 4% convertible preferred stock, $100 stated value, 100,000 shares
authorized; 20,000 shares issued and outstanding at December 31,1998. - 2,000,000
Series D, 7% convertible preferred stock, $10,000 stated value, 1,000 shares
authorized; 50 and 250 shares issued and outstanding at June 30,1999 and
December 31,1998, respectively. Liquidation preference $500,000. 367,488 1,837,441
Series D-2, 7% convertible preferred stock, $10,000 stated value, 50 shares authorized;
50 shares issued and outstanding at December 31,1998. - 314,820
Common stock, $.01 par value, 25,000,000 shares authorized; 13,644,742 and 8,161,329
shares issued at June 30,1999 and December 31,1998, respectively. 136,447 81,613
Warrants outstanding 3,700,654 834,583
Deferred compensation (408,267) (510,333)
Additional paid-in capital 87,646,207 31,140,339
Accumulated deficit (40,697,388) (36,175,028)
-------------- ---------------
Total shareholders' equity 50,745,141 1,523,435
-------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 58,031,937 $ 8,569,821
============== ===============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
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<CAPTION>
BIG ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
SIX MONTHS ENDED JUNE 30,
--------------------------------------------
1999 1998
-------------------- --------------------
<S> <C> <C>
NET REVENUES $ 3,055,190 $ 5,159,226
COST OF SALES 1,265,590 2,564,450
-------------------- --------------------
Gross profit 1,789,600 2,594,776
-------------------- --------------------
OPERATING EXPENSES:
Selling, general and administrative 3,386,466 3,318,116
Salaries and benefits 1,814,705 2,079,374
Depreciation 614,039 493,165
Amortization of goodwill and intangibles 646,832 15,714
-------------------- --------------------
Total operating expenses 6,462,042 5,906,369
-------------------- --------------------
Operating loss (4,672,442) (3,311,593)
EQUITY IN EARNINGS OF NETCO PARTNERS 1,122,591 290,394
OTHER:
Interest, net (368,962) (441,124)
Other, net (280,938) 22,794
-------------------- --------------------
Loss before minority interest (4,199,751) (3,439,529)
MINORITY INTEREST (238,952) (242,977)
-------------------- --------------------
Net loss $ (4,438,703) $ (3,682,506)
==================== ====================
Basic and diluted loss per common share $ (0.45) $ (0.53)
==================== ====================
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-------------------------------------------
1999 1998
-------------------- --------------------
<S> <C> <C>
NET REVENUES $ 1,739,416 $ 2,449,290
COST OF SALES 605,318 1,458,925
-------------------- --------------------
Gross profit 1,134,098 990,365
-------------------- --------------------
OPERATING EXPENSES:
Selling, general and administrative 2,123,113 1,581,896
Salaries and benefits 1,115,897 993,361
Depreciation 333,214 282,979
Amortization of goodwill and intangibles 638,975 7,861
-------------------- --------------------
Total operating expenses 4,211,199 2,866,097
-------------------- --------------------
Operating loss (3,077,101) (1,875,732)
EQUITY IN EARNINGS OF NETCO PARTNERS 28,401 121,212
OTHER:
Interest, net (178,186) (206,536)
Other, net (151,035) 10,097
-------------------- --------------------
Loss before minority interest (3,377,921) (1,950,959)
MINORITY INTEREST (86,144) (148,603)
-------------------- --------------------
Net loss $ (3,464,065) $ (2,099,562)
==================== ====================
Basic and diluted loss per common share $ (0.32) $ (0.29)
==================== ====================
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
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<TABLE>
<CAPTION>
BIG ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(Unaudited)
PREFERRED PREFERRED PREFERRED
COMMON STOCK STOCK STOCK
STOCK SERIES A SERIES B SERIES C
------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Balance - December 31,1998 $ 81,613 $ 1,360,000 $ 640,000 $ 2,000,000
Non-cash dividend - preferred stock 67 - - -
Stock options and warrants exercised 3,369 - - -
Issuance of common stock in private
placements 8,261 - - -
Issuance of stock options and warrants for
services rendered - - - -
Conversion of Series A and B Preferred Stock to
common stock 3,006 (1,360,000) (640,000) -
Conversion of Series C Preferred Stock to
common stock 5,000 - - (2,000,000)
Conversion of Series D Preferred Stock to
common stock 5,718 - - -
Conversion of Series D-2 Preferred Stock to
common stock 1,000 - - -
Issuance of stock for services rendered 490 - - -
Employee stock bonus 25 - - -
Amortization of employee stock bonuses - - - -
Issuance of stock for acquisitions 27,898 - - -
Net loss - - - -
------------- ---------------- --------------- ----------------
Balance - June 30,1999 $ 136,447 $ - $ - $ -
============= ================ =============== ================
</TABLE>
<TABLE>
<CAPTION>
PREFERRED PREFERRED ADDITIONAL
STOCK STOCK PAID-IN WARRANTS
SERIES D SERIES D-2 CAPITAL OUTSTANDING
----------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Balance - December 31,1998 $ 1,837,441 $ 314,820 $ 31,140,339 $ 834,583
Non-cash dividend - preferred stock - - 79,741 -
Stock options and warrants exercised - - 1,698,445 -
Issuance of common stock in private
placements - - 11,703,002 2,866,071
Issuance of stock options and warrants for
services rendered - - 49,313 -
Conversion of Series A and B Preferred Stock to
common stock - - 1,996,994 -
Conversion of Series C Preferred Stock to
common stock - - 1,995,000 -
Conversion of Series D Preferred Stock to
common stock (1,469,953) - 1,464,235 -
Conversion of Series D-2 Preferred Stock to
common stock - (314,820) 313,820 -
Issuance of stock for services rendered - - 60,320 -
Employee stock bonus - - 46,225 -
Amortization of employee stock bonuses - - - -
Issuance of stock for acquisitions - - 37,098,773 -
Net loss - - - -
----------------- ----------------- ----------------- ---------------
Balance - June 30,1999 $ 367,488 $ - $ 87,646,207 $ 3,700,654
================= ================= ================= ===============
</TABLE>
<TABLE>
<CAPTION>
DEFERRED ACCUMULATED
COMPENSATION DEFICIT TOTAL
------------------- -------------------- -----------------
<S> <C> <C> <C>
Balance - December 31,1998 $ (510,333) $ (36,175,028) $ 1,523,435
Non-cash dividend - preferred stock - (83,657) (3,849)
Stock options and warrants exercised - - 1,701,814
Issuance of common stock in private
placements - - 14,577,334
Issuance of stock options and warrants for
services rendered - - 49,313
Conversion of Series A and B Preferred Stock to
common stock - - -
Conversion of Series C Preferred Stock to
common stock - - -
Conversion of Series D Preferred Stock to
common stock - - -
Conversion of Series D-2 Preferred Stock to
common stock - - -
Issuance of stock for services rendered - - 60,810
Employee stock bonus - - 46,250
Amortization of employee stock bonuses 102,066 - 102,066
Issuance of stock for acquisitions - - 37,126,671
Net loss - (4,438,703) (4,438,703)
------------------- -------------------- -----------------
Balance - June 30,1999 $ (408,267) $ (40,697,388) $ 50,745,141
=================== ==================== =================
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
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<TABLE>
<CAPTION>
BIG ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED JUNE 30,
(Unaudited)
1999 1998
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,438,703) $ (3,682,506)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,260,871 508,879
Equity in earnings of Netco Partners, net of (invested)/return of capital (578,548) 42,508
Issuance of compensatory stock, stock options and warrants 156,373 15,578
Amortization of deferred compensation costs 102,066 -
Recognition of deferred gain (9,062) (22,794)
Amortization of deferred financing costs 204,756 67,915
Amortization of discount on convertible debentures - 107,750
Assets written off - closed stores 47,797 -
Minority interest 238,952 242,977
Changes in assets and liabilities:
Receivables 392,779 306,357
Prepaid expenses 33,052 132,453
Merchandise inventories 73,426 681,182
Other current assets (47,765) 9,126
Other assets 50,172 (136,769)
Accounts payable (989,207) (970,671)
Accrued professional fees (44,233) (67,361)
Deferred revenue (17,400) (305,886)
Other accrued expenses 2,207 (165,129)
--------------- ---------------
Net cash used in operating activities (3,562,467) (3,236,391)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions,net of cash received (7,245,544) -
Capital expenditures, net (106,165) (109,906)
Return of capital from Tekno Books to minority partner (163,620) (153,579)
--------------- ---------------
Net cash used in investing activities (7,515,329) (263,485)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments)/proceeds from revolving line of credit (758,917) 283,405
Proceeds from shareholder/officer loan 711,000 2,243,000
Repayments of shareholder/officer loan (811,000) (857,500)
Net proceeds from issuance of common stock 14,577,334 999,461
Proceeds from exercise of stock options and warrants 1,701,814 -
Dividends on preferred stock - (40,000)
Repayments under capital lease obligations (244,437) 217,988
--------------- ---------------
Net cash provided by financing activities 15,175,794 2,846,354
--------------- ---------------
Net increase (decrease) in cash and cash equivalents 4,097,998 (653,522)
CASH AND CASH EQUIVALENTS, beginning of period 729,334 887,153
--------------- ---------------
CASH AND CASH EQUIVALENTS, end of period $ 4,827,332 $ 233,631
=============== ===============
SUPPLEMENTAL SCHEDULE OF CASH RELATED ACTIVITIES:
Interest paid $ 174,472 $ 254,323
=============== ===============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
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BIG ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION:
In the opinion of management, the accompanying consolidated financial
statements have been prepared by Big Entertainment, Inc. (the "Company")
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules and
regulations. However, the Company believes that the disclosures contained herein
are adequate to make the information presented not misleading.
The financial statements reflect, in the opinion of management, all
material adjustments (which include only normal recurring adjustments) necessary
to present fairly the Company's financial position and results of operations.
The Company follows Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" which establishes standards for reporting and display of
comprehensive income and its components in the financial statements for all
periods presented. There were no differences between net income on the
consolidated financial statements and comprehensive income.
The results of operations and cash flows for the six and three months
ended June 30, 1999 are not necessarily indicative of the results of operations
or cash flows which may be recorded for the remainder of 1999.
The accompanying consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1998.
(2) ACQUISITIONS:
(a) CinemaSource:
On May 18, 1999, the Company acquired substantially all of the assets
of CinemaSource, Inc. ("CinemaSource"), a privately held company, pursuant to
the terms of the Asset Purchase Agreement dated March 29, 1999 for $6.5 million
in cash and 436,191 shares of the Company's common stock valued at $12.50 per
share. At the closing of the acquisition, the Company directed CinemaSource to
transfer the assets sold, on the Company's behalf, to its wholly owned
subsidiary, Showtimes.com, Inc. ("Showtimes.com"). The shares of the Company's
common stock issued at the time of acquisition are restricted from resale for
the first 12 months following the closing of the transaction and are subject to
volume limitations regarding resale thereafter. CinemaSource gathers movie data,
including showtimes, synopses, photos and trailers, from theaters across the
country, and then licenses this data, in a compiled manner, to both large and
small media companies. CinemaSource licenses this information to more than 100
different media outlets, including customers such as Yahoo!, Excite, Go Network,
Ticketmaster/City Search and Zip2.
This acquisition was accounted for as a purchase and, accordingly, the
operating results of Showtimes.com have been included in the Company's
consolidated financial statements since the date of acquisition. The excess of
the aggregate purchase price over the fair market value of net assets acquired
of $12.6 million is being amortized over 10 years.
-7-
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(b) hollywood.com, Inc.:
On May 20, 1999, the Company acquired all of the capital stock of
hollywood.com, Inc. ("hollywood.com"), formerly called Hollywood Online Inc.,
from The Times Mirror Company ("Times Mirror"). The merger occurred in
accordance with the Agreement and Plan of Merger dated January 10, 1999 (the
"Merger Agreement"). The aggregate consideration paid to Times Mirror by the
Company consisted of a one-year unsecured promissory note for $1,928,138 and
2,300,075 shares of common stock, which was valued as of the date of the
transaction at $12.63953 per share. Hollywood.com owns and operates the
Hollywood.com website offering viewers movie information, movie trailers, box
office charts, movie soundtracks, photos and exclusive interactive games,
celebrity interviews, local movie showtimes, and coverage of movie premieres,
film festivals and movie-related events.
This acquisition was accounted for as a purchase and, accordingly, the
operating results of hollywood.com have been included in the Company's
consolidated financial statements since the date of acquisition. The excess of
the aggregate purchase price over the fair market value of net assets acquired
of $27.2 million is being amortized over 10 years. In addition, an intangible
asset of $4.6 million was recorded as part of the acquisition and is being
amortized over the life of the contract, approximately three years.
The purchase price of hollywood.com and CinemaSource was allocated to
assets and liabilities acquired as follows:
Tangible assets $ 2,471,539
Intangible assets 4,564,513
Goodwill 39,783,840
Liabilities assumed (519,539)
------------
Total purchase price 46,300,353
Less value of common stock issued (37,126,671)
Less value of note issued (1,928,138)
------------
Paid in cash $ 7,245,544
============
The following are unaudited pro forma combined results of operations of
the Company, hollywood.com and CinemaSource for the six and three month periods
ended June 30, 1998 and 1999, as if the acquisitions of hollywood.com and
CinemaSource had occurred at the beginning of each period:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
------------------------------- ------------------------------
1999 1998 1999 1998
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net Revenues $ 4,395,487 $ 6,236,541 $ 2,185,327 $ 2,987,949
============= ============= ============= ============
Net Loss $ (9,178,411) $ (8,016,203) $ (5,618,674) $ (4,088,410)
============= ============= ============= ============
Pro Forma Diluted Loss Per Share $ (0.72) $ (0.81) $ (0.41) $ (0.41)
============= ============= ============= ============
Weighted Average Shares Outstanding 12,770,177 9,889,176 13,549,672 10,066,979
============= ============= ============= ============
</TABLE>
(3) DEBT:
On May 20, 1999 the Company delivered a $1,928,138 one-year unsecured
promissory note of the Company payable to Times Mirror in accordance with the
Merger Agreement. The promissory note has a maturity date of May 20, 2000 (at
which time the aggregate principal balance thereof must be repaid in full) and
bears interest at the prime rate in effect from time to time of Citibank, N.A.
plus 1%. Interest is due quarterly in arrears beginning June 30, 1999 with the
final payment due at maturity. The promissory note may be prepaid in whole or in
part at any time without payment of any premiums or penalty.
As of June 30, 1999, the Company had no other indebtedness other than
the note payable to Times Mirror and Capital lease obligations.
-8-
<PAGE>
In December 1997, the Company established a $5 million credit facility
with BankBoston, which the Company used to finance the cost of inventories for
its retail operations. As of June 30, 1999 this credit facility was terminated
and all amounts have been paid in full. BankBoston received five-year warrants
to buy 30,000 shares of the Company's common stock at an exercise price of $9.68
per share. On May 18, 1999 the warrants were exercised and BankBoston received
16,446 shares of the Company's common stock in accordance with the cashless
exercise provision of the contract.
During the first quarter of 1999, the Company's Chairman of the Board
and Chief Executive Officer and the Company's Vice Chairman and President agreed
to increase their previously extended $1.1 million unsecured line of credit
facility to the Company to $5.5 million to enable the Company to meet its
working capital requirements for the balance of 1999. This commitment terminated
in accordance with its terms during the second quarter of 1999 as a result of
the Company raising in excess of $5.5 million from other sources for working
capital purposes. There were no borrowings by the Company under this facility as
of June 30, 1999.
(4) COMMON STOCK:
On June 30, 1998, the Company entered into a private equity line of
credit agreement with two accredited investors. Pursuant to his agreement, these
investors issued irrevocable commitments to purchase 433,334 shares of common
stock of the Company over a one-year period. These investors purchased an
aggregate of 177,042 shares of The Company's common stock in 1998 and the
remaining 256,292 shares of the Company's common stock during the three months
ended March 31, 1999. The gross proceeds received from these investors for
shares purchased during 1999 totaled $2,609,320. Offsetting this amount, costs
to issue the shares totaling $140,661 were charged to additional paid-in capital
during the three months ended March 31, 1999.
On April 14, 1999, the holders of the Company's Series D 7% Convertible
Preferred Stock ("Series D Preferred Stock") converted 200 of the outstanding
shares of Series D Preferred Stock into 571,788 shares of the Company's common
stock.
On April 14, 1999, the holders of the Company's Series D-2 7%
Convertible Preferred Stock ("Series D-2 Preferred Stock") converted all of the
outstanding shares of Series D-2 Preferred Stock into 100,000 shares of the
Company's common stock.
On May 18, 1999, the holders of the Company's Series A and B Variable
Rate Convertible Preferred Stock ("Series A and B Preferred Stock") converted
all of the outstanding shares of Series A and B Preferred Stock into 300,631
shares of the Company's common stock.
On May 17, 1999, the Company issued 569,820 shares of common stock in a
private placement at a purchase price of $21.25 per share. In addition, the
Company issued to the same investors warrants to purchase an aggregate of
189,947 shares of common stock at an exercise price of $21.25 per share. The
gross proceeds of the private placement were $12,108,675. The Company issued
42,600 shares of common stock as a fee to the placement agent.
On May 18, 1999, the Company acquired substantially all of the assets
of CinemaSource, Inc. The purchase price consisted of cash and 436,191 shares of
common stock valued at $12.50 per share.
-9-
<PAGE>
On May 20, 1999, the Company acquired all of the capital stock of
hollywood.com, Inc. The purchase price consisted of an unsecured promissory note
and 2,300,075 shares of common stock valued at $12.64 per share. As part of the
transaction costs the Company issued 53,452 shares of common stock for services
rendered in connection with the acquisition.
During the six months ended June 30, 1999, the Company issued 336,971
shares of common stock upon the exercise of outstanding stock options and
warrants, for which the Company received $1,701,814 in exercise proceeds.
(5) NETCO PARTNERS:
The Company owns a 50% interest in a joint venture called NetCo
Partners. NetCo Partners is engaged in the publishing and licensing of
entertainment properties including Tom Clancy's NET FORCE. NetCo Partners has
entered into numerous licensing agreements, including book publishing agreements
with The Berkley Publishing Group, Random House Audio, Books on Tape, Inc. and
various foreign publishers, an ABC television mini-series agreement, and a
product placement agreement with the Dodge division of Chrysler Corporation.
NetCo Partners recognizes revenues pursuant to these contracts when the earnings
process has been completed based on the terms of the various contracts and at
the point where ultimate collection of such revenue is no longer subject to
significant contingencies such that collection is substantially assured. The
revenues, gross profit and net income of NetCo Partners for the six and three
months ended June 30, 1999 and 1998 are presented below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
------------------------- ---------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $2,755,870 $ 780,944 $ 66,898 $ 323,000
Gross Profit 2,238,158 637,422 56,094 270,555
Net Income 2,245,181 580,789 56,802 242,424
</TABLE>
The decrease in revenues during the three months ended June 30, 1999 is
attributable to a lesser number of manuscripts delivered during the period.
As of June 30, 1999, NetCo Partners has $3,865,010 in accounts
receivable. Management of NetCo Partners believes that these receivables will be
collected in full and no reserves have been established.
NetCo Partners' deferred revenues, consisting of cash advances received
but not yet recognized as income, amounted to $983,224 as of June 30, 1999.
As of June 30, 1999, the Company has received cumulative profit
distributions from NetCo Partners since its formation totaling $3,375,495, in
addition to reimbursement of substantially all amounts advanced by the Company
to fund the operations of NetCo Partners.
-10-
<PAGE>
(6) LOSS PER COMMON SHARE:
Basic loss per common share is computed by dividing net loss, after
deducting dividends applicable to preferred stock, by the weighted average
number of common shares outstanding.
The following table sets forth the computation of basic and diluted
loss per share for the three and six months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Loss $ (4,438,703) $ (3,682,506) $ (3,464,065) $ (2,099,562)
Preferred Stock Dividends (91,460) (124,301) 7,802 (62,383)
------------ ------------ ------------ ------------
Net Loss Available to Common $ (4,530,163) $ (3,806,807) $ (3,456,263) $ (2,161,945)
Shareholders
Weighted Average Shares Outstanding 10,033,911 7,152,910 10,813,406 7,330,713
------------ ------------ ------------ ------------
Basic and Diluted Loss per Share $ (0.45) $ (0.53) $ (0.32) $ (0.29)
============ ============ ============ ============
</TABLE>
Inclusion of convertible preferred shares as dilutive securities would
have an antidilutive effect on the loss per share calculation. Accordingly,
these shares have been excluded from the calculation for the six and three
months ended June 30, 1999 and 1998. The aggregate number of shares of common
stock that are issuable upon conversion of all outstanding shares of Preferred
Stock Series D at June 30, 1999 is 108,071 shares. Options and warrants to
purchase 3,182,671 shares of common stock at exercise prices ranging from $0.01
to $21.25 per share were also not included in the computation of loss per share
for the six and three months ended June 30, 1999 because the result would be
antidilutive. In addition, there are 394,466 shares of common stock held in
escrow as additional collateral under a sale/leaseback transaction. These
shares, which may be released by the escrow agent only in the event that the
Company is in default under the sale/leaseback agreement, have not been included
in the computation of loss per share. Because the market price of the common
stock has increased, the Company has the right to cause a significant portion of
these shares to be released from escrow and returned to the Company.
(7) SEGMENT REPORTING:
The Company has two reportable segments: Internet/retail and
intellectual properties. The Internet/retail segment operates several different
Internet businesses including hollywood.com, our movie content website,
bigE.com, our e-commerce website where we sell movie and other entertainment
merchandise over the Internet, CinemaSource, a provider of movie showtimes
listings to the Internet industry and other media companies, and retail stores
and kiosks that sell entertainment-related merchandise. The Company has greatly
reduced the retail stores operations during 1998 and currently anticipates
closing all mall locations by the end of 1999. The intellectual properties
segment owns or controls the exclusive rights to certain original characters and
concepts created by best-selling authors and media celebrities, which it
licenses across all media, including books, film and television, multimedia
software, toys and other products.
-11-
<PAGE>
The Company does not have intersegment sales or transfers. The
following table illustrates the financial information regarding the Company's
reportable segments.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Mall Based Retail/Internet $ 2,027,413 $ 4,122,773 $ 1,252,605 $ 1,808,064
Intellectual Properties 1,027,777 1,036,453 486,811 641,226
----------- ----------- ----------- -----------
$ 3,055,190 $ 5,159,226 $ 1,739,416 $ 2,449,290
=========== =========== =========== ===========
Gross Profit:
Mall Based Retail/Internet $ 1,174,232 $ 2,092,186 $ 914,540 $ 746,733
Intellectual Properties 615,368 502,590 219,558 243,632
----------- ----------- ----------- -----------
$ 1,789,600 $ 2,594,776 $ 1,134,098 $ 990,365
=========== =========== =========== ===========
Depreciation and Amortization Expense:
Mall Based Retail/Internet $ 1,207,695 $ 397,298 $ 950,018 $ 205,269
Intellectual Properties 53,176 111,581 22,171 85,571
----------- ----------- ----------- -----------
$ 1,260,871 $ 508,879 $ 972,189 $ 290,840
=========== =========== =========== ===========
Operating Loss:
Mall Based Retail/Internet $(2,930,493) $(2,552,339) $(1,671,557) $(1,261,291)
Intellectual Properties (1,741,949) (759,254) (1,405,544) (614,441)
----------- ----------- ----------- -----------
$(4,672,442) $(3,311,593) $(3,077,101) $(1,875,732)
=========== =========== =========== ===========
Interest, net:
Mall Based Retail/Internet $ 343,334 $ 231,334 $ 166,712 $ 99,809
Intellectual Properties 25,628 209,790 11,474 106,727
----------- ----------- ----------- -----------
$ 368,962 $ 441,124 $ 178,186 $ 206,536
=========== =========== =========== ===========
Capital Expenditures (net):
Mall Based Retail/Internet $ 87,548 $ 102,314 $ 22,490 $ (17,001)
Intellectual Properties 18,617 7,592 -- --
----------- ----------- ----------- -----------
$ 106,165 $ 109,906 $ 22,490 $ (17,001)
=========== =========== =========== ===========
</TABLE>
-12-
<PAGE>
(8) USE OF ESTIMATES:
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates.
Significant estimates include management's estimate that accounts
receivable of NetCo Partners as of June 30, 1999 will be collected in full, and
that no reserve for uncollectible accounts is necessary (see Note 5).
The net debit for retail operations will be recovered through future
operations or sales proceeds.
(9) PENDING TRANSACTIONS:
(a) On June 18, 1999, the Company entered into an agreement in
principle to acquire the motion picture Internet and data properties of media
industry analyst Paul Kagan for $9 million in common stock of the Company and a
warrant to purchase common stock of the Company valued at $1 million. Assets to
be purchased include pkbaseline.com, one of the largest and most authoritative
online databases of movie and television information. The Company anticipates
closing this transaction during the third quarter of 1999.
(b) During the second quarter of 1999, the Company and CBS Corporation
("CBS") signed an agreement in principle for CBS to receive a 35% ownership
interest in the Company's Internet business. In exchange, the Company's Internet
business will receive $100 million of CBS promotion and content across the full
range of CBS properties over a 7-year period.
(10) COMMITMENTS AND CONTINGENCIES:
TAX LOAN - As part of the Asset Purchase Agreement between the Company
and CinemaSource, the Company has agreed to make a loan to the shareholder of
CinemaSource to pay the taxes due on the portion of the purchase price paid in
the form of common stock (not to exceed 24% of the value of the shares at the
time of closing). As of June 30, 1999, a loan had not been granted.
RESERVE FOR CLOSED STORES AND LEASE TERMINATION COSTS - The Company has
aggressively pursued closure of its mall-based retail stores and closed 29 kiosk
locations during 1998 and one in-line store in early 1999. Fifteen of the 29
mall leases were terminated at the expiration of the lease, or at the mutual
consent of the Company and lessor, at no additional cost to the Company. The
Company has reached agreement with certain of the other lessors to terminate the
leases based on a maximum rental payment stream to be paid out over time, in
most cases over a period of four months. The Company is currently negotiating
with the remaining lessors to obtain assignment of and/or release from certain
of its lease obligations, which are typically short term in duration. An
aggregate charge in the amount of $1,121,028 was recorded in fiscal 1998
consisting of $653,474 for the write-off of 10 kiosks which the Company
earmarked for abandonment, plus the write down of other property and equipment
of the entertainment retail division, and a reserve of $467,554 for the
estimated cost of the early lease terminations. During the six months ended June
30, 1999, the Company reduced this reserve by $101,174 for payments made to the
lessors under various lease termination agreements. At June 30, 1999, the
remaining carrying value of the inventory and fixed assets of the entertainment
retail
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<PAGE>
operations (some of which is utilized by the Internet e-commerce store,
BIGE.COM) is approximately $4,017,000.
LITIGATION - The Company is a party to various legal proceedings
arising in the ordinary course of business, none of which are expected to have a
material adverse impact on the Company's financial condition or results of
operations.
(11) RECLASSIFICATION:
Certain amounts in the 1998 financial statements have been reclassified
to conform with the 1999 classification.
(12) SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
NON-CASH INVESTING AND FINANCING ACTIVITIES FOR THE SIX MONTHS ENDED
JUNE 30,1999:
o The Company recorded the conversion of $5,784,773 of Series A,B,C,D,
and D-2 Preferred Stock into 1,472,419 shares of common stock.
o Non-cash dividends on its Series A,B,C, D and D-2 Convertible
Preferred Stock in the amount of $83,657 were recorded, of which
$79,808 was paid through the issuance of 6,675 shares of common
stock.
o Capital lease transactions totaled $56,068.
o The Company issued 2,500 shares of restricted stock valued at $46,250
as an incentive stock bonus to an officer.
NON-CASH INVESTING AND FINANCING ACTIVITIES FOR THE SIX MONTHS ENDED
JUNE 30, 1998:
o Capital lease transactions totaled $37,399.
o Dividends on Series A and B Convertible Preferred Stock in the amount
of $84,301 which were paid through the issuance of 17,251 shares of
common stock were recorded.
o Convertible debentures of $650,000 were converted into 173,568 shares
of common stock, plus accrued interest.
o The Company issued 100,000 shares of common stock under a private
equity line agreement with two investors for $500,000, less accrued
expenses of $74,315. The placement agent received 3,000 shares of
common stock as part of this transaction.
o The Company issued 10,430 shares of restricted common stock valued at
$50,000 as an incentive stock bonus to an executive.
-14-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains, in addition to historical
information, "forward-looking statements" with respect to Big Entertainment,
Inc. ("Big Entertainment" or the "Company"), which represent the Company's
expectations or beliefs, including, but not limited to, statements concerning
industry performance, the Company's operations, performance, financial
condition, growth, acquisition, and divestiture strategies, margins, and growth
in sales of the Company's products. For this purpose, any statements contained
in this report that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the generality of the foregoing,
words such as "may," "will," "expect," "believe," "anticipate," "intend,"
"could," "estimate," or "continue" or the negative or other variations thereof
or comparable terminology are intended to identify forward-looking statements.
These statements by their nature involve substantial risks and uncertainties,
certain of which are beyond our control, and actual results may differ
materially depending on a variety of important factors. Such factors include,
but are not limited to, the limited operating history of our Internet business,
our continued operating losses and accumulated deficit, our need to raise
additional working capital, the continued closing of our mall-based retail
stores, dependence on our relationships with authors, our ability to compete in
the Internet and licensing industries, dependence on key management personnel,
and other factors discussed in the Company's filings with the Securities and
Exchange Commission.
GENERAL
We are a diversified company whose businesses include Internet
operations and traditional mall-based retail stores and the development and
licensing of intellectual properties. We have two operating divisions: the
Internet and retail division and the intellectual properties division. The
Internet and retail division conducts its operations through the following
wholly owned direct and indirect subsidiaries of the Company:
o hollywood.com, Inc., the owner of the Hollywood.com website;
o Big Online, Inc., the owner of the bigE.com website;
o Hollywood.com International, Inc., the company engaged in expanding
the hollywood.com and bigE.com websites internationally;
o Showtimes.com, Inc., the owner of the CinemaSource and EventSource
businesses; and
o Tekno Comix, Inc., the owner of six mall-based retail stores.
The intellectual properties division conducts certain activities
directly through the Company and other activities through NetCo Partners, a
50%-owned joint venture that develops and licenses entertainment properties. The
intellectual properties division also includes the operations of two majority
owned subsidiaries, Tekno Books and Fedora, Inc. Tekno Books is the Company's
51%-owned book development and licensing business, and Fedora, Inc. is the
Company's 50.5%-owned subsidiary that publishes MYSTERY SCENE MAGAZINE.
INTERNET OPERATIONS
We operate several different Internet businesses including
Hollywood.com, our movie content website, bigE.com, our e-commerce website where
we sell movie and other entertainment merchandise over the Internet, and
CinemaSource and EventSource, providers of movie showtimes listings and event
listings to the Internet industry and other media companies.
-15-
<PAGE>
We launched our Internet store, bigE.com, in November 1998. It features
a product line of branded licensed merchandise including apparel, art,
collectibles, housewares, toys, accessories, costumes, games, high tech
merchandise and media items. Our merchandise is based on movies, television
shows, and games such as Star Wars, Southpark, X-Files, Austin Powers, Pokeman,
Rugrats, Star Trek and Teletubbies, and popular culture. Our strategy is to make
our website a one-stop shopping experience for anyone seeking entertainment
merchandise. To date, traffic to bigE.com has primarily come from relationships
that we have with other Internet companies and their websites, including
usatoday.com, Yahoo!, excite, nj.com. and others.
On May 20, 1999, we acquired hollywood.com, Inc., which owns
Hollywood.com, a movie content website with approximately 1 million pages of
movie information including movie descriptions, commentary, movie showtimes
listings, movie soundtrack excerpts, and an extensive multimedia library. We
acquired hollywood.com, Inc. from The Times Mirror Company for $31 million,
which was paid by issuing Times Mirror 2,300,075 shares of our common stock and
a one-year unsecured promissory note for $1,928,138. There were two principal
reasons why we found the acquisition of Hollywood.com to be attractive. The
first was the "Hollywood.com" brand name, which is already established on the
Internet as a popular movie website. We also believe that people around the
world associate the "Hollywood" name with movies and entertainment. The second
reason was an exclusive contract that hollywood.com has with the National
Association of Theatre Owners (NATO). Through this contract, hollywood.com
promotes its website to movie audiences by airing trailers about hollywood.com
before the feature films that play in most NATO-member theatres. In exchange,
hollywood.com provides websites for the exhibiting NATO members. These websites
contain movie showtimes information for each theatre. In addition, as part of
the acquisition, we are able to offer stories from the LOS ANGELES TIMES, which
is owned by Times Mirror, on our website, and our Internet studio store,
bigE.com, will be included on latimes.com.
On May 18, 1999, we purchased substantially all of the assets of
CinemaSource, Inc. Our wholly owned subsidiary, Showtimes.com, Inc., operates
the CinemaSource business and is developing the EventSource business.
CinemaSource provides movie showtimes and other movie-related information to the
Internet industry and other media companies. CinemaSource provides this
information to more than 100 different media outlets, including customers such
as Yahoo!, Excite, Go Network, Ticketmaster/CitySearch, and Zip 2. EventSource
is a new business that is expanding through the existing CinemaSource customer
base. EventSource provides information on events in major cities around the
country. We paid $6.5 million in cash and issued 436,191 shares of our common
stock for the CinemaSource assets.
In order to raise the cash to acquire CinemaSource, we completed a
private placement of our common stock on May 17, 1999. We raised $12.1 million
from this offering in which we sold 569,820 shares of our common stock for
$21.25 per share and issued warrants granting the holders the right to buy
189,947 shares of our common stock at an exercise price of $21.25 per share.
We plan to continue to expand our Internet operations and have several
pending transactions, including an agreement in principle entered into with CBS
on April 12, 1999. Under this agreement in principle, CBS will acquire 35% of
our Internet operations in exchange for $100 million in advertising and
promotion to be provided by CBS over the next seven years.
We have also entered into an agreement with Paul Kagan Associates, Inc.
for the purchase of its motion picture-related assets, including the website
PKBaseline.com. PKBaseline.com is an online service that provides subscribers
with access to a comprehensive database containing extensive
-16-
<PAGE>
information on over 67,000 films and TV programs. This information includes
biographies, reviews, box office data and cost estimates. We plan to use a
portion of the PKBaseline database to enhance the content currently contained on
Hollywood.com.
Our intent is to combine all of our Internet assets (Hollywood.com,
bigE.com, CinemaSource, and PKBaseline.com) into a movie Internet business that
generates revenues through advertising sales, content syndication and online
retail sales. We plan to increase our promotional efforts for our Internet
business by using the $100 million of advertising and promotional support that
we will have when the pending CBS transaction discussed above is completed, and
by continuing our other marketing programs. We also plan to expand the
Hollywood.com and bigE.com websites internationally through our recently
announced affiliation with AOL Latin America and through relationships with
other foreign partners. On August 5, 1999, we announced a multi-year commerce
and content agreement under which hollywood.com will be an anchor tenant in the
entertainment channels of AOL branded services in Latin America and bigE.com
will be prominently positioned in the shopping channels of AOL branded services
in Latin America.
RETAIL STORES
In addition to our Internet store, we currently operate six mall-based
retail stores that sell entertainment-related merchandise. We greatly reduced
our mall-based operations during 1998 and currently anticipate selling or
closing all of our mall stores by the end of 1999.
INTELLECTUAL PROPERTIES DIVISION
GENERAL. Our intellectual properties division owns the exclusive rights
to intellectual properties, which are complete stories and ideas for stories,
created by best-selling authors and media celebrities. Some examples of our
intellectual properties are LEONARD NIMOY'S PRIMORTALS, MICKEY SPILLANE'S MIKE
DANGER and ANNE MCCAFFREY'S ACORNA THE UNICORN GIRL. We license rights to our
intellectual properties to companies such as book publishers, film and
television studios, multi-media software companies and producers of other
products. These licensees develop books, television series and other products
based on the intellectual properties licensed from us. We generally obtain the
exclusive rights to the intellectual properties and the right to use the
creator's name in the titles of the intellectual properties (e.g., MICKEY
SPILLANE'S MIKE DANGER and LEONARD NIMOY'S PRIMORTALS). Our intellectual
properties division also includes a book development and book licensing
operation that develops and executes book projects, typically with best-selling
authors. They license the books for publication with book publishers such as
HarperCollins, Bantam Doubleday Dell, Random House, Simon & Schuster, Penguin
Putnam and Warner Books. The book development and book licensing division has a
library of more than 1,000 books.
LICENSING ACTIVITIES. Set forth below is a discussion of the Company's
intellectual properties published during the second quarter of 1999 and the
licensing activities related thereto. Those properties which are owned through
NetCo Partners (in which the Company has a 50% interest) are so indicated. It is
important to note that the Company (or NetCo Partners, if applicable) has the
right to include the author's or celebrity's name as part of the title of the
intellectual property for all licensed products, including books, television
series and films based on such intellectual properties. The Company is generally
obligated to pay the authors or celebrities fees based on amounts received by
the Company from the licensing to third parties of the rights to produce other
products featuring the intellectual properties. The Company seeks when possible
to license its intellectual properties on terms that provide to the Company
advance payments against royalties to be earned and that minimize or eliminate
the Company's additional development costs going forward. The Company is
continually in discussions with publishers, television networks, movie studios
and other licensees to contract for additional licensing opportunities based on
the Company's library of intellectual properties.
-17-
<PAGE>
o TOM CLANCY'S NET FORCE ("Net Force") (a NetCo Partners' property) was
licensed for production as a four-hour television mini-series which
aired on ABC in February 1999; for publication of six adult and 18
young adult novels to be published in North America by Berkley
Publishing Group (a division of Pearson, plc.); for publication of
the first two adult books as audio books by Random House Audio
Publishing; and for book publication and distribution rights in
foreign countries and languages throughout the world with eight
different foreign publishers. The fourth young adult novel was
published domestically during the second quarter of 1999. NetCo
Partners has also entered into a product placement agreement with
Dodge, a division of Chrysler Corporation, pursuant to which NetCo
Partners has agreed to feature Dodge vehicles in the first four NET
FORCE novels.
o ANNE MCCAFFREY'S ACORNA: UNICORN GIRL has been licensed to
HarperCollins for the North American publication and distribution of
four prose novels and one illustrated novel. The original contract
with HarperCollins included only the first two prose novels and the
illustrated novel, which were published in 1997 and 1998. The
paperback version of the second prose novel was published during the
second quarter of 1999. Based on the popularity of the initial books,
HarperCollins continued this book series by entering into a licensing
agreement with the Company for two additional books. This
intellectual property has also been licensed to Books on Tape, Inc.
for production of unabridged audio recordings of the first three
prose novels, two of which were released in early 1999, and to
various other parties for licensing rights in certain countries
outside the United States and Canada.
o MARGARET WEIS' TESTAMENT OF THE DRAGON has been licensed to
HarperCollins for publication of an illustrated novel, which was
published in 1997, and for publication of a prose novel, which was
released by HarperCollins in 1998. The paperback version of the prose
novel was released during the second quarter of 1999.
o GENE RODDENBERRY'S XANDER IN LOST UNIVERSE has been licensed to DAW
Books, Inc. (partner of Penguin Putnam) for publication of two novels
based on this space adventure concept created by the late creator of
STAR TREK(TM).
NETCO PARTNERS. In June 1995, the Company and C.P. Group Inc. ("C.P.
Group"), entered into an agreement to form NetCo Partners (the "NetCo Joint
Venture Agreement"). NetCo Partners is engaged in the publishing and licensing
of entertainment properties, and has entered into various licensing agreements
described above.
The Company and C.P. Group are each 50% partners in NetCo Partners. Tom
Clancy owns 50% of C.P. Group. C.P. Group contributed to NetCo Partners all
rights to NET FORCE, and the Company contributed to NetCo Partners all rights to
TAD WILLIAMS' MIRRORWORLD, ARTHUR C. CLARKE'S WORLDS OF ALEXANDER (formerly
called CRIOSPHINX), NEIL GAIMAN'S LIFERS, and ANNE MCCAFFREY'S SARABAND.
Pursuant to the terms of the NetCo Partners Joint Venture Agreement,
the Company is responsible for developing, producing, manufacturing,
advertising, promoting, marketing and distributing NetCo Partners' illustrated
novels and related products and for advancing all costs incurred in connection
therewith. All amounts advanced by the Company to fund NetCo Partners'
operations are
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<PAGE>
treated as capital contributions of the Company and the Company is entitled to a
return of such capital contributions before distributions of cash flow are split
equally between the Company and C.P. Group.
BOOK DEVELOPMENT AND LICENSING. The Company conducts its book
development and licensing activities through its 51%-owned subsidiary, Tekno
Books. Tekno Books is a leading book packager of fiction and non-fiction, with
approximately 1,064 books published since its inception (approximately 355
published since the fourth quarter of 1994, when the Company acquired its
interest in Tekno Books) and approximately 180 additional books under contract
that are forthcoming. In addition to providing the Company with access to a
number of best-selling authors, Tekno Books creates book projects by developing
concepts, negotiating publishing agreements and executing substantially all
aspects of the book projects. Tekno Books has worked with approximately 50 New
York Times best-selling authors, including Tom Clancy, Jonathan Kellerman, Dean
Koontz, Tony Hillerman, Robert Ludlum and Scott Turow, and numerous media
celebrities, including David Copperfield, Louis Rukeyser and Willard Scott.
These books have been published with more than 60 publishers (including
HarperCollins, Bantam Doubleday Dell, Random House, Simon & Schuster, Penguin
Putnam and Warner Books), translated into 32 languages, and selected by 22
different book clubs. Tekno Books is also a leading producer of novels and
anthologies in the science fiction, fantasy, mystery, horror and Western genres.
Tekno Books has several agreements through which it plans to expand the
scope of its projects. The first is an agreement with MGM Consumer Products
granting Tekno Books the right to publish books based on the past, present and
future properties from the film and television show libraries of
Metro-Goldwyn-Mayer Studios, United Artists Corporation, Orion Pictures
Corporation, and Goldwyn Entertainment, Inc. As part of this contract, Tekno
Books acquired the right to use the MGM name and trademark in connection with
the books published. The initial contract, which expired in February of this
year, was automatically extended through February 2000. Tekno Books will pay MGM
a royalty based on the net profits generated from the books. Pursuant to this
agreement, three novels based on the MGM television series POLTERGEIST: THE
LEGACY, have been sold to Berkley Books.
Tekno Books, through its wholly owned subsidiary, Tekno Books
International, LLC, also has entered into an agreement with The Classica
Foundation, a Russian charitable organization ("Classica"). Classica holds the
only catalogue of archived documents contained in the Russian archives,
consisting of millions of documents that were captured by the Soviets from the
German archives at the end of World War II. This includes a substantial portion
of the German Archives up to 1945 as well as voluminous documents from archives
of countries occupied by Germany during World War II. Classica has advised the
Company that until this time, the bulk of these files have not been seen outside
of Russia. This agreement with Classica grants Tekno Books the exclusive use of
this catalogue to the Russian archives, and the right to copy the materials
contained therein for use in licensing rights for books, CD-ROMs, on-line,
documentaries, television specials and feature films based on these materials.
Tekno Books has developed an extensive list of major book projects that may be
developed from these archives, including books on topics such as the German
military, German intelligence activities before and during World War II, the
Nazi party, certain of Hitler's personal papers and correspondence, Germany's
plan for the occupation of England, and German-Vatican relations. Many of these
topics also have the potential to be developed as CD-ROMs, television specials
and feature films. Work has already begun on several book projects based on the
archived materials. The Company and Tekno Books intend to donate copies of any
documents related to the Holocaust or any profit derived therefrom to
appropriate Holocaust-related charitable organizations. Tekno Books paid
$100,000 in 1997 and another $100,000 during 1998 to secure these rights. Tekno
Books also paid $25,000 to extend this agreement through the six months ending
September 12, 1999. We expect that further six-month extensions will be
available to Tekno Books for additional payments of $25,000 each.
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<PAGE>
Tekno Books owns a 50% interest in MYSTERY SCENE MAGAZINE, a trade
journal of the mystery genre. The Company also owns a 25% interest in the
magazine.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 ("Q2-99") AS COMPARED TO THE THREE
MONTHS ENDED JUNE 30, 1998 ("Q2-98"), AND SIX MONTHS ENDED JUNE 30, 1999
("Y2-99") AS COMPARED TO SIX MONTHS ENDED JUNE 30, 1998 ("Y2-98").
The following table summarizes the Company's revenues, cost of sales
and gross profit by division for Q2-99 and Q2-98, Y2-99, and Y2-98 respectively:
<TABLE>
<CAPTION>
INTELLECTUAL MALL BASED
PROPERTIES RETAIL/INTERNET TOTAL
------------ --------------- ----------
<S> <C> <C> <C>
Q2-99
Net Revenues $ 486,811 $1,252,605 $1,739,416
Cost of Sales 267,253 338,065 605,318
---------- ---------- ----------
Gross Profit $ 219,558 $ 914,540 $1,134,098
========== ========== ==========
Q2-98
Net Revenues $ 641,226 $1,808,064 $2,449,290
Cost of Sales 397,594 1,061,331 1,458,925
---------- ---------- ----------
Gross Profit $ 243,632 $ 746,733 $ 990,365
========== ========== ==========
Y2-99
Net Revenues $1,027,777 $2,027,413 $3,055,190
Cost of Sales 412,409 853,181 1,265,590
---------- ---------- ----------
Gross Profit $ 615,368 $1,174,232 $1,789,600
========== ========== ==========
Y2-98
Net Revenues $1,036,453 $4,122,773 $5,159,226
Cost of Sales 533,863 2,030,587 2,564,450
---------- ---------- ----------
Gross Profit $ 502,590 $2,092,186 $2,594,776
========== ========== ==========
</TABLE>
NET REVENUES
The Company acquired the hollywood.com and CinemaSource Internet
businesses on May 20 and May 18, 1999, respectively. Therefore the Q2-99 results
of operations for the Internet and mall based retail division are not reflective
of the results of operations for future periods.
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<PAGE>
Net revenues (not taking into account the Company's 50% interest in
NetCo Partners) decreased by 29%, or $709,874, to $1,739,416 for Q2-99 from
$2,449,290 for Q2-98. Net revenues for Y2-99 decreased by $2,104,036, or 41%, to
$3,055,190 from $5,159,226 for Y2-98. The decrease in net revenues is
attributable to the decrease in retail revenues as a result of the phase-out of
the Company's mall-based retail operations. For Q2-99, revenues generated by the
Internet/mall-based retail division amounted to 72% of the Company's total
revenues while revenues from the intellectual properties division amounted to
28% of the total. By comparison for Q2-98, Internet/mall-based retail revenues
amounted to 74% of the total and intellectual properties revenues amounted to
26% of the total.
GROSS PROFIT
Overall Company gross profit increased by 15%, or $143,733, to
$1,134,098 for Q2-99 from $990,365 for Q2-98. As a percentage of net revenues,
gross profit increased to 65% for Q2-99 from 40% for Q2-98. The increase in
gross profit is attributable to the change in the mix of revenues being
recognized in our Internet/mall-based retail division. Revenues from our
mall-based retail operations which generate a lower gross profit have decreased
substantially, while revenues from our internet business, which generate higher
gross profits have increased. The Company's overall gross profit decreased
$805,176 or 31%, from $2,594,776 for Y2-98 to $1,789,600 for Y2-99 due to phase
out of our mall-based retail operations.
-21-
<PAGE>
INTERNET/RETAIL DIVISION
The internet and retail division generates revenues through sales of
its entertainment merchandise over the Internet and in its mall-based retail
stores, by providing movie showtimes listings to the Internet industry and other
media companies and by selling advertising on its movie content web site.
The composition of net revenues is as follows:
<TABLE>
<CAPTION>
Q2-99 Q2-98
------------------------- -------------------------
$ % $ %
---------- --- ---------- ---
<S> <C> <C> <C> <C>
Retail Sales $ 238,762 19 $1,358,064 75
Advertising Income - Retail (ABC) -- -- 450,000 25
Internet Sales 1,013,843 81 -- --
---------- --- ---------- ---
TOTAL $1,252,605 100 $1,808,064 100
========== === ========== ===
<CAPTION>
Y2-99 Y2-98
------------------------- -------------------------
$ % $ %
---------- --- ---------- ---
Retail Sales $ 715,662 35 $2,872,773 70
Advertising Income - Retail (ABC) 220,000 11 900,000 22
Internet Sales 1,091,751 54 -- --
Franchise Fee Income -- -- 350,000 8
---------- --- ---------- ---
TOTAL $2,027,413 100 $4,122,773 100
========== === ========== ===
</TABLE>
On a pro forma basis, assuming that the completion of the acquisition of
hollywood.com, Inc. and CinemaSource occurred on April 1, 1999, Internet-related
net revenues for the second quarter were $1,468,127 a 174% increase over
$535,597 of such net revenues for the second quarter of 1998. For the six months
ended June 30, 1999 pro forma Internet-related net revenues totaled $2,440,422 a
125% increase over $1,085,000 of such net revenues for the same period of 1998.
Net revenues for this division decreased by 31%, or $555,459, to
$1,252,605 for Q2-99 from $1,808,064 for Q2-98 and decreased 51%, or $2,095,360
from $4,122,773 for Y2-98 to $2,027,413 for Y2-99. The Company's decision to
exit the mall-based retail business in 1998 has contributed greatly to the
reduced level of retail revenues. This decrease in revenues was offset by an
increase in Internet revenues recognized as a result of the Company's
acquisitions, as discussed below.
The Company began closing its marginal kiosk units during Q1-98 and
closed a total of 29 kiosks during 1998. An additional in-line store was closed
in Q1-99, leaving the Company with six mall-based retail stores at June 30,
1999. Retail sales decreased 82%, or $1,119,302, to $238,762 for Q2-99 as
compared to $1,358,064 for Q2-98 and decreased 75%, or $2,157,111, to $715,662
for Y2-99 as compared to $2,872,773 for Y2-98. Principally due to decreased
retail revenues due to the closure of the mall-based stores as noted above.
Net revenues include imputed income from running ABC video clips on the
in-store television monitors in exchange for advertising air time on local ABC
affiliate television stations. The Company records the estimated fair value of
the air time received from the ABC affiliates as the value of the revenues
earned by playing the ABC video clips in its retail units. Revenues decreased by
$450,000 for Q2-99 as compared to Q2-99 because the Company discontinued playing
the video clips during the first quarter of 1999.
Net revenues include Internet sales, which is comprised of our
e-commerce sales on BIGE.COM, advertising sales, and content syndication.
Internet sales were $1,013,843 for Q2-99 as compared to $0 at Q2-98. During
Q2-99 the Company acquired two Internet businesses accounting for 81% of the
revenue for the quarter. Internet sales were recorded from the date of
acquisition to the end of the period.
Also included in net revenues (as Internet sales) is imputed income
earned under the NATO contract, which the Company acquired through its
acquisition of hollywood.com during Q2-99. Through the contract hollywood.com
promotes its website to movie audiences by airing trailers about hollywood.com
before the feature films that play in most NATO-member theatres. In exchange,
hollywood.com provides websites for the exhibiting NATO members. In Q2-99 the
Company recorded $422,415 in promotional revenue earned under the NATO contract.
-22-
<PAGE>
Revenues for the entertainment retail division for Y2-98 include
$350,000 of franchise fee income. This income represents the territorial
exclusivity fee which the Company received during the first quarter of 1998 from
the franchisee for the Phoenix, Arizona territory. Under the Company's agreement
with this franchisee, the franchisee must open at least one store by December
1999 and one store each year thereafter in order to preserve its exclusivity. No
stores have been opened by the franchisee to date. The agreement also provides
for a continuing royalty based upon sales of the franchised units. The Company
is not obligated to provide any additional support to the franchisee under this
agreement.
Gross profit for the Internet and mall-based retail division increased
by $167,807 or 22% from $746,733 for Q2-98 to $914,540 for Q2-99 and decreased
by $917,954 or 44% from $2,092,186 for Y2-98 to $1,174,232 for Y2-99. The gross
profit for Y2-99 has decreased as compared to Y2-98 because of the reduction in
revenues generated due to the phase-out of our mall-based retail operations. The
gross profit increased for Q2-99 because the Internet revenues have increased
and are generating higher gross profits than the revenues from the mall-based
and retail operations which have decreased. As a percentage of Internet retail
division revenues, gross profit increased to 73% for Q2-99 from 41% for Q2-98
and from 51% for Y2-98 to 58% for Y2-99.
INTELLECTUAL PROPERTIES DIVISION
The intellectual properties division generates revenues from several
different activities including book development and licensing, intellectual
property licensing, and publishing MYSTERY SCENE MAGAZINE. The revenue breakdown
from these activities is as follows:
<TABLE>
<CAPTION>
Q2-99 Q2-98
------------------------- -------------------------
$ % $ %
---------- --- ---------- ---
<S> <C> <C> <C> <C>
Book Development & Licensing $ 421,338 87 $ 500,293 78
Other 65,473 13 140,933 22
---------- --- ---------- ---
Totals $ 486,811 100 $ 641,226 100
========== === ========== ===
<CAPTION>
Y2-99 Y2-98
------------------------- -------------------------
$ % $ %
---------- --- ---------- ---
Book Development & Licensing $ 939,066 91 $ 867,904 84
Other 88,711 9 168,549 16
---------- --- ---------- ---
Totals $1,027,777 100 $1,036,453 100
========== === ========== ===
</TABLE>
Book development and licensing represented 87% of the revenues
generated by the intellectual properties division for Q2-99 and 91% for Y2-99.
The Company's book development and licensing activities are conducted through
its 51%-owned subsidiary, Tekno Books, which focuses on developing and executing
book projects, frequently with best-selling authors, and then licensing the
books for publication with various publishers. Book development and licensing
revenues decreased by $78,955, or 16%, to $421,338 for Q2-99 from $500,293 for
Q2-98. Book development and licensing increased $71,162 or 8% from $867,904 in
Y2-98 to $939,066 in Y2-99. The decrease in revenues is attributable to the
lessor number of manuscripts being delivered in Q2-99 and Y2-99 as compared to
Q2-98 and Y2-98. Revenues are recognized when the earnings process has been
completed based on the terms of the various agreements and when ultimate
collection of such revenues is no longer subject to contingencies.
Other revenues generated by the intellectual properties division
(excluding revenues generated by NetCo Partners) consist of licensing revenues
derived from the intellectual properties owned directly by the Company and
publishing revenues generated from publication of MYSTERY SCENE MAGAZINE, a
mystery-genre trade journal published by the Company's 51%-owned subsidiary,
Fedora, Inc. Other revenues generated by the intellectual properties division
decreased by 54%, or $75,460, to $65,473 for
-23-
<PAGE>
Q2-99 from $140,933 for Q2-98. Other revenues decreased $79,838 or 47%,
to $88,711 for Y2-99, from $168,549 for Y2-98. Note that licensing revenues
generated by NetCo Partners (in which the Company has a 50% interest) are not
included in the above revenue figures, but rather are included in equity in
earnings of NetCo Partners discussed in more detail under "Equity in Earnings of
NetCo Partners."
Gross profit for the intellectual properties division (not including
the Company's 50% equity in the earnings of NetCo Partners) decreased by 10%, or
$24,074, to $219,558 for Q2-99 from $243,632 for Q2-98. Gross profits increased
22% or $112,778 from $502,590 for Y2-98 to $615,368 for Y2-99.
EQUITY IN EARNINGS OF NETCO PARTNERS
The Company's 50% share in the earnings of NetCo Partners decreased by
77%, or $92,811, to $28,401 for Q2-99 from $121,212 for Q2-98 and increased
$832,197 from $290,394 for Y2-98 to $1,122,591 for Y2-99. The increase of
$832,197 for Y2-99 is attributable to the delivery of the manuscript for the
third book in the NET FORCE adult series of books. The decrease of revenue from
Q2-98 to Q2-99 is attributable to a decrease in the number of manuscripts
delivered during the quarter. See revenue recognition described below.
NET FORCE was licensed for production as a four-hour television
mini-series which aired on ABC in February 1999; for publication of six adult
and 18 young adult novels to be published in North America by Berkley Publishing
Group (a division of Pearson, plc.); for publication of the first two adult
books as audio books by Random House Audio Publishing; and for book publication
and distribution rights in foreign countries and languages throughout the world
with eight different foreign publishers. The first adult novel and the first
three young adult novels were published in the U.S. during the first quarter of
1999. NetCo Partners has also entered into a product placement agreement with
Dodge, a division of Chrysler Corporation, pursuant to which NetCo Partners has
agreed to feature Dodge vehicles in the first four NET FORCE novels.
NetCo Partners recognizes revenues when the earnings process has been
completed based on the terms of the various agreements and when ultimate
collection of such revenues is no longer subject to significant contingencies
such that collection is substantially assured. When advances are received prior
to completion of the earnings process, NetCo Partners defers recognition of
revenue until the earnings process has been completed. Costs related to
acquisition, development and sales of intellectual properties and their licensed
products are expensed in proportion to the revenues that have been recognized.
OPERATING EXPENSES
Operating expenses consist of selling, general and administrative
expenses, salaries and benefits, depreciation, and amortization of goodwill and
intangibles. Operating expenses increased by 47%, or $1,345,102, to $4,211,199
for Q2-99 from $2,866,097 for Q2-98 and by $555,673 or 9% from $5,906,369 for
Y2-98 to $6,462,042 for Y2-99. The increase in total expenses in Q2-99 as
compared to total operating expenses in Q2-98 reflects increases in selling,
general and administrative expenses of $541,217 or 34%, in salaries and benefits
of 12% or $122,536 and in amortization of goodwill and intangibles of $631,114.
The increase in operating expenses is primarily attributable to additional
amortization of goodwill and intangibles, additional depreciation, and
additional costs as a result of the acquisition of hollywood.com and
CinemaSource during Q2-99. Non-cash increases in operating expenses from Q2-98
to Q2-99 were $681,349. Excluding the non-cash expenses, operating expenses
increased $663,753 or 26%. Included in selling, general and administrative
expenses is non-cash
-24-
<PAGE>
advertising expense of $422,415 for Q2-99 which represents the value of
the advertising that the Company supplies to various websites and affiliates in
accordance with the NATO contract and $450,000 for Q2-98 which represents ABC
advertising expense.
INTEREST EXPENSE, NET
Net interest expense decreased by 14%, or $28,350, to $178,186 for
Q2-99 as compared to $206,536 for Q2-98, and 16% or $72,162, from $368,962 for
Y2-99 to $441,124 for Y2-98 as a result of reduced borrowings under the
inventory line of credit and elimination of interest expense on the convertible
debenture which was converted during 1998.
NET LOSS
The Company generated a net loss of $3,464,065 for Q2-99 as compared to
a net loss of $2,099,562 for Q2-98, an increase of 65% or $1,364,503. For Y2-99
the net loss increased by 21% or $756,197 from $3,682,506 for Y2-98 to
$4,438,703 for Y2-99. The significant portion of the increased loss for Q2-99 is
attributable to the reduction in retail revenues from our mall based retail
locations and the increase in amortization of goodwill and intangibles. On a per
share basis, the loss per common share increased by $.03 from ($.29) for Q2-98
to ($.32) for Q2-99, while the loss per common share decreased $.08 from ($.53)
for Y2-98 to ($.45) for Y2-99. If the non-cash expenses of depreciation and
amortization are excluded from the loss per share calculation then loss per
share for Q2-99 decreased $.02 from ($.25) for Q2-98 to ($.23) for Q2-99.
The Company has made several modifications to its initial business plan
in an effort to reverse its losses. During 1997, the Company stopped publishing
comic books and during 1998 and 1999, the Company began to phase out its
mall-based retail operations. The Company is currently attempting to sell its
remaining mall-based retail stores, and is expanding its Internet operations.
The Company is presently focusing its efforts on further development
and expansion of its Internet business, both through acquisitions and strategic
alliances, and through expansion of its e-commerce operations. The Company has
successfully completed the acquisitions of hollywood.com and CinemaSource, and
is currently finalizing the sale of a 35% interest in its Internet operations to
CBS and the acquisition of the motion picture Internet and data properties of
media industry analyst Paul Kagan. The Company believes that it will be
well-positioned in the Internet business with revenues derived from advertising
sales, content syndication and online retail sales.
SHAREHOLDERS' EQUITY
Shareholders' equity increased from $1,523,435 at December 31, 1998 to
$50,745,141 at June 30, 1999. The increase in shareholders' equity is
attributable to the net proceeds received from the issuance of additional shares
of common stock to acquire hollywood.com and CinemaSource, the exercise of stock
options and warrants, and the private placement, offset by the Company's net
loss for Y2-99 of $4,438,703.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company had cash and cash equivalents of
$4,827,332 and working capital of $2,525,178, compared to cash and cash
equivalents of $729,334 and a working capital deficit of $1,327,453 at December
31, 1998. Net cash used in operating activities during Q2-99 was $3,562,467,
primarily representing cash used to fund the Company's net loss and a decrease
in accounts
-25-
<PAGE>
payable. Net cash used in investing activities was $7,515,329, while $15,175,794
in cash was provided by financing activities. As a result of all of the above,
cash and cash by equivalents increased by $4,097,998 for Y2-99. During Y2-98,
net cash used in operating activities was $3,236,391, net cash used in investing
activities was $263,485, and $2,846,354 in cash was provided by financing
activities.
On May 20, 1999 the Company issued a $1,928,138 unsecured promissory
note of the Company to Times Mirror to pay a portion of the purchase price for
the acquisition of hollywood.com. The promissory note has a maturity date of May
20, 2000 (at which time the aggregate principal balance thereof must be repaid
in full) and bears interest at the prime rate in effect from time to time of
Citibank, N.A. plus 1%. Interest is due quarterly in arrears beginning June 30,
1999 with the final payment due at maturity. The promissory note may be prepaid
in whole or in part at any time without payment of any premiums or penalty.
On June 30, 1998, the Company entered into a private equity line of
credit agreement with two accredited investors. Pursuant to this agreement,
these investors issued irrevocable commitments to purchase 433,334 shares of
common stock of the Company over a one-year period. These investors purchased an
aggregate of 177,042 shares of the Company's common stock during 1998 and the
remaining 256,292 shares of the Company's common stock during the three months
ended March 31, 1999. The gross proceeds received from these investors for
shares purchased during 1999 totaled $2,609,320, less costs to issue the shares
totaling $140,661, which were charged to additional paid-in capital.
On May 17, 1999, the Company issued 569,820 shares of common stock in a
private placement at a purchase price of $21.25 per share. In addition, the
Company issued to the same investors warrants to purchase an aggregate of
189,947 shares of common stock at an exercise price of $21.25 per share. The
gross proceeds of the private placement were $12,108,675. The Company issued
42,600 shares of common stock as a fee to the placement agent.
During the six months ended June 30, 1999, the Company issued 336,971
shares of common stock upon the exercise of outstanding stock options and
warrants, for which the Company received $1,701,814 in exercise proceeds. As a
result of the rise in the market price of the Company's common stock in late
1998, the Company has experienced a fairly steady stream of stock option and
warrant exercises. As of June 30, 1999, there were 3,182,671 options and
warrants outstanding at exercise prices ranging from $0.01 to $21.25 per share.
Provided that the market price of the Company's common stock remains above the
exercise prices, the Company anticipates that additional option and warrant
holders may exercise their options and warrants, particularly as the securities
vest or the underlying securities become eligible for resale, which would
provide a source of additional capital to the Company. There can be no
assurances, however, that any or all of the remaining outstanding options and
warrants will be exercised.
During the first quarter of 1999, the Company's Chairman of the Board
and Chief Executive Officer and the Company's Vice Chairman and President agreed
to increase their previously extended $1.1 million unsecured line of credit
facility to the Company to $5.5 million to enable the Company to meet its
working capital requirements for the balance of 1999. The interest rate on the
line of credit was set at the JP Morgan Bank prime rate of interest. This
commitment terminated in accordance with its terms during the second quarter of
1999 as a result of the Company raising in excess of $5.5 million from other
sources for working capital purposes. There were no borrowings by the Company
under this facility as of June 30, 1999.
-26-
<PAGE>
The success of the Company's future operations is dependent on its
ability to generate adequate revenue to offset operating expenses. Unless
otherwise noted, the proceeds from the financing transactions described above
are for general corporate purposes. There can be no assurance that additional
financing will be available to the Company or will be obtained on terms
favorable to the Company.
YEAR 2000 ISSUES
The Company believes that due to the newness of the Company's Internet
operations, all Internet systems are currently year 2000 compliant and any new
systems acquired or developed to support expansion of the Company's Internet
operations will be year 2000 compliant. Management believes that the Company's
major operating systems, including the Company's financial systems and the
systems used by Tekno Books, the Company's book development and licensing
operation, are currently year 2000 compliant.
As the Company currently intends to phase out its mall-based retail
operations, preferably through a sale of the business, it is unlikely that the
existing retail systems will still be utilized by the Company at the turn of the
century. Nevertheless, efforts have been made to ensure that the systems used by
the retail operations will also be year 2000 compliant. With regard to the
retail systems, the Company's primary concern is with remediation of the
software for the point-of-sale registers in the stores. As the Company presently
only operates six stores, if it needed to replace all of its point-of-sale
software and registers, the cost would not be expected to exceed $100,000.
Other than the potential cost to upgrade or replace the store
point-of-sale software and hardware, the Company is not presently aware of any
significant expenditures that will be necessary for the Company to be year 2000
compliant, beyond those already being incurred. There can be no assurances,
however, that significant expenditures may not be required in the future.
Significant vendors have been contacted to ensure that their year 2000 issues
will be resolved in a timely manner and will not be disruptive to the Company's
operations. As indicated above, the Company has initiated, but not completed,
its assessment of the impact of year 2000 on its business; however, the year
2000 issue is not currently expected to have a material impact on the Company's
current or future business operations or financial condition.
INFLATION AND SEASONALITY
Although the Company cannot accurately determine the precise effects of
inflation, it does not believe inflation has a material effect on the Company's
sales or results of operations. The Company does, however, consider its business
to be somewhat seasonal and expects net revenues to be generally higher during
the second and fourth quarters of each fiscal year for its Tekno Books book
development and licensing operation as a result of the general publishing
industry practice of paying royalties semi-annually. The Company's entertainment
retail business is also seasonal with the holiday season accounting for the
largest percentage of annual net sales. In addition, although not seasonal, the
Company's intellectual properties division and NetCo Partners both experience
significant fluctuations in their respective revenue streams, earnings and cash
flow as a result of the significant amount of time that is expended in the
creation and development of the intellectual properties and their respective
licensing agreements. While certain of the development costs are incurred as
normal recurring operating expenses, the recognition of licensing revenue is
typically triggered by specific contractual events which occur at different
points in time rather than on an evenly recurring basis.
-27-
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended June 30, 1999, the Company issued an aggregate
of 569,820 shares of its common stock to 21 accredited investors at a purchase
price of $21.25 per share. The Company issued to the same investors warrants to
purchase an aggregate of 189,947 shares of common stock at an exercise price of
$21.25 per share. The Company received gross proceeds of $12.1 million in these
transactions. The Company issued 42,600 shares of common stock as a fee to the
placement agent in these transactions.
During the quarter ended June 30, 1999, the Company also issued stock
options and warrants to purchase an aggregate of 896,129 shares of the Company's
common stock, including 768,050 stock options granted to employees at exercise
prices ranging from $12.125 to $21.09; 2,800 options granted to consultants of
the Company at an exercise price of $17.375 per share; 279 options granted to a
consultant of the Company at exercise prices ranging from $4.80 to $6.36; and
125,000 warrants granted to an investment banker at an exercise price of $12.64
per share for services rendered in conjunction with the acquisition of
hollywood.com. The various options and warrants are exercisable as early as
April 27, 1999 and generally expire five years from the date of issuance.
Options granted to employees are subject to vesting periods ranging from six
months to four years. No placement fees or commissions were paid in connection
with the issuance of the securities. The Company also issued 2,500 shares of its
common stock to an officer of the Company as a bonus.
In addition, the Company issued 259,933 shares of its common stock upon
the exercise of outstanding warrants and options with exercise prices ranging
from $4.80 to $10.188 per share. The Company received gross proceeds of
$1,382,996 for these various exercises and paid no commissions or fees relating
to the issuances.
On April 14, 1999, the holders of the Company's Series D 7% Convertible
Preferred Stock converted 200 of the outstanding shares of Series D Preferred
Stock into 571,788 shares of the Company's common stock.
On April 14, 1999, the holders of the Company's Series D-2 7%
Convertible Preferred Stock converted all of the outstanding shares of Series
D-2 Preferred Stock into 100,000 shares of the Company's common stock.
On May 18, 1999, the holders of the Company's Series A and B Variable
Rate Convertible Preferred Stock converted all of the outstanding shares of
Series A and B Preferred Stock into 300,631 shares of the Company's common
stock.
The foregoing securities were all issued without registration under the
Securities Act of 1933, as amended, by reason of the exemption from registration
afforded by the provisions of Section 4(2) thereof, as transactions by an issuer
not involving a public offering, each recipient of securities having delivered
appropriate investment representations to the Company with respect thereto and
having consented to the imposition of restrictive legends upon the certificates
evidencing such securities.
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<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
INCORPORATED BY
EXHIBIT NO. DESCRIPTION REFERENCE FROM
- ----------- ----------- ---------------
<S> <C> <C>
3.1 Articles of Incorporation, as amended (1)
3.2 Articles of Amendment to Articles of Incorporation of the Company for
Designation of Preferences, Rights and Limitations of 7% Series D Convertible
Preferred Stock (1)
3.3 Articles of Amendment to Articles of Incorporation of the Company for (2)
Designation of Preferences, Rights and Limitations of 7% Series D-2
Convertible Preferred Stock
3.4 Articles of Amendment to Articles of Incorporation of the Company amending
Designation of Preferences, Rights and Limitations of Series A Variable Rate
Convertible Preferred Stock
3.5 Articles of Amendment to Articles of Incorporation of the Company amending
Designation of Preferences, Rights and Limitations of Series B Variable Rate
Convertible Preferred Stock
3.6 Bylaws (3)
4.1 Form of Common Stock Certificate (3)
4.2 Rights Agreement dated as of August 23, 1996 between the Company and American
Stock Transfer & Trust Company, as Rights Agent (4)
10.1 Employment Agreement, dated as of May 18, 1999, between Showtimes.com, Inc.
and Brett West
10.2 Non-Competition Agreement, dated as May 18, 1999, by and among the
Company, CinemaSource, Inc., Brett West and Pamela West
10.3 Unsecured Promissory Note, dated May 20, 1999, in favor of The Times Mirror
Company
10.4 Registration Rights Agreement, dated as of May 20, 1999, between the Company (5)
and The Times Mirror Company
10.5 Non-Competition Agreement, dated as of May 20, 1999, between the Company and (5)
The Times Mirror Company
</TABLE>
-29-
<PAGE>
<TABLE>
<CAPTION>
INCORPORATED BY
EXHIBIT NO. DESCRIPTION REFERENCE FROM
- ----------- ----------- ---------------
<S> <C> <C>
10.6 Employment Agreement, dated as of May 31, 1999, between the Company and
W. Robert Shearer
10.7 Form of Subscription Agreement between the Company and each of the
investors in the Company's private placement of an aggregate of
569,820 shares of Common Stock
27.1 Financial Data Schedule
</TABLE>
- ------------------
(1) Incorporated by reference from the exhibit filed with the Company's
Quarterly Report on Form 10-QSB for the quarter ended September 30,
1998.
(2) Incorporated by reference from the exhibit filed with the Company's
Registration statement on Form S-3 (No. 333-68209).
(3) Incorporated by reference from the exhibit filed with the Company's
Registration Statement on Form SB-2 (No. 33-69294).
(4) Incorporated by reference from the exhibit filed with the Company's
Current Report on Form 8-K dated August 23, 1996.
(5) Incorporated by reference from Exhibit 2 to the Company's Current
Report on Form 8-K filed on January 20, 1999.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on June 1, 1999
announcing the consummation of the acquisition of CinemaSource, Inc. on May 18,
1999 and the acquisition of Hollywood.com, Inc. on May 20, 1999. The Company
filed an Amendment No. 1 to Current Report on Form 8-K on June 23, 1999, which
included historical financial statements for each of CinemaSource, Inc. and
Hollywood.com, Inc. and pro forma financial statements for the Company
reflecting such acquisitions.
-30-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIG ENTERTAINMENT, INC.
Date: August 13, 1999 By: /s/ Mitchell Rubenstein
---------------------------------------
Mitchell Rubenstein, Chairman of the
Board and Chief Executive Officer
(Principal executive, financial and
accounting officer)
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<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
3.4 Articles of Amendment to Articles of Incorporation of the Company amending
Designation of Preferences, Rights and Limitations of Series A Variable Rate
Convertible Preferred Stock
3.5 Articles of Amendment to Articles of Incorporation of the Company amending
Designation of Preferences, Rights and Limitations of Series B Variable Rate
Convertible Preferred Stock
10.1 Employment Agreement, dated as of May 18, 1999, between Showtimes.com, Inc.
and Brett West
10.2 Non-Competition Agreement, dated as May 18, 1999, by and among the
Company, CinemaSource, Inc., Brett West and Pamela West
10.3 Unsecured Promissory Note, dated May 20, 1999, in favor of The Times Mirror
Company
10.6 Employment Agreement, dated as of May 31, 1999, between the Company and
W. Robert Shearer
10.7 Form of Subscription Agreement between the Company and each of the
investors in the Company's private placement of an aggregate of
569,820 shares of Common Stock
27.1 Financial Data Schedule
</TABLE>
-33-
EXHIBIT 3.4
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
BIG ENTERTAINMENT, INC.
AMENDMENT
TO
DESIGNATION OF PREFERENCES, RIGHTS AND LIMITATIONS
OF
SERIES A VARIABLE RATE CONVERTIBLE PREFERRED STOCK
Pursuant to the provisions of Section 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 at a meeting of the Board of Directors held on May 14,
1999. Shareholder action is not necessary or required.
FIRST: Section 3(a) to the Designation of Preferences, Rights and
Limitations of Series A Variable Rate Convertible Preferred Stock dated as of
November 8, 1995 (the "Series A Designation") is amended to read in its entirety
as follows:
"(a) Each Series A Preferred Share shall be and is convertible at the
sole option of the holder thereof, into one (1.0) share of Common Stock
at any time prior to May 17, 1999 (the "Conversion Period"). Upon a
holder's timely exercise of this conversion option in accordance with the
following paragraph (b) of this Section 3, such holder shall also be
entitled to receive all unpaid dividends that have cumulated or accrued
on the Series A Preferred Shares being converted, with such dividends to
be determined and paid in accordance with Section 2 hereof as if the
`Distribution Date' is the day on which the shares are surrendered for
conversion."
<PAGE>
IN WITNESS WHEREOF, these Articles of Amendment to the Articles of
Incorporation have been executed by the undersigned duly authorized officer of
the Company as of the 14th day of May, 1999.
BIG ENTERTAINMENT, INC.
By: /s/ Mitchell Rubenstein
----------------------------------
Mitchell Rubenstein,
Chairman of the Board and Chief
Executive Officer
EXHIBIT 3.5
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
BIG ENTERTAINMENT, INC.
AMENDMENT
TO
DESIGNATION OF PREFERENCES, RIGHTS AND LIMITATIONS
OF
SERIES B VARIABLE RATE CONVERTIBLE PREFERRED STOCK
Pursuant to the provisions of Sections 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 at a meeting of the Board of Directors held on May 14,
1999. Shareholder action is not necessary or required.
FIRST: Section 3(a) to the Designation of Preferences, Rights and
Limitations of Series B Variable Rate Convertible Preferred Stock dated as of
December 9, 1996 (the "Series B Designation") is amended to read in its entirety
as follows:
"(a) Each Series B Preferred Share shall be and is convertible at the
sole option of the holder thereof, into one share of Common Stock at any
time prior to May 17, 1999 (the "Conversion Period"). Upon a holder's
timely exercise of this conversion option in accordance with the
following paragraph (b) of this Section 3, such holder shall also be
entitled to receive all unpaid dividends that have cumulated or accrued
on the Series B Preferred Shares being converted, with such dividends to
be determined and paid in accordance with Section 2 hereof as if the
`Distribution Date' is the day on which the shares are surrendered for
conversion."
<PAGE>
IN WITNESS WHEREOF, these Articles of Amendment to the Articles of
Incorporation have been executed by the undersigned duly authorized officer of
the Company as of the 14th day of May, 1999.
BIG ENTERTAINMENT, INC.
By: /s/ Mitchell Rubenstein
--------------------------------
Mitchell Rubenstein,
Chairman of the Board and Chief
Executive Officer
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
this 18th day of May, 1999 by and between SHOWTIMES.COM, INC., a Delaware
corporation (hereinafter called the "Company"), c/o Big Online, Inc. having its
principal office at 2255 Glades Road, Suite 237 W, Boca Raton, Florida 33431,
and BRETT WEST, whose residence address is 2 Lookout Point Drive, Ridgefield, CT
06877 (hereinafter called the "Executive").
RECITALS
A. The Executive was previously the President of CinemaSource, Inc.
("CinemaSource").
B. Big Entertainment, Inc., the indirect sole stockholder of the
Company ("BigE"), pursuant to the terms of the Asset Purchase Agreement dated as
of March 29, 1999 entered into with CinemaSource, the Executive and Pamela West
(the "Asset Purchase Agreement"), acquired substantially all of the assets of
CinemaSource, which assets were contributed to the Company (the "CinemaSource
Business").
C. The Executive possesses intimate knowledge of the business and
affairs of CinemaSource.
D. The Company desires to retain the Executive as President of the
CinemaSource Business.
E. The Executive is willing to make his services available to the
Company on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties hereby agree as follows:
1. EMPLOYMENT.
1.1 EMPLOYMENT AND TERM. The Company shall employ the Executive and
the Executive shall serve the Company, on the terms and conditions set forth
herein, for the period (the "Term") effective as of the date hereof (the
"Commencement Date") and expiring on the first anniversary of the Commencement
Date, subject to successive one-year extensions by written agreement of the
Executive and the Company entered into no later than 60 days prior to the end of
the Term, as extended in accordance with this Agreement from time to time, and
subject to earlier termination as provided herein. Notwithstanding the
foregoing, Executive shall have the unilateral right to extend this Agreement
(i) for an additional year if "Operating Cash Flow of the "CinemaSource
Business" during the first year of Executive's employment is at least equal to
$875,000
<PAGE>
and (ii) for a third year if Operating Cash Flow of the CinemaSource Business
for the second year of the Executive's employment is at least equal to
$1,093,750. "Operating Cash Flow of the CinemaSource Business" means, as to any
period of determination, income from operations before interest, taxes and other
non-operating income/expense and before depreciation and amortization during
such period (excluding the cost of Executive's Base Salary and any annual bonus
of the Executive), where such income is the income from operations that is
allocable to the assets (such assets collectively, the "CSI Assets") (i)
acquired by the Company pursuant to the Asset Purchase Agreement and (ii) of the
CinemaSource Business developed during the Term by or under the direction of the
Executive (excluding any assets or business existing as part of the Company's
business on the date hereof or otherwise consolidated with the CinemaSource
Business by reason of any acquisition of assets by the Company or by reason of
any merger or consolidation involving the Company). Operating Cash Flow of the
CinemaSource Business shall be determined by the Company in accordance with
generally accepted accounting principles, consistently applied.
1.2 DUTIES AND RESPONSIBILITIES OF EXECUTIVE. During the Term, the
Executive shall serve as President of the CinemaSource Business, shall report to
the Company's Chief Executive Officer, the President or the Chief Operating
Officer and shall diligently and faithfully perform all duties and
responsibilities as may be assigned to him from time to time by or upon the
authority of the Company's Board of Directors, the Chief Executive Officer, the
President or the Chief Operating Officer. Such duties shall specifically include
(i) the duty promptly to report, to the Chief Executive Officer, the President
or the Chief Operating Officer, any event or occurrence in the CinemaSource
Business that would reasonably be expected to be material to such business and
(ii) the duty to obtain the prior written consent of the Chief Executive
Officer, President or Chief Operating Officer to the entry into any contract or
arrangement by or on behalf of the Company or the CinemaSource Business (a)
involving any payment or series of payments by or to the Company of more than
$15,000, whether in one or a series of transactions, or (b) involving payments
by or to the Company and which is for a term of more than one year or is not
otherwise cancelable by the Company on no more than 30 days' prior written
notice (without penalty or payment of any kind). During the Term, the Executive
shall devote all of the Executive's working time to the performance of the
services required under this Agreement and shall not engage in any other
business matters. Notwithstanding the foregoing, Executive may develop and own a
separate business so long as it is not a "competing business" (as defined in the
Non-Competition Agreement dated as of the date hereof by and among the Company,
Executive and Pamela West) and provided that such activities do not interfere
with Executive's performance of his duties hereunder. The Executive shall at all
times perform his duties and responsibilities under this Agreement, and shall at
all times conduct the business of CinemaSource, in compliance with all
applicable laws, rules, regulations or ordinances and in compliance with any
judgments, orders or decrees or other legal obligations binding on the Company.
1.3 PLACE OF PERFORMANCE. Except for required travel on the
Company's business, the Executive shall be based at the current offices of
CinemaSource
2
<PAGE>
in Ridgefield, Connecticut or, as the Company may from time to time
determine in its sole discretion, at such other location within a thirty-mile
radius thereof or at the Company's offices from time to time located in New York
City. Notwithstanding the foregoing, the Executive shall be entitled to perform
his duties and responsibilities under this Agreement at another location he may
select (at the Executive's sole cost and expense, including with respect to any
business expenses that would not otherwise be incurred if the Executive had
worked out of the Company's regular location) for a period not to exceed eight
work weeks per year during each year of the Term (which time shall not
constitute vacation), provided that the exercise by the Executive of this right
shall not interfere with the Executive's performance of his duties under this
Agreement or the conduct of the CinemaSource Business.
2. COMPENSATION.
2.1 BASE SALARY. During the Term, the Executive shall receive a base
salary at the annual rate of $200,000 (the "Base Salary"). The Base Salary shall
be payable in substantially equal installments consistent with the Company's
normal payroll schedule, subject to applicable withholding and other taxes.
Effective for the period of each one-year extension of the Term provided for in
Section 1.1, if any, the Base Salary shall be increased by an amount equal to
10% of the Base Salary in effect for the prior year of the Term. Such increase
shall automatically become effective on the first day of any such one-year
extension.
2.2 BONUS. The Executive shall be entitled to receive an annual cash
bonus equal to 50% of his Base Salary during each year of the Term (measured
from the Commencement Date as to the first year of the Term and any anniversary
thereof in the case of any one-year extension) if (i) actual Operating Cash Flow
of the CinemaSource Business (excluding the cost of Base Salary and any annual
bonus of Executive) for such year equals or exceeds 125% of the applicable
"Projected Operating Cash Flow Amount" and (ii) actual annual revenue of the
CinemaSource Business for such year equals or exceeds the applicable "Projected
Annual Revenue Amount," each as set forth on Schedule A attached hereto. For
purposes of this Agreement, "actual annual revenue of the CinemaSource Business"
means all of the revenues allocable to the CSI Assets. If actual Operating Cash
Flow of the CinemaSource Business equals between 105% and 125% of the applicable
Projected Operating Cash Flow Amount and actual Annual Revenue equals or exceeds
the applicable Projected Annual Revenue Amount, then the Executive shall be
entitled to an annual cash bonus as follows: if actual Operating Cash Flow of
the CinemaSource Business is 105% of the applicable Projected Operating Cash
Flow Amount, then such bonus shall be equal to 10% of Base Salary; if 110%, then
20% of Base Salary; if 115%, then 30% of Base Salary; if 120%, then 40% of Base
Salary; and, as provided above, if 125% or more, then 50% of Base Salary. Any
annual bonus payable pursuant to this Section 2.2 shall be prorated if actual
Operating Cash Flow of the CinemaSource Business is between any of the foregoing
specified percentages of the applicable Projected Operating Cash Flow Amount
(including between 101% and 105% thereof) and actual Annual Revenue equals or
exceeds the applicable Projected Annual Revenue Amount. The Executive's bonus
under this Section 2.2 shall be payable in one
3
<PAGE>
lump sum as soon as practicable after the completion of the Company's annual
audit and shall be prorated for any partial year of the Term for which it is
payable as provided in this Agreement. The Executive shall not be entitled to
any bonus for any year of the Term if actual Operating Cash Flow of the
CinemaSource Business is less than 101% of the applicable projected targeted
cash flow amounts or actual annual revenue of the CinemaSource Business is less
than 100% of the applicable projected targeted annual revenue amounts set forth
on SCHEDULE A attached hereto.
2.3 STOCK OPTIONS. On the Commencement Date, as an inducement to
enter into this Agreement and in consideration of the Executive's performance of
services hereunder, BigE shall grant to the Executive, an option to acquire
75,000 shares of common stock $0.01 par value per share ("Common Stock"), which
option shall be in the form of the Incentive Stock Option Agreement attached
hereto as EXHIBIT A. In addition, on the date of commencement of the first and
second one-year extensions of the Term effected as provided in Section 1.1, if
any, BigE shall grant to the Executive an additional option to acquire 50,000
shares of Common Stock on each of such commencement dates, each such option to
be in the form of the Incentive Stock Option Agreement attached hereto as
EXHIBIT B. Notwithstanding the foregoing, to the extent any options granted by
BigE pursuant to such agreements do not qualify as Incentive Stock Options under
the Internal Revenue Code of 1986, as amended, they shall be granted as
non-qualified stock options.
3. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
3.1 EXPENSE REIMBURSEMENT. During the Term, the Company, upon the
submission of reasonable supporting documentation by the Executive, and in
accordance with Company policies for its executives, shall reimburse the
Executive for all reasonable out-of-pocket expenses actually paid or incurred by
the Executive necessary to conduct the CinemaSource Business, including
reasonable expenses for travel and entertainment; PROVIDED that any such travel
and entertainment expenses shall be authorized beforehand in writing by the
Chief Executive Officer, President, or the Chief Operating Officer if they are
not specifically included in the Company's approved annual operating budget for
the CinemaSource Business. Notwithstanding the foregoing, the Executive shall
not be entitled to reimbursement for any commutation costs, including any costs
of travel to any location referred to in the second section of Section 1.3.
3.2 OTHER BENEFITS. During the Term, the Executive shall be entitled
to medical and hospitalization insurance coverage, as well as life and
disability insurance coverage, each to the extent available from time to time to
other similarly-situated executives of the Company. Within 30 days following any
termination of this Agreement, at the Executive's option, the Company shall
assign to the executive all assignable insurance policies on the life of the
Executive then owned by the Company in consideration of the payment by the
Executive of the cash surrender value, if any, and the Executive's agreement to
assume the Company liability to pay any premiums accruing thereon after the date
of such termination.
4
<PAGE>
3.3 VACATION. During the Term, the Executive shall be entitled to
paid vacation during each year of the Term on substantially the same terms made
available from time to time to other executives of the Company who are similarly
situated to the Execution in terms of their position with the Company.
4. TERMINATION.
4.1 TERMINATION WITHOUT CAUSE. The Executive's employment hereunder
may be terminated by the Company without "cause" (as defined below), as follows.
The Company may terminate the Executive's employment hereunder at any time
without cause during the period commencing on November 18, 1999 and ending on
May 17, 2000, if Operating Cash Flow of the CinemaSource Business, during the
period from the date hereof to the end of the month immediately preceding the
month in which any such termination becomes effective (the "First-Year
Employment Period"), would result in pro forma Operating Cash Flow of the
CinemaSource Business for the period from the date hereof to May 17, 2000 being
less than $875,000, where pro forma Cash Flow of the CinemaSource Business is
determined by the Company on an annualized basis, assuming a monthly growth rate
for the period from the beginning of the month in which such termination occurs
until May 17, 2000 that is equal to the average monthly increase (or decrease)
of such cash flow during the First-Year Employment Period. In addition, in the
case of a one-year extension of the Term by the Executive pursuant to clause (i)
of the second sentence of Section 1.1, the Company may terminate the Executive's
employment hereunder at any time without cause during the period commencing on
November 18, 2000 and ending on May 17, 2001, if Operating Cash Flow of the
CinemaSource Business, during the period from May 18, 2000 to the end of the
month immediately preceding the month in which any such termination becomes
effective (the "Second-Year Employment Period"), would result in pro forma
Operating Cash Flow of the CinemaSource Business for the period from May 18,
2000 to May 17, 2001 being less than $1,093,750, where pro forma Operating Cash
Flow of the CinemaSource Business is determined by the Company on an annualized
basis, assuming a monthly growth rate for the period from the beginning of the
month in which such termination occurs until May 17, 2001 that is equal to the
average monthly increase (or decrease) of such cash flow during the Second-Year
Employment Period. The Company also may terminate the Executive's employment
hereunder without cause at any time from and after May 18, 2000, if the Term of
this Agreement is extended beyond such date other than by the Executive pursuant
to clause (i) of the second sentence of Section 1.1. Any such termination by the
Company without cause shall be upon at least five days' prior written notice and
shall be effective as of the date set forth in such notice. If the Executive's
employment hereunder is so terminated by the Company, the Executive thereafter
shall be entitled only to his accrued but unpaid Base Salary, his accrued but
unpaid bonus pursuant to Section 2.2, if any, and any other accrued but unpaid
benefits under this Agreement, through the date that is the later of (i) the
six-month anniversary date of the effective date of his termination of
employment and (ii) the last day of the Term as then in effect (assuming for
such purpose that no further extensions of the Term referred to in Section 1.2
shall be permitted). All amounts payable to the Executive
5
<PAGE>
under this Section 4.1 shall be payable at the times and otherwise subject to
the terms and conditions of this Agreement.
4.2 TERMINATION FOR CAUSE. The Executive's employment hereunder may
be terminated by the Company at any time for "cause" by written notice from the
Company, effective as of the date set forth in such notice. If the Executive's
employment hereunder is so terminated by the Company, the Executive thereafter
shall be entitled only to his accrued but unpaid Base Salary and any other
accrued but unpaid benefits under this Agreement (other than any bonus pursuant
to Section 2.2), through the effective date of his termination of employment.
All amounts payable to the Executive under this Section 4.1 shall be payable at
the times and otherwise subject to the terms and conditions of this Agreement.
"Cause" means any of the following: (i) gross negligence or willful misconduct
in the performance of the Executive's duties hereunder or any material breach by
the Executive of any of his obligations under this Agreement; (ii) conviction of
any felony, or any misdemeanor involving dishonesty, fraud or moral turpitude;
(iii) the occurrence of any wrongful and intentional act or omission by the
Executive which has a material adverse impact on the business, properties,
results of operations, condition (financial or otherwise), public reputation, or
prospects of the Company; or (iv) any violation or other default by CSI, the
Executive or Pamela West under the Asset Purchase Agreement or any of the
agreements or documents delivered by such parties pursuant thereto.
4.3 SURVIVAL AFTER TERMINATION OF EMPLOYMENT. The provisions of
Sections 5, 6, 7, 8, 9, 11, 12, 13, 17 and of this Section 4.3 shall survive any
termination of the Executive's employment under this Agreement for any reason,
whether by the Company or the Executive, other than any termination by the
Company without cause. Any termination of the Executive's employment hereunder
shall not result in a termination of any other agreement or arrangement
involving the Company or its affiliates, on one hand, and the Executive, on the
other hand, which other agreements and arrangements shall remain in full force
and effect in accordance with their terms regardless of any such termination.
5. COMPANY'S RIGHTS OF SET-OFF. The Company shall have the right, in
its sole discretion, to set-off or reduce any amounts owed by the Company to the
Executive under this Agreement by any amounts due and owing by the Executive to
the Company in connection with the acquisition by the Company of the
CinemaSource Business on the date hereof.
6. BOOKS AND RECORDS; DEVELOPMENTS. All books, records, accounts and
similar repositories of confidential or proprietary information of the Company,
whether prepared by the Executive or otherwise coming into the Executive's
possession, shall be the exclusive property of the Company and shall be returned
immediately to the Company on termination of this Agreement or at the Board's
request at any time.
The Executive acknowledges that all developments, including, without
limitation, inventions, patentable or otherwise, discoveries, improvements,
patents, trade
6
<PAGE>
secrets, designs, reports, computer software, flow charts and diagrams,
procedures, data, documentation, ideas and writings and applications thereof
relating to the businesses of the Company, Big Entertainment or any of their
affiliates, or planned businesses of any of them that, alone or jointly with
others, the Executive may conceive, create, make, develop, reduce to practice or
acquire during the Term (collectively, the "Developments") are works made for
hire and shall remain the sole and exclusive property of the Company and the
Executive hereby assigns to the Company all of his right, title and interest in
and to all such Developments. The Executive shall promptly and fully disclose
all future material Developments to the Board of Directors of the Company and,
at any time upon request and at the expense of the Company, shall execute,
acknowledge and deliver to the Company all instruments that the Company shall
prepare, give evidence and take all other actions that are necessary or
desirable in the reasonable opinion of the Company to enable the Company to file
and prosecute applications for and to acquire, maintain and enforce all letters,
patent, trademark registrations or copyrights covering the Developments in all
countries in which the same are deemed necessary by the Company. All memoranda,
notes, lists, drawings, records, files, computer tapes, programs, software,
source and programming narratives and other documentation (and all copies
thereof) made or compiled by the Executive or made available to the Executive
concerning the Developments or otherwise concerning the businesses of the
Company, Big Entertainment or any of their affiliates or planned businesses of
any of them shall be their property and shall be delivered to the Company
promptly upon the expiration or termination of the Term.
7. ARBITRATION. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, or any successor thereof, and judgment upon the award rendered by
the Arbitrators may be entered in any Court having jurisdiction thereof. Venue
of the arbitration shall be in Palm Beach County, Florida. Any controversy or
claim shall be submitted to a single arbitrator selected from the panels of the
Arbitrators of the American Arbitration Association. The arbitrators, in
addition to any award made, shall have the discretion to award the prevailing
party the costs of the proceedings, together with the attorney's fees, PROVIDED
that absent such award, each party shall bear the costs of its own counsel and
presentation of evidence, and each party shall share equally the cost of such
arbitration proceeding. Any award made hereunder may be docketed in a court of
competent jurisdiction in Palm Beach County, Florida, and all parties hereby
consent to the personal jurisdiction of such court for purposes of the
enforcement of the arbitration award.
8. BINDING EFFECT. Except as herein otherwise provided, this Agreement
shall inure to the benefit of and shall be binding upon the parties hereto,
their personal representatives, successors, heir and assigns.
9. SEVERABILITY. Invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other provisions.
7
<PAGE>
10. TERMINOLOGY. All personal pronouns used in this Agreement, whether
used in the masculine, feminine or neuter gender, shall include all other
genders; the singular shall include the plural and vice versa. Titles of
Paragraphs are for convenience only, and neither limit nor amplify the
provisions of the Agreement itself.
11. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of New York without regard to the
principles or policies of conflicts of laws of such state.
12. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the Non-Competition
Agreement contains the entire understanding between the parties as to the
subject matter hereof and supersedes all prior written or oral agreements or
arrangements between the parties regarding such subject matter. This Agreement,
and the parties rights hereunder, may not be changed or modified except in a
writing signed by all the parties; PROVIDED that any waiver by a party of its
rights under this Agreement may be waived in a writing signed only by the party
entitled to enforce such rights.
13. NOTICE. Any notice required or permitted to be delivered hereunder
shall be deemed to be delivered when deposited in the United States mail,
postage prepaid, registered or certified mail, return receipt requested,
addressed to the parties at the addresses first stated herein, or to such other
address as either party hereto shall from time to time designate to the other
party by notice in writing as provided herein.
14. OTHER INSTRUMENTS. The parties hereby covenant and agree that they
will execute such other and further instruments and documents as are or may
become necessary or convenient to effectuate and carry out the terms of this
Agreement.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each such counterpart shall for all purposes be deemed an
original.
16. CONSOLIDATION, MERGER OR SALE OF ASSETS. Nothing in this Agreement
shall preclude or impair the Company from consolidating or merging into or with,
or transferring all or substantially all of its assets to, another entity which
assumes this Agreement, and all obligations of the Company hereunder, in
writing. Upon such consolidation, merger, or transfer of assets and assumption,
the term "the Company" as used herein, shall mean such other corporation and
this Agreement shall continue in full force and effect.
17. ASSIGNABILITY. This Agreement, and the parties rights hereunder
shall not be assigned by either party, except with the written consent of the
other and except as provided in Paragraph 16 hereof.
8
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly signed by the parties
hereto on the day and year first written above.
SHOWTIMES.COM, INC.
By: /s/ Mitchell Rubenstein
-------------------------------------------------------
Mitchell Rubenstein
Chief Executive Officer
/s/ Brett West
----------------------------------------------------
BRETT WEST
9
<PAGE>
EXHIBIT 10.2
NON-COMPETITION AGREEMENT
This Non-Competition Agreement (this "Agreement") is entered into as of
May 18, 1999 by and among Big Entertainment, Inc., a Florida corporation (the
"Company"), CinemaSource, Inc., a Connecticut corporation ("CinemaSource") and
each of Brett West and Pamela West (together, the "Executives").
RECITALS
WHEREAS, the Company, CinemaSource and the Executives are parties to
that certain Asset Purchase Agreement, dated as of March 29, 1999 (the "Purchase
Agreement"), providing for the purchase by the Company of substantially all of
the assets of CinemaSource;
WHEREAS, Brett West is the President and sole shareholder of
CinemaSource and serves as a director of CinemaSource, and Pamela West is the
Treasurer and the Secretary of CinemaSource and serves as a director of
CinemaSource;
WHEREAS, the Company and the Executives wish to provide for and
acknowledge certain arrangements and understandings following the closing of the
transactions contemplated by the Purchase Agreement; and
WHEREAS, the closing of the transactions contemplated by the Purchase
Agreement is conditioned upon the execution and delivery of this Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties hereto hereby agree as follows:
1. DEFINED TERMS. Capitalized terms used but not otherwise defined
herein shall have the meanings assigned thereto in the Purchase Agreement. As
used in this Agreement, the following terms shall have the respective meanings
set forth in this Section 1:
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in New York, New York are authorized or required by
law to close.
"Competing Business" means (i) Premier Datavision, Inc., (ii) any other
business, enterprise or venture that competed with CinemaSource on the date of
the Purchase Agreement or the Closing Date or that is engaged in any business,
enterprise or venture conducted by the business that constitutes the Assets,
(iii) any other business, enterprise or venture that is engaged anywhere in
North America in the compilation, reproduction or distribution of movie
showtimes , movie dates, movie descriptions or synopses, movie photos, movie
trailers or any other movie or theatre related information, or (iv) any other
business, enterprise or venture that is engaged anywhere in North America in the
compilation, reproduction or distribution of information related to radio
programming or concerts or other musical events.
<PAGE>
"Person" means any individual, business, trust, unincorporated
association, corporation, partnership, joint venture, limited liability company
or other entity of any kind.
"Proprietary Information" means all intellectual property rights, trade
secrets and other proprietary or confidential information related to the
business and operations of CinemaSource or the Assets (as defined in the
Purchase Agreement). The term "Proprietary Information" includes, by way of
example, matters of a technical nature, "know-how," computer programs (including
documentation of such programs), research projects, and matters of a business
nature, such as proprietary information about costs, profits, markets, sales,
lists of customers, and other information of a similar nature to the extent not
available to the public, and such materials constituting plans for future
development.
2. NON-SOLICITATION AND NON-INTERFERENCE. For a period of five (5)
years after the date of this Agreement, neither CinemaSource nor the Executives
shall (a) induce or attempt to induce any employee of the Company to leave the
employ of the Company or in any way interfere adversely with the relationship
between any such employee and the Company, (b) induce or attempt to induce any
employee of the Company to work for, render services or provide advice to or
supply Proprietary Information to any Person or (c) induce or attempt to induce
any customer, supplier, licensee, licensor, consultant or other business
relation of the Company to cease doing business with the Company or in any way
interfere with the relationship between any such customer, supplier, licensee,
licensor, consultant or other business relation and the Company.
3. INDIRECT SOLICITATION. For a period of five (5) years after the date
of this Agreement, neither CinemaSource nor the Executives shall, directly or
indirectly, induce, assist or encourage any Person in carrying out, directly or
indirectly, any activity that would be prohibited by the provisions of Section 2
if such activity were carried out by CinemaSource or either of the Executives,
either directly or indirectly; and, by way of example but not limitation,
neither CinemaSource nor the Executives shall, directly or indirectly, induce,
assist or encourage any employee of the Company to carry out, directly or
indirectly, any such activity.
4. COVENANT NOT TO COMPETE. For a period of five (5) years after the
date of this Agreement, neither CinemaSource nor the Executives shall, directly
or indirectly, have any interest in, own, manage, operate, control, be connected
with as a stockholder (other than as a stockholder of less than two percent (2%)
of the issued and outstanding stock of a company whose stock is listed on a
national securities exchange or quoted on The Nasdaq Stock Market), joint
venturer, officer, director, partner, employee or consultant, or otherwise
engage, be interested in, or invest or participate in any Competing Business.
5. PROPRIETARY INFORMATION. From and after the date of this Agreement,
neither CinemaSource nor the Executives shall (for the benefit of CinemaSource
or either of the Executives or for the benefit of any other Person) use or
disclose any Proprietary Information known to, or in the possession of, any of
them.
6. REPRESENTATIONS. Each Executive represents and warrants to the
Company that he or she is an officer and a director of CinemaSource, is actively
involved in the business of
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CinemaSource and will receive, directly or indirectly, substantial benefits from
the transactions contemplated by the Purchase Agreement.
7. SPECIFIC ENFORCEMENT. The parties hereto acknowledge and agree that
if any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached, irreparable damage would occur
and it would be extremely impracticable and difficult to measure damages.
Accordingly, in addition to any other rights and remedies to which the parties
may be entitled by law or equity, the parties shall be entitled to an injunction
or injunctions to prevent or cure breaches of the provisions of this agreement
and to enforce specifically the term and provisions hereof, and the parties
expressly waive (a) the defense that a remedy in damages will be adequate and
(b) any requirement, in an action for specific performance, for the posting of a
bond.
8. GOVERNING LAW. This Agreement shall be governed and construed in all
respects in accordance with the laws of the State of New York. The Company,
CinemaSource and the Executives each hereby consents to personal jurisdiction in
any action brought with respect to this Agreement and the transactions
contemplated hereby in the United States District Court for the Southern
District of New York or, if subject matter jurisdiction is unable to be obtained
in such court, in any state court in the City of New York in the State of New
York. The Company, CinemaSource and the Executives each also agrees that service
of process may be accomplished pursuant to the provisions of Section 11 hereof.
9. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
10. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the full
and entire understanding and agreement between the parties with regard to the
subjects hereof, and no party shall be liable or bound to any other party in any
manner with respect to such subjects by any warranties, representations or
covenants except as specifically set forth herein. Except as expressly provided
herein, neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the party
against whom enforcement of any such amendment, waiver, discharge or termination
is sought.
11. NOTICES, ETC. Unless otherwise provided, any notice, request,
demand or other communication required or permitted under this Agreement shall
be given in writing and shall be deemed effectively given upon personal delivery
to the party to be notified, or when sent by telex or telecopier (with receipt
confirmed), or one Business Day following deposit with overnight courier or
three Business Days following deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed as follows (or at
such other address as a party may designate by notice to the other):
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If to the Company:
Big Entertainment, Inc.
2255 Glades Road, #237W
Boca Raton, Florida 33431-7383
Attention: Chief Executive Officer
Facsimile: (561) 998-2970
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Howard Chatzinoff, Esq.
Facsimile: (212) 735-4989
If to CinemaSource or the Executives:
2 Lookout Point Dr.
Ridgefield, Connecticut 06877
Attention: Brett West and Pamela West
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
Goodwin Square
225 Asylum Street
Hartford, CT 06103
Attention: Thomas Fairfield, Esq.
Facsimile: (860) 293-3555
SEVERABILITY. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, invalid, unenforceable or void, this Agreement shall continue in full
force and effect without said provision. It is the desire and intent of the
parties hereto that the restrictions set forth in Sections 2 through 5 of this
Agreement shall be enforced and adhered to in every particular, and in the event
that any provision, clause or phrase shall be declared by a court of competent
jurisdiction to be judicially unenforceable either in whole or in part - whether
the fault be in duration, geographic coverage or scope of activities precluded -
the parties agree that they will mutually petition the court to sever or limit
the unenforceable provision so as to retain and effectuate to the greatest
extent legally permissible the intent of the parties as expressed in Sections 2
through 5 of this Agreement.
12. TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
13. FACSIMILE SIGNATURES. Any signature page delivered by a fax machine
or telecopy machine shall be binding to the same extent as an original signature
page, with regard to any
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agreement subject to the terms hereof or any amendment thereto. Any party who
delivers such a signature page agrees to later deliver an original counterpart
to any party which requests it.
14. COUNTERPARTS. This Agreement may be executed in any number of counterparts,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
The foregoing agreement is hereby executed as of the date first above
written.
BIG ENTERTAINMENT, INC.
By /s/ Mitchell Rubenstein
-----------------------------------------------
Mitchell Rubenstein
Chairman of the Board and Chief
Executive Officer
CINEMASOURCE, INC.
By /s/ Brett West
-----------------------------------------------
Brett West
President
By /s/ Pamela West
-----------------------------------------------
Pamela West
5
EXHIBIT 10.3
UNSECURED PROMISSORY NOTE
$1,928,137.64 New York, New York
May 20, 1999
FOR VALUE RECEIVED, the undersigned, BIG ENTERTAINMENT, INC., a Florida
corporation (together with its successors and assigns, the "Borrower"), hereby
promises to pay to the order of THE TIMES MIRROR COMPANY, a Delaware corporation
(together with its successors and assigns, the "Lender"), at the Lender's
offices at 220 West First Street, Los Angeles, California (or such other place
as the Lender may designate in writing to the Borrower), the aggregate principal
sum of One million nine hundred twenty-eight thousand one hundred thirty-seven
dollars and 64 cents ($1,928,137.64), with interest, in lawful money of the
United States, upon the terms and subject to the conditions set forth herein.
This unsecured promissory note (the "Note") is the promissory note referred to
in Section 1.8(a)(i)(4) of the Agreement and Plan of Merger dated as of January
10, 1999, as amended as of May 14, 1999 (as so amended, the "Merger Agreement"),
by and among the Lender, the Borrower, Hollywood.com, Inc. (formerly Hollywood
Online Inc.), a California corporation and a wholly owned subsidiary of the
lender ("HOL"), and Big Acquisition Corp., a Delaware corporation and a wholly
owned subsidiary of the Borrower.
1. PAYMENT AND PREPAYMENT.
(a) REPAYMENT OF PRINCIPAL. The Borrower shall repay the
principal amount of this Note in one lump sum on the earlier of (i) the first
anniversary of the date hereof or (ii) an Event of Default (as defined
hereinafter) and upon written notice when required under Section 2 hereof.
(b) PAYMENT OF INTEREST. The unpaid principal amount of this
Note shall accrue interest (computed on the basis of a 365-day year) until paid
in full at the prime rate from time to time in effect of Citibank, N.A.., New
York, New York (the "Prime Rate"), plus one percent (1%). Such interest shall be
paid quarterly in arrears on the last day of each June, September, December, and
March until payment of this Note in full.
(c) ADDITIONAL INTEREST. If payment of any amount due under
this Note shall be overdue, such overdue amount shall bear interest from and
after the due date, to and including the date when paid in full, at a rate equal
to the Prime Rate, plus two percent (2%); PROVIDED, HOWEVER, in no event shall
the overdue interest exceed the maximum interest rate provided by law.
(d) PREPAYMENT. Any amounts due under this Note may be prepaid
in whole or in part at any time without penalty or premium.
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(e) MANNER OF PAYMENT AND PREPAYMENT. Payments and prepayments
under this Note shall be applied first to interest accrued but unpaid and then
to principal. Payments and prepayments shall be made by certified or official
bank check payable to the order of the Lender, or in cash by wire transfer of
immediately available funds to an account designated in writing by the Lender to
the Borrower, or with respect to any payment or prepayment of principal only, by
delivery by the Borrower to the Lender of that number of shares of fully paid,
nonassessable Parent Common Stock equal to the Excess Share Amount (as defined
in the Merger Agreement) and the Preferred Stock Merger Consideration (as
defined in the Merger Agreement) that would have been deliverable to the Lender
under Section 1.9(a)(i)(1) of the Merger Agreement had this Note not been
delivered. If the due date of any required payment under this Note is not a
"business day" (for this purpose, any day other than a Saturday, Sunday or legal
holiday observed in the State of New York), such required payment shall be due
and payable on the immediately succeeding business day.
2. EVENTS OF DEFAULT. The occurrence and continuation of any one or
more of the following events shall constitute an event of default under this
Note ("Event of Default"):
(a) PAYMENT DEFAULT. The Borrower shall fail to make any required
payment of principal of or interest on this Note and such failure shall continue
for more than three business days after written notice from the Lender to the
Borrower thereof.
(b) SALE OF HOL. The Borrower shall sell or transfer more than a
majority of the voting power of HOL, or all or substantially all of the assets
of HOL in existence on the date of this Note, to any individual who or any
entity of any kind which is not an "affiliate" of the Borrower. (For purposes of
this clause (b), the term "affiliate" shall have the meaning assigned to such
term in Rule 405 under the Securities Act of 1933, as amended.)
(c) BANKRUPTCY DEFAULT. The Borrower shall (i) commence any case,
proceeding or other action under any existing or future law of any jurisdiction
relating to seeking to have an order for relief entered with respect to it or
its debts, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other such relief with respect to it or
its debts, or seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or substantially all of its assets (each of
the foregoing, a "Bankruptcy Action"); (ii) become the debtor named in any
Bankruptcy Action which results in the entry of an order for relief or any such
adjudication or appointment described in the immediately preceding clause (i),
or remains undismissed, undischarged or unbonded for a period of sixty (60)
days; or (iii) make a general assignment for the benefit of its creditors.
In each and every Event of Default under clause (a) or (b) of this
Section 3, the Lender may, without limiting any other rights it may have at law
or in equity, by written notice to the Borrower, declare the unpaid principal of
and interest on this Note due and payable, whereupon the same shall be
immediately due and payable, without presentment, demand, protest or other
notice of any kind, all of which the Borrower hereby expressly waives, and the
Lender may proceed to enforce payment of such principal and interest or any part
thereof in such manner as it may elect in its discretion. In each and every
Event of Default under clause (c) of this Section 3, the unpaid principal of and
interest on this Note shall be immediately due and payable without
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presentment, demand, protest or notice of any kind, all of which the Borrower
hereby expressly waives, and the Lender may proceed to enforce payment of such
principal and interest or any part thereof in such manner as it may elect in its
discretion.
3. NOTICES. All notices, requests, demands or communications
required or permitted under this Note shall be given in accordance with the
provisions applicable to the giving of notices in the Merger Agreement.
4. WAIVERS; RIGHTS AND REMEDIES.
(a) WAIVERS. No failure, delay or course of dealing on the
part of the Lender in exercising any right, power or privilege under this Note
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege hereunder preclude the simultaneous or later
exercise of any other right, power or privilege hereunder.
The Borrower hereby waives to the extent not prohibited by applicable
law (i) all presentments, demands for performance or notices of nonperformance
(except to the extent specifically required under Section 3); (ii) any
requirement of diligence or promptness on the part of the Lender to enforce its
rights under this Note; (iii) any and all notices of every kind and description
which may be required to be given by any law; and (iv) any defense of any kind
(other than payment) which it may now or hereafter have with respect to its
obligations under this Note.
(b) RIGHTS AND REMEDIES. The rights and remedies herein
expressly provided are cumulative and not exclusive of any rights or remedies
which the Lender may otherwise have.
5. INDEMNIFICATION. The Borrower shall pay and shall indemnify and
hold the Lender harmless against any and all costs and expenses, including
reasonable attorneys' fees and disbursements, actually incurred by the Lender
for the collection of this Note upon an Event of Default.
6. AMENDMENT. No amendment or other modification of this Note may be
made without the written consent of the Lender.
7. GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
principles or policies of conflicts of laws of such state.
BIG ENTERTAINMENT, INC.
/S/ MITCHELL RUBENSTEIN
---------------------------------
Mitchell Rubenstein
Chief Executive Officer
3
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This Employment Agreement (hereinafter referred to as the "Agreement") is
entered into by and between BIG ENTERTAINMENT, INC. (hereinafter referred to as
the "Company") and W. ROBERT SHEARER (hereinafter referred to as the
"Executive").
1. EFFECTIVE DATE. This Agreement is effective May 31, 1999 (the
"Effective Date"), and will terminate without further notice at 5:00 p.m. on May
31, 2003 (the "Term"). The parties may extend this Agreement in a written
instrument signed by both parties.
2. DUTIES AND RESPONSIBILITIES. The Company hereby employs Executive
as Senior Vice President and General Counsel with such powers and duties in that
capacity as may be established from time to time by the Company in its
discretion. Executive will devote his entire business time, attention and
energies to the business of the Company and its affiliates.
3. COMPENSATION.
a. BASE SALARY. The Company will pay Executive an annualized base
salary of One Hundred Thousand Dollars ($100,000), less applicable deductions,
payable in installments according to the Company's normal payroll practices.
Executive's annualized base salary under this subparagraph shall be increased to
One Hundred Twenty Thousand Dollars ($120,000) upon the earlier of: (1) the six
month anniversary of the Effective Date; or (2) the date on which the Company,
or any affiliate of, or successor to, the Company, completes a public stock
offering. Thereafter, Executive's annualized base salary shall be increased by
ten percent (10%) on the first anniversary of the Effective Date and on each
subsequent anniversary of the Effective Date (I.E., annualized base salary will
increase to $132,000 on the first anniversary of the Effective Date).
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BIG EXECUTIVE
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b. ANNUAL BONUS. In addition to his base salary, Executive shall
be paid an annual bonus (the "Bonus") during each year of the Term in an amount
determined by the Board of Directors or a committee thereof, which shall be paid
in stock or cash at the discretion of the Board of Directors or such committee;
PROVIDED, that Executive shall be entitled to receive a Bonus of at least
$25,000 in cash during each year of the Term.
c. RESTRICTED STOCK. On the Effective Date of this Agreement,
Executive shall receive a signing bonus of 2,500 restricted shares of the
Company's Common Stock ("Restricted Stock"). Executive hereby acknowledges that
the Restricted Stock has not been registered under the Securities Act of 1933,
as amended (the "Act") and that the Restricted Stock must be held indefinitely
unless the sale or other transfer thereof is subsequently registered under the
Act or an exemption from such registration is available. The Restricted Stock
will bear a restrictive legend to such effect.
d. STOCK OPTIONS. On or about the Effective Date of this
Agreement, Executive will be granted options (the "Initial Options")
excercisable for an aggregate of 75,000 shares of the Company's Common Stock
under the Company's 1993 Stock Option Plan (the "Option Plan") as in effect on
the Effective Date of this Agreement. The Initial Options shall have an exercise
price for fifty percent (50%) of the underlying shares of Common Stock
(representing the portion of the Initial Options that vests on the first two
anniversaries of the Effective Date) equal to $12.125 per share. The Initial
Options shall have an exercise price for the remaining fifty percent (50%) of
the underlying shares of Common Stock equal to the Fair Market Value (as defined
in the Option Plan) of the Company's Common Stock on the date of grant. All of
the Initial Options with an exercise price equal to the Fair Market Value of the
Common Stock shall be Incentive Stock Options (as defined in the Option Plan).
The Initial
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BIG EXECUTIVE
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Options shall vest as to twenty-five percent (25%) of the underlying
shares of Common Stock on the first anniversary of the Effective Date and
twenty-five percent (25%) on each subsequent anniversary of the Effective Date.
The Initial Options shall expire 10 years after the date of grant.
In addition to the Initial Options, on each of the first and
second anniversaries of the Effective Date, Executive will be awarded additional
options under the Option Plan exercisable for a number of shares of the
Company's Common Stock (collectively, the "Additional Options") determined by
the Board of Directors or a committee thereof; PROVIDED, that Executive will be
awarded options to purchase at least 50,000 shares of Common Stock on each such
anniversary date. The Additional Options shall have such terms as are determined
by the Board of Directors; PROVIDED, that the exercise price thereof shall be no
higher than the Fair Market Value of the Company's Common Stock on the date of
grant, and the vesting schedule and expiration date of the Additional Options
shall be no less favorable to Executive than the terms of the Initial Options.
The grant of the Additional Options shall not be effective until the
shareholders of the Company approve an amendment to the Option Plan increasing
the number of shares available for grant thereunder.
d. MOVING EXPENSES. The Company agrees to reimburse Executive
for all reasonable expenses incurred in relocating from Houston, Texas to Boca
Raton, Florida, including, without limitation, duplicate housing expenses in
such cities.
e. OTHER BENEFITS. Executive will be entitled to participate
in any group health, life, disability, pension or other employee benefit plan
and is entitled to any other benefits that the Company may maintain from time to
time for similarly situated executives, provided that Executive meets the
respective eligibility requirements. Executive will be entitled to twenty (20)
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BIG EXECUTIVE
Page 3
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business days paid vacation in each calendar year during the Term, which shall
not accrue from year to year.
4. PERFORMANCE REVIEW. The Company shall provide Executive with an
interim review and evaluation of his performance at the beginning of the each
calendar year of this Agreement. It is contemplated that this review will
normally occur in January of each year, but said review may be postponed or
delayed in appropriate circumstances. Executive shall be responsible for taking
action to initiate the performance review.
5. DEATH OR INABILITY TO PERFORM JOB DUTIES. In the event of
Executive's death, this Agreement and Executive's salary and compensation shall
automatically end, and the Company shall promptly pay to Executive's legal
representative any unpaid base salary accrued through the date of his death, as
well as a lump sum payment equal to the share of Bonus to which he would have
been entitled prorated based on the percentage of the current fiscal year that
had been completed on the date of his death. If during the Term hereof,
Executive suffers a disability (as defined below), the Company shall continue to
pay Executive the compensation provided for in Section 3 hereof during the
period of his disability; provided, however, that in the event Executive is
disabled for a period of more than 120 days in any 12 month period, the Company
may, at its election, terminate this Agreement. As used in this Agreement, the
term "disability" shall mean the complete inability of Executive to perform his
abilities under this Agreement as determined by an independent physician
selected with the approval of the Company and the Executive.
6. TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate
this Agreement and Executive's employment "for cause" at any time by delivery of
written notice to
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BIG EXECUTIVE
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Executive specifying the basis for termination. As used
herein, "for cause" shall only mean any one of the following:
A. Any act or omission of the Executive which constitutes a
willful and material breach of this Agreement which is
not cured or as to which diligent attempts to cure have
not been commenced within 30 business days after receipt
by Executive from Company of notice of same;
B. Fraud, embezzlement or misappropriation as against the
Company or any of its affiliates; or
C. The conviction (from which no appeal can be taken) of
Executive of any criminal act which is a felony.
In the event the Company terminates Executive's employment for cause, it shall
pay to Executive any unpaid base salary accrued through the date of termination
specified in the notice, and otherwise, Executive's salary and other
compensation described in Section 3 of this Agreement shall automatically
terminate and be forfeited by Executive.
7. TERMINATION OF AGREEMENT BY THE COMPANY WITHOUT CAUSE. The
Company may terminate this Agreement and Executive's employment without cause at
any time upon thirty (30) days' prior written notice to Executive. The Company
will pay to Executive on the date of termination without cause a lump sum cash
payment, less taxes and other applicable withholding amounts, in an amount equal
to the greater of (1) the aggregate amount of base salary that Executive would
have received for the remaining Term of this Agreement and (2) six (6) months of
his then current base salary. Executive shall also automatically vest, on the
date on which he receives notice of termination, in one hundred percent (100%)
of the unvested underlying shares of Common Stock subject to the Initial
Options, and to the extent awarded, the Additional Options.
8. TERMINATION OF AGREEMENT BY EXECUTIVE. Executive may terminate
this Agreement and his employment with the Company without cause upon thirty
(30) days' prior
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BIG EXECUTIVE
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written notice to the Company. In such a case, Executive may be
required to perform his business duties and will be paid his regular salary up
to the date of the termination. At the option of the Company, the Company may
require Executive to depart from the Company on the date the Company receives
thirty (30) days' notice from Executive of the termination of this Agreement, in
which case any compensation or benefits described in Section 3 of this Agreement
shall automatically terminate and be forfeited by Executive.
9. COOPERATION. Upon the termination of this Agreement for any
reason, Executive agrees to cooperate with the Company in effecting a smooth
transition of the management of the Company with respect to the duties and
responsibilities which Executive performed for the Company. After termination of
this Agreement, Executive will, upon reasonable notice, furnish such information
and proper assistance to the Company as it may reasonably require in connection
with any litigation to which the Company is or may become party.
10. COVENANT NOT TO COMPETE. During the Term of this Agreement, and
in the event that Executive terminates this Agreement, for a period of 120 days
after such termination, Executive promises and agrees that Executive will not
enter into any employment or business relationship (whether as a principal,
agent, employee, consultant or board member) with any Internet company or
business organization whose primary focus is the movie industry.
11. AGREEMENT NOT TO DISCLOSE TRADE SECRETS OR CONFIDENTIAL
INFORMATION. During the term of this Agreement and forever thereafter, Executive
promises and agrees that he will not disclose or utilize any trade secrets,
confidential information, or other proprietary information acquired during the
course of his service with the Company and/or any related business entities. As
used herein, "trade secret" and "confidential information" mean the whole or any
portion or phase of any formula, pattern, device, combination of devices, or
compilation
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BIG EXECUTIVE
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of information which is for use, or is used, in the operation of the
Company's business and which provides the Company an advantage, or an
opportunity to obtain an advantage, over those who do not know or use it. "Trade
secret" and "confidential information" also include any scientific, technical,
or commercial information, including any design, list of suppliers, list of
customers, or improvement thereof, as well as pricing information or
methodology, contractual arrangements with vendors or suppliers, business
development plans or activities, or financial information regarding the Company.
Executive's obligations under this Section shall survive the termination of this
Agreement.
12. AGREEMENT NOT TO HIRE THE COMPANY EMPLOYEES. If Executive leaves
the employ of the Company for any reason, Executive promises and agrees that,
during the six-month period following his departure from the Company, he will
not, without the express written permission of the Company, directly or
indirectly employ as a consultant or employee any person who is employed as a
consultant or employee of the Company at the time of Executive's departure.
13. INJUNCTIVE RELIEF. In recognition of the unique services to be
performed by Executive and the possibility that any violation by Executive of
Section 10, Section 11 or Section 12 of this Agreement may cause irreparable or
indeterminate damage or injury to the Company, Executive expressly stipulates
and agrees that the Company shall be entitled, upon ten (10) days written notice
to Executive, to obtain an injunction from any court of competent jurisdiction,
restraining any violation or threatened violation of this Agreement. Such right
to an injunction shall be in addition to, and not in limitation of, any other
rights or remedies the Company may have for damages or liquidated damages.
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BIG EXECUTIVE
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14. JUDICIAL MODIFICATION OF AGREEMENT. The Company and Executive
specifically agree that a court of competent jurisdiction (or an arbitrator, as
appropriate) may modify or amend Section 10, Section 11 or Section 12 of this
Agreement if absolutely necessary to conform with relevant law or binding
judicial decisions in effect at the time the Company seeks to enforce any or all
of said provisions.
15. RESOLUTION OF DISPUTES BY ARBITRATION. Any claim or controversy
that arises out of or relates to this Agreement, or the breach of it, will be
resolved by arbitration in the County of Palm Beach, Florida in accordance with
the rules then obtaining of the American Arbitration Association. Judgment upon
the award rendered may be entered in any court possessing jurisdiction over
arbitration awards. This Section shall not limit or restrict the Company's right
to obtain injunctive relief for violations of Section 10, Section 11 or Section
12 of this Agreement directly from a court under Section 13 of this Agreement.
Both parties shall bear their own costs and attorney's fees incurred in any
lawsuit or arbitration arising under this Agreement, and in no circumstances
shall either party be entitled to trial by jury of any issues arising under or
relating to this Agreement.
16. ADEQUATE CONSIDERATION. Executive expressly agrees that the
Company has provided adequate, reasonable consideration for the obligations
imposed upon him in this Agreement.
17. EFFECT OF PRIOR AGREEMENTS. This Agreement supersedes any prior
agreement or understanding between the Company and Executive.
18. LIMITED EFFECT OF WAIVER BY COMPANY. If the Company waives a
breach of any provision of this Agreement by Executive, that waiver will not
operate or be construed as a waiver of later breaches by Executive.
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19. SEVERABILITY. If any provision of this Agreement is held invalid
for any reason, the other provisions of this Agreement will remain in effect,
insofar as is consistent with law.
20. ASSUMPTION OF AGREEMENT BY THE COMPANY'S SUCCESSORS AND ASSIGNS.
Except as herein otherwise provided, this Agreement shall inure to the benefit
of and shall be binding upon the parties hereto, their personal representatives,
successors, heirs and assigns. Executive may not assign his rights and
obligations under this Agreement. 21. APPLICABLE LAW. Executive and the Company
agree that this Agreement shall be subject to, and enforceable under, the laws
of the State of Florida.
21. APPLICABLE LAW. Executive and the Company agree that this
Agreement shall be subject to, and enforceable under, the laws of the State of
Florida.
22. ENTIRE AGREEMENT; ORAL MODIFICATIONS NOT BINDING. This
instrument is the entire Agreement of the Company and Executive. Executive
agrees that no other promises or commitments have been made to Executive. This
Agreement may be altered by the parties only by a written agreement signed by
the party against whom enforcement of any waiver, change, modification,
extension, or discharge is sought.
- -------- ------------
BIG EXECUTIVE
Page 9
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
as of May 31, 1999.
BIG ENTERTAINMENT, INC. W. ROBERT SHEARER
By: /S/ MITCHELL RUBENSTEIN By: /S/ W. ROBERT SHEARER
----------------------- ----------------------
Mitchell Rubenstein W. Robert Shearer
Chairman and Chief Executive Officer
STATE OF FLORIDA STATE OF FLORIDA
COUNTY OF PALM BEACH COUNTY OF PALM BEACH
The foregoing instrument was The foregoing instrument was
executed before me this ____ executed before me this ____
day of May, 1999, by Mitchell day of May, 1999, by W. Robert
Rubenstein, Chairman and Chief Shearer, who is personally
Executive Officer, Big known by me and who took an
Entertainment, Inc. who is oath.
personally known by me and who
took an oath.
- --------------------------- ----------------------------
Notary Public Notary Public
- ---------------------------- ----------------------------
Type or Print Name of Notary Type or Print Name of Notary
My Commission Expires: My Commission Expires:
Page 10
EXHIBIT 10.7
- --------------------------------------------------------------------------------
BIG ENTERTAINMENT, INC.
(A Florida Corporation)
SUBSCRIPTION AGREEMENT
- --------------------------------------------------------------------------------
COMPLETE, SIGN AND RETURN TWO COPIES TO:
Big Entertainment, Inc.
2255 Glades Road
Suite 237 West
Boca Raton, Florida 33431
Attention: Corporate Secretary
<PAGE>
THE INFORMATION AVAILABLE TO YOU IN CONNECTION WITH THIS
SUBSCRIPTION AGREEMENT MAY CONSTITUTE MATERIAL NON-PUBLIC INFORMATION ABOUT BIG
ENTERTAINMENT, INC. (THE "COMPANY"). FEDERAL AND STATE SECURITIES LAWS PROHIBIT
TRADING IN ANY SECURITIES OF THE COMPANY WHILE IN POSSESSION OF MATERIAL
NON-PUBLIC INFORMATION ABOUT THE COMPANY.
YOUR RECEIPT OF THIS SUBSCRIPTION AGREEMENT CONSTITUTES YOUR
AGREEMENT (A) TO MAINTAIN THE CONFIDENTIALITY OF THE INFORMATION CONTAINED
HEREIN OR RECEIVED IN CONNECTION HEREWITH, WHETHER WRITTEN OR ORAL, (B) NOT TO
REPRODUCE OR DISTRIBUTE ANY COPIES OF THIS SUBSCRIPTION AGREEMENT OR THE
INFORMATION CONTAINED HEREIN OR RECEIVED IN CONNECTION HEREWITH, IN WHOLE OR IN
PART, AND (C) TO RETURN THIS AGREEMENT AND ANY RELATED MATERIALS TO THE COMPANY
AT ITS ADDRESS ON THE COVER HEREOF IF YOU DECIDE NOT TO SUBSCRIBE FOR THE
SECURITIES DESCRIBED HEREIN OR IF THE COMPANY DECIDES TO TERMINATE OR REJECT THE
SUBSCRIPTION DESCRIBED HEREIN.
THE SECURITIES SUBSCRIBED FOR HEREIN HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES
LAWS. THE SUBSCRIBER HEREIN, BY PURCHASING SUCH SECURITIES, AGREES FOR THE
BENEFIT OF BIG ENTERTAINMENT, INC. (THE "COMPANY") THAT SUCH SECURITIES MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS SUCH SECURITIES ARE REGISTERED
UNDER SUCH ACT AND REGISTERED UNDER ANY APPLICABLE STATE SECURITIES LAWS OR
UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE BASED ON AN OPINION OF
THE SUBSCRIBER'S COUNSEL TO SUCH EFFECT IN FORM AND SUBSTANCE SATISFACTORY TO
THE COMPANY.
THE SUBSCRIBER, BY PURCHASING THE SECURITIES SUBSCRIBED FOR
HEREIN, ACKNOWLEDGES AND AGREES THAT THE COMPANY, ITS AFFILIATES AND THE
COMPANY'S AND ITS AFFILIATES' DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND
REPRESENTATIVES HAVE NOT MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, AS TO THE VALUE OF THE SECURITIES.
i
<PAGE>
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT (this "SUBSCRIPTION AGREEMENT"), dated
as of May __, 1999, by and between the person or entity identified as the
subscriber on the signature page hereof (the "SUBSCRIBER") and BIG
ENTERTAINMENT, INC. a Florida corporation (the "COMPANY").
1. SUBSCRIPTION AND ACCEPTANCE.
1.1 SUBSCRIPTION; PURCHASE PRICE. The Subscriber hereby irrevocably
subscribes for and agrees to purchase (i) the number of shares (the "SHARES") of
common stock, par value $.01 per share, of the Company (the "COMMON STOCK")
indicated on the signature page of this Subscription Agreement, which shall be
validly issued, fully paid and nonassessable, and (ii) a five-year Warrant
exercisable to purchase shares of the Common Stock in an amount equal to
one-third of the number of the Shares (the "WARRANT" and, together with the
shares of the Common Stock purchasable upon the exercise thereof and the Shares,
the "SECURITIES"), upon the terms and subject to the conditions set forth
herein. The aggregate purchase price for the Securities shall be equal to the
product of (a) $__ times (b) the number of the Shares.
1.2 ACCEPTANCE OR REJECTION OF SUBSCRIPTION. The Subscriber
understands and agrees that the Company reserves the right, exercisable in its
sole discretion, to accept or reject any subscription for the Securities in
whole or in part for any reason. Subscriptions need not be accepted in the order
received. The Company shall notify the Subscriber as soon as practicable if all
or part of the Subscriber's subscription is rejected. If the Subscriber's
subscription is accepted by the Company, the Company shall execute a copy of
this Subscription Agreement as executed and delivered to the Company by the
Subscriber and return the executed copy to the Subscriber. The Company also
shall deliver to the Subscriber a written notice (the "PURCHASE NOTICE") stating
the number of Shares that the Subscriber shall be entitled to purchase, the
number of shares of the Common Stock that the Subscriber shall be entitled to
purchase pursuant to the exercise of the Warrant, the aggregate purchase price
for the Securities, the date and time payment of the purchase price for the
Securities is required to be made and the payment instructions therefor.
1.3 CLOSING. The consummation of the purchase by the Subscriber and
sale by the Company of the Securities (the "CLOSING") shall take place at the
principal executive offices of the Company on the date and at the time set forth
in the Purchase Notice. At the Closing, the Company shall deliver to the
Subscriber a certificate representing the Shares and a certificate representing
the Warrant substantially in the form of EXHIBIT A attached hereto against
delivery by the Subscriber of payment of the purchase price for the Securities,
which shall be payable by wire transfer of immediately available funds to the
Company's account as set forth in the Purchase Notice.
2. SUBSCRIBER REPRESENTATIONS AND WARRANTIES. The Subscriber hereby
represents and warrants as follows:
1
<PAGE>
2.1 CAPACITY; POWER AND AUTHORITY. The Subscriber is either (i) an
individual who has reached the age of majority and is a citizen or resident and
domiciliary (not a temporary or transient resident) of the jurisdiction set
forth below the Subscriber's signature on the signature page hereof and has no
present intention of becoming a resident of any other jurisdiction or (ii) is an
entity duly organized and in good standing in its jurisdiction of organization.
The Subscriber has all legal right, power and authority to execute and deliver
this Subscription Agreement as evidenced by its signature on the signature page
hereof and this Subscription Agreement constitutes the Subscriber's valid and
binding obligation, enforceable against the Subscriber in accordance with its
terms.
2.2 NO CONFLICT. The execution and delivery of this Subscription
Agreement by the Subscriber and the consummation of the transactions
contemplated hereby does not and as of the Closing will not (i) violate any law
or regulation or judicial or regulatory order or decree or require any notice to
or filing with or authorization, consent or approval of any public body or
authority by which the Subscriber or any of its properties is bound, (ii) result
in a violation or breach of, or constitute a default under, any contractual
obligation to which the Subscriber is a party or by which the Subscriber or any
of its properties is bound or (iii) if the Subscriber is a partnership,
corporation, trust or other entity, violate its organizational or other
constitutive documents.
2.3 NO SHORT POSITION. The Subscriber has not entered into a short
position or similar arrangement with respect to any shares of the Common Stock
at any time from and after May 7, 1999 to and including the date hereof.
2.4 INVESTMENT REPRESENTATIONS AND WARRANTIES.
(a) The Subscriber has the financial ability to bear the economic
risk of an investment in the Securities, has adequate means of providing for its
current needs and personal contingencies, has no need for liquidity in such
investment in the Securities and could afford a complete loss of such
investment.
(b) The Subscriber has reviewed the merits of an investment in the
Securities with its own tax and legal counsel and with an investment advisor to
the extent the Subscriber deemed advisable, and confirms that an investment in
the Securities is suitable for it.
(c) The Subscriber has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of an
investment in the Securities.
(d) For a reasonable time prior to the date hereof, the Subscriber
has been given a full opportunity to ask questions of, and to receive answers
from, representatives of the Company concerning the terms and conditions of a
subscription for the Securities and the business and affairs of the Company and
such other information as it desired in order to evaluate the merits and risks
of an investment in the Securities and
2
<PAGE>
to verify the accuracy of the information received in response to any such
questions, and all such questions have been answered to the full satisfaction of
the Subscriber.
(e) In making its decision to purchase the Securities herein
subscribed for, the Subscriber has relied solely upon independent investigations
made by it. It has received no representation or warranty from the Company or
any of its affiliates, employees or agents. In addition, it is not subscribing
pursuant hereto for any Securities as a result of or subsequent to (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, or
(ii) any seminar or meeting whose attendees, including the Subscriber, had been
invited as a result of, subsequent to or pursuant to any of the foregoing.
(f) The Subscriber understands that the Securities have not been
registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
or under any state securities laws in reliance upon specific exemptions from
registration under Section 4(2) of such act and Rule 506 thereunder and it
agrees that the Securities may not be offered, sold or otherwise disposed of
except in compliance with the Securities Act and any applicable state securities
laws. The Subscriber understands that the certificate or certificates
representing the Securities shall bear the following restrictive legend until
registered:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY
NOT BE OFFERED, SOLD OR OTHERWISE DISPOSED OF UNLESS SUCH
OFFER, SALE OR OTHER DISPOSITION IS REGISTERED PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE BASED ON AN OPINION OF COUNSEL
OF THE TRANSFEROR TO SUCH EFFECT IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER.
(g) The Subscriber understands that no U.S. or non-U.S. governmental
or quasi-governmental agency has made any finding or determination as to the
fairness of an investment in, or any recommendation or endorsement of, the
Securities.
(h) The Subscriber is acquiring the Securities herein subscribed for
in good faith solely for its own account and it is acquiring such Securities for
investment purposes only and not with a view to, or for, the resale,
distribution, subdivision or fractionalization thereof, or for the account, in
whole or in part, of others in violation of any federal or state securities
laws.
(i) The Subscriber has, and at the Closing will have, adequate
capital resources to purchase the Securities subscribed for herein.
3
<PAGE>
(j) Each representation and warranty of the Subscriber contained
herein and all information furnished by the Subscriber to the Company, including
the information furnished by the Subscriber in the Investment Suitability
Questionnaire in paragraph 3, is true, correct and complete in all respects.
3. INVESTMENT SUITABILITY QUESTIONNAIRE. In order for the Company to
offer and sell the Securities in compliance with federal and state securities
laws, THE FOLLOWING INFORMATION MUST BE OBTAINED REGARDING THE UNDERSIGNED
SUBSCRIBER'S INVESTOR STATUS. PLEASE CHECK EACH CATEGORY APPLICABLE TO THE
UNDERSIGNED SUBSCRIBER AS AN INVESTOR IN THE SECURITIES. YOU MUST CHECK AT LEAST
ONE CATEGORY TO SUBSCRIBE. The Subscriber shall be deemed to represent and
warrant that the substance of each section so checked is true and correct.
For purposes of determining whether the Subscriber is an "accredited
investor" under Regulation D of the Securities Act, please check ALL of the
applicable boxes below:
[ ] (1) The Subscriber is and at the Closing will be a director or an
executive officer of the Company holding the position of
_______________. (Rule 501(a)(4) and (f) under the Securities Act)
[ ] (2) The Subscriber has and at the Closing will have a net worth,
individually or jointly with the Subscriber's spouse, and inclusive
of the equity value in the Subscriber's home, home furnishings and
automobiles, of at least $1,000,000. (Rule 501(a)(5) under the
Securities Act)
[ ] (3) The Subscriber had an individual income1, not including the
income of the Subscriber's spouse (even if they are purchasing the
Securities with funds which are community property or as joint
tenants or tenants in common), in excess of $200,000 (or joint
income with the Subscriber's spouse in excess of $300,000) in each
of the two most recent years and at this time reasonably expects and
at the Closing will reasonably expect such individual income to
exceed that level in the current year. (Rule 501(a)(6) under the
Securities Act)
[ ] (4) The Subscriber is and at the Closing will be an "accredited
investor" within the meaning of clause __ (please complete) of Rule
501(a) under the Securities Act.
- --------
(1)For this purpose, a person's income is the amount of that person's individual
adjusted gross income (as reported on a federal income tax return), increased by
the following amounts: (a) any deduction for depletion (Section 611 ET SEQ. of
the Internal Revenue Code of 1986 (the "CODE")), (b) any exclusion of interest
on tax-exempt municipal obligations (Section 103 of the Code) and (c) any losses
of a partnership allocated to the person (as reported on Schedule E of Form
1040).
4
<PAGE>
4. ADDITIONAL COVENANTS OF THE SUBSCRIBER.
4.1 NO SALE OR TRANSFER. The Subscriber hereby acknowledges and
agrees that it shall not, directly or indirectly, offer, sell or otherwise
dispose of the Securities (including by way of a pledge) unless registered
pursuant to an effective registration statement under the Securities Act and
registered pursuant to applicable state securities laws or unless an exemption
from such registration is available based on an opinion of counsel of the
transferor to such effect delivered to the Company prior to any such disposition
in form and substance satisfactory to the Company.
4.2 NOTICE. The Subscriber undertakes to (i) notify the Company
immediately of any change in any representation, warranty or other information
relating to the Subscriber set forth herein, including, but not limited to, the
Investment Suitability Questionnaire, (ii) supply the Company with such
additional information concerning the Subscriber as the Company deems necessary
or appropriate and (iii) execute and deliver to the Company, within five days
after receipt of a request therefor, such further designations, powers of
attorney and other instruments as the Company deems necessary or appropriate.
4.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties set forth above or in any other written statement or document
delivered by the Subscriber in connection with the subscription herein and the
transactions contemplated hereby shall survive the Closing.
4.4 INDEMNIFICATION. The Subscriber understands the meanings and
legal consequences of the representations, warranties and covenants of the
Subscriber contained in this Subscription Agreement and agrees to indemnify and
hold harmless the Company, its affiliates and their respective directors,
officers, employees, agents and other representatives from and against any and
all loss, damage or liability due to or arising out of a breach of any
representation, warranty or covenant of the Subscriber, whether contained in
this Subscription Agreement, including, but not limited to, the Investment
Suitability Questionnaire, or any other document delivered by the Subscriber in
connection with the subscription herein and the transactions contemplated
hereby, including, but not limited to, the registration and restrictions on
transfer of the Securities as contemplated by paragraph 5, or any failure by the
Subscriber to fulfill any covenants or agreements set forth herein or arising
out of the sale or distribution by the Subscriber of any Securities in violation
of the Securities Act or any other applicable state securities or "blue sky"
laws or pursuant to the registration contemplated by paragraph 5.
Notwithstanding any of the representations, warranties, acknowledgments or
agreements made herein by the Subscriber, the Subscriber does not thereby or in
any other manner waive any rights granted to the Subscriber under federal or
state securities laws.
4.5 INTERESTS OF CERTAIN PERSONS. The Subscriber hereby
acknowledges, agrees and accepts that certain potential subscribers may be
directors or executive officers of the Company and that such individuals may
have access to financial information about the Company, including, but not
limited to, business plans and
5
<PAGE>
projections, necessary to the performance of their services as officers of the
Company that was not generally available to the Subscriber or other subscribers
for the Securities.
5. REGISTRATION RIGHTS; COVENANT NOT TO SHORT STOCK.
5.1 REGISTRATION. The Company shall use its reasonable best efforts
to file a registration statement covering the Shares and the shares of the
Common Stock purchasable upon exercise of the Warrant under the Securities Act
within 45 days after the date of the Closing and shall use its reasonable best
efforts to cause the registration statement covering such shares to be declared
effective as soon as practicable. The Company shall use its reasonable best
efforts to maintain the effectiveness of such registration statement for the
lesser of two years from the date declared effective and such time as the shares
covered thereby have been resold. The Company shall pay any and all registration
expenses associated with such registration, other than any underwriting
discounts or commissions relating to any shares of the Common Stock subject to
such registration (which discounts and commissions shall be paid by the
Subscriber selling any such shares).
5.2 COVENANT NOT TO SHORT STOCK. The Subscriber shall not, without
the Company's prior written consent, enter into a short position or similar
arrangement with respect to any shares of the Common Stock at any time during
the period commencing on the date hereof and ending on the 90th day following
the date of the Closing.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS TO PERFORM THE CLOSING.
The obligations of the Company to issue and sell to the Subscriber the
Securities to be purchased by it as of the Closing shall be subject to the
fulfillment (or waiver by the Company) prior to or at the time of the Closing of
the following conditions:
(a) AGREEMENTS. This Subscription Agreement shall have been duly
authorized, executed and delivered by the Subscriber to the Company.
(b) REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by the Subscriber in this Subscription Agreement shall be true
and correct as and when made on the date hereof and at the Closing as if made on
and as of the Closing.
(c) PERFORMANCE. The Subscriber shall have duly performed and
complied in all respects with all agreements and conditions contained in this
Subscription Agreement required to be performed or complied with by the
Subscriber at or prior to the Closing .
(d) PAYMENT. The Subscriber shall have tendered payment for its
Securities at or before the Closing in accordance with the Purchase Notice.
6
<PAGE>
7. MISCELLANEOUS.
7.1 MODIFICATION. Neither this Subscription Agreement nor any
provisions hereof shall be waived, modified, discharged or terminated except by
an instrument in writing signed by the party against whom any waiver,
modifications, discharge or termination is sought.
7.2 NOTICES. Unless otherwise provided herein, notices which may or
are required to be given hereunder shall be delivered through a recognized
overnight delivery service, hand delivered or sent by tested facsimile, telegram
or telex transmission to the addressees at their addresses set forth herein or
to such other addresses as may be designated by either party hereto by notice
addressed to the Company in the case of the Subscriber and to the Subscriber in
the case of the Company.
7.3 BINDING EFFECT. Except as otherwise provided herein, this
Subscription Agreement shall be binding upon and inure to the benefit of the
parties and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
7.4 ENTIRE AGREEMENT. This Subscription Agreement contains the
entire agreement of the parties in respect of the matters set forth herein.
7.5 ASSIGNABILITY. This Subscription Agreement is not transferable
or assignable.
7.6 APPLICABLE LAW. This Subscription Agreement shall be governed by
and construed in accordance with the substantive laws of the State of New York
without giving effect to principles or policies of conflicts of laws thereof.
The Company and the Subscriber hereby submit to the jurisdiction of the federal
and New York State Courts located in the Borough of Manhattan, New York, New
York in connection with any dispute related to this Subscription Agreement or
any transaction or any other matter contemplated hereby (to the extent legally
permissible).
7.7 COUNTERPARTS. This Subscription Agreement may be executed
through the use of separate signature pages or in any number of counterparts,
and each of such counterparts shall, for all purposes, constitute one agreement
binding on all the parties, notwithstanding that all parties are not signatories
to the same counterpart.
[SIGNATURES ON FOLLOWING PAGE]
7
<PAGE>
IN WITNESS WHEREOF, the undersigned by its execution hereof agrees
to be bound by this Subscription Agreement.
INDICATE BELOW IN WORDS AND AS A NUMERAL THE NUMBER OF SHARE TO BE SUBSCRIBED
FOR PURSUANT TO THIS SUBSCRIPTION:
__________________________________________ Shares
----------------------------
Signature of the Subscriber
Name of the Subscriber (print): ____________________________
Address: ____________________________
____________________________
Social Security Number (or TIN): ____________________________
RETURN TWO SIGNED COPIES OF THIS SUBSCRIPTION AGREEMENT TO THE COMPANY AT ITS
ADDRESS ON THE COVER. ACCEPTANCE OF THIS SUBSCRIPTION MAY ONLY OCCUR AS PROVIDED
IN PARAGRAPH 1.2.
ACCEPTANCE
The terms of the foregoing, including the subscription described
therein, are agreed to and accepted on this ____ day of May 1999.
BIG ENTERTAINMENT, INC.
By:
-------------------------------
Mitchell Rubenstein
Chief Executive Officer
8
<PAGE>
EXHIBIT A
FORM OF WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR OTHERWISE DISPOSED OF UNLESS
REGISTERED PURSUANT TO THE PROVISIONS OF THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE
BASED ON AN OPINION OF COUNSEL OF THE HOLDER TO SUCH EFFECT IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER.
DATED AS OF MAY ___, 1999
BIG ENTERTAINMENT, INC.
(A FLORIDA CORPORATION)
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
FOR VALUE RECEIVED, BIG ENTERTAINMENT, INC., a Florida corporation
(the "COMPANY"), hereby certifies that _______________, or its registered
assigns (the "HOLDER") is entitled, subject to the provisions of this Warrant,
to purchase from the Company _____________ (_____) fully paid and non-assessable
shares of Common Stock (as defined below) at a price per share equal to $___
(the "EXERCISE PRICE").
The term "COMMON STOCK" means the Common Stock, par value $.01 per
share, of the Company as constituted on May __, 1999 (the `BASE DATE"). The
number of shares of Common Stock purchasable upon the exercise of this Warrant
may be adjusted from time to time as hereinafter set forth. The shares of Common
Stock deliverable upon such exercise, and as adjusted from time to time as set
forth in this Warrant, are hereinafter referred to as the "WARRANT SHARES." The
term "COMPANY" means and includes the corporation named above as well as (i) any
immediate or more remote successor corporation resulting from the merger or
consolidation of such corporation (or any immediate or more remote successor
corporation of such corporation) with another corporation, or (ii) any
corporation to which such corporation (or any immediate or more remote successor
corporation of such corporation) has transferred its property or assets as an
entirety or substantially as an entirety.
Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant, and (in the
case of loss, theft or destruction) of reasonably satisfactory indemnification
or the posting of bond, and upon surrender and cancellation of this Warrant, if
mutilated, the Company shall execute and
A-1
<PAGE>
deliver a new Warrant of like tenor and date. Any such new Warrant executed and
delivered shall constitute an additional contractual obligation on the part of
the Company, whether or not this Warrant so lost, stolen, destroyed or mutilated
shall be at any time enforceable by anyone.
The Holder agrees with the Company that this Warrant is issued, and
all the rights hereunder shall be held subject to, all of the conditions,
limitations and provisions set forth herein.
1. EXERCISE OF WARRANT.
1.1 EXERCISE GENERALLY. This Warrant may be exercised in whole or in
part, at any time, or from time to time during the period commencing on the date
hereof and expiring 5:00 p.m., eastern time, on the fifth anniversary of the
date hereof (the "EXPIRATION DATE") (or, if such day is a day on which banking
institutions in New York are authorized by law to close, then on the next
succeeding day that shall not be such a day) by presentation and surrender of
this Warrant to the Company at its principal office, or at the office of its
stock transfer agent, if any, with a copy of the Warrant Exercise Form marked as
Annex A attached hereto duly executed and accompanied by payment (either in cash
or by certified or official bank check, payable to the order of the Company) of
the Exercise Price for the number of Warrant Shares specified in such form and
with any appropriate instruments of transfer duly executed by the Holder or its
duly authorized attorney. If this Warrant should be exercised in part only, the
Company shall, upon surrender of this Warrant for cancellation, execute and
deliver a new Warrant evidencing the rights of the Holder thereof to purchase
the balance of the Warrant Shares purchasable hereunder. Upon receipt by the
Company of this Warrant, together with the Exercise Price, at its office, or by
the stock transfer agent of the Company at the stock transfer agent's office, in
proper form for exercise, the Holder shall be deemed to be the holder of record
of the Warrant Shares issuable upon such exercise, notwithstanding that the
stock transfer books of the Company shall then be closed or that certificates
representing such shares of shall not then be actually delivered to the Holder.
The Company shall pay any and all documentary stamp or similar issue or transfer
taxes payable in respect of the issue or delivery of shares of Common Stock on
exercise of this Warrant.
2. RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and delivery upon exercise of this Warrant all shares of Common Stock
from time to time receivable upon exercise of this Warrant. All such shares
shall be duly authorized and, when issued upon such exercise, shall be validly
issued, fully paid and non-assessable and free of all preemptive rights.
3. FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant, but the
Company shall pay the Holder an amount equal to the fair market value of such
fractional share of Common Stock in lieu of each fraction of a share otherwise
called for upon any exercise of this Warrant, as determined by the Board of
Directors of the Company (which fair
A-2
<PAGE>
market value shall, in any event and for so long as the Common Stock is listed
for trading on any national securities exchange or quoted for trading through
any inter-dealer quotation system, be deemed to be the closing sales price of
the Common Stock on the date notice of exercise of this Warrant is given to the
Company as provided herein or, if such day is not a trading day, then such price
on the last trading day preceding the date of such notice).
4. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant
is exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other Warrants of different denominations, entitling the
Holder or Holders thereof to purchase in the aggregate the same number of shares
of Common Stock purchasable hereunder. Upon surrender of this Warrant to the
Company or at the office of its stock transfer agent, if any, with a copy of the
Assignment Form marked as Annex B attached hereto duly executed and funds
sufficient to pay any transfer tax, the Company shall, without charge, execute
and deliver a new Warrant in the name of the assignee named in such instrument
of assignment and this Warrant shall promptly be canceled. This Warrant may be
divided or combined with other Warrants that carry the same rights upon
presentation hereof at the office of the Company or at the office of its stock
transfer agent, if any, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof.
5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights as a stockholder in the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Warrant.
6. ANTI-DILUTION PROVISIONS.
6.1 ADJUSTMENT FOR RECAPITALIZATION. If the Company shall at any
time subdivide its outstanding shares of Common Stock by recapitalization,
reclassification or split-up thereof, or if the Company shall declare a stock
dividend or distribute shares of Common stock to its stockholders, the number of
Warrant Shares subject to this Warrant immediately prior to such subdivision
shall be proportionately increased and the Exercise Price shall be
proportionately decreased, and if the Company shall at any time combine the
outstanding shares of Common Stock by recapitalization, reclassification or
combination thereof, the number of Warrant Shares subject to this Warrant
immediately prior to such combination shall be proportionately decreased and the
Exercise Price shall be proportionately increased. Any such adjustments pursuant
to this Section 6.1 shall be effective at the close of business on the effective
date of such subdivision or combination or if any adjustment is the result of a
stock dividend or distribution then the effective date of such adjustment based
thereon shall be the record date therefor.
6.2 ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC. In
case of any reorganization of the Company (or any other corporation, the
securities of which are at the time receivable on the exercise of this Warrant)
after the Base Date or in case after such date the Company (or any such other
corporation) shall consolidate with
A-3
<PAGE>
or merge into another corporation or convey all or substantially all of its
assets to another corporation, then, and in each such case, the Holder of this
Warrant upon the exercise thereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation, merger or conveyance, shall
be entitled to receive, in lieu of the securities and property receivable upon
the exercise of this Warrant prior to such consummation, the securities or
property to which such Holder would have been entitled upon such consummation if
such holder had exercised this Warrant immediately prior thereto; in each such
case, the terms of this Warrant shall be applicable to the securities or
property receivable upon the exercise of this Warrant after such consummation.
6.3 NO DILUTION. The Company shall not, by amendment of its Articles
of Incorporation or through reorganization, consolidation, merger, dissolution,
issue or sale of securities, sale of assets or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of this
Warrant, but shall at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder of this Warrant against
dilution or other impairment. Without limiting the generality of the foregoing,
while this Warrant is outstanding, the Company (a) shall not permit the par
value, if any, of the shares of Common Stock receivable upon the exercise of
this Warrant to be above the amount payable therefor upon such exercise and (b)
shall take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue or sell fully paid and non-assessable
shares of Common Stock upon the exercise of this Warrant.
6.4 NOTICES OF RECORD DATE, ETC. In case:
(a) the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive any dividend (other than a
cash dividend at the same rate as the rate of the last cash dividend theretofore
paid) or other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities, or
to receive any other right; or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of all
or substantially all of the assets of the Company to another corporation; or
(c) of any voluntary dissolution, liquidation or winding up of the
Company,
then, and in each such case, the Company shall mail or cause to be mailed to
each holder of the Warrant at the time outstanding a notice specifying, as the
case may be, (i) the date on which a record is to be taken for the purpose of
such dividend, distribution or right, and stating the amount and character of
such dividend, distribution or right, or (ii) the date on which such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding up is to take place, and the time, if any,
is to be fixed,
A-4
<PAGE>
as to which the holders of record of Common Stock shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding up. Such notice shall be mailed at least 20
days prior to the date therein specified and the Warrant may be exercised prior
to said date during the term of the Warrant.
7. TRANSFER TO COMPLY WITH THE SECURITIES ACT. This Warrant and any
Warrant Shares may not be sold, transferred, pledged, hypothecated or otherwise
disposed of unless registered under the Securities Act and any applicable state
securities laws or pursuant to available exemptions from such registration,
provided that the transferor delivers to the Company an opinion of its counsel
satisfactory in form and substance to the Company confirming the availability of
such exemption.
8. LEGEND. Unless the Warrant Shares have been registered under the
Securities Act, upon exercise of this Warrant, all certificates representing the
Warrant Shares shall bear on the face thereof substantially the following
legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD
OR OTHERWISE DISPOSED OF UNLESS REGISTERED PURSUANT TO THE
PROVISIONS OF THE SECURITIES ACT AND REGISTERED UNDER ANY
APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE BASED ON AN OPINION OF COUNSEL
OF THE HOLDER TO SUCH EFFECT IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER.
9. COVENANT NOT TO SHORT STOCK. The Holder shall not, without the
Company's prior written consent, enter into a short position or similar
arrangement with respect to any shares of the Common Stock at any time during
the 90-day period from and after the date of this Warrant.
10. NOTICES. All notices required hereunder shall be in writing and
shall be deemed given when telecopied, delivered personally or with three days
after mailing when mailed by certified or registered mail, return receipt
requested, to the Company at its principal office, or to the Holder at the
address set forth on the record books of the Company, or at such other address
of which the Company or the Holder has been advised by notice hereunder.
A-5
<PAGE>
11. APPLICABLE LAW. The Warrant is issued under and shall for all
purposes be governed by and construed in accordance with the substantive laws of
the State of New York without giving effect to principles or policies of
conflicts of laws thereof. The Company and the Subscriber hereby submit to the
jurisdiction of the federal and New York State Courts located in the Borough of
Manhattan, New York, New York in connection with any dispute related to this
Warrant or any transaction or any other matter contemplated hereby (to the
extent legally permissible).
[SIGNATURE ON FOLLOWING PAGE]
A-6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
on its behalf, in its corporate name, by its duly authorized officer, all as of
the day and year first above written.
BIG ENTERTAINMENT, INC.
By:
---------------------------------
Mitchell Rubenstein
Chief Executive Officer
A-7
<PAGE>
ANNEX A
WARRANT EXERCISE FORM
THE UNDERSIGNED hereby irrevocably elects to exercise the
within Warrant to the extent of purchasing _______ shares of Common Stock of Big
Entertainment, Inc., a Florida corporation, and hereby makes payment of
$_________ in payment therefor.
By:
-------------------------------------------
Signature
-------------------------------------
Name
-------------------------------------
Title
-------------------------------------
Date
INSTRUCTIONS FOR ISSUANCE OF STOCK
(if other than to the registered holder of the within Warrant)
Name
--------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address
------------------------------------------------------------------------
------------------------------------------------------------------------
Social Security or
Taxpayer Identification Number
-------------------------------------------------
A-8
<PAGE>
ANNEX B
ASSIGNMENT FORM
For value received, hereby sells, assigns, and transfers unto Name
The right to purchase Common Stock of Big Entertainment, inc., a Florida
corporation, represented by this Warrant to the extent of shares as to which
such right is exercisable and does hereby irrevocably constitute and appoint
__________________ Attorney, to transfer the same on the books of the Company
with full power of substitution in the premises.
Dated:
-----------------------
By:
-----------------------------------
Signature
-----------------------------------
Name
-----------------------------------
Title
A-9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,827,332
<SECURITIES> 0
<RECEIVABLES> 1,152,408
<ALLOWANCES> 108,008
<INVENTORY> 1,102,930
<CURRENT-ASSETS> 7,684,752
<PP&E> 7,137,477
<DEPRECIATION> (3,023,692)
<TOTAL-ASSETS> 58,031,937
<CURRENT-LIABILITIES> 5,159,574
<BONDS> 0
0
367,488
<COMMON> 136,447
<OTHER-SE> 50,241,206
<TOTAL-LIABILITY-AND-EQUITY> 58,031,937
<SALES> 3,055,190
<TOTAL-REVENUES> 3,056,190
<CGS> 1,265,590
<TOTAL-COSTS> 6,462,042
<OTHER-EXPENSES> 280,938
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 368,962
<INCOME-PRETAX> (4,438,703)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,438,703)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,438,703)
<EPS-BASIC> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
