U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] 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
HOLLYWOOD.COM, INC.
(Exact name of registrant 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
(Registrant's telephone number)
Big Entertainment, Inc.
-----------------------
(Former Name)
Indicated by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 May 12, 2000, the number of shares outstanding of the issuer's
common stock, $.01 par value, was 23,277,385.
<PAGE>
HOLLYWOOD.COM, INC.
Table of Contents
Page(s)
------
PART I FINANCIAL INFORMATION
---------------------
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 2000
(unaudited) and December 31, 1999......................... 3
Consolidated Statements of Operations for the Three
Months ended March 31, 2000 and 1999 (unaudited) ......... 4
Consolidated Statement of Shareholders' Equity for the
Three Months ended March 31, 2000 (unaudited)............. 5
Consolidated Statements of Cash Flows for the Three
Months ended March 31, 2000 and 1999 (unaudited).......... 6
Notes to Consolidated Financial Statements (unaudited).... 7-15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS.................................................... 16-25
PART II OTHER INFORMATION
-----------------
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.................... 26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................. 27
Signature .............................................................. 29
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<PAGE>
HOLLYWOOD.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,429,994 $ 2,475,345
Receivables, net 1,985,066 1,155,999
Merchandise inventories 1,145,194 1,246,733
Prepaid expenses 1,760,316 1,687,347
Other receivables 26,998 18,037
Other current assets 93,948 67,541
Deferred advertising - CBS 24,313,695 -
------------ ------------
Total current assets 35,755,211 6,651,002
PROPERTY AND EQUIPMENT, net 2,052,576 1,877,959
INVESTMENT IN NETCO PARTNERS 1,121,868 549,975
INVESTMENT IN MOVIETICKETS.COM 1,066,667 -
NONCURRENT DEFERRED ADVERTISING - CBS 106,602,016 -
INTANGIBLE ASSETS, net 4,946,967 3,770,590
GOODWILL, net 45,261,305 46,483,647
OTHER ASSETS 2,468,662 3,149,652
------------ ------------
TOTAL ASSETS $199,275,272 $ 62,482,825
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 867,670 $ 2,181,089
Accrued professional fees 184,029 199,514
Other accrued expenses 1,833,241 1,579,682
Deferred advertising - CBS - 2,344,950
Accrued reserve for closed stores 716,432 2,366,432
Deferred revenue 238,331 308,061
Note payable 1,928,138 1,928,138
Current portion of capital lease obligations 559,160 561,015
------------ ------------
Total current liabilities 6,327,001 11,468,881
------------ ------------
CAPITAL LEASE OBLIGATIONS, less current portion 872,778 995,213
------------ ------------
DEFERRED REVENUE 249,117 249,117
------------ ------------
MINORITY INTEREST 139,697 270,828
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 539,127 shares authorized; none outstanding - -
Common stock, $.01 par value, 100,000,000 shares authorized; 23,209,546 and
15,143,216 shares issued and outstanding at March 31,2000 and 232,096 151,432
December 31,1999, respectively.
Warrants outstanding 6,096,704 5,096,704
Deferred compensation (255,167) (306,200)
Additional paid-in capital 255,730,878 105,500,656
Accumulated deficit (70,117,832) (60,943,806)
------------ ------------
Total shareholders' equity 191,686,679 49,498,786
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $199,275,272 $ 62,482,825
============ ============
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
</TABLE>
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<PAGE>
HOLLYWOOD.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------
2000 1999
---------- -----------
<S> <C> <C>
NET REVENUES $ 4,077,696 $ 1,315,774
COST OF REVENUES 949,971 660,272
------------ -----------
Gross margin 3,127,725 655,502
------------ -----------
OPERATING EXPENSES:
General and administrative 2,410,965 899,158
Selling and marketing 2,418,731 364,195
Salaries and benefits 2,432,915 698,808
Amortization of CBS advertising 4,124,197 -
Amortization of goodwill and intangibles 1,651,934 7,857
Depreciation 249,995 280,825
------------ -----------
Total operating expenses 13,288,737 2,250,843
------------ -----------
Operating loss (10,161,012) (1,595,341)
EQUITY IN EARNINGS OF NETCO PARTNERS 1,105,337 1,094,190
OTHER (EXPENSE):
Interest, net (59,200) (190,776)
Other, net - (129,903)
------------ -----------
Loss before minority interest (9,114,875) (821,830)
MINORITY INTEREST (59,151) (152,808)
------------ -----------
Net loss $ (9,174,026) $ (974,638)
============ ===========
Basic and diluted loss per common share $ (0.42) $ (0.12)
============ ===========
Weighted average common and common equivalent shares
outstanding - basic and diluted 21,830,827 8,565,528
============ ===========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
</TABLE>
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<PAGE>
HOLLYWOOD.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Paid-in Warrants Deferred Accumulated
Stock Capital Outstanding Compensation Deficit Total
-------- ------------- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31,1999 $151,432 $ 105,500,656 $ 5,096,704 $ (306,200) $(60,943,806) $ 49,498,786
Issuance of common stock and common stock
warrants pursuant to CBS agreement 66,720 119,100,882 18,051,784 - - 137,219,386
Stock options and warrants exercised 13,071 29,627,260 (18,051,784) - - 11,588,547
Common stock warrants issued
in conection with investment in
Movietickets.com - - 1,000,000 - - 1,000,000
Issuance of stock options and warrants
for services rendered - 51,028 - - - 51,028
Non-cash issuance of common stock -
franchise agreement 1,000 1,649,000 - - - 1,650,000
Amortization of employee stock bonuses - 51,033 51,033
Shares repurchased (127) (197,948) - - - (198,075)
Net loss - - - - (9,174,026) (9,174,026)
-------- ------------- ----------- ---------- ------------- -------------
Balance - March 31,2000 $232,096 $ 255,730,878 $ 6,096,704 $ (255,167) $ (70,117,832) $ 191,686,679
======== ============= =========== ========== ============= =============
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements.
</TABLE>
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<PAGE>
HOLLYWOOD.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
2000 1999
------------ ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (9,174,026) $ (974,638)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,901,929 288,683
Equity in earnings, net of return of invested capital (638,560) (1,076,140)
Issuance of compensatory stock options and warrants 51,028 35,798
Amortization of deferred compensation costs 51,033 51,033
Recognition of deferred gain - (10,097)
Provision for bad debts 25,514 -
Provision for inventory 13,444 -
Amortization of deferred financing costs 2,145 103,922
Amortization of deferred advertising - CBS 4,124,197 -
Amortization of service contract 67,460 -
Minority interest 59,151 152,808
Changes in assets and liabilities:
Receivables (863,542) (64,380)
Prepaid expenses (72,969) (79,614)
Merchandise inventories 88,095 300,603
Other current assets (28,552) (173,056)
Other assets 7,561 108,435
Accounts payable (1,313,419) (712,869)
Accrued professional fees (15,485) (17,357)
Deferred revenue (69,730) 14,021
Other accrued expenses 253,558 (87,439)
------------ -----------
Net cash used in operating activities (5,531,168) (2,140,287)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in trademarks (1,000,000) -
Capital expenditures, net (424,612) (83,675)
Return of capital from Tekno Books to minority partner (190,282) (136,970)
------------ -----------
Net cash used in investing activities (1,614,894) (220,645)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments from revolving line of credit - (556,206)
Proceeds from shareholder/officer loan - 571,000
Repayments of shareholder/officer loan - (671,000)
Net proceeds from issuance of common stock 5,303,030 2,468,659
Proceeds from exercise of stock options and warrants 6,120,046 318,818
Dividends on preferred stock - -
Payments to repurchase common stock (198,075) -
Repayments under capital lease obligations (124,290) (167,495)
------------ -----------
Net cash provided by financing activities 11,100,711 1,963,776
------------ -----------
Net increase (decrease) in cash and cash equivalents 3,954,649 (397,156)
CASH AND CASH EQUIVALENTS, beginning of period 2,475,345 729,334
------------ -----------
CASH AND CASH EQUIVALENTS, end of period $ 6,429,994 $ 332,178
------------ -----------
SUPPLEMENTAL SCHEDULE OF CASH RELATED ACTIVITIES:
Interest paid $ 94,065 $ 91,685
============ ===========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
</TABLE>
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<PAGE>
HOLLYWOOD.COM, 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 Hollywood.com, 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 results of operations and cash flows for the three months ended March 31,
2000 are not necessarily indicative of the results of operations or cash flows
which may be recorded for the remainder of 2000.
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-K for the year ended December
31, 1999.
(2) ACQUISITIONS:
(a) CinemaSource, Inc.:
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, and then licenses this data,
in a compiled manner, to internet companies. CinemaSource licenses this
information to more than 200 different outlets, including customers such
as Yahoo!, Excite, Go Network, Ticketmaster/CitySearch, Zip2, The New York Times
web site, usatoday.com, latimes.com, iWon.com, The Washington Post web site, the
Boston Globe web site, the Newsday web site, and all of the web sites of Knight
Ridder and Advance/Newhouse.
-7-
<PAGE>
(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 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 $12.64 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. Hollywood.com owns and operates the Hollywood.com web site
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. Hollywood.com has an exclusive contract with the National
Association of Theatre Owners ("NATO"). Through this contract, Hollywood.com
promotes its web site to movie audiences by airing trailers featuring
Hollywood.com before the feature films that play in most NATO-member theatres.
In exchange, Hollywood.com provides web sites for the exhibiting NATO members.
The value of this contract was recorded as an intangible asset of $4.6 million
and is being amortized over the remaining life of the contract, approximately
three years.
(c) Baseline II, Inc.:
On August 31, 1999, the Company purchased substantially all of the motion
picture-related data assets of Paul Kagan Associates, Inc., including the
PKBaseline.com web site, several publications, including the Motion Picture
Investor newsletter, and a consumer oriented movie web site. PK Baseline is a
subscription pay per use web site for movie professionals. The aggregate
purchase price paid for the Baseline assets consisted of 492,611 shares of
common stock valued at $17.81 per share and warrants to purchase an aggregate of
54,735 shares of common stock at an exercise price of $18.27 per share valued at
$543,588. The shares of common stock issued in the transaction can not be
transferred by the holders for a period of 24 months following the closing of
the transaction. The Company plans to integrate part of the content into the
Hollywood.com website and continue to operate PK Baseline.com as a service
geared to movie professionals.
The acquisitions of CinemaSource, hollywood.com and Baseline II were accounted
for under the purchase method of accounting and, accordingly, the operating
results of CinemaSource, hollywood.com and Baseline have been included in the
Company's consolidated financial statements since the date of acquisition. The
excess of the aggregate purchase prices over the fair value of net assets
acquired of $48.9 million is being amortized over 10 years.
The purchase price of CinemaSource, hollywood.com and Baseline II was allocated
to assets and liabilities acquired as follows:
Tangible assets $ 2,729,844
Intangible assets 4,567,513
Goodwill 48,932,777
Liabilities assumed (586,877)
------------
Total purchase price 55,643,257
Less value of common stock
and warrants issued (46,290,190)
-8-
<PAGE>
Less value of note issued (1,928,138)
------------
Subtotal 7,424,929
------------
Paid in cash - purchase price 6,534,190
Paid in cash - acquisition costs 890,739
------------
Total cash paid $ 7,424,929
============
The following are unaudited pro forma combined results of operations of the
Company, hollywood.com, CinemaSource and Baseline for the three months ended
March 31, 1999, as if the acquisitions of hollywood.com, CinemaSource and
Baseline II had occurred on January 1, 1999:
Net Revenues $ 2,589,659
-----------
Net Loss $(6,047,256)
-----------
Pro Forma Diluted Loss Per Share $ (.51)
-----------
Weighted Average Shares Outstanding 11,794,405
===========
These unaudited pro forma combined results have been prepared for
comparative purposes only and include certain adjustments, such as additional
amortization expense as a result of goodwill and certain contractual adjustments
to salaries. They do not purport to be indicative of the results of operations
which actually would have resulted had the acquired companies been under common
control prior to the date of the acquisition or which may result in the future.
(d) Broadway.com
The Company launched the Broadway.com web site on May 1, 2000. The
Broadway.com web site offers the webs most comprehensive database of
professional theater showtimes listings in the US with listings of more than
over 1900 events as well as show synopsis, cast and crew crew credits and
biographies, digitized show previews and show tunes, community chat area, the
ability to purchase Broadway and Off-Broadway theater tickets online, and
interviews. The Company has owned the web addresses Theater.com and Theaters.com
which is being utilized to redirect traffic to Broadway.com. On January 6, 2000
the Company acquired the web address Broadway.com. The purchase price consisted
of $1.0 million in cash and 35,294 in common stock valued at $17 per share. The
common stock was issued and recorded in December 1999, prior to closing, and
delivered in anticipation of the closing. The total purchase price of $1.6
million was recorded as an intangible asset in the accompanying balance sheet
and is being amortized over a life of ten years.
-9-
<PAGE>
(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 as partial consideration
for the acquisition of hollywood.com, Inc. The promissory note has a maturity
date of May 20, 2000 (at which time the aggregate principal balance thereof must
be repaid in full with cash or Company stock at the Company's option) and bears
interest at the prime rate in effect from time to time of Citibank, N.A. plus 1%
(10% at May 12, 2000). 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.
(4) COMMON STOCK:
On January 3, 2000, the Company issued 6,672,031 shares of common stock valued
at $19.50 per share and a warrant, to purchase 1,178,892 shares of common stock,
with an exercise price of $10,937,002 and valued at $18,051,784 as consideration
for $100,000,000 of CBS advertising, promotion and content over a seven year
period and $5,303,030 in cash. In March 2000 CBS exercised a warrant to acquire
an additional approximate 5% equity interest in the Company. The value of the
common stock and warrants issued to CBS has been recorded in the balance sheet
as deferred advertising and is being amortized over each related contract year.
On February 8, 2000 the Company issued 100,000 shares of common stock valued at
$1,650,000 in order to reacquire territorial rights as per a franchise
agreement. The company closed its retail operations in December 1999 and
$1,650,000 was accrued for the accompanying December 31, 1999 consolidated
balance sheet as accrued reserve for closed stores.
In 1998, the Company's Board of Directors approved a plan for the repurchase of
up to $1.0 million of the Company's common stock. Pursuant to the plan, during
2000 the Company repurchased 12,700 shares of its common stock for an aggregate
consideration of $198,075, or an average purchase price of $15.60.
During the three months ended March 31, 2000, the Company issued 1,306,999
shares of common stock upon the exercise of outstanding stock options and
warrants, for which the Company received $6,120,046 in cash exercise proceeds
and $5,468,501 in additional promotional advertising from CBS.
(5) INVESTMENTS
(a) NETCO PARTNERS:
The Company owns a 50% interest in a joint venture called NetCo Partners. The
Company records its investment under the equity method of accounting,
recognizing 50% of NetCo Partners' income or loss as Equity in Earnings of NetCo
Partners. NetCo Partners is engaged in the publishing and licensing of
entertainment properties. NetCo Partners has entered into numerous licensing
agreements, including book publishing agreements with The Berkley Publishing
Group, Books on Tape, Inc. and various foreign publishers, and ABC television
mini-series agreement. 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 three months ended March 31, 2000 and 1999 are presented below:
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<PAGE>
Three Months Ended March 31,
-----------------------------------
2000 1999
----------- -------------
Revenues $ 2,617,126 $ 2,688,972
Gross Profit 2,202,349 2,182,063
Net Income 2,210,674 2,188,380
The revenues, gross profit and net income of NetCo Partners for the three months
ended March 31, 2000 is principally attributable to delivery of the manuscript
for the fourth book in the Tom Clancy's NetForce adult series of books to the
publisher during the quarter. This milestone triggers the recognition of certain
revenues and corresponding expenses for the book under the various domestic and
foreign licensing agreements.
As of March 31, 2000, NetCo Partners has $2,518,650 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 $953,727 as of March 31, 2000.
As of March 31, 2000, the Company has received cumulative profit distributions
from NetCo Partners since its formation totaling $4,023,239, in addition to
reimbursement of substantially all amounts advanced by the Company to fund the
operations of NetCo Partners.
(b) MOVIETICKETS.com
The Company entered into a joint venture agreement with AMC Entertainment Inc.
("AMC") and National Amusements, Inc. Each partner owns one-third of the joint
venture at March 31, 2000. Movietickets.com web site will allow users to
purchase movie tickets online and either print the tickets on a personal
computer or retrieve them at "will call" windows or ATM machines at the
theaters. The web site is expected to launch in late May 2000. At March 31, 2000
the Company contributed $66,667 in cash to movietickets.com plus $1,000,000 of
warrants.
(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 months ended March 31, 2000 and 1999:
Three Months Ended March 31,
---------------------------------
2000 1999
------------ ------------
Net Loss $ (9,174,026) $ (974,638)
Preferred Stock Dividends - (91,459)
------------ ------------
Net Loss Available to Common Shareholders $ (9,174,026) $ (1,066,097)
Weighted Average Shares Outstanding 21,830,827 8,565,528
------------ ------------
Basic and Diluted Loss per Share $ (0.42) $ (0.12)
============ ============
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<PAGE>
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 three months ended March 31,
2000 and 1999. Options and warrants to purchase 4,098,510 shares of common stock
at exercise prices ranging from $0.01 to $23.00 per share were also not included
in the computation of loss per share for the three months ended March 31, 2000
because the result would be antidilutive.
(7) SEGMENT REPORTING:
The Company has five reportable segments: Internet ad sales, business to
business, e-commerce, retail, and intellectual properties. The Internet ad sales
segment sells advertising on its web site, Hollywood.com and will also include
Broadway.com and the Hollywood.com international sites advertising in subsequent
quarters. The business to business segment licenses entertainment content and
includes the division CinemaSource (which licenses movie showtimes and content),
EventSource (which licenses event related information) and TheaterSource (which
licenses live theater showtimes and content) to internet Companies. E-commerce
sells entertainment related merchandise over the Internet. The retail segment
operated retail studio stores that sold entertainment-related merchandise. The
intellectual properties segment owns or controls the exclusive rights to certain
intellectural properties 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.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based on a comparison of actual profit or loss from operations before income
taxes, depreciation, interest, and nonrecurring gains and losses to budgeted
amounts.
The following table illustrates the financial information regarding the
Company's reportable segments.
Three Months ended March 31,
---------------------------------------
2000 1999
------------- ----------
REVENUES:
Internet Ad Sales $ 2,310,355 $ -
Business to Business 1,002,508 -
E-Commerce 301,734 77,908
Retail - 696,900
Intellectual Properties 463,099 540,966
Other - -
------------- ----------
$ 4,077,696 $1,315,774
============= ==========
GROSS PROFIT:
Internet Ad Sales $ 2,052,280 $ -
Business to Business 942,444 -
E-Commerce 52,382 30,040
Retail - 229,652
Intellectual Properties 80,619 395,810
Other - -
- -
------------- ----------
$ 3,127,725 $ 655,502
============= ==========
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<PAGE>
Three Months ended March 31,
---------------------------------------
2000 1999
------------- ----------
OPERATING LOSS:
Internet Ad Sales $ (7,136,865) $ -
Business to Business 54,288 -
E-Commerce (641,036) (208,871)
Retail (28,405) (793,099)
Intellectual Properties 118,789 311,764
Other (2,527,783) (905,135)
------------ ------------
$(10,161,012) $ (1,595,341)
============ ============
CAPITAL EXPENDITURES:
Internet Ad Sales $ 277,626 $ -
Business to Business 71,983 -
E-Commerce - 65,058
Retail - -
Intellectual Properties 5,188 -
Other 69,815 18,617
------------ ------------
$ 424,612 $ 83,675
============ ============
DEPRECIATION EXPENSE:
Internet Ad Sales $ 157,581 $ -
Business to Business 24,820 -
E-Commerce 3,606 2,342
Retail - 81,059
Intellectual Properties 2,073 1,226
Other 61,915 196,198
------------ ------------
$ 249,995 $ 280,825
============ ============
INTEREST, NET:
Internet Ad Sales $ 685 $ -
Business to Business 536 -
E-Commerce - -
Retail 39,180 176,622
Intellectual Properties (1,947) (1,084)
Other 20,746 15,238
------------ ------------
$ 59,200 $ 190,776
============ ============
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<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 March 31, 2000 will be collected in full, and that no
reserve for uncollectible accounts is necessary (see Note 5).
(9) 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 tax gain at the time of
closing). On April 14, 2000, a loan in the amount of $1,737,513 was granted. The
loan has a term of one year, bears interest and is secured by the holders stock
in the Company.
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.
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(10) RECLASSIFICATION:
Certain amounts in the 1999 financial statements have been classified to conform
with the 2000 classification.
(11) SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
For the Three Months Ended March 31, 1999:
The Company recorded the conversion of $2,000,000 of Series C Preferred Stock
into 500,000 shares of common stock.
The Company recorded non-cash dividends on its Series A,B,C,D and D-2
convertible Preferred Stock in the amount of $91,459, of which $41,589 was paid
through the issuance of 3,506 shares of common stock.
The Company entered into capital lease transactions totalling $56,068.
For the Three Months ended March 31, 2000:
The Company issued 100,000 shares of common stock, valued at $1,650,000. This
amount was accrued for at December 31, 1999.
The Company issued warrants valued at $1.0 million in connection with it's
investment in Movietickets.com.
The Company recorded $5,468,501 in deferred advertising in connection with the
exercise of warrants by CBS.
(12) SUBSEQUENT EVENT:
On May 1, 2000, the Company purchased the assets of Broadwaytheater.com, Inc.
for $135,000 in cash and 66,572 shares of common stock. Broadwaytheater.com
sells Broadway and Off Broadway theater tickets online. This business has been
incorporated into the Company's Broadway.com web site which launched on May 1,
2000.
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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 Hollywood.com, Inc. (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
the Company's control, and actual results may differ materially depending on a
variety of important factors. Factors that may affect the Company's results
include, but are not limited to, our continuing operating losses and accumulated
deficit, our limited operating history, the need for additional capital to
finance our operations, the need to manage our growth and integrate new
businesses into the Company, our ability to develop strategic relationships, our
ability to compete with other Internet companies, technology risks and the
general risk of doing business over the Internet, future government regulation,
dependence on our founders, the interests of our largest shareholder, Viacom
Inc. (formerly CBS Corporation), and accounting considerations related to our
strategic alliance with CBS. The Company is also subject to other risks detailed
herein or detailed from time to time in the Company's filings with the
Securities and Exchange Commission.
Introduction
We are an entertainment-focused Internet company that offers widely
recognized brands and one of the broadest and deepest collections of
entertainment content and related information in the industry. We also continue
to operate the intellectual property business from which our company has
expanded and evolved. Our Internet business generates revenues through the sale
of advertising on Hollywood.com and Broadway.com, the business-to-business
syndication of our content, to other internet companies including such companies
as Yahoo!, Go Network, AOL DigitalCities, Excite, Ticketmaster/CitySearch and
Zip2 and the sale of merchandise throughout our family of entertainment-related
web sites. Our existing businesses, Hollywood.com, Broadway.com, CinemaSource,
EventSource, TheaterSource and Baseline provide in-depth entertainment
information, including movie and theater descriptions and reviews, showtime
listings, entertainment news and an extensive multimedia library. In January
2000 we entered into a seven-year agreement with CBS Corporation providing for
$100 million of advertising and promotion of the Hollywood.com web site and $5.3
million in cash in exchange for an approximate 30% equity interest in the
Company. In March 2000 CBS Corporation exercised a warrant to acquire an
additional approximate 5% equity interest in the Company. CBS Corporation merged
with and into Viacom Inc. in May 2000.
Internet Businesses
Hollywood.com. Hollywood.com is a premier entertainment related web
site featuring over one million pages of in-depth movie, television and music
content, including movie descriptions and reviews, digitized movie trailers and
photos, movie showtime listings, entertainment news, box office results,
interactive games, movie soundtracks, television listings, concert information,
celebrity profiles and biographies, comprehensive coverage of
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entertainment awards shows and film festivals and exclusive video coverage of
movie premieres. Hollywood.com is established on the Internet as a leading
entertainment web site with approximately 67 million page impressions and
approximately 3.1 million unique visitors recorded during March 2000.
We sell banner advertising and sponsorships on Hollywood.com through an
internal advertising sales force and through relationships with outside
advertising firms. Some of our recent advertisers include Microsoft, Toyota,
Universal Studios, eBay, P&G, iVillage, Visa, M&Ms, Destination Films, New Line
Cinema, JC Penny, US Army, Nissan and Women.com.
We promote the Hollywood.com web site through our strategic
relationships with CBS and the National Association of Theatre Owners. Through
exclusive contracts with the NATO and over 85 of its member theater exhibitors,
we promote the Hollywood.com web site to movie audiences by airing trailers
about Hollywood.com before feature films that play in participating theaters and
by displaying posters and other promotional materials in those theaters. In
exchange, we develop and maintain web sites for many of the theater exhibitors
that feature their movie showtimes.
In January 2000 we entered into a strategic, seven-year relationship
with CBS that provides for extensive promotion of the Hollywood.com web site.
CBS has agreed to provide Hollywood.com with $100,000,000 of promotion across
its full range of media properties, including the CBS television network, CBS
owned and operated television stations, CBS cable networks, Infinity
Broadcasting Corporation's radio stations and outdoor billboards, CBS Internet
sites and CBS syndicated television and radio programs. To supplement our
internal sales efforts, we also have the right to reallocate a portion of each
year's promotional budget and require CBS to sell up to $1.5 million of
advertising on the Hollywood.com and Broadway.com web site. CBS has agreed to
include the Hollywood.com web site in all advertising sale programs and
presentations that are appropriate for the sale of advertising on the web site.
We will pay an 8% commission on any additional advertising revenues generated by
CBS for us in excess of the $1.5 million guaranteed amount selected by us each
year.
Through our MusicSite.com web site, which serves as the music area on
Hollywood.com, we feature a comprehensive collection of information related to
music, musicians and the music industry, including music news and information,
musician profiles, reviews of current and upcoming releases, artist
discographies and coverage of awards ceremonies. MusicSite.com also features
extensive listings of concerts and music-related events around the country from
the largest to the smallest of venues, which listings are provided by our
EventSource division.
Broadway.com. We launched the Broadway.com web site on May 1, 2000.
Broadway.com features theater showtimes for virtually all professional live
theater venues in the U.S. as well as London's West End; the ability to purchase
Broadway and Off Broadway theater tickets online; the latest theater news;
interviews with stage actors and playwrights; opening-night coverage; original
theater reviews; and video excerpts from selected shows. The Broadway.com web
site also offer current box office results, show synopses, cast and crew credits
and biographies, digitized show previews, digitized showtunes and an in-depth
Tony Awards(R) area. Broadway.com also offers a community chat area for users to
chat with fellow users, stage actors, playwrights and reviewers about Broadway
and live theater from around the country and worldwide. Broadway.com expects to
generate revenue from advertising sales, syndication of content to other
internet companies, and ticket sales.
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Hollywood.com International. We have entered into and are pursuing
several strategic relationships geared toward leveraging the Hollywood.com brand
internationally. We entered into an agreement with AOL Latin America (a venture
between AOL and Cisneros)in late 1999 pursuant to which we agreed to launch
Portuguese and Spanish versions of the Hollywood.com web site to be promoted on
AOL in countries throughout Latin America. We launched the br.hollywood.com
Portuguese-language web site in Brazil in November 1999 and the mx.hollywood.com
Spanish-language web site in Mexico in May 2000. These web sites are tailored to
the local movie-going audience and feature much of the same content that is on
Hollywood.com, including daily entertainment news, movie descriptions and
reviews, movie previews, movie soundtracks, celebrity profiles and biographies
and interactive games. We plan to launch ar.hollywood.com in Argentina in May
2000. Our br.hollywood.com web site is featured and promoted on the
entertainment channels of both AOL Latin America and El Sitio.com, a Latin
American-based Internet portal, and our other Latin American web sites will also
be featured on these portals.
The Company has entered into an agreement in principle to form a
strategic partnership to distribute Hollywood.com content, in the Chinese
language, throughout China on all Legend new PC's along with Legend's new
Chinese-language portal FM365.com. Legend's market share of PC sales in China
has climbed steadily to over 27%.
The Company has also entered into an agreement in principle to form a
strategic partnership to distribute Hollywod.com content across British
Telecom's multiple Internet platforms, including narrowband ISP, broadband DSL
access and wireless WAP technologies, throughout the United Kingdom.
CinemaSource. CinemaSource is the largest supplier of movie showtimes
to the Internet and compiles movie showtimes for every movie theater in the
United States and Canada, representing approximately 36,000 movie screens. Since
its start in 1995, CinemaSource has substantially increased its operations and
currently provides movie showtime listings to more than 200 different Internet
sites and media outlets, including Yahoo!, Excite, Go Network,
Ticketmaster/CitySearch, Zip 2, NBCi, The New York Times web site, usatoday.com,
latimes.com, iWon.com, The Washington Post web site, the Boston Globe web site,
the Newsday web site, and all of the web sites of Knight Ridder and
Advance/Newhouse.
In addition, CinemaSource recently expanded its syndication business to
include entertainment news, movie reviews, and celebrity biographies. In
addition to charging guaranteed amounts for the data that it provides to its
customers, CinemaSource often shares in the advertising revenue generated by its
customers in connection with the data. We acquired CinemaSource in mid-1999.
EventSource. We launched the EventSource business in mid-1999 as an
expansion of the operations of CinemaSource. EventSource compiles and syndicates
detailed information on community events in cities around the country, including
concerts and live music, sporting events, festivals, fairs and live theater.
EventSource entered into an agreement with AOL's Digital Cities in April 2000 to
provide event listings for up to 200 cities nationwide. In addition to Digital
Cities, other EventSource customers include the web sites of The New York Times
and Knight Ridder.
Baseline. We own and operate the PKBaseline.com web site, a pay-per-use
web site geared to movie professionals, which we acquired from media analyst
Paul Kagan. The Baseline business maintains one of the most comprehensive movie
and television-related databases and has been in operation for over 15 years.
The PKBaseline.com web site is a comprehensive database of information on over
67,000 films and television programs, as well as biographies on over one million
entertainment industry professionals. This rich, interactive database is
accessible online to our subscribers and includes credits, synopses, reviews and
box office statistics. Baseline continuously tracks production, distribution,
and exhibition of feature films worldwide, including box office projections,
budgets, and trends. Baseline customers include major movie studios, investment
banks, news agencies, consulting firms and other professionals in the
entertainment industry.
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Hollywood.com Studio Store. Our online studio store located at
shopping.hollywood.com is one of the world's largest online movie studio stores.
The studio store features a product line of branded licensed merchandise
including toys, apparel, video games, art, collectibles, movie posters,
housewares, accessories, costumes, games, high tech merchandise and media items.
We currently offer approximately 2,500 different products for sale in the studio
store and our strategy is to make the web site a one-stop shopping experience
for anyone seeking entertainment merchandise. We cross-promote the Hollywood.com
studio store to movie and entertainment enthusiasts through banners and links on
our other web sites and the web site is promoted on over 12,000 affiliate web
sites, including latimes.com, usatoday.com, Yahoo!, Excite, nj.com and others.
We also offer for sale a comprehensive collection of merchandise related to
current and classic Broadway shows through the Broadway.com web site.
New Internet Properties.
We plan to leverage our established entertainment Internet platform to
launch additional entertainment-related Internet businesses, which we expect to
significantly increase our ability to generate revenues from advertising,
syndication and e-commerce. Recent examples of this strategy include the launch
of Broadway.com, MusicSite.com and Mx.hollywood.com, and the upcoming launch of
MovieTickets.com
MovieTickets.com. In May 2000 we plan to launch MovieTickets.com, a
joint venture among Hollywood.com, AMC Entertainment Inc., and National
Amusements, Inc. Each of Hollywood.com, AMC Entertainment Inc. and National
Amusements, Inc. owns one-third of the equity of MovieTickets.com, Inc. and the
joint venture has entered into an agreement in principle for CBS Corporation to
acquire a five percent interest. MovieTickets.com will be promoted through
on-screen advertising in each participating exhibitor's movie screens and
through $25 million of CBS advertising and promotion over the next five years.
MovieTickets.com's current exhibitors include AMC Entertainment Inc., National
Amusements, Inc. and Famous Players Inc. These exhibitors operate theaters
located in all of the top ten markets and approximately 70% of the top 50
markets in the United States. AMC Entertainment Inc. is the largest movie
theater in the United States based on box office sales and Famous Players
generates approximately half of all box office sales in Canada. The
MovieTickets.com web site will allow users to purchase movie tickets online and
either print the tickets on a personal computer or retrieve them at "will call"
windows at theaters. The web site will also feature movie content from
Hollywood.com for all current and future release movies, movie reviews and
synopses, digitized movie trailers and photos, and box office results. We expect
the web site to generate a significant majority of its revenues from the sale of
advertising, and may generate additional revenues from service fees charged to
users for the purchase of tickets. Hollywood.com has the right to sell up to
half of the available advertising inventory on the MovieTickets.com web site and
we will receive a commission equal to 33% of all of the advertising revenue of
MovieTickets.com generated by the Hollywood.com ad sales force.
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Intellectual Properties Business
Intellectual Properties. 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).
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, including Tom Clancy's NetForce, 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 Tom Clancy's NetForce, 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 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 Book Licensing. Our intellectual properties
division also includes a book development and book licensing operation through
our 51% owned subsidiary, Tekno Books, that develops and executes book projects,
typically with best-selling authors. 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. Our intellectual properties division has licensed books for
publication with more than 60 book publishers, including HarperCollins, Bantam
Doubleday Dell, Random House, Simon & Schuster, Penguin Putnum and Warner Books.
The book development and book licensing division has a library of more than
1,100 books. The Chief Executive Officer of Tekno Books, Dr. Martin H.
Greenberg, is also a director of the Company and owner of the remaining 49%
interest in Tekno Books.
Tekno Books also owns a 50% interest in Mystery Scene Magazine, a trade
journal of the mystery genre of which Dr. Greenberg is co-publisher. During
1995, the Company directly acquired an additional 25% interest in the magazine.
As an example of one of the many synergistic opportunities between the Company's
Internet and publishing businesses, the
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Company is currently working to develop an area on the Hollywood.com web site
initially dedicated to mysteries, and later to include science fiction and
romance.
Results of Operations
The following table summarizes the Company's revenues, cost of sales and gross
profit by division for the three months ended March 31, 2000 and 1999,
respectively:
<TABLE>
<CAPTION>
Internet Business to Intellectual
Ad Sales Business E-Commerce Properties Retail Total
------------- ------------ ------------ ------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
March 31, 2000
- --------------
Net Revenues $2,310,355 $ 1,002,508 $ 301,734 $ 463,099 $ - $4,077,696
Cost of Sales 258,075 60,064 249,352 382,480 - 949,971
---------- ----------- --------- --------- -------- ----------
Gross Profit $2,052,280 $ 942,444 $ 52,382 $ 80,619 $ - $3,127,725
========== =========== ========= ========= ======== ==========
March 31, 1999
- --------------
Net Revenues $ - $ - $ 77,908 $ 540,966 $ 696,900 $1,315,774
Cost of Sales - - 47,868 145,156 467,248 660,272
---------- ---------- --------- --------- --------- ----------
Gross Profit $ - $ - $ 30,040 $ 395,810 $ 229,652 $ 655,502
========== ========== ========= ========= ========= ==========
</TABLE>
NET REVENUES
Total net revenues for the three months ended March 31, 2000 and 1999 were
$4,077,696 and $1,315,774, respectively. The increase in revenue was primarily
due to increased revenues from the Company's internet divisions (internet ad
sales, business to business and e-commerce). The Company acquired three internet
businesses in May and August of 1999; therefore there were no revenues for these
business divisions for the three months ended March 31, 1999.
Internet sales revenue for the three months ended March 31, 2000 was
$2,310,355. Revenue is derived from sale of banner advertisements and
sponsorships on the Hollywood.com web site. Hollywood.com was acquired by the
Company on May 20, 1999.
Business to business revenue for the three months ended March 31, 2000 was
$1,002,508. Revenue is generated by the licensing of movie showtimes and other
content information to other Internet companies including YAHOO!, Excite, Zip2,
NBCi, Go Network, usatoday.com, which is conducted through CinemaSource and
Baseline. We acquired CinemaSource on May 18, 1999 and Baseline on August 31,
1999.
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E-commerce revenue for the three months ended March 31, 2000 increased 287% to
$301,734 from $77,908 for three months ended March 31, 1999. The principal
contributing factors to increased e-commerce revenue were increased product
assortment and better product promotion through the Company's relationship with
CBS.
Revenues from the Company's intellectual properties division decreased by
$77,867 or 14% from $540,966 to $463,099 for the three months ended March 31,
2000. The decrease in revenues is attributable to a lesser number of manuscripts
being delivered for the three months ended March 31, 2000 as compared to March
31, 1999. The intellectual properties division generates revenues from several
different activities including book development and licensing, intellectual
property licensing, and publishing Mystery Scene magazine. Revenues vary quarter
to quarter dependent on the various stages of the book projects. 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.
The Company closed all its brick and mortar retail locations in December 1999,
therefore there were no revenues for the three months ended March 31, 2000.
Barter transactions that generate advertising revenue, (included in Internet ad
sales) in which the Company received advertising or other services in exchange
for content or advertising on its web sites accounted for approximately 6% of
total net revenue for the three months ended March 31, 2000. In future periods,
management intends to maximize cash advertising revenue, although the Company
will continue to enter into barter relationships when deemed appropriate.
The Company records barter income earned under a contract with NATO, which the
Company acquired through its acquisition of Hollywood.com. Through the NATO
Contract, the Company promotes its website to movie audiences by airing movie
trailers about Hollywood.com, 40 out of 52 weeks per year, before the feature
films that play in most NATO-member theaters. In exchange, the Company provides
websites for the exhibiting NATO members, promotional materials and movie
information, advertising and editorial content. For the three months ended March
31, 2000 the Company recorded $745,438 in promotional revenue and expense under
the NATO Contract.
COST OF REVENUE
Cost of revenue for the three months ended March 31, 2000 and 1999 was $949,971
and $660,272, respectively. The increase in the cost of sales was primarily the
result of decreased retail revenues which generate lower gross margins offset by
increase in Hollywood.com ad sales and business to business revenues which
generate much higher gross margins. As a percentage of net revenue, cost of
sales was 23% and 50% for the three months ended March 31, 2000 and 1999,
respectively. The company's e-commerce division generally produces a lower gross
margin than other revenue categories.
EQUITY IN EARNINGS OF NETCO PARTNERS
The Company's 50% share in the earnings of Netco Partners increased by 1% or
$11,147 to $1,105,337 for the three months ended March 31, 2000 from $1,094,190
for the three months ended March 31, 1999. On book projects, revenues are
typically recognized upon delivery of the
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manuscripts to the publishers. In both quarters NetCo Partners delivered one
adult novel to the publisher.
OPERATING EXPENSES
General and administrative expenses. General and administrative expenses
increased $1,511,807 or 168% to $2,410,965 for the three months ended March 31,
2000 from $899,158 for the three months ended March 31, 1999. This increase is
primarily attributable to the addition of three internet businesses which were
acquired in May and August of 1999.
Selling and marketing expenses. Selling and marketing expenses increased
$2,054,536 to $2,418,731 for the three months ended March 31, 2000 from $364,195
for the three months ended March 31, 1999. Included in selling and marketing are
non-cash barter transactions of $995,268 and $220,000 for the three months ended
March 31, 2000 and 1999, respectively. Barter transactions accounted for
approximately 41% and 60% of selling and marketing expense for the three months
ended March 31, 2000 and 1999. respectively. The increase in selling and
marketing expense was primarily the result of increased advertising on the
radio, television and outdoor. In addition, these expenses are related to the
Company's internet divisions which were acquired in May and August 1999.
Salaries and benefits. Salaries and benefits increased $1,734,107 to $2,432,915
for the three months ended March 31, 2000 from $698,808 for the three months
ended March 31, 1999. This increase is attributable to the addition of three
internet businesses and an increase in the infrastructure to support the growth
of the Company..
Amortization. Amortization of goodwill and intangibles was $1,651,934 and $7,857
for the three months ended March 31, 2000 and 1999, respectively. The increase
of $1,644,077 is attributable to goodwill and intangibles recorded with the
three internet businesses acquired in May and August of 1999. In addition, the
Company acquired the Broadway.com URL in January 2000 and the amortization of
the purchase price is included above for the three months ended March 31, 2000.
Amortization of CBS advertising relating to the Company's agreement with CBS was
$4,124,197 for the three months ended March 31, 2000. Under the Company's
agreement with CBS, the Company issued shares of common stock and warrants to
purchase common stock in consideration of CBS's advertising and promotional
efforts over seven years across its full range of media properties. The value of
the Common Stock and warrants issued to CBS has been recorded in the balance
sheet as deferred advertising and is being amortized over each related contract
year.
Depreciation. Depreciation was $249,995 and $280,825 for the three months ended
March 31, 2000 and 1999, respectively. The decrease of $30,830 in depreciation
expense is attributable to the closure of the Company's brick and mortar retail
division in December of 1999. All depreciable assets relating to the retail
operations were fully written off. The decrease in depreciation expense is
offset by depreciation of assets relating to the three internet businesses
acquired in May and August of 1999.
Interest Expense, net. Interest expense, net for the three months ended March
31, 2000 was $59,200 compared to $190,776 for the three months ended March 31,
1999. The decrease is
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attributable to an increase in interest income earned on a higher average
balance of cash and a decrease in interest paid on the Company's capital lease
obligation and inventory line of credit.
OTHER INCOME (EXPENSE)
Other expense for the three months ended March 31, 1999 included an accrual of
$140,000 for a potential payment that may be due in conjunction with
registration of shares underlying the Company's convertible preferred stock.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had cash and cash equivalents of $6,429,994 and
working capital of $29,428,210 compared to cash and cash equivalents of
$2,475,345 and a working capital deficit of $4,817,879 at December 31, 1999. Net
cash used in operating activities during the first quarter of 2000 was
$5,531,168, primarily representing cash used to fund the Company's net loss and
a decrease in accounts payable. Net cash used in investing activities was
$1,614,894, while $11,100,711 in cash was provided by financing activities. As a
result of all of the above, cash and cash equivalents increased by $3,954,649
for the three months ended March 31, 2000. During the three months ended March
31, 1999, net cash used in operating activities was $2,140,287, net cash used in
investing activities was $220,645, and $1,963,776 in cash was provided by
financing activities.
On January 3, 2000, the Company issued 6,672,031 shares of common stock valued
at $19.50 per share and a warrant with an exercise price of $10,937,002 and
valued at $18,051,784 as consideration for $100,000,000 of CBS advertising,
promotion and content over a seven year period and $5,303,030 in cash.
On February 8, 2000 the Company issued 100,000 shares of common stock valued at
$1,650,000 in order to reacquire territorial rights as per a franchise
agreement. The company closed its retail operations in December 1999 and
$1,650,000 was accrued for the accompanying December 31, 1999 consolidated
balance sheet as accrued reserve for closed stores.
In 1998, the Company's Board of Directors approved a plan for the repurchase of
up to $1.0 million of the Company's common stock. Pursuant to the plan, during
2000 the Company repurchased 12,700 shares of its common stock for an aggregate
consideration of $198,075, or an average purchase price of $15.60.
During the three months ended March 31, 2000, the Company issued 1,306,999
shares of common stock upon the exercise of outstanding stock options and
warrants, for which the Company received $6,120,046 in cash exercise proceeds
and $5,468,501 in additional promotional advertising from CBS.
The growth of our Internet operations has required substantial financing and we
expect to continue to require additional financing to fund our growth plan and
for working capital. Our operating plans and assumptions indicate that
anticipated cash flows when combined with other potential sources of capital,
will be enough to meet our working capital requirements for the year 2000. If
plans change or our assumptions prove to be inaccurate, we may need to seek
further financing or curtail our operations. Our long-term financial success
depends on our ability to generate enough revenue to offset operating expenses.
To the extent we do not generate
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sufficient revenues to offset expenses we will require further financing to fund
our ongoing operations.
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 are year 2000 compliant. Significant vendors were 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. Year 2000 had no adverse effects on the
Company's current business operation or financial conditions nor does the
Company expect an adverse effect on future operations.
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.
-25-
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended March 31, 2000, the Company issued a total of 1,306,999
shares of its common stock upon the exercise of outstanding warrants and options
with exercise prices ranging from $5.00 to $9.28 per share. The Company received
gross proceeds of $11,588,547 for issuance of this common stock and paid no fees
or commissions related thereto. These amounts include issuance of 1,178,892
shares of Common Stock to CBS Corporation upon exercise of a warrant with a
total exercise price of $10.9 million consisting of $5.47 million in cash and
$5.47 million in the form of a commitment to provide advertising and promotion
of the Company's web sites across the full range of CBS media properties.
In February 2000 the Company issued an aggregate of 100,000 shares of Common
Stock to a third party to reacquire franchise rights purchased by this
individual during 1997.
During the quarter ended March 31, 2000, the Company issued stock options and
warrants to purchase an aggregate of 1,457,955 shares of the Company's common
stock, including 185,527 stock options granted to employees at exercise prices
ranging from $14.875 to $19.00 and warrants to purchase a total of 1,272,428
(including a warrant issued to CBS Corporation for 1,178,892 shares) shares at
exercise prices ranging from $9.28 to $17.875 per share. Options granted to
employees are subject to vesting periods ranging from six months to four years
and generally expire five years from the date of issuance.
The Company did not pay any placement fees or commissions in connection with the
issuance of the securities.
The common stock issued by the Company upon exercise of options granted under
the Company's 1993 Stock Option Plan were registered under the Securities Act of
1933 pursuant to a registration Statement on Form S-8 filed by the Company with
the Securities and Exchange Commission on October 23, 1996. The other securities
described above were issued without registration under the Securities Act of
1933 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.
-26-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Incorporated by
No. Description Reference From
--- ----------- --------------
<S> <C> <C>
3.1 Amended and Restated Articles of Incorporation (1)
3.2 Bylaws (2)
4.1 Form of Common Stock Certificate (2)
4.2 Rights Agreement dated as of August 23, 1996 between the (3)
Company and American Stock Transfer & Trust Company, as
Rights Agent
10.1 Advertising and Promotion Agreement dated January 3, 2000 *
between hollywood.com, Inc, and CBS Corporation
10.2 Content License Agreement dated January 3, 2000 between *
hollywood.com, Inc. and CBS Corporation
10.3 Warrant dated January 3, 2000 issued in the name of CBS *
Corporation for 1,178,892 shares of Common Stock
10.4 Investor's Rights Agreement dated January 3, 2000 between
the Company and CBS Corporation *
10.5 Voting Agreement dated January 3, 2000 among the Company,
CBS Corporation and the other parties signatory thereto *
27.1 Financial Data Schedule *
</TABLE>
-27-
<PAGE>
- ------------------
* Filed as an exhibit to this Form 10-Q
(1) Incorporated by reference from the exhibit filed with the Company's
Annual Report on Form 10-K for the year ended December 31, 1999
(2) Incorporated by reference from the exhibit filed with the Company's
Registration Statement on Form SB-2 (No. 33-69294).
(3) Incorporated by reference from Exhibit 1 to the Company's Current Report
on Form 8-K filed on October 20, 1999.
(b) Reports on Form 8-K
The Company did not file any Current Report on Form 8-K during the quarter ended
March 31, 2000.
-28-
<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.
HOLLYWOOD, INC.
Date: May 12, 1999 By: /s/ Mitchell Rubenstein
----------------------------------------------------
Mitchell Rubenstein, Chairman of the Board and Chief
Executive Officer (Principal executive officer)
Date: May 12, 1999 By: /s/ Margaret H. Fenton
------------------------------------------------------
Margaret H. Fenton, Vice President of Finance
(Principal financial and accounting officer)
-29-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Incorporated by
No. Description Reference From
--- ----------- --------------
<S> <C> <C>
3.1 Amended and Restated Articles of Incorporation (1)
3.2 Bylaws (2)
4.1 Form of Common Stock Certificate (2)
4.2 Rights Agreement dated as of August 23, 1996 between the (3)
Company and American Stock Transfer & Trust Company, as
Rights Agent
10.1 Advertising and Promotion Agreement dated January 3, 2000 *
between hollyywood.com, Inc. and CBS Corporation
10.2 Content License Agreement dated January 3, 2000 between *
hollywood.com, Inc.and CBS Corporation
10.3 Warrant dated January 3,000 issued in the name of CBS *
Corporation for 1,178,892
10.4 Investor's Rights Agreement dated January 3, 2000 between *
the Company and CBS Corporation
10.5 Voting Agreement dated January 3, 2000 among the Company, *
CBS Corporation and the other parties signatory thereto
27.1 Financial Data Schedule *
</TABLE>
-30-
EXHIBIT A
ADVERTISING AND PROMOTION AGREEMENT
AGREEMENT made as of the 3rd day of January, 1999, by and between CBS
Corporation, a Pennsylvania corporation with offices at 51 West 52nd Street, New
York, New York 10019 ("CBS") and hollywood.com, Inc., a California corporation
with offices at 2255 Glades Road, Suite 237 W, Boca Raton, Florida, 33431-7383
("Hollywood" or the "Company").
1. GENERAL DEFINITIONS
1.1 "Affiliate" - means any Person that directly or indirectly (through
one or more intermediaries) controls, is controlled by, or is under common
control with such Person concerned.
1.2 "Annual Ad Sales Commitment" - shall have the meaning set forth in
paragraph 2.2 hereof.
1.3 "Annual Additional Promo Commitment" - shall have the meaning set
forth in subparagraph 2.3(a) hereof.
1.4 "Arbitration Proceeding" - means a proceeding conducted in
accordance with the following rules:
(a) such proceeding is commenced by the party concerned,
within five (5) days after notice to the other party of its intent to elect
arbitration (under paragraph 1.6 below), and requesting the New York office of
the American Arbitration Association to designate one arbitrator (who is a
retired federal or state judge or a member of the CPC Panel of Distinguished
Neutrals of the CPR Institute for Dispute Resolution and who is not and has not
been an affiliate, employee, consultant, officer, director or stockholder of CBS
or Big Entertainment, Inc. ("BEI") to conduct the proceeding;
(b) within seven (7) days after the designation of the
arbitrator, the arbitrator and the parties shall meet, at which time each party
shall be required to set forth in writing all disputed issues, together with its
proposed resolution of the matter, all in reasonable detail and containing such
supporting materials it may choose to submit;
(c) the arbitrator shall set a date for a hearing, which shall
be no later than ten (10) days after the submission of written proposals
pursuant to subparagraph 1.4(b) above, to discuss each of the issues identified
by the parties. Each party shall have the right to be represented by counsel.
The arbitration shall be governed by the Commercial Arbitration Rules of the
American Arbitration Association; provided, however, that the Federal Rules of
Evidence shall apply with regard to the admissibility of evidence;
(d) the arbitrator shall rule on the matter at issue within
seven (7) days after the completion of the hearing described in subparagraph
1.4(c) above. All rulings of the
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arbitrator shall be in writing, shall be delivered to the parties and shall be
final and conclusive as to any such matter; and
(e) the arbitration shall be conducted in New York City.
1.5 "Capital Stock" - means any common stock or preferred stock of BEI
and any options, warrants, rights, or other securities that are convertible,
exercisable, or exchangeable into common stock or preferred stock of BEI.
1.6 "CBS Competitor" - means any Person, other than CBS or any
Affiliate of CBS, who is primarily engaged in North America directly, or
indirectly through an Affiliate, in radio or television programming or radio or
television program distribution (including, without limitation, free
over-the-air, telephone, Internet or microwave). A CBS Competitor shall not
include any of the following:
(a) any Person engaged in television programming or television
program distribution, provided such Person's aggregate revenues
generated from television programming and television program
distribution are less than five percent (5%) of the aggregate revenues
of the television broadcast market.
(b) any Person engaged in free over-the-air radio programming
or radio program distribution, provided such Person is not one of the
top two (excluding CBS) nationally ranked radio broadcast networks,
based on overall radio audience ratings.
(c) any Person engaged in television programming or television
program distribution over the Internet ("Television Internet Concern"),
provided either of the following conditions are met:
(i) the aggregate revenue of the Internet video
streaming market/industry ("Internet Video Streaming Market")
is less than 10% of the aggregate revenue for the network
television broadcast market; or
(ii) if the aggregate revenue of the Internet Video
Streaming Market is equal to or more than 10% of the aggregate
revenue for the network television broadcast market, then the
Television Internet Concern shall not be a CBS Competitor if
the aggregate revenue of such Television Internet Concern
generated by television programming or television program
distribution over the Internet is less than 10% of the
aggregate revenue of the Internet Video Streaming Market.
The foregoing markets and revenues shall be identified/delineated by
Veronis, Suhler & Associates, provided, however, that if Veronis,
Suhler is not a nationally reputable media/ communications forecasting
service or does not (as a matter of course) provide the relevant data,
the parties shall mutually agree upon a nationally reputable
media/communications forecasting service (the "Forecasting Service").
In the event that the parties are unable to reach agreement upon the
Forecasting Service within ten (10)
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<PAGE>
business days of commencement of discussion on the issue, then either
party hereto shall have the right to elect to commence an Arbitration
Proceeding to determine the Forecasting Service.
(d) any Person engaged in radio programming or radio program
distribution over the Internet ("Radio Internet Concern"), provided
either of the following conditions are met:
(i) the aggregate revenue of the Internet radio
streaming market/industry ("Internet Radio Streaming Market")
is less than 10% of the aggregate revenue for the radio
broadcast market; or
(ii) if the aggregate revenue of the Internet Radio
Streaming Market is equal to or more than 10% of the aggregate
revenue for the radio broadcast market, then the Radio
Internet Concern shall not be a CBS Competitor if the
aggregate revenue of such Radio Internet Concern generated by
radio programming or radio program distribution over the
Internet is less than 10% of the aggregate revenue of the
Internet Radio Streaming Market.
The foregoing markets and revenues shall be identified/delineated by
Veronis, Suhler & Associates, provided, however, that if Veronis,
Suhler is not a nationally reputable media/ communications forecasting
service or does not (as a matter of course) provide the relevant data,
the parties shall mutually agree upon a nationally reputable
media/communications forecasting service (the "Forecasting Service").
In the event that the parties are unable to reach agreement upon the
Forecasting Service within ten (10) business days of commencement of
discussion on the issue, then either party hereto shall have the right
to elect to commence an Arbitration Proceeding to determine the
Forecasting Service.
(e) any Person who owns or operates a multichannel video
program distribution service, a cable system, a wireless cable system
or a direct broadcast satellite system, so long as such Person does not
otherwise engage (either directly or indirectly through an Affiliate)
in television or radio programming or program distribution.
(f) any Person engaged in the production of television
programs or other audio visual materials, so long as such Person does
not otherwise engage (either directly or indirectly through an
Affiliate) in television or radio programming or program distribution.
(g) AT&T Corporation, Comcast Corporation, Gannett Co, Inc. or
The Times Mirror Company, as constituted on the date of this Agreement.
(h) any Person engaged in television programming or television
program distribution, so long as neither CBS nor any Affiliate of CBS
owns a majority interest in the CBS Television Network.
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<PAGE>
(i) any Person engaged in radio programming or radio program
distribution, so long as neither CBS nor any Affiliate of CBS owns a
majority interest in Infinity Broadcasting Corporation.
The revenue calculations in the preceding sentences shall be based on the last
full fiscal year of the Person (including, without limitation, Television
Internet Concern or Radio Internet Concern) concerned and the last full calendar
year of the applicable market/industry.
1.7 "CBS Content" - means any Television Content, including archival
Content, related to the movie business or any particular motion picture and
contained in CBS's regularly scheduled hard news broadcasts, scheduled special
events coverage and unscheduled live breaking news coverage, which CBS has the
right to license for use on the Internet. Notwithstanding anything contained
herein to the contrary, nothing herein shall be construed to grant Hollywood any
rights to CBS Radio Content.
1.8 "CBS PLUS" - means a corporation-wide cross media sales unit that
designs customized consumer-driven media and marketing programs for advertisers.
CBS PLUS media and marketing programs are executed in cooperation with the sales
organizations of the entire CBS organization, including: CBS Television Network,
the CBS Television Stations Group, CBS/Infinity Radio Stations, CBS Cable and
TDI, Infinity Broadcasting Corporation's outdoor advertising business.
1.9 "CBS Media Properties" - means the CBS Television Network, CBS
Owned and Operated Television and Radio Stations (including those owned and
operated by CBS Affiliates, including Infinity Broadcasting Corporation), CBS
Cable, TDI, and CBS wholly-owned Internet websites.
1.10 "Co-Branded Site" - means an Internet Site: (a) that
contains/displays a majority of the Content displayed on the Hollywood Site, and
displays such Content in the same form and format as featured on the Hollywood
Site; (b) is branded with the Hollywood name (or trademark) and the
name/trademark of the third-party Web Site and (c) is accessed from the third
party Web Site.
1.11 "Collaboration Agreement" - means any one of the following
agreements between or among CBS, Hollywood and BEI: (a) this Agreement; (b) the
Content Agreement dated as of even date (the "Content License") (c) the Stock
Purchase Agreement dated as of even date; (d) the Investor's Rights Agreement
dated as of even date and (e) the Voting Agreement dated as of even date.
1.12 "Content" - means text, graphics, photographs, video, audio and/or
other data or information, including, without limitation, Television Content,
relating to any subject, and/or advertisements.
1.13 "Contract Year" - means the annual period beginning on the date
of commencement of the term of this Agreement, and each subsequent annual period
during the term
4
<PAGE>
beginning on the anniversary of that commencement date (as such Year may be
suspended or extended, and those dates postponed, as provided herein).
1.14 "Gross Ad Revenues" - means Gross cash revenues accrued from the
sale of advertising on the Hollywood Site (as defined below), provided that such
revenues or other consideration shall not be reduced for royalties, commissions,
fees or other expenses incurred in generating such revenues and without
reduction for taxes.
1.15 "Hollywood Site" - means: (a) the Internet Web Site owned or
controlled by Hollywood (and is accessed via the URL www.hollywood.com) that
features or will feature movie, music and television-related news, data and
merchandise offers and related Content and merchandise offers; (b) any
Co-Branded Site and (c) any Mirror Site.
1.16 "Internet" - means a global network of interconnected computer
networks, each using the Transmission Control Protocol/Internet Protocol and/or
such other standard network interconnection protocols as may be adopted from
time to time, which is used to transmit content that is directly or indirectly
delivered to a computer or other digital electronic device for display to an
end-user, whether such content is delivered through on-line browsers, off-line
browsers, or through "push" technology, electronic mail, broadband distribution,
satellite, wireless or otherwise.
1.17 "Internet Site" or "Web Site" - means any site or service
delivering content on or through the Internet, including, without limitation,
any on-line service such as America Online, CompuServe, Prodigy and the
Microsoft Network.
1.18 "Person" - means any individual, partnership, corporation or
organized group of persons, including agencies and other instrumentalities of
governments and states.
1.19 "Term" - shall have the meaning set forth in paragraph 3.1 below.
1.20 "Television Content" - means Content broadcast on television.
1.21 "URL Scroll" - means the exhibition of a written representation of
a URL in or during (i.e., at any time from the opening frame through the end of
the closing credits) a television program or in/on an Internet Web Site page.
5
<PAGE>
2. SCOPE
2.1 (a) During the Term, CBS shall arrange for the placement of
advertising and promotion of the Hollywood Site in the media category or type
set forth on Exhibit A attached hereto, at the rate of Ten Million Dollars
($10,000,000) per Contract Year (based upon the value ascribed for such
advertising in subparagraph 2.1(b) below). A portion of the foregoing
$10,000,000 amount may, at the option of Hollywood, be allocated to production
costs for such advertising and promotion incurred by CBS or its Affiliates, at
Hollywood's request. CBS and Hollywood shall meet periodically to jointly
develop a media plan to formulate the Contract Yearly allocation of Ten Million
Dollars of advertising and promotion, using the media categories or types set
forth in Exhibit A. The media plan shall provide broad-based exposure for the
Hollywood Site, including prominent placements in conjunction with appropriate
entertainment-related events and programming. The media plan shall provide for
the distribution of television and radio ads over various time periods. CBS will
endeavor to implement the advertising and promotional goals set forth in the
media plan. All advertising and promotional materials shall be subject to the
applicable CBS Television Network Advertising Guidelines and CBS's standard
preemption policies. CBS shall not have to make any ad placements if the
exigencies of time or current or future contractual obligations entered into
prior to the time the Company requests such advertising, prevent or restrict CBS
from doing so.
(b) The rate card value of all broadcast advertising and
promotion provided hereunder shall be based upon the average paid unit price,
excluding barter, for spots (excluding political spots) purchased during the
specific CBS Television Network, CBS television station, CBS/Infinity owned and
operated radio station or CBS Cable broadcast in which the advertising or
promotion occurs. The value of the banner advertising on CBS Internet Sites
shall have a rate card price equal to the average price paid or payable
(excluding barter) by third parties for banner advertising during the month in
which such advertising is delivered. The price of the billboard ad concerned
shall be based on the average price paid or payable (excluding barter) by any
third party during the same time period for any similar (in terms of, among
other things, location, size, and type of billboard) billboard ad(s) during the
month prior to the month in which such billboard ad is delivered.
(c) CBS will provide to Hollywood calendar monthly statements,
calendar quarterly statements (i.e., March 31, June 30, September 30, December
31) and calendar yearly statements, within twenty (20) days following expiration
of the time period concerned (i.e. calendar month, quarter and year) showing the
(i) value attributable to each of the media categories and types with respect to
the advertising and promotions purchased by Hollywood during the statement
period and (ii) the calculation of the aggregate value of advertising purchased.
2.2 (a) CBS will maintain accurate books and records which report the
expenditure of the advertising and promotional value by Hollywood and
information from which the calculation can be derived. Hollywood may, at its own
expense, examine those books and records, as provided in this Section 2.2.
Hollywood may make such an examination for a particular statement provided
pursuant to subparagraph 2.1(c) only once and such examination must occur within
three (3) years after the date such statement is sent by CBS to Hollywood.
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(CBS will be deemed conclusively to have sent Hollywood the statement concerned
at the time prescribed in Section 2.1(c), unless Hollywood notifies CBS
otherwise with respect to any statement within sixty (60) days after that
designated time.) Hollywood may make those examinations only during CBS's usual
business hours, and at the address set forth herein for the provision of notices
to CBS, unless otherwise notified. Hollywood will be required to notify CBS at
least ten (10) days before the date of planned examination. If Hollywood's
examination has not been completed within two (2) months from the time Hollywood
begins it, CBS may require Hollywood to terminate it on seven (7) days notice to
Hollywood at any time.
(b) If any examination of CBS's books and records
discloses that:
(i) CBS has failed to properly account for
advertising and promotions purchased by Hollywood hereunder, then CBS
will make appropriate adjustment(s) to the cumulative total purchased
by Hollywood.
(ii) CBS has overstated the value of advertising
purchased by more than 7.5%, then CBS shall reimburse Hollywood for its
direct out-of-pocket expenses incurred in identifying such material
overstatement.
2.3 (a) During each Contract Year, upon Hollywood's notice to CBS,
Hollywood shall have the option to require CBS to sell
advertisements/advertising space on the Hollywood Site totaling Gross Ad
Revenues up to $1.5 million per Contract Year (the "Annual Ad Sales Option"),
provided however, that Hollywood shall reduce the amount of Annual Additional
Promo Commitment available to Hollywood, pursuant to paragraph 2.4 below (i.e.,
$4,300,000 per Contract Year) by the Annual Ad Sales Option or any portion
thereof elected/sought by Hollywood.
(b) (i) (A) CBS shall include the Hollywood Site in all of its
CBS PLUS advertising sales programs and presentations to the extent that such
programs/presentations are appropriate in respect of the sale of advertising on
Hollywood Site, and (B) CBS shall invite Hollywood ad sales staff members to
attend all CBS PLUS sales meetings specifically related to the sale of
advertisements/advertising space on the Hollywood Site; and (ii) CBS will have
the right to bundle inventory relating to the Hollywood Site with television,
radio, cable, Internet and billboard inventory, although Hollywood shall only be
credited with the pro-rated value of the advertising which appears on the
Hollywood Site.
(c) Hollywood shall pay CBS a commission of eight per cent
(8%) of Gross Ad Revenues (the "CBS Commission") with respect to advertising
sold on the Hollywood Site, in excess of the Annual Ad Sales Option concerned,
if any. The CBS Commission shall be payable upon Hollywood's receipt of payment
from the advertiser. CBS shall coordinate all such sales of
advertisements/advertising space with Hollywood's ad sales staff or as otherwise
agreed to by the parties. All sales of advertisements/advertising space by CBS
shall be consistent with CPM rates and other pricing then being charged on the
Hollywood Site. All sales in excess of the Annual Ad Sales Option shall be
subject to the availability of advertising inventory on the Hollywood Site.
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2.4 (a) (i) In addition to the advertising and promotion described in
paragraph 2.1 above, Hollywood shall have the right to require CBS to arrange
for placement of advertising and promotion of the Hollywood Site (in the media
category or type set forth in Exhibit A, and subject to the terms of this
Agreement) at a Market Value of no more than Four Million Three Hundred Thousand
Dollars ($4,300,000) during each of the first six Contract Years and Four
Million Two Hundred Thousand Dollars ($4,200,000) during the seventh Contract
Year (the "Annual Additional Promo Commitment"), subject to the reductions
prescribed in section 2.4(a)(ii) below.
(ii) The Annual Additional Promo Commitment shall be
reduced by: (A) the Annual Ad Sales Option, as prescribed in paragraph
2.3 above; and (B) the Market Value of any Content provided by CBS
(during the Contract Year concerned), pursuant to section 2.4(a)(i) of
the Content License.
(b) (i) Upon commencement of the Contract Year and/or each
calendar quarter of the Contract Year concerned, Hollywood shall use
reasonable efforts to notify CBS of its election to license CBS
Content, exercise the Annual Ad Sales Option or utilize the Annual
Additional Promo Commitment, and the respective Market Values thereof.
(ii) If, upon expiration of the Contract Year
concerned, Hollywood has failed to notify CBS of its election, as set
forth in section 2.4(b)(i) above, then the Annual Additional Promo
Commitment (or any portion thereof for which Hollywood has failed to
notify CBS of its election) will be deemed forfeited.
(iii) Except as set forth in section 2.4(b)(ii)
above, if upon expiration of the Contract Year concerned, the Annual
Additional Promo Commitment has not been exhausted, then the amount of
the unused portion of the Annual Additional Promo Commitment may be
carried over to the immediately subsequent Contract Year (the "Annual
Promo Carryover"), it being understood, however, that (A) in the
immediately subsequent Contract Year the Annual Promo Carryover shall
be exhausted (first) before the Annual Additional Promo Commitment for
such subsequent Contract Year is utilized (B) Hollywood shall identify
the intended use for (i.e., allocate) the Annual Promo Carryover during
the first thirty (30) days of such subsequent Contract Year, and CBS
shall use reasonable efforts to satisfy the allocation request
depending upon the availability of the inventory/item sought. In the
event that the inventory is not available, then Hollywood shall make a
substitute allocation within thirty (30) days following CBS's advising
Hollywood that the inventory/item sought is unavailable, (C) any
portion of the Annual Promo Carryover unused as of the expiration date
of the Contract Year concerned (i.e., such subsequent Contract Year)
shall be deemed forfeited, except to the extent Hollywood complied with
the notice requirements prescribed herein and CBS did not deliver such
portion of the Annual Promo Carryover and (D) any portion of Annual
Additional Promo Commitment (including any Annual Promo Carryover)
unused as of the expiration date of the Term shall be deemed forfeited,
except to the extent Hollywood complied with the notice requirements
prescribed herein and CBS did not deliver such
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portion of the Annual Additional Promo Commitment or Annual Promo
Carryover, as applicable.
(c) "Market Value", as used in this paragraph 2.3, shall mean:
(i) with respect to CBS Content, the average price
paid by a third party for the license of such Content on the Internet
(provided that CBS has an established market for licenses on the
Internet) or, if no such rate (or CBS market) exists, then the average
price for worldwide over-the-air free television use (including in all
instances, without limitation, any costs related to the retrieval,
preparation (e.g., tape transfer and/or duplication) or delivery of CBS
Content).
(ii) with respect to advertising sales on the
Hollywood Site, the proportionate dollar amount (of the Gross Ad
Revenues) of the Ad Sales Option .
(iii) with respect to CBS advertising and promotion,
the unit price for the advertising medium concerned, as described in
subparagraph 2.1(b) of this Agreement.
3. TERM
3.1 The term of this Agreement ("Term") shall begin as of the date
hereof and shall continue in full force and effect for a period of seven (7)
consecutive years, through and including __________, 2006, unless it is
terminated earlier in accordance with the terms and conditions stated herein.
4. WARRANTIES, REPRESENTATIONS; INDEMNITEES
4.1 (a) CBS represents and warrants that:
(i) it has full power and authority to enter into and
fully perform this Agreement;
(ii) this Agreement has been duly authorized and is
enforceable in accordance with its terms; and
(iii) at all times, it will comply with all
applicable federal, state, local and foreign laws and regulations.
(b) The Company represents, warrants and covenants that:
(i) it has full power and authority to enter into and
fully perform this Agreement;
(ii) this Agreement has been duly authorized and is
enforceable in accordance with its terms;
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(iii) the Hollywood Site will be produced, advertised
and transmitted in accordance with all applicable federal, state, local
and foreign laws and regulations; and
(iv) at all times, it will maintain the Hollywood
Site in a professional manner consistent with applicable industry
standards. In connection therewith, the Company shall satisfy the
following minimum performance standards: (A) use its best efforts to
maintain continuous accessibility to the public on the Internet; (B)
capability of sustaining traffic of no less than 22 million page views
per month, including, without limitation, the existence of a viable
technological response, in the event that the foregoing traffic number
is exceeded, that is designed to handle at least 44 million page views
per month; (C) functionality as outlined/delineated in the most recent
business plan for Hollywood; (D) monitoring of the Hollywood Site's
traffic flows on a regular basis and (in addition to and above and
beyond clause (B) above) implementation of plans to meet expected
traffic flows and (E) maintenance of standards of quality and ease of
use no less than the quality and ease of use of the Hollywood Site as
of this date.
(v) advertising and promotion material and any
portion thereof created by or on behalf of Hollywood or furnished by
Hollywood to CBS and the use thereof shall not violate any law or
violate the rights of any Person.
4.2 (a) Each party to this Agreement (the "Indemnifying Party") shall
at all times indemnify, hold harmless and defend the other party (collectively,
the "Indemnified Party") from and against any loss, cost, liability or expense
(including court costs and reasonable attorneys' fees) arising out of or
resulting from any breach by the Indemnifying Party of any representation,
warranty or covenant contained herein. In the event of any claim, the
Indemnified Party shall: (i) promptly notify the Indemnifying Party of the
claim; (ii) allow the Indemnifying Party to direct the defense and settlement of
third party claim with counsel of the Indemnifying Party's choosing; and (iii)
provide the Indemnifying Party, at the Indemnifying Party's expense, with
information and assistance that is reasonably necessary for the defense and
settlement of the third party claim. The Indemnified Party reserves the right to
retain counsel, at the Indemnified Party's sole expense, to participate in the
defense of any such claim. The Indemnifying Party shall not settle any such
claim or alleged claim without first obtaining the Indemnified Party's prior
written consent, which consent shall not be unreasonably withheld, if the terms
of such settlement would adversely affect the Indemnified Party's rights under
this Agreement or otherwise. If the Indemnifying Party assumes the defense and
settlement of the claim as set forth above, then the Indemnifying Party's only
obligation is to satisfy the claim, judgment or approved settlement.
(b) Any sums payable by Hollywood under this paragraph 4.2 may
be offset by Hollywood against the Market Value of any advertising, Content or
Ad Sales Option deliverable by CBS (the "CBS Deliverable(s)") pursuant to this
Agreement or the Content License (the "Indemnity Offset"). The amount or Market
Value of the CBS Deliverable concerned will be reduced by the proportion thereof
used for or contributed to the Indemnity Offset. For purposes of the Indemnity
Offset, Hollywood shall be obligated to exhaust the CBS Deliverables as follows:
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(i) The Market Value of any advertising or promotion,
deliverable pursuant to paragraph 2.1 of this Agreement, shall be fully
exhausted before any other CBS Deliverable is used for/contributed to
the Indemnity Offset.
(ii) Provided the Deliverable described in section
4.2(b)(i) above has been fully exhausted, the Market Value of any
Annual Additional Promo Commitment (deliverable pursuant to paragraph
2.4 above) or Annual Ceiling (as such term is defined in the Content
License and deliverable pursuant to subparagraph 2.3(c) of the Content
License), shall be fully exhausted before any other CBS Deliverable is
used for/contributed to the Indemnity Offset.
(iii) The Market Value of any Ad Sales Option,
deliverable pursuant to paragraph 2.2 of this Agreement, may be used
for/contributed to the Indemnity Offset only if and when the
Deliverables described in sections 4.2(b)(i) and (ii) above have been
fully exhausted.
For avoidance of doubt, CBS's obligation to deliver any CBS Deliverable,
pursuant to this Agreement or the Content License, shall be extinguished (or
reduced, as applicable) to the extent that such CBS Deliverable is used
for/contributed to any Indemnity Offset.
5. REMEDIES
5.1 (a) CBS shall have the right to suspend and/or withdraw placement
of all advertising and promotion and Hollywood Site ad sales:
(i) during such time as the Company is enjoined from
using the tradename, trademark or term(s) "HOLLYWOOD.com" on or in
connection with the Hollywood Site and has not renamed the Website. The
Company shall rename the Hollywood Site within twenty (20) days
following the issuance of any injunction or the resolution of any claim
which requires the Company to cease using the tradename, trademark or
term(s) "HOLLYWOOD.com" on or in connection with its Website.
(ii) In the event that the Hollywood Site is not
operational for a period of seventy-two (72) consecutive hours until it
becomes operational in a manner consistent with the standards in the
industry.
(b) CBS may exercise its right to suspend and/or withdraw
placement of all advertising and promotion and all advertising sales pursuant to
this paragraph 5.1 by sending the appropriate notice to Hollywood. No exercise
by CBS of its rights under this Article 5 will limit CBS's remedies by reason of
Hollywood's or BEI's default, CBS's rights to exercise any other rights under
this Article 5, or any of CBS's other rights.
5.2 CBS shall have the right to terminate this Agreement if any of the
following occurs:
(a) The Hollywood Site contains Content which, in CBS's
reasonable business judgment, violates Article I or Article III of the CBS
License Guidelines (as set forth in
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the Content License) and Hollywood fails to remove such Content from the
Hollywood Site within ten (10) days after written notice of CBS's objection
thereto demanding the removal of such Content.
(b) Except as otherwise set forth in subparagraph 5.2(a)
above, either Hollywood or BEI (if applicable) breaches any material term or
condition of this Agreement, or any Collaboration Agreement and fails to: (i)
cure such breach within thirty (30) days after CBS's notice of such breach, or
(ii) complete curing such breach within sixty (60) days following CBS's notice
of such breach; provided however that this clause (ii) shall only apply to a
default that is incapable of being cured in thirty (30) days. The foregoing cure
period will not apply: (i) solely with respect to this Agreement, to a term or
condition (in this Agreement) for which a specific cure period is provided; or
(ii) to a breach incapable of being cured.
(c) BEI or Hollywood: (i) becomes insolvent or unable to pay
its debts as they mature or makes an assignment for the benefit of its
creditors; (ii) is the subject of a voluntary petition in bankruptcy or any
voluntary proceeding relating to insolvency, receivership, liquidation, or
composition for the benefit of creditors, if such petition or proceeding is not
dismissed within sixty (60) days of filing; (iii) becomes the subject of any
involuntary petition in bankruptcy or any involuntary proceeding relating to
insolvency, receivership, liquidation, or composition for the benefit of
creditors, if such petition or proceeding is not dismissed within sixty (60)
days of filing; or (iv) is liquidated or dissolved.
(d) BEI issues to a Person any voting securities of BEI and:
(i) at the time of such issuance such Person is a CBS Competitor and (ii) as a
result of such issuance such Person beneficially owns or controls, directly or
indirectly, more than fifteen (15%) percent of the total voting power of BEI, in
the aggregate. For the purposes of this subparagraphs 5.2(d), 5.2(e) and 5.2(f):
(x) the term "beneficial ownership" shall have the meaning set forth in Section
13(d) of the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder; (y) the term "total voting power" shall mean at any
time, the total number of votes that may be cast in the election of directors of
BEI at any meeting of the holders of voting securities at such time for such
purpose; and (z) the term "voting securities" shall mean the Capital Stock and
any other securities issued by BEI having the power to vote in the election of
directors of BEI including, without limitation, any securities having such power
only upon the occurrence of a default or any other extraordinary contingency.
(e) BEI issues to a Person any voting securities of BEI and:
(i) at the time of such issuance such Person is a CBS Competitor that
beneficially owns or controls, directly or indirectly, more than fifteen (15%)
percent of the total voting power of BEI and (ii) as a result of such issuance
the voting power of such Person is increased by any amount.
(f) BEI's board of directors consents to the acquisition of
voting securities by a CBS Competitor such that as a result of such consent, the
CBS Competitor beneficially owns or controls, directly or indirectly, more than
15% of the total voting power of BEI and at the time of such consent the Rights
Agreement by and between BEI and American Stock Transfer & Trust Company dated
August 23, 1996, as amended, is in full force and effect.
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(g) Hollywood discontinues using the "Hollywood.com" mark (or
any substitute mark approved by CBS) and does not establish use of a substitute
mark reasonably acceptable to CBS within thirty (30) days.
(h) The Hollywood Site ceases to operate due to any
circumstance(s) (other than circumstances beyond Hollywood's reasonable control,
which circumstances simultaneously affect a substantial number of web sites on
the Internet) for: (i) a period of thirty (30) consecutive days; or (ii) a
period of one week at least two times in any six (6) month period.
CBS may exercise its right to terminate pursuant to this paragraph 5.2 by
sending Hollywood appropriate written notice. No exercise by CBS of any of its
rights under this Article 5 will limit CBS's remedies by reason of Hollywood's
or BEI's default, CBS's rights to exercise any other rights under this Article
5, or any of CBS's other rights.
6. GENERAL
6.1 Neither party may assign this Agreement, or their respective rights
and obligations hereunder, in whole or in part without the other party's prior
written consent. Any attempt to assign this Agreement without such consent shall
be void and of no effect ab initio. Notwithstanding the foregoing, CBS may
assign this Agreement or any of its rights and obligations hereunder to an
affiliate or to any entity controlling, controlled by or under common control
with, CBS, or to any entity that acquires CBS by purchase of stock or by merger
or otherwise, or by obtaining substantially all of CBS's assets (a "CBS
Assignee"), provided that any such CBS Assignee, or any division thereof,
thereafter succeeds to all of the rights and is subject to all of the
obligations of CBS under this Agreement.
6.2 Each party hereto irrevocably submits to the exclusive jurisdiction
of (a) the Supreme Court of the State of New York, New York County; and (b) the
United States District Court for the Southern District of New York, for the
purposes of any suit, action or other proceeding arising out of this Agreement
or any transaction contemplated hereby or thereby. Each the parties hereto
agrees to commence any such action, suite or proceeding either in the United
States District Count for the Southern District of New York or if such suit,
action or other proceeding may not be brought in such court for jurisdictional
reasons, in the Supreme Court of the State of New York, New York County. Each of
the parties hereto further agrees that service of any process, summons, notice
or document by U.S. registered mail to such party's respective address set forth
below shall be effective service of process for any action, suite or proceeding
in New York with respect to any matters to which it has submitted to
jurisdiction in this paragraph 6.2. Each of the parties hereto irrevocably and
unconditionally waives any objection to the laying of venue of any action, suite
or proceeding arising out of this Agreement or the transactions contemplated
hereby in (i) the Supreme Court of the State of New York, New York County; or
(ii) the United States District Court for the Southern District of New York, and
hereby and thereby further irrevocably and unconditionally waives and agrees not
to plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in any inconvenient forum.
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6.3 If any provision of this Agreement (or any portion there) or the
application of any such provision (or any portion thereof) to any Person or
circumstance shall be held invalid, illegal or unenforceable in any respect by a
court of competent jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision hereof (or the remaining portion thereof)
or the application of such provision to any other Persons or circumstances.
6.4 All notices or other communications required or permitted to be
given hereunder shall be in writing and shall be delivered by hand or sent,
postage prepaid, by registered, certified or express mail or reputable overnight
courier service and shall be deemed given when so delivered by hand, or if
mailed, three days after mailing (one business day in the case of express mail
or overnight courier service), as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
(a) if to Hollywood,
hollywood.com, Inc.
2255 Glades Road, Suite 237W
Boca Raton, Florida 33431
Attention: Mitchell Rubenstein, Chief Executive Officer
with a copy to:
hollywood.com, Inc.
2255 Glades Road, Suite 237W
Boca Raton, Florida 33431
Attention: W. Robert Shearer, General Counsel
and a copy to:
hollywood.com, Inc.
1620 26th Street, Suite 370 South
Santa Monica, CA 90404
Attention: Scott Shrock, Vice President of Operations
and a copy to:
Greenberg Traurig
200 Park Avenue
New York, New York 10166
Attention: Clifford E. Neimeth, Esq.
(b) if to CBS:
CBS Corporation
51 West 52nd Street
New York, New York 10019
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Attention: Chief Financial Officer
with a copy to:
CBS Corporation
51 West 52nd Street
New York, New York 10019
Attention: General Counsel
</TABLE>
6.5 The parties to this Agreement are independent contractors. There is
no relationship of partnership, joint venture, employment, franchise, or agency
between the parties. Neither party shall have the power to bind the other or
incur obligations on the other's behalf without the other's prior written
consent.
6.6 No failure of either party to exercise or enforce any of its rights
under this Agreement shall act as a waiver of such right.
6.7 This Agreement, along with any Exhibits hereto, contains the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. Neither party shall be liable or bound to any
other party in any manner by any representations, warranties or covenants
relating to such subject matter except as specifically set forth herein.
6.8 This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more such counterparts have been signed by each of the parties and
delivered to each of the other parties.
6.9 This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
6.10 This Agreement shall be governed by and construed in accordance
with the internal laws of the state of New York applicable to agreements made
and to be performed entirely within such State, without regard to the conflicts
of law principles of such State.
6.11 This Agreement is for the sole benefit of the parties hereto and
their permitted assigns and nothing herein expressed or implied shall give or be
construed to give to any Person, other than the parties hereto and such assigns,
any legal or equitable rights hereunder.
6.12 The headings contained in this Agreement or in any Exhibit or
Schedule hereto are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. All exhibits and Schedules
annexed hereto or referred to herein are hereby incorporated in and made a part
of this Agreement as if set forth in full herein. Any capitalized terms used in
any Schedule or Exhibit but not otherwise defined therein, shall have the
meaning
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as defined in this Agreement. When a reference is made in this Agreement to a
Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed by their duly authorized representatives as of the date first above
written.
HOLLYWOOD.COM, INC. CBS CORPORATION
By: /s/ W. Robert Shearer By: /s/ Fredric G., Reynolds
---------------------------- ------------------------
Name: W. Robert Shearer Name: Fredric G. Reynolds
---------------------------- -------------------
Title: Senior Vice President Title: Executive Vice President
and General Counsel and Chief Financial Officer
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EXHIBIT A
---------
Attached to and forming a part of the Agreement made as of
January 3, 1999 between CBS Corporation, Big Entertainment,
Inc. and hollywood.com, Inc..
- --------------------------------------------------------------------------------
Placement Possibilities
1. CBS Television Network programming
2. CBS Owned and Operated Television Stations' and Infinity owned and
operated Radio Stations' programming
3. Infinity outdoor billboards and all other outdoor media owned by CBS
4. CBS Internet Sites
5. CBS Cable
6. CBS Syndicated Programs
Placement types
o 30 second units where available
o 15 second units where available
o 10 second units where available
o URL Scrolls (5 seconds)
o On-air mentions (30 seconds)
o Banner ads, buttons and sponsorships
o Credit rolls/sign-offs (5 seconds)
17
EXHIBIT A
CONTENT LICENSE AGREEMENT
AGREEMENT made as of the 3rd day of January, 1999, by and between CBS
Corporation, a Pennsylvania corporation with offices at 51 West 52nd Street, New
York, New York 10019 ( "CBS"), and hollywood.com, Inc., a California corporation
with offices at 2255 Glades Road, Suite 237W, Boca Raton, Florida 33431
("Hollywood").
1. DEFINITIONS
1.1 "Affiliate" of the Person concerned, means a Person that directly
or indirectly (through one or more intermediaries) controls, is controlled by or
is under common control with such Person.
1.2 "Annual Ceiling" shall have the meaning set forth in section
2.3(c)(i) hereof.
1.3 "Arbitration Proceeding" means a proceeding conducted in accordance
with the following rules:
(a) such proceeding is commenced by the party concerned,
within five (5) days after notice to the other party of its intent to elect
arbitration (under paragraph 1.6 below), and requesting the New York office of
the American Arbitration Association to designate one arbitrator (who is a
retired federal or state judge or a member of the CPC Panel of Distinguished
Neutrals of the CPR Institute for Dispute Resolution and who is not and has not
been an affiliate, employee, consultant, officer, director or stockholder of CBS
or Big Entertainment, Inc. ("BEI")) to conduct the proceeding;
(b) within seven (7) days after the designation of the
arbitrator, the arbitrator and the parties shall meet, at which time each party
shall be required to set forth in writing all disputed issues, together with its
proposed resolution of the matter, all in reasonable detail and containing such
supporting materials it may choose to submit;
(c) the arbitrator shall set a date for a hearing, which shall
be no later than ten (10) days after the submission of written proposals
pursuant to subparagraph 1.3(b) above, to discuss each of the issues identified
by the parties. Each party shall have the right to be represented by counsel.
The arbitration shall be governed by the Commercial Arbitration Rules of the
American Arbitration Association; provided, however, that the Federal Rules of
Evidence shall apply with regard to the admissibility of evidence;
(d) the arbitrator shall rule on the matter at issue within
seven (7) days after the completion of the hearing described in subparagraph
1.3(c) above. All rulings of the arbitrator
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shall be in writing, shall be delivered to the parties and shall be final and
conclusive as to any such matter; and
(e) the arbitration shall be conducted in New York City.
1.4 "Capital Stock" means any common stock or preferred stock of BEI
and any options, warrants, rights, or other securities that are convertible,
exercisable, or exchangeable into common stock or preferred stock of BEI.
1.5 "CBS License Guidelines" means the clearance, form, format and use
restrictions and procedures set forth in Exhibit A attached hereto.
1.6 "CBS Competitor" means any Person, other than CBS or any Affiliate
of CBS, who is primarily engaged in North America directly, or indirectly
through an Affiliate, in radio or television programming or radio or television
program distribution (including, without limitation, free over-the-air,
telephone, Internet or microwave). A CBS Competitor shall not include any of the
following:
(a) any Person engaged in television programming or television
program distribution, provided such Person's aggregate revenues generated from
television programming and television program distribution are less than five
percent (5%) of the aggregate revenues of the television broadcast market.
(b) any Person engaged in free over-the-air radio programming
or radio program distribution provided such Person is not one of the top two
(excluding CBS) nationally ranked radio broadcast networks, based on overall
radio audience ratings.
(c) any Person engaged in television programming or television
program distribution over the Internet ("Television Internet Concern"), provided
either of the following conditions are met:
(i) the aggregate revenue of the Internet video
streaming market/industry ("Internet Video Streaming Market") is less
than 10% of the aggregate revenue for the network television broadcast
market; or
(ii) if the aggregate revenue of the Internet Video
Streaming Market is equal to or more than 10% of the aggregate revenue
for the network television broadcast market, then the Television
Internet Concern shall not be a CBS Competitor if the aggregate revenue
of such Television Internet Concern generated by television programming
or television program distribution over the Internet is less than 10%
of the aggregate revenue of the Internet Video Streaming Market.
The foregoing markets and revenues shall be identified/delineated by Veronis,
Suhler & Associates, provided, however, that if Veronis, Suhler is not a
nationally reputable media/ communications forecasting service or does not (as a
matter of course) provide the relevant data,
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<PAGE>
the parties shall mutually agree upon a nationally reputable
media/communications forecasting service (the "Forecasting Service"). In the
event that the parties are unable to reach agreement upon the Forecasting
Service within ten (10) business days of commencement of discussion on the
issue, then either party hereto shall have the right to elect to commence an
Arbitration Proceeding to determine the Forecasting Service.
(d) any Person engaged in radio programming or radio program
distribution over the Internet ("Radio Internet Concern"), provided either of
the following conditions are met:
(i) the aggregate revenue of the Internet radio
streaming market/industry ("Internet Radio Streaming Market") is less
than 10% of the aggregate revenue for the radio broadcast market; or
(ii) if the aggregate revenue of the Internet Radio
Streaming Market is equal to or more than 10% of the aggregate revenue
for the radio broadcast market, then the Radio Internet Concern shall
not be a CBS Competitor if the aggregate revenue of such Radio Internet
Concern generated by radio programming or radio program distribution
over the Internet is less than 10% of the aggregate revenue of the
Internet Radio Streaming Market.
The foregoing markets and revenues shall be identified/delineated by Veronis,
Suhler & Associates, provided, however, that if Veronis, Suhler is not a
nationally reputable media/ communications forecasting service or does not (as a
matter of course) provide the relevant data, the parties shall mutually agree
upon a nationally reputable media/communications forecasting service (the
"Forecasting Service"). In the event that the parties are unable to reach
agreement upon the Forecasting Service within ten (10) business days of
commencement of discussion on the issue, then either party hereto shall have the
right to elect to commence an Arbitration Proceeding to determine the
Forecasting Service.
(e) any Person who owns or operates a multichannel video
program distribution service, a cable system, a wireless cable system or a
direct broadcast satellite system, so long as such Person does not otherwise
engage (either directly or indirectly through an Affiliate) in television or
radio programming or program distribution.
(f) any Person engaged in the production of television
programs or other audio visual materials, so long as such Person does not
otherwise engage (either directly or indirectly through an Affiliate) in
television or radio programming or program distribution.
(g) AT&T Corporation, Comcast Corporation, Gannett Co, Inc. or
The Times Mirror Company, as constituted on the date of this Agreement.
(h) any Person engaged in television programming or television
program distribution, so long as neither CBS nor any Affiliate of CBS owns a
majority interest in the CBS Television Network
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(i) any Person engaged in radio programming or radio program
distribution, so long as neither CBS nor any Affiliate of CBS owns a majority
interest in Infinity Broadcasting Corporation.
The revenue calculations in the preceding sentences shall be based on the last
full fiscal year of the Person (including, without limitation, Television
Internet Concern or Radio Internet Concern) concerned and the last full calendar
year of the applicable market/industry.
1.6 "CBS Content" means any Television Content, including archival
Content, related to the movie business or any particular motion picture and
contained in CBS's regularly scheduled hard news broadcasts, scheduled special
events coverage and unscheduled live breaking news coverage, which CBS has the
right to license for use on the Internet. Notwithstanding anything contained
herein to the contrary, nothing herein shall be construed to grant Hollywood any
rights to CBS Radio Content.
1.7 "CBS Content Pages" means pages of the Hollywood Site that include
any CBS Content.
1.8 "Ceiling Amount" shall have the meaning ascribed to it in section
2.4(a)(i).
1.9 "Co-Branded Site" means an Internet Site: (a) that
contains/displays a majority of the Content displayed on the Hollywood Site, and
displays such Content in the same form and format as featured on the Hollywood
Site; (b) is branded with the Hollywood name (or trademark) and the
name/trademark of the third-party Web Site and (c) is accessed from the third
party Web Site.
1.10 "Collaboration Agreement" means any one of the following
agreements between or among CBS, Hollywood and BEI: (a) this Agreement; (b) the
Advertising and Promotion Agreement dated as of even date (the "Ad Agreement")
(c) the Stock Purchase Agreement dated as of even date; (d) the Investor's
Rights Agreement dated as of even date and (e) the Voting Agreement dated as of
even date.
1.11 "Content" means text, graphics, photographs, video, audio and/or
other data or information, including, without limitation, Television Content,
relating to any subject, and/or advertisements.
1.12 "Contract Year" means the annual period beginning on the date of
commencement of the term of this Agreement, and each subsequent annual period
during the term beginning on the anniversary of that commencement date (as such
Year may be suspended or extended, and those dates postponed, as provided
herein).
1.13 "Hollywood Content" means any Content owned or controlled by
Hollywood other than CBS Property (as defined in subparagraph 4.1(a)).
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1.14 "Hollywood Site" means: (a) the Internet Web Site owned or
controlled by Hollywood (and is accessed via the URL www.hollywood.com) that
features or will feature movie, music and television-related news, data and
merchandise offers and related Content and merchandise offers; (b) any
Co-Branded Site and (c) any Mirror Site.
1.15 "Intellectual Property Rights" means all inventions, discoveries,
trademarks, patents, trade names, copyrights, jingles, know-how, intellectual
property, software, shop rights, licenses, developments, research data, designs,
technology, trade secrets, test procedures, processes, route lists, computer
programs, computer discs, computer tapes, literature, reports and other
confidential information, intellectual and similar intangible property rights,
whether or not patentable or copyrightable (or otherwise subject to legally
enforceable restrictions or protections against unauthorized third party usage),
and any and all applications for, registrations of and extensions, divisions,
renewals and reissuance of, any of the foregoing, and rights therein, including
without limitation (a) rights under any royalty or licensing agreements, and (b)
programming and programming rights, whether on film, tape or any other medium.
1.16 "Internet" means a global network of interconnected computer
networks, each using the Transmission Control Protocol/Internet Protocol and/or
such other standard network interconnection protocols as may be adopted from
time to time, which is used to transmit Content that is directly or indirectly
delivered to a computer or other digital electronic device for display to an
end-user, whether such Content is delivered through on-line browsers, off-line
browsers, or through "push" technology, electronic mail, broadband distribution,
satellite, wireless or otherwise.
1.17 "Internet Site" or "Web Site" means any site or service delivering
Content on or through the Internet, including, without limitation, any on-line
service such as America Online, Compuserve, Prodigy and the Microsoft Network.
1.18 "Market Value" shall have the meaning ascribed to it in section
2.4(a)(iii).
1.19 "Mirror Site" means an Internet Site that contains the same
Content as the Hollywood Site and is displayed in the same form/format as the
Hollywood Site, and which (a) is located at a geographic location distinct from
the Hollywood Site and (b) is created for the sole purpose of improving the
performance of and accessibility to the Hollywood Site.
1.20 "Person" means any natural person, legal entity, or other
organized group of persons or entities. (All pronouns whether personal or
impersonal, which refer to Persons include natural persons and other Persons.)
1.21 "Television Content" consists of Content broadcast on television.
1.22 "Term" means the term specified in paragraph 3.1 below.
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2. LICENSE
2.1 (a) Subject to the terms and conditions contained herein, CBS
grants to Hollywood the non-exclusive right and license to:
(i) use, copy, publicly display, publicly perform,
distribute, or otherwise make the CBS Content available on the
Hollywood Site during the Term, and
(ii) Archive the CBS Content after expiration of the
Term, to the extent CBS has the right to so license such Content to
Hollywood.
(b) CBS agrees that users of the Hollywood Site may view,
access, retrieve, copy and print only for noncommercial private use (which use
shall exclude any not-for-profit private use) any CBS Content distributed
hereunder on the Hollywood Site. Nothing in this Agreement grants Hollywood
ownership or other rights in or to the CBS Content, except in accordance and to
the extent of this license.
(c) "Archive", as used in this paragraph 2.1 (and with respect
to CBS Content), shall mean the retention of CBS Content in the form, format and
context originally displayed on the Hollywood Site during the Term (without, for
avoidance of doubt, any editing or derivative use thereof), and use thereof in
accordance with the terms of this Agreement applicable during the Term
(including, without limitation, the CBS License Guidelines).
2.2 Hollywood's exercise of the rights granted herein shall conform to
the restrictions or requirements set forth in the CBS License Guidelines, as the
CBS License Guidelines may be amended or revised from time to time by CBS, to
reflect any changes in the business, practice, procedures or policies of CBS.
CBS will notify Hollywood of such amendments/revisions.
2.3 Hollywood shall have reasonable access to, and, subject to the
conditions stated in the next sentence, CBS shall deliver CBS Content to
Hollywood in a mutually agreed-upon form and format, provided Hollywood's
request for CBS Content is reasonable. Notwithstanding anything to the contrary
contained in this paragraph, CBS shall have the right to refuse to deliver to
Hollywood any CBS Content if, in CBS's reasonable judgment: (i) any Content on
the Hollywood Site (the "Hollywood Content") or (ii) the use contemplated for
the CBS Content, conflicts with, interferes with or is detrimental to CBS's
interests, reputation or business or might subject CBS to unfavorable regulatory
action, violate any law, infringe the rights of any Person, or subject CBS to
liability for any reason.
2.4 (a) (i) The CBS Content licensed hereunder shall not exceed a total
Market Value of Thirty Million Dollars ($30,000,000) during the Term
(the "Aggregate Ceiling") or a Market Value of Four Million Three
Hundred Thousand Dollars ($4,300,000) during each of the first six
Contract Years and Four Million Two Hundred Thousand Dollars
($4,200,000) during the seventh Contract Year (the "Annual Ceiling"),
subject to the
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reduction(s) prescribed in section 2.4(a)(ii) below. The Aggregate
Ceiling and the Annual Ceiling are sometimes hereinafter individually
or collectively referred to as the "Ceiling Amount".
(ii) The Annual Ceiling shall be reduced by: (A) the
(Market Value of the) Annual Ad Sales Option, as prescribed in
paragraph 2.3 of the Ad Agreement; and (B) the Market Value of any
advertising or promotion provided by CBS (during the Contract Year
concerned), pursuant to paragraph 2.4 of the Ad Agreement.
(iii) "Market Value", as used in this subparagraph
2.4(a), shall mean:
(A) with respect to CBS Content, the average
price paid by a third party for the license of such
Content on the Internet (provided that CBS has an
established market for licenses on the Internet) or,
if no such rate (or CBS market) exists, then the
average price for worldwide over-the-air free
television use (including in all instances, without
limitation, any costs related to the retrieval,
preparation (e.g., tape transfer and/or duplication)
or delivery of CBS Content).
(B) with respect to advertising sales on
the Hollywood Site, the proportionate dollar amount
(of the Gross Ad Revenues, as such term is defined
in the Ad Agreement) of the Ad Sales Option (as
defined in paragraph 2.3 of the Ad Agreement).
(C) with respect to CBS advertising and
promotion, the unit price for the advertising medium
concerned, as described in subparagraph 2.1(b) of
the Ad Agreement.
(b) (i) Upon commencement of the Contract Year concerned
and/or each calendar quarter of the Contract Year concerned,
Hollywood shall use reasonable efforts to notify CBS of its
election to license Content, exercise its Annual Ad Sales
Option (as defined in paragraph 2.3 of the Ad Agreement) or
utilize the Annual Additional Promo Commitment (as prescribed
in paragraph 2.4 of the Ad Agreement), and the respective
Market Values thereof.
(ii) If, upon expiration of the Contract Year
concerned, Hollywood has failed to notify CBS of its election,
as set forth in section 2.4(b)(i) above, then the Annual
Ceiling (or any portion thereof for which Hollywood has failed
to notify CBS of its election) will be deemed forfeited.
(iii) Except as set forth in section 2.4(b)(ii)
above, if upon expiration of the Contract Year concerned, the
Annual Ceiling has not been exhausted, then the amount of the
unused portion of the Annual Ceiling for such Contract Year
may be
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carried over to the immediately subsequent Contract Year (the
"Annual Ceiling Carryover"), it being understood, however,
that (A) in the immediately subsequent Contract Year the
Annual Ceiling Carryover shall be exhausted (first) before the
Annual Ceiling for such subsequent Contract Year is utilized,
(B) Hollywood shall identify the intended use for (i.e.,
allocate) the Annual Ceiling Carryover during the first thirty
(30) days of the subsequent Contract Year, and CBS shall use
reasonable efforts to satisfy the allocation request depending
upon the availability of the inventory/item sought. In the
event that the inventory is not available, then Hollywood
shall make a substitute allocation within thirty (30) days
following CBS's advising Hollywood that the inventory/item
sought is unavailable, (C) any portion of the Annual Ceiling
Carryover unused as of the expiration date of the Contract
Year concerned (i.e., such subsequent Contract Year) shall be
deemed forfeited, except to the extent Hollywood complied with
the notice requirements prescribed herein and CBS did not
deliver such portion of the Annual Ceiling Carryover and (D)
any portion of the Ceiling Amount (including the Annual
Ceiling Carryover) unused as of the expiration date of the
Term shall be deemed forfeited, except to the extent Hollywood
complied with the notice requirements prescribed herein and
CBS did not deliver such portion of the Ceiling Amount or
Annual Ceiling Carryover, as applicable.
2.5 During the Term, the Hollywood Site shall consist of (i)
movie-related entertainment news, data and merchandise offers (including movie
celebrity interviews, movie reviews, movie trailers, movie soundtracks,
movie-theater listings and movie ticketing), (ii) music-related news, data and
merchandise offers, (iii) television-related news, data and merchandise offers
and (iv) other entertainment-related Content and merchandise offers, in each
case as determined by Hollywood from time to time in its sole discretion. All
Content displayed on the Hollywood Site shall be subject to any restrictions or
requirements set forth in the CBS License Guidelines. CBS shall have the right
to demand the removal from the Hollywood Site of any Content which in CBS's
reasonable business judgment conflicts with, interferes with or is detrimental
to CBS's interests, reputation or business or which might subject CBS to
unfavorable regulatory action, violate any law, infringe the rights of any
Person, or subject CBS to liability for any reason. Hollywood shall thereafter
remove the objected-to Content as soon as technically feasible, but in no event
later than ten (10) days (or less than said ten days if CBS is or would be
subject to potential liability, it being understood that: (i) in each instance,
CBS shall notify Hollywood of the potential liability concerned; and (ii)
Hollywood shall use its best efforts to remove the Content concerned as soon as
possible, but in any event within three (3) business days) after written notice
from CBS demanding the removal of such Content, subject to the next sentence.
CBS shall have no right to demand the removal of any Content which is a hard
news item of a nature normally reported by other news organizations of a
character and stature equal to Hollywood or an editorial item clearly marked as
such, provided, however, that such Content does not/will not subject CBS to
unfavorable regulatory action, violate any law, infringe the rights of any
Person, or subject CBS to liability for any reason. For purposes of this
paragraph 2.5 (and in addition to the terms and conditions set forth in
paragraph 7.4 below) notice shall be deemed given when sent by facsimile
transmission to the fax number concerned in paragraph 7.4 below.
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2.6 (a) During the Term, Hollywood shall periodically consult with CBS
regarding the presentation of the CBS Content on the Hollywood Site. In no event
shall Hollywood distort or misrepresent any material contained in the CBS
Content. No CBS Content shall be used/displayed out of context. Hollywood shall
have the right to edit and revise the CBS Content solely to meet spatial
requirements provided that any such edits or revisions shall not distort or
misrepresent any events, opinions or statements contained in the CBS Content.
(b) Subject to any restrictions or requirements in the CBS
License Guidelines, Hollywood shall have the right, but not the obligation, to
correct any errors, omissions and/or inaccuracies in the transmission or
transcription of the CBS Content identified by Hollywood or reported to
Hollywood by Hollywood Site users.
2.7 Except as otherwise specified in this Agreement, during the Term,
Hollywood shall not, without CBS's prior written approval, display, perform,
distribute, transmit or otherwise make available in any media now known or
hereafter developed, other than through the Hollywood Site, any CBS Content, or
any portion thereof.
2.8 In the event that Hollywood desires to use any music contained in
any CBS Content on the Hollywood Site, prior to such use, Hollywood shall: (i)
report to the applicable music rights society on behalf of CBS, all titles and
publishers of all such music; (ii) secure, at its sole cost and expense, and pay
for all performing, duplication and/or recording rights licenses, if any,
required by the applicable rights holder(s) for the use of musical compositions
and sound recordings on the Internet and (iii) assume any and all liability in
connection with its use of the music. CBS shall endeavor to deliver to Hollywood
accurate music cue sheets for all music contained in the CBS Content.
2.9 Hollywood's right to Archive CBS Content shall cease if any of the
following occurs: (i) CBS terminates this Agreement pursuant to paragraph 6.1;
or (ii) Hollywood breaches any term of the CBS License Guidelines.
2.10 Upon termination of this Agreement pursuant to paragraph 6.1 or
the Archive rights, Hollywood shall cease using any CBS Content or Content
derived therefrom. In that connection, Hollywood shall immediately remove or
erase the CBS Content from the Hollywood Site as soon as technically
practicable, but in no event shall any such material remain on the Hollywood
Site more than ten (10) days (or less than said ten days, if CBS is or would be
subject to potential liability) after CBS's notice of termination, and at CBS's
request, Hollywood shall furnish CBS with certified evidence of such removal or
erasure satisfactory to CBS.
3. TERM
3.1 The term of this Agreement ("Term") shall begin on January 3, 1999
and shall continue in full force and effect for a period of seven (7) years,
through and including January 3, 2006, unless earlier terminated in accordance
with the terms and conditions contained herein.
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4. RIGHTS
4.1 (a) As between CBS and Hollywood, CBS is or shall be the exclusive
owner of and shall retain all right, title and interest to the CBS Content or
any Content derived therefrom, including all Intellectual Property Rights
therein (the "CBS Property").
(b) Hollywood shall place a notice of copyright on each CBS
Content Page in accordance with the CBS License Guidelines. No CBS Content Page
shall contain any other copyright notice whatsoever except as provided in the
CBS License Guidelines. Hollywood shall cooperate fully with CBS in connection
with CBS's obtaining appropriate copyright protection in the name of CBS for any
CBS Content Page.
(c) With respect to all Content on the Hollywood Site other
than the CBS Property (i.e., CBS Content or any Content derived therefrom), as
between CBS and Hollywood, Hollywood is or shall be the exclusive owner of and
shall retain all right, title and interest to such Content or any Content
derived therefrom, including all Intellectual Property Rights therein, and that
Content shall be deemed "Hollywood Content."
4.2 Hollywood agrees to take all action and cooperate as is reasonably
necessary, at CBS's request, to protect the CBS's rights, titles, and interests
specified in this Article 4, and further agrees to execute any documents that
might be necessary to perfect CBS's ownership of such rights, titles and
interests.
5. WARRANTIES; REPRESENTATIONS; INDEMNITIES
5.1 (a) CBS represents and warrants that:
(i) it has full power and authority to enter into and
fully perform this Agreement; and
(ii) it has sufficient right and authority to grant
to Hollywood all licenses and rights granted by CBS hereunder.
(b) Hollywood represents and warrants that:
(i) it owns or controls all right, title, and
interest in and to the Hollywood Content and the Hollywood Site, and
all Intellectual Property Rights therein, necessary to carry out its
obligations hereunder;
(ii) it is has the full power and authority to enter
into and fully perform this Agreement;
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(iii) the Hollywood Site (including any and all
Intellectual Property Rights therein or connected thereto) and the
Hollywood Content and the use thereof shall not violate any applicable
law or infringe upon or violate any rights of any Person; and
(iv) the Hollywood Site will be produced, advertised
and transmitted in accordance with all applicable federal, state, local
and foreign laws and regulations.
5.2 (a) Each party (the "Indemnifying Party") shall at all times
indemnify, hold harmless and defend the other party (the "Indemnified Party")
from and against any loss, cost, liability or expense (including court costs and
reasonable attorneys' fees) arising out of or resulting from any breach by the
Indemnifying Party of any representation, warranty, covenant or agreement
contained herein. In the event of any such claim, the Indemnified Party shall:
(i) promptly notify the Indemnifying Party of the claim; (ii) allow the
Indemnifying Party to direct the defense and settlement of any third party claim
with counsel of the Indemnifying Party's choosing; and (iii) provide the
Indemnifying Party, at the Indemnifying Party's expense, with information and
assistance that is reasonably necessary for the defense and settlement of the
third party claim. The Indemnified Party reserves the right to retain counsel,
at the Indemnified Party's sole expense, to participate in the defense of any
such claim. The Indemnifying Party shall not settle any such claim or alleged
claim without first obtaining the Indemnified Party's prior written consent,
which consent shall not be unreasonably withheld, if the terms of such
settlement would adversely affect the Indemnified Party's rights under this
Agreement or otherwise. If the Indemnifying Party assumes the defense and
settlement of the claim as set forth above, then the Indemnifying Party's only
obligation is to satisfy the claim, judgment or approved settlement.
(b) Any sums payable by Hollywood under this paragraph 5.2 may
be offset by Hollywood against the Market Value of any advertising, Content or
Ad Sales Commitment deliverable by CBS (the "CBS Deliverable(s)") pursuant to
this Agreement or the Ad Agreement (the "Indemnity Offset"). The amount or
Market Value of the CBS Deliverable concerned will be reduced by the proportion
thereof used for or contributed to the Indemnity Offset. For purposes of the
Indemnity Offset, Hollywood shall be obligated to exhaust the CBS Deliverables
as follows:
(i) The Market Value of any advertising or promotion,
deliverable pursuant to paragraph 2.1 of the Ad Agreement, shall be
fully exhausted before any other CBS Deliverable is used
for/contributed to the Indemnity Offset.
(ii) Provided the CBS Deliverable described in
section 5.2(b) above has been fully exhausted, the Market Value of any
Ceiling Amount, deliverable pursuant to subparagraph 2.4(a) of this
Agreement (or the Additional Promo Commitment, deliverable pursuant to
paragraph 2.4 of the Ad Agreement), shall be fully exhausted before any
other CBS Deliverable is used for/contributed to the Indemnity Offset.
(iii) The Market Value of any Ad Sales Option
deliverable pursuant to paragraph 2.3 of the Ad Agreement, may be used
for/contributed to the Indemnity Offset only if and when the
Deliverables described in sections 5.2(b)(i) and (ii) above have been
fully exhausted.
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For avoidance of doubt, CBS's obligation to deliver any CBS Deliverable,
pursuant to this Agreement or the Ad Agreement, shall be extinguished (or
reduced, as applicable) to the extent that such CBS Deliverable is used
for/contributed to any Indemnity Offset.
6. REMEDIES
6.1 CBS shall have the right to terminate this Agreement if any of the
following occurs:
(a) The Hollywood Site contains Content which, in CBS's
reasonable business judgment, violates Article I or Article III of the CBS
License Guidelines and Hollywood fails to remove such Content from the Hollywood
Site within ten (10) days after written notice of CBS's objection thereto
demanding the removal of such Content.
(b) Except as otherwise set forth in subparagraph 6.1(a)
above, either Hollywood or BEI (if applicable) breaches any material term or
condition of this Agreement, or any Collaboration Agreement and fails to: (i)
cure such breach within thirty (30) days after CBS's written notice of such
breach, or (ii) complete curing such breach within sixty (60) days following
CBS's notice of such breach; provided however that this clause (ii) shall only
apply to a default that is incapable of being cured in thirty (30) days. The
foregoing cure period will not apply: (x) solely with respect to this Agreement,
to a term or condition (in this Agreement) for which a specific cure period is
provided; or (y) to a breach incapable of being cured.
(c) BEI or Hollywood: (i) becomes insolvent or unable to pay
its debts as they mature or makes an assignment for the benefit of its
creditors; (ii) is the subject of a voluntary petition in bankruptcy or any
voluntary proceeding relating to insolvency, receivership, liquidation, or
composition for the benefit of creditors, if such petition or proceeding is not
dismissed within sixty (60) days of filing; (iii) becomes the subject of any
involuntary petition in bankruptcy or any involuntary proceeding relating to
insolvency, receivership, liquidation, or composition for the benefit of
creditors, if such petition or proceeding is not dismissed within sixty (60)
days of filing; or (iv) is liquidated or dissolved.
(d) BEI issues to a Person any voting securities of BEI and:
(i) at the time of such issuance such Person is a CBS Competitor and (ii) as a
result of such issuance such Person beneficially owns or controls, directly or
indirectly, more than fifteen (15%) percent of the total voting power of BEI, in
the aggregate. For the purposes of this subparagraphs 6.1(d), 6.1(e) and 6.1(f):
(x) the term "beneficial ownership" shall have the meaning set forth in Section
13(d) of the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder; (y) the term "total voting power" shall mean at any
time, the total number of votes that may be cast in the election of directors of
BEI at any meeting of the holders of voting securities at such time for such
purpose; and (z) the term "voting securities" shall mean the Capital Stock and
any other securities issued by BEI having the power to vote in the election of
directors of BEI including, without limitation, any securities having such power
only upon the occurrence of a default or any other extraordinary contingency.
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(e) BEI issues to a Person any voting securities of BEI and:
(i) at the time of such issuance such Person is a CBS Competitor that
beneficially owns or controls, directly or indirectly, more than fifteen (15%)
percent of the total voting power of BEI and (ii) as a result of such issuance
the voting power of such Person is increased by any amount.
(f) BEI's board of directors consents to the acquisition of
voting securities by a CBS Competitor such that as a result of such consent, the
CBS Competitor beneficially owns or controls, directly or indirectly, more than
15% of the total voting power of BEI and at the time of such consent the Rights
Agreement by and between BEI and American Stock Transfer & Trust Company dated
August 23, 1996, as amended, is in full force and effect.
(g) Hollywood discontinues using the "Hollywood.com" mark (or
any substitute mark approved by CBS) and does not establish use of a substitute
mark reasonably acceptable to CBS within thirty (30) days after such
discontinuation.
(h) The Hollywood Site ceases to operate due to any
circumstance(s) (other than circumstances beyond Hollywood's reasonable control,
which circumstances simultaneously affect a substantial number of Web Sites on
the Internet) for: (i) a period of thirty (30) consecutive days; or (ii) a
period of one week at least two times in any six (6) month period.
CBS may exercise its right to terminate pursuant to this paragraph 6.1 by
sending Hollywood appropriate written notice. No exercise by CBS of any of its
rights under this Article 6 will limit CBS's remedies by reason of Hollywood's
or BEI's default, CBS's rights to exercise any other rights under this paragraph
6.1, or any of CBS's other rights.
7. GENERAL
7.1 Neither party may assign this Agreement, or their respective rights
and obligations hereunder, in whole or in part without the other party's prior
written consent. Any attempt to assign this Agreement without such consent shall
be void and of no effect ab initio. Notwithstanding the foregoing, CBS may
assign this Agreement or any of its rights and obligations hereunder to an
affiliate or to any entity controlling, controlled by or under common control
with, CBS, or to any entity that acquires CBS by purchase of stock or by merger
or otherwise, or by obtaining substantially all of CBS's assets (a "CBS
Assignee"), provided that any such CBS Assignee, or any division thereof,
thereafter succeeds to all of the rights and is subject to all of the
obligations of CBS under this Agreement.
7.2 Each party hereto irrevocably submits to the exclusive jurisdiction
of (a) the Supreme Court of the State of New York, New York County, and (b) the
United States District Court for the Southern District of New York, for the
purposes of any suit, action or other proceeding arising out of this Agreement
or any transaction contemplated hereby or thereby. Each of CBS and Hollywood
agrees to commence any such action, suit or proceeding either in the United
States District Court for the Southern District of New York or if such suit,
action or other proceeding may not be brought in such court for jurisdictional
reasons, in the Supreme Court of the
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State of New York, New York County. Each of CBS and Hollywood further agrees
that service of any process, summons, notice or document by U.S. registered mail
to such party's respective address set forth above shall be effective service of
process for any action, suit or proceeding in New York with respect to any
matters to which it has submitted to jurisdiction in this paragraph 7.2. Each of
CBS and Hollywood irrevocably and unconditionally waives any objection to the
laying of venue of any action, suit or proceeding arising out of this Agreement
or the transactions contemplated hereby and thereby in (i) the Supreme Court of
the State of New York, New York County, or (ii) the United States District Court
for the Southern District of New York, and hereby and thereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
7.3 If any provision of this Agreement (or any portion thereof) or the
application of any such provision (or any portion thereof) to any Person or
circumstance shall be held invalid, illegal or unenforceable in any respect by a
court of competent jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision hereof (or the remaining portion thereof)
or the application of such provision to any other Persons or circumstances.
7.4 All notices or other communications required or permitted to be
given hereunder shall be in writing and shall be delivered by hand or sent,
postage prepaid, by registered, certified or express mail or reputable overnight
courier service and shall be deemed given when so delivered by hand, or if
mailed, three days after mailing (one business day in the case of express mail
or overnight courier service), as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
(a) if to Hollywood,
hollywood.com, Inc.
2255 Glades Road, Suite 237W
Boca Raton, Florida 33431
Attention: Mitchell Rubenstein, Chief Executive Officer
Fax: (561) 998-2974
with a copy to:
hollywood.com, Inc.
2255 Glades Road, Suite 237W
Boca Raton, Florida 33431
Attention: W. Robert Shearer, General Counsel
Fax: (561) 998-2974
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and a copy to:
hollywood.com, Inc.
1620 26th Street, Suite 370 South
Santa Monica, CA 90404
Attention: Scott Shrock, Vice President of Operations
Fax: (310) 447-2887
and a copy to:
Greenberg Traurig
200 Park Avenue
New York, New York 10166
Attention: Clifford E. Neimeth, Esq.
Fax: (212) 801-6400
(b) if to CBS:
CBS Corporation
51 West 52nd Street
New York, New York 10019
Attention: Chief Financial Officer
with a copy to:
CBS Corporation
51 West 52nd Street
New York, New York 10019
Attention: General Counsel
</TABLE>
7.5 The parties to this Agreement are independent contractors. There is
no relationship of partnership, joint venture, employment, franchise, or agency
between the parties. Neither party shall have the power to bind the other or
incur obligations on the other's behalf without the other's prior written
consent.
7.6 No failure of either party to exercise or enforce any of its rights
under this Agreement shall act as a waiver of such right.
7.7 This Agreement, along with any Exhibits hereto, contains the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. Neither party shall be liable or bound to any
other party in any manner by any representations, warranties or covenants
relating to such subject matter except as specifically set forth herein.
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7.8 This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more such counterparts have been signed by each of the parties and
delivered to each of the other parties.
7.9 This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
7.10 This Agreement shall be governed by and construed in accordance
with the internal laws of the State of New York applicable to agreements made
and to be performed entirely within such State, without regard to the conflicts
of law principles of such State.
7.11 This Agreement is for the sole benefit of the parties hereto and
their permitted assigns and nothing herein expressed or implied shall give or be
construed to give to any Person, other than the parties hereto and such assigns,
any legal or equitable rights hereunder.
7.12 The headings contained in this Agreement or in any Exhibit or
Schedule hereto are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. All Exhibits and Schedules
annexed hereto or referred to herein are hereby incorporated in and made a part
of this Agreement as if set forth in full herein. Any capitalized terms used in
any Schedule or Exhibit but not otherwise defined therein, shall have the
meaning as defined in this Agreement. When a reference is made in this Agreement
to a Section, Exhibit or Schedule, such reference shall be to a Section of, or
an Exhibit or Schedule to, this Agreement unless otherwise indicated.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
HOLLYWOOD.COM, INC. CBS CORPORATION
/s/ W. Robert Shearer /s/ Fredric G. Reynolds
- --------------------- -----------------------
W. Robert Shearer Fredric G. Reynolds
Senior Vice President Executive Vice President and
and General Counsel Chief Financial Officer
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EXHIBIT A
(Attached to and forming a part of the Agreement, made as
of January 3, 1999 between CBS Corporation and
hollywood.com, Inc.)
- -------------------------------------------------------------------------------
CBS LICENSE GUIDELINES AND RESTRICTIONS
---------------------------------------
I. GENERAL
(a) The Hollywood Site shall not include the following Content (or
other materials regarding or containing the following): (i) cigarettes, (ii)
hard liquor, (iii) massage parlors, (iv) abortion clinics, (v) firearms and
ammunition, (vi) head shops, (vii) illegal (under federal, state, local or
foreign laws) lotteries, (viii) gambling (other than legal lotteries under
federal, state or local, local laws applicable to the venue concerned), (ix)
sexually explicit content, or (x) Content that denigrates a particular group
based on gender, race, creed, religion, sexual preference or handicap
("Proscribed Content"). The standard for Content deemed "sexually explicit"
shall be subject to the standards and practices applicable to the CBS Television
Network.
(b) The CBS License Guidelines may be amended or revised from time to
time by CBS, to reflect any changes in CBS's business, practice, procedures or
policies. CBS will notify Hollywood of such amendments/revisions.
II. CONTENT
(a) (i) Each party shall notify the other of all errors, omissions,
and/or inaccuracies in transmission or transcription of the CBS Content within
twenty-four (24) hours after it becomes aware thereof.
(ii) If Hollywood provides such notice, it shall specify to
CBS what action, if any, it has taken to correct the error, omission
and/or inaccuracy.
(iii) If CBS provides such a notice, or receives such notice,
it may specify the action to be taken by Hollywood to correct the
error, omission and/or inaccuracy or resubmit such Content.
(b) All CBS Content on the Hollywood Site shall be subject to
restrictions and instructions disclosed by CBS at any time.
(c) CBS shall have the right to demand the removal from the Hollywood
Site of any Content which in CBS's reasonable business judgment conflicts with,
interferes with or is detrimental to CBS's interests, reputation or business or
which might subject CBS to unfavorable regulatory action, violate any law,
infringe the rights of any Person, or subject CBS to liability for any reason.
Hollywood shall thereafter remove the objected to Content as soon as technically
feasible, but in no event later than ten (10) days (or less than said ten days,
if CBS is or would be
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subject to potential liability , it being understood that: (i) in each instance,
CBS shall notify Hollywood of the potential liability concerned; and (ii)
Hollywood shall use its best efforts to remove the Content concerned as soon as
possible, but in any event within three (3) business days) after written notice
from CBS demanding the removal of such Content, subject to the next sentence.
CBS shall have no right to demand the removal of any Content which is a hard
news item of a nature normally reported by other news organizations of a
character and stature equal to Hollywood or an editorial item clearly marked as
such, provided, however, that such Content does not/will not subject CBS to
unfavorable regulatory action, violate any law, infringe the rights of any
Person, or subject CBS to liability for any reason. For purposes of this
subparagraph II.(c) (and in addition to the terms and conditions set forth in
paragraph 7.4) notice shall be deemed given when sent by facsimile transmission
to the fax number concerned in paragraph 7.4.
(d) Hollywood shall abide by responsible journalistic standards. No CBS
Content shall be used and/or displayed out of context. Hollywood shall not
distort or misrepresent any events, opinions or statements contained in the CBS
Content received by Hollywood.
III. CROSS-LINKS
(a) Hollywood shall not establish any links from the Hollywood Site to
any Internet Site containing Proscribed Content. Notwithstanding anything
contained herein to the contrary, Hollywood shall not be deemed in breach of
this Agreement if Hollywood links to an Internet web site, which Internet web
site, in turn, includes advertising for, or links to, an independent web site
(the "Indirectly Linked Site") displaying the above Proscribed Content, provided
that Hollywood derives no revenues or other financial benefit from such
Indirectly Linked Site or Proscribed Content. For avoidance of doubt, "financial
benefit" includes the realization or accrual of any revenue from page views or
reach of such Indirectly Linked, Site, or advertisements displayed on web site
pages of such Indirectly Linked Site.
(b) Hollywood shall not conduct any cross promotions between the
Hollywood Site and any Internet Site which exhibits Proscribed Content.
IV. OWNERSHIP
(a) Hollywood shall place an appropriate copyright notice to be
furnished by CBS on all CBS Content Pages of the Hollywood Site.
(b) Hollywood and CBS shall mutually develop the procedures for placing
any third party copyright notice on any CBS Content Page.
18
THIS WARRANT AND THE WARRANT SHARES ISSUABLE UPON THE
EXERCISE HEREOF (THE "WARRANT SHARES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND ARE "RESTRICTED SECURITIES"
WITHIN THE MEANING OF RULE 144 UNDER THE ACT. THE WARRANT SHARES MAY NOT BE
OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED, EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) IN COMPLIANCE WITH THE
RESALE LIMITATIONS OF RULE 144 UNDER THE ACT, OR (iii) PURSUANT TO AN APPLICABLE
EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUBJECT TO AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, STATING THAT SUCH REGISTRATION IS NOT REQUIRED AS
TO SAID SALE, OFFER OR TRANSFER.
THE WARRANT SHARES ARE SUBJECT TO AN AGREEMENT
BETWEEN THE COMPANY AND THE HOLDER DATED JANUARY 3, 2000, REGARDING THE SALE,
ASSIGNMENT AND TRANSFER OF THE WARRANT SHARES. A COPY OF SUCH AGREEMENT IS
AVAILABLE, WITHOUT CHARGE, FROM THE SECRETARY OF THE COMPANY.
January 3, 2000 Number of Shares: 1,178,892
HOLLYWOOD.COM, INC.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
------------------------------------------
FOR VALUE RECEIVED, HOLLYWOOD.COM, INC., a Florida corporation (the
"Company"), hereby certifies that CBS CORPORATION, a Pennsylvania corporation
("CBS") is entitled, upon the terms and subject to the conditions contained
herein, to purchase from the Company One million, one hundred seventy-eight
thousand eight hundred and ninety-two (1,178,892) duly issued, fully paid and
non-assessable shares of Common Stock (as defined below) of the Company, subject
to adjustment, as provided herein, at the exercise price (the "Exercise Price")
set forth in Section 1.1 of that certain Stock Purchase Agreement dated August
26, 1999, between CBS and the Company (the "Stock Purchase Agreement").
The term "Common Stock" means the Common Stock, par value $.01 per
share, of the Company as constituted on the date hereof. The number of shares of
Common Stock to be received upon the exercise of this Warrant shall be subject
to adjustment from time to time as hereinafter set forth. The shares of Common
Stock deliverable upon such exercise, and as adjusted from time to time, are
hereinafter referred to as "Warrant Shares."
1. Exercise of Warrant. This Warrant may be exercised, in whole or in
part, at any time prior to the earlier of (i) the second anniversary of the date
hereof and (ii) the consummation by the Company of its first underwritten,
registered public offering of Common Stock next following the date hereof. This
Warrant will terminate and be of no further force and effect upon the earlier of
the dates set forth in clause (i) and (ii) above. This Warrant shall be deemed
duly and properly exercised only upon
<PAGE>
presentation and surrender by the holder hereof to the Company at its principal
offices (which offices on the date hereof are situated at 2255 Glades Road,
Suite 237W, Boca Raton, Florida 33431), or at the office of the Company's
transfer agent for the Common Stock (which transfer agent on the date hereof is
the American Stock Transfer and Trust Company and whose principal offices are
situated at 40 Wall Street, New York, NY 10005), with the Warrant Exercise Form
attached hereto properly completed signed and dated, and together with payment
in full of the Exercise Price specified in Section 1.1 of the Stock Purchase
Agreement. Upon presentation and surrender of the Warrant together with payment
in full of the Exercise Price as aforesaid, CBS shall be deemed to be the holder
of record of the Warrant Shares issuable upon such exercise, notwithstanding
that the transfer books of the Company may then be closed or that certificates
representing such Warrant Shares may not then be actually delivered to CBS. The
Company shall pay any and all documentary, stamp or similar issue or transfer
taxes payable in respect of the issuance or delivery of Warrant Shares upon
exercise of this Warrant. Certificates for the Warrant Shares purchased upon
exercise of this Warrant shall be delivered to CBS or its permitted assignee
(pursuant to Section 12) within a reasonable time, not exceeding 10 days after
said exercise.
2. Reservation of Shares. The Company will at all times reserve for
issuance and delivery upon exercise of this Warrant, all Warrant Shares and
other shares of capital stock of the Company from time to time issuable 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 and clear of all preemptive rights, taxes, liens and
other charges. The Company will take all actions as may be necessary to assure
that the Warrant Shares issuable upon exercise hereof may be issued without
violation of any applicable law or regulation, or of any requirement of any
domestic securities exchange upon which any capital stock of the Company may
then be listed or admitted to unlisted trading privileges (including, without
limitation, obtaining any requisite approval of the Company's stockholders).
3. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issuable upon the exercise of this Warrant, but the
Company shall pay CBS an amount equal to the fair market value of such
fractional share in lieu of each fraction of a share otherwise so issuable as
determined by the Board of Directors in good faith.
4. Exchange of Warrants. This Warrant is exchangeable, without expense,
at the option of CBS, upon presentation and surrender hereof to the Company or
the transfer agent for the Common Stock for Warrants of smaller denominations,
entitling CBS to purchase in the aggregate the same number of Warrant Shares
purchasable upon the exercise of this Warrant.
5. Intentionally omitted.
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 shareholders, the number of
shares of Common Stock subject to this Warrant immediately prior to such
subdivision shall be proportionately increased. If the Company shall at any time
combine the outstanding shares of Common Stock by recapitalization,
reclassification or other combination thereof, the number of shares of Common
Stock subject to this Warrant immediately prior to such combination shall be
proportionately decreased. 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 for such adjustment shall be
the record date established by the Company therefor.
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<PAGE>
6.2 Adjustment for Reorganization, Consolidation, Merger, Etc.
(a) In case of any capital reorganization of the
Company (or any other corporation, the securities of which are at the time
receivable upon the exercise of this Warrant) after the date hereof or in case
after the date hereof the Company (or any such other corporation) shall
consolidate with or merge into another corporation or convey all or
substantially all of its assets to another corporation, then, in each such case,
CBS thereafter shall be entitled to receive upon the exercise of this Warrant
the kind and amount of securities, cash or other property which it would have
owned or been entitled to receive immediately after consummation of such capital
reorganization, consolidation, merger or conveyance had this Warrant been
exercised immediately prior to the effective time of such capital
reorganization, consolidation, merger or conveyance, and, in any such case, if
necessary, appropriate adjustment shall be made in the application of the
provisions of this Section 6.2 with respect to the relative rights and interests
thereafter of CBS to the end that such provisions thereafter shall
correspondingly be made applicable, as nearly as reasonably may be practicable,
in relation to any shares of capital stock or other securities or property
thereafter deliverable upon the exercise of this Warrant.
(b) If the Company shall consolidate with or merge
into another corporation, and shall not be the surviving corporation, or shall
convey all or substantially all of its assets to another corporation, then, and
in each such case, the Company, as a condition of the closing of such
transaction, shall require that the surviving corporation or the corporation
that shall have received substantially all of the Company's assets, expressly
assume the obligations of the Company under this Warrant in a form reasonably
satisfactory to CBS.
6.3 No Impairment. The Company will not, by amendment of its
charter or through reorganization, consolidation, merger, dissolution, issuance
or sale of securities, sale of assets or any other voluntary action, willfully
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will 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 CBS against impairment. Without
limiting the generality of the foregoing, while this Warrant is outstanding, the
Company will not permit the par value, if any, of the Warrant Shares to be
greater than the amount payable therefor upon such exercise.
6.4 Certificate as to Adjustments. In each case of an
adjustment in the number of Warrant Shares receivable upon the exercise of this
Warrant, the Company, at its expense, will promptly compute such adjustment in
accordance with the terms of this Warrant and prepare a certificate executed by
the chief financial officer of the Company setting forth such adjustment and
showing in reasonable detail the facts upon which such adjustment is based. The
Company will forthwith mail a copy of each such certificate to CBS at the
address set forth in Section 11 hereof. The failure of CBS to object in writing
to such certificate of adjustment within 10 days after receipt thereof shall
constitute approval thereof by CBS.
6.5 Certain Other Distributions. If at any time Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive any dividend or other distribution of:
(a) cash (other than a cash distribution or dividend
payable out of earnings or earned surplus legally available for the payment of
dividends under the laws of the jurisdiction of incorporation of the Company);
3
<PAGE>
(b) any evidences of its indebtedness, any shares of
the Company's capital stock or any other property of any nature whatsoever; or
(c) any warrants or other rights to subscribe for or
purchase any evidences of the Company's indebtedness, any shares of its capital
stock or any other securities or property of any nature whatsoever, then, and in
each such case, if this Warrant remains outstanding, the Company shall mail or
cause to be mailed to CBS a notice specifying the date on which a record is to
be taken for the purpose of such dividend or distribution, and stating the
amount and character of such dividend, distribution or right. Such notice shall
be mailed at least 15 days prior to the date therein specified and the Warrant
may be exercised prior to said date during the term of the Warrant.
7. Restrictions on Warrant Shares. The Warrant Shares may not be
offered, sold, transferred or otherwise disposed of unless such transactions are
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and any applicable state securities laws, or unless such transactions are
effected pursuant to available exemptions from such registration, provided that
CBS delivers to the Company an opinion of counsel satisfactory to the Company
confirming the availability of such exemption.
8. Legend.
8.1 Unless the Warrant Shares have been registered under the
Securities Act, upon exercise of this Warrant and the issuance of any of the
Warrant Shares, all certificates representing such securities 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 (THE "ACT") AND ARE "RESTRICTED
SECURITIES" WITHIN THE MEANING OF RULE 144 UNDER THE ACT.
THESE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD OR
OTHERWISE TRANSFERRED, EXCEPT (i) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, (ii) IN COMPLIANCE WITH
THE RESALE LIMITATIONS OF RULE 144 UNDER THE ACT, OR (iii)
PURSUANT TO AN APPLICABLE EXEMPTION FROM REGISTRATION UNDER
THE ACT AND SUBJECT TO AN OPINION OF COUNSEL, SATISFACTORY TO
THE COMPANY, STATING THAT SUCH REGISTRATION IS NOT REQUIRED AS
TO SAID SALE, OFFER OR TRANSFER.
4
<PAGE>
8.2 As may be required by that certain Investors' Rights
Agreement of even date herewith by and between CBS and the Company, all
certificates representing the Warrant Shares shall bear on the face thereof
substantially the following legend:
THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO AN AGREEMENT BETWEEN THE COMPANY
AND CBS DATED AS OF AUGUST 26, 1999, REGARDING THE SALE,
ASSIGNMENT AND TRANSFER OF THESE SECURITIES. COPIES OF SUCH
AGREEMENT ARE AVAILABLE, WITHOUT CHARGE, FROM THE SECRETARY OF
THE COMPANY.
9. No Rights or Liabilities as Stockholder. This Warrant does not by
itself entitle CBS to any voting rights or other rights as a stockholder of the
Company. In the absence of affirmative action by CBS to purchase Warrant Shares
upon exercise of this Warrant, no provisions of this Warrant, and no enumeration
herein of the rights or privileges of CBS shall, by itself, cause CBS to be a
stockholder of the Company for any purpose.
10. Amendment; Waiver. Any term of this Warrant may be amended and the
observance of any term of this Warrant may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and CBS. Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon CBS and the Company.
11. Notices. All notices required hereunder shall be in writing and
shall be deemed given when telegraphed, delivered personally or within two days
after mailing when mailed by certified or registered mail, return receipt
requested, as follows:
<TABLE>
<CAPTION>
<S> <C>
if to the Company, to:
Hollywood.com, Inc.
2255 Glades Road, Suite 237 W
Boca Raton, FL 33431-7383
Attention: Mitchell Rubenstein, Chief Executive Officer
with a copy to:
Hollywood.com, Inc.
2255 Glades Road, Suite 237 W
Boca Raton, FL 33431-7383
Attention: W. Robert Shearer, General Counsel
5
<PAGE>
with a copy (which shall not constitute notice
pursuant to this Section 11) to:
Greenberg Traurig
The MetLife Building
200 Park Avenue
New York, NY 10166
Attention: Clifford E. Neimeth, Esq.
if to CBS, to:
CBS Corporation
51 West 52nd Street
New York, NY 10019
Attention: Fredric G. Reynolds, Executive Vice President and
Chief Financial Officer
with a copy to:
CBS Corporation
51 West 52nd Street
New York, NY 10019
Attention: Louis J. Briskman, Executive Vice President
and General Counsel
</TABLE>
12. Assignment. This Warrant, and the rights of CBS hereunder, are not
assignable by CBS except to a subsidiary of CBS; provided that such subsidiary
is an affiliate of CBS (within the meaning of Rule 12b-2 under the Exchange Act)
that owns interests in multiple Internet businesses. Any attempted assignment in
violation of this Section 12 shall be null and void.
13. Lost or Destroyed Certificate. 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 deliver a new Warrant of like tenor and date.
14. Applicable Law. This Warrant shall be governed in all respects by
the laws of the State of New York as such laws are applied to agreements between
New York residents entered into and to be performed entirely in New York.
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<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.
Hollywood.com, Inc.
By: /s/ W. Robert Shearer
---------------------
W. Robert Shearer
Senior Vice President
and General Counsel
7
<PAGE>
WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to exercise its right under the
attached Warrant to purchase ____________ shares of Common Stock of
Hollywood.com, Inc., a Florida corporation, and hereby tenders
________________________ constituting full payment of the Exercise Price of the
attached Warrant.
------------------------------------
Signature
------------------------------------
Date
INSTRUCTIONS FOR ISSUANCE OF STOCK
----------------------------------
Name_________________________________________________________
(Please typewrite or print in block letters)
Address_______________________________________________________
______________________________________________________________
Taxpayer Identification Number_____________________
================================================================================
INVESTOR'S RIGHTS AGREEMENT
between
CBS CORPORATION,
and
HOLLYWOOD.COM, INC.
Dated January 3, 2000
================================================================================
<PAGE>
INVESTOR'S RIGHTS AGREEMENT
This INVESTOR'S RIGHTS AGREEMENT ("Agreement") is entered into
on this 3rd day of January 2000 by and between CBS Corporation, a Pennsylvania
corporation ("CBS") and Hollywood.com, Inc., a Florida corporation (the
"Company").
WITNESSETH:
WHEREAS, the Company and CBS have entered into a Stock
Purchase Agreement dated August 26, 1999 (the "Stock Purchase Agreement"),
pursuant to which CBS has agreed to purchase shares of Common Stock (as
hereinafter defined); and
WHEREAS, by this Agreement, the Company and CBS each desire to
set forth certain rights of the parties with respect to the shares of Common
Stock as set forth below.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual premises and the agreements and covenants contained herein, the parties,
intending to be legally bound, hereby agree as follows:
Defined Terms. As used in this Agreement, the following terms
shall have the following respective meanings:
(a) The term "Approved Transferees" means each of The
Times Mirror Company, Gannett Co., Inc., Mitchell Rubenstein and Laurie S.
Silvers.
(b) "Beneficial owner", "beneficially owned" or
"beneficial ownership" have the respective meanings assigned to such terms in
Rule 13d-3 under the Exchange Act.
(c) The term "CBS Percentage" means on the date of
determination for purposes of Section 2.4 of this Agreement, the percentage
determined by dividing (i) the number of shares of Common Stock then held by CBS
and its Permitted Transferees by (ii) the aggregate shares of Common Stock
outstanding immediately prior to the event giving rise to the determination of
the CBS Percentage in this Agreement; provided, however, that if the CBS
Percentage has been reduced as a result of (i) an issuance of securities by the
Company after the date hereof pursuant to clause (v) of the definition of New
Securities for which CBS was not offered an opportunity to maintain its
ownership percentage at the level existing before such issuance by the purchase
of additional securities or (ii) an issuance of securities by the Company in an
underwritten offering after the date hereof for which CBS was not permitted to
maintain its ownership percentage at the level existing before such issuance by
the purchase of additional securities as a result of the provisions of Section
2.4(d) hereof, then the CBS Percentage shall be what it otherwise would have
been but for any such issuance. The CBS Percentage shall in no event exceed
29.8% prior to the exercise of the Warrant or 34.8% after the exercise of the
Warrant in full.
2
<PAGE>
(d) "Change-of-Control Transaction" means any
transaction, upon the consummation of which, any Person or "group" (within the
meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), of Persons (other than CBS, Mitchell Rubenstein, Laurie
S. Silvers, The Times Mirror Company, Gannett Co., Inc. or any of their
respective affiliates) would own in excess of 50% of the outstanding Common
Stock.
(e) The term "Closing Date" has the meaning specified
in the Stock Purchase Agreement.
(f) The term "Common Stock" means the common stock,
$0.01 par value per share, of the Company.
(g) The term "Derivative Securities" means any
options, warrants, rights, preferred stock or other securities that are
convertible, exercisable or exchangeable into Common Stock or other capital
stock of the Company that is entitled by its terms to vote generally in the
election of directors of the Company.
(h) The terms "Holder" or "Holders" means CBS and any
of its Permitted Transferees.
(i) The term "Initiating Holder" means any Holder or
Holders of 25% or more of the aggregate Registrable Securities then outstanding.
(j) The term "New Securities" means any Common Stock
or Derivative Securities issued by the Company in either a private placement or
a registered public offering, but excluding (i) any shares of Common Stock
issuable upon the conversion, exercise or exchange of Derivative Securities of
the Company issued and in effect as of the date of this Agreement; (ii) the
issuance or sale by the Company of Common Stock or Derivative Securities to any
directors, officers, employees, contractors, advisors or consultants of the
Company or any of its subsidiaries provided such issuance or sale is pursuant to
agreements or employee plans in the ordinary course of business of the Company
consistent with past practice; (iii) shares of Common Stock issued in connection
with any stock split, stock dividend, recombination or other recapitalization
transaction in respect of the Common Stock; (iv) shares of Common Stock or
Derivative Securities issued as collateral in connection with any equipment
lease, real property lease, loan, credit line, guarantees of indebtedness or
similar financing; (v) Common Stock or Derivative Securities issued in
connection with or pursuant to any merger, acquisition, consolidation,
amalgamation, business combination, reorganization, or reincorporation by or
involving the Company or any of its subsidiaries; or (vi) Common Stock or
Derivative Securities issued by the Company in any arms'-length transaction
whose primary purpose is to provide carriage to the web sites operated by the
Company in an amount not to exceed, in the aggregate, 4.99% of the aggregate
shares of Common Stock outstanding.
(k) The terms "register," "registered" and
"registration" refer to a registration effected by the preparation and filing of
a registration statement in compliance with the Securities Act of 1933, as
amended (the "Securities Act"), and the declaration or ordering of the
effectiveness of such registration statement by the SEC.
3
<PAGE>
(l) The term "Registrable Securities" means (i) any
and all shares of Common Stock issued to CBS pursuant to the Stock Purchase
Agreement; (ii) any and all shares of Common Stock issued to CBS or any
"Permitted Transferee" (as defined in Section 2.3 hereof) pursuant to the
Warrant; and (iii) any and all shares of Common Stock issued in respect of the
securities referred to in (i) and (ii) as a result of a stock split, dividend,
recapitalization or the like, which has not been sold to the public. As to any
particular Registrable Securities, such securities shall cease to be such when
(i) a registration statement registering such securities under the Securities
Act has been declared or ordered effective by the SEC and such securities have
been sold or otherwise transferred by the holder thereof pursuant to and in
accordance with the plan of distribution with respect to such securities
disclosed in the prospectus (compliant with Rule 424(b) under the Securities
Act) forming part of such registration statement; (ii) such securities have been
sold in accordance with the resale requirements of Rule 144 (or any successor
rule or provision) adopted by the SEC under the Securities Act; (iii) such
securities shall have been transferred, new certificates evidencing such
securities without legends restricting further transfer shall have been
delivered by the Company and subsequent public distribution of such securities
shall neither require registration under the Securities Act nor qualification
(or any similar filing) under any state securities or "blue sky" law then in
effect; or (iv) such securities no longer shall be issued and outstanding.
(m) The term "Registration Expenses" means all
expenses incurred by the Company in complying with Sections 1.2 and 1.3 hereof,
including, without limitation, all registration, qualification and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Company, reasonable fees and disbursements of one counsel (or firm of counsel)
for CBS, "blue sky" qualification fees and expenses, and the expenses of any
special audits incident to or required by any such registration (but excluding
the compensation of regular employees of the Company which shall be paid in any
event by the Company.)
(n) The term "SEC" means the Securities and Exchange
Commission.
(o) The term "Warrant" means that certain warrant of
even date herewith for the purchase of shares of Common Stock of the Company
issued to and in the name of CBS.
1. Registration Rights.
1.1. Intentionally Omitted.
1.2. Demand Registration.
(a) Request for Registration. If the Company shall
receive from any Initiating Holder a written request that the Company effect any
registration, qualification or compliance with respect to Registrable Securities
(a "Demand"), the Company will:
(i) promptly give written notice ("Company
Notice") of the proposed registration, qualification or compliance to all other
Holders; and
4
<PAGE>
(ii) as soon as practicable, use its best
efforts to effect all such registrations, qualifications and compliances
(including, without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualifications under applicable "blue
sky" or other state securities laws and appropriate compliance with exemptive
regulations promulgated under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as would permit or
facilitate the public sale and distribution of all or such portion of such
Initiating Holder's or Initiating Holders' Registrable Securities as are
specified in such Demand, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such Demand as are specified in a
written request given within 20 days after receipt of the Company Notice;
provided, however, that the Company shall not be obligated to take any action to
effect any such registration, qualification or compliance pursuant to this
Section 1.2:
(A) at any time prior to (i) the
effective date of the registration statement in respect of the first
underwritten registered public offering by the Company next following the date
of this Agreement or (ii) one year after the date of this Agreement, whichever
first occurs;
(B) during the period commencing on
the 10th day next preceding the effective date of a registration statement filed
with SEC pursuant to this Section 1.2 and ending on the 180th day next following
such effective date;
(C) during the period commencing on
the 60th day next preceding the Company's good faith estimate of the date of
filing of, and ending on the 60th day next following the effective date of, a
Company registration pursuant to Section 1.3 hereof, provided the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective;
(D) in any particular jurisdiction
in which the Company would be required to qualify to do business or become
subject to taxation or general service of process, unless the Company already is
so subject to service in such jurisdiction; or
(E) after the Company has effected
four (4) such registrations pursuant to this Section 1.2(a) and such
registrations have been declared or ordered effective by the SEC.
Subject to the foregoing clauses (A) through (E), the Company
shall file a registration statement covering the Registrable Securities so
requested to be registered as soon as practicable, but in no event later than 60
days after receipt of the request(s) of the Initiating Holder(s) therefor;
provided, however, that if the Company shall furnish to such holders a
certificate signed by its Chief Executive Officer or President stating that in
the good faith judgment of the Board of Directors it would be detrimental to the
Company and its stockholders for such registration statement to be filed at or
about the date requested by the Initiating Holders and it is therefore necessary
or commercially desirable to defer the filing of such registration statement,
the Company shall have an additional period of not more than 120 days after the
5
<PAGE>
expiration of the initial 60-day period within which to file such registration
statement; provided, however, that the Company shall not be entitled to utilize
this right more than once in any 12-month period.
(b) Underwriting. If the Holders intend to distribute
the Registrable Securities covered by their request by means of an underwritten
offering, they shall so advise the Company as part of their request made
pursuant to this Section 1.2 and the Company shall include such information in
the Company Notice. In such case, the underwriter shall be selected by the
Company and shall be reasonably acceptable to a majority-in-interest of the
Initiating Holders. The right of any Holder to registration pursuant to this
Section 1.2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. The Company shall (together with all
Holders proposing to distribute their securities by means of such underwriting)
enter into an underwriting agreement in customary form with the underwriter or
underwriters. Notwithstanding any other provision of this Section 1.2, if the
"Managing Underwriter" (as such term is used in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) advises the Initiating
Holders in writing that marketing factors require a limitation of the number of
shares to be offered or sold, the Initiating Holders shall so advise all
Holders, and the number of shares of Registrable Securities that may be included
in the underwritten registration shall be allocated among all Holders thereof in
the proportion, as nearly as practicable, that the respective amounts of
Registrable Securities held by each such Holder bears to the aggregate amount of
Registrable Securities held by all such Holders. If any Holder of Registrable
Securities disapproves of the terms of the underwriting, such Holder may elect
to withdraw its Registrable Securities therefrom by written notice to the
Company, the underwriter and the Initiating Holders. Any Registrable Securities
which are excluded from the underwriting by reason of the Managing Underwriter's
marketing limitation or withdrawn from such underwriting forthwith shall be
withdrawn from such registration.
(c) Company Shares. If the Managing Underwriter has
not limited the number of Registrable Securities to be underwritten, the Company
may include therein securities for its own account or for the account of others
if the Managing Underwriter so agrees and if the number of Registrable
Securities which would otherwise have been included in such registration and
underwriting will not thereby be limited.
1.3. "Piggyback" Registration.
(a) Registration. If at any time or from time to
time, the Company shall determine to register shares of Common Stock for its own
account or the account of any of its stockholders, other than a registration on
Form S-1 or S-8 relating solely to employee stock option or purchase plans, or a
registration on Form S-4, or a registration on any other form (other than Form
S-1, S-2, S-3, SB-1 or SB-2, or their successor forms) or any successor to such
forms, which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of
Registrable Securities, the Company will:
(i) promptly give to each Holder written
notice thereof; and
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<PAGE>
(ii) include in such registration, and in
any underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within 20 days after receipt of such written
notice from the Company, by any Holder, except as set forth in Section 1.3(b)
below.
(b) Underwriting. If the registration as to which the
Company gives notice is in respect of a registered underwritten public offering
the Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.3(a)(i). In such event the right of any Holder to
registration pursuant to this Section 1.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the other stockholders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company. If the Managing Underwriter of an offering of
securities effected pursuant to this Section 1.3 reasonably shall determine and
advise the Company in writing that in its opinion the aggregate number of
Registrable Securities requested to be included in the Company's registration
statement creates a substantial risk that the proceeds or the price per share
that the Company (or in the case of a registration which does not include any
securities being offered or sold for the Company's own account, the person(s)
for whose account the registration statement is filed) would receive pursuant to
the offering would be materially reduced or that the success of the offering
otherwise would be materially adversely affected, then the number of Registrable
Securities to be included in the Company's registration statement for the
account of the Holders thereof shall be reduced pro rata among such Holders to
the aggregate amount deemed appropriate by such Managing Underwriter; provided,
however, if securities are being offered for the account of other persons or
entities as well as the Company, then with respect to the Registrable Securities
intended to be included for the account of the Holder thereof, the proportion by
which the number of Registrable Securities intended to be included by such
Holders is reduced shall not exceed the proportion by which the number of
securities intended to be registered by such other persons or entities is
reduced. If any Holder disapproves of the terms of the underwriting, he may
elect to withdraw therefrom by written notice to the Company and the Managing
Underwriter. Any Registrable Securities excluded or withdrawn from such
underwriting forthwith shall be withdrawn from such registration. No Holder
shall have any right to participate in, and Section 1.3(a) shall not apply to,
the first registered public offering involving an underwriting consummated by
the Company after the date of this Agreement (the "Follow-on Offering");
provided that each such Holder shall have a right to participate in the
Follow-on Offering, irrespective of the date of consummation thereof, if the
Follow-on Offering is not consummated within one year from the date hereof,
subject, however, in any case to approval of such participation by the Managing
Underwriter therefor.
For any selling Holder which is a partnership or corporation,
the partners, retired partners and stockholders of such Holder, or the estates
and family members of any such partners and retired partners and any trusts for
the benefit of any of the foregoing persons shall be deemed to be a single
selling Holder such that any pro rata reduction with respect to such selling
Holder shall be based upon the aggregate amount of Registrable Securities owned
by all entities and individuals included in such selling Holder.
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(c) Company shall have the right to withdraw any
"piggyback" registration for any reason upon reasonable notice to each Holder.
1.4. Expenses of Registration. All Registration Expenses
incurred in connection with any registration, qualification or compliance
pursuant to this Section 1, Registration Rights shall be borne by the Company,
except as follows:
(a) The Company shall not be required to pay for
expenses of any registration pursuant to Section 1.2 , the request for which has
been subsequently withdrawn by the Initiating Holders, in which case such
expenses shall be borne by the Holders requesting such withdrawal unless, at the
time of such withdrawal, the Holders have learned of a material adverse change
in the condition, business or prospects of the Company from that known by the
Initiating Holders at the time of their request.
(b) The Company shall not be required to pay
underwriters' fees, discounts or commissions relating to Registrable Securities
or any broker or dealer concessions or allowances relating to the distribution
thereof.
1.5. Registration Procedures. In the case of each
registration, qualification or compliance effected by the Company pursuant to
this Agreement, the Company will keep each Holder participating therein advised
in writing as to the initiation of each registration, qualification and
compliance and as to the completion thereof. Except as otherwise provided in
Section 1.4, at its expense the Company will:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to 180 days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of
a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
"blue sky" laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or, except as required under
the Securities Act, to file a general consent to service of process in any such
states or jurisdictions.
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(e) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange or U.S. automated
inter-dealer quotation system of a registered national securities association on
which similar securities issued by the Company are then listed.
1.6. Indemnification.
(a) The Company will indemnify and hold harmless each
Holder of Registrable Securities and each of its officers, directors and
partners, and each person controlling such Holder, with respect to which such
registration, qualification or compliance has been effected pursuant to this
Agreement, and each underwriter, if any, and each person who controls any
underwriter of the Registrable Securities held by or issuable to such Holder,
against all claims, losses, expenses, damages and liabilities (or actions in
respect thereto) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus or registration
statement (including any supplement or amendment thereto), or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
prospectus, in light of the circumstances under which they were made) not
misleading, or any violation or alleged violation by the Company of the
Securities Act, the Exchange Act and any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities law and relating to action or inaction legally required of the
Company in connection with any such registration, qualification or compliance,
and will reimburse each such Holder, each of its officers, directors and
partners, and each person controlling such Holder, each such underwriter and
each person who controls any such underwriter, within a reasonable amount of
time after incurred (not to exceed 45 days) for any reasonable legal and any
other expenses incurred by them in connection with investigating, defending or
settling any such claim, loss, damage, liability or action; provided, however,
that the indemnity agreement contained in this Section 1.6(a) shall not apply to
amounts paid in settlement of any such claim, loss, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld); and provided further, that the Company will
not be liable in any such case to the extent that any such claim, loss, damage
or liability arises out of or is based on any untrue statement or omission based
upon written information furnished to the Company by an instrument duly executed
by such Holder, controlling person or underwriter specifically for use therein
or upon such Holders failure to deliver a copy of a current prospectus
(compliant with Section 10 of the Securities Act) or any amendment or supplement
thereto (which does not contain any aforesaid misrepresentation or omissions) if
the Company theretofore has furnished such Holder with a sufficient number of
the copies of the same for delivery by the Holder in connection with the offer
and sale of Registrable Securities.
(b) Each Holder will, if Registrable Securities held
by or issuable to such Holder are included in the securities as to which such
registration, qualification or compliance is being effected pursuant to this
Agreement, indemnify and hold harmless the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company within the
meaning of the Securities Act, and each other such Holder, each of its officers,
directors and
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partners and each person controlling such Holder, against all claims, losses,
expenses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement or prospectus (including any
supplement or amendment thereto) or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein (in case of any prospectus, in light of the circumstances
under which they were made) not misleading, and will reimburse the Company, such
Holders, such directors, officers, partners, persons or underwriters for any
reasonable legal or any other expenses incurred in connection with
investigating, defending or settling any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement or prospectus (including any supplement or
amendment thereto) in reliance upon and in conformity with written information
furnished to the Company by the Holder in an instrument duly executed by such
Holder specifically for use therein; provided, however, that the indemnity
agreement contained in this Section 1.6(b) shall not apply to amounts paid in
settlement of any such claim, loss, damage, liability or action if such
settlement is effected without the consent of the Holder (which consent shall
not be unreasonably withheld); and provided further, that the total amount for
which any Holder shall be liable under this Section 1.6(b) shall not in any
event exceed the aggregate proceeds received by such Holder from the sale of
Registrable Securities held by such Holder in connection with the offering that
gave rise to this indemnification obligation.
(c) Each party entitled to indemnification under this
Section 1.6 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense; and provided further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations hereunder, unless such failure resulted in
material prejudice to the Indemnifying Party; and provided further, that an
Indemnified Party (together with all other Indemnified Parties which may be
represented without conflict by one counsel) shall have the right to retain one
separate counsel (or firm of counsel), with the fees and expenses to be paid by
the Indemnifying Party, if representation of such Indemnified Party by the
counsel retained by the Indemnifying Party would be inappropriate due to actual
or potential differing interests between such Indemnified Party and any other
party represented by such counsel in such proceeding. No Indemnifying Party, in
the defense of any such claim or litigation shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.
(d) If recovery is not available under the foregoing
indemnification provisions for any reason or reasons other than as specified
therein, any person who otherwise
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would be entitled to indemnification by the terms thereof nevertheless shall be
entitled to contribution with respect to any losses with respect to which such
person would be entitled to such indemnification but for such reason or reasons.
In determining the amount of contribution to which the respective persons are
entitled, there shall be considered the persons' relative knowledge and access
to information concerning the matter with respect to which the claim was
asserted, the opportunity to correct and prevent any statement or omission, and
other equitable considerations appropriate under the circumstances. It is hereby
agreed that it would not necessarily be equitable if the amount of such
contribution were determined by pro rata or per capita allocation. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
found guilty of such fraudulent misrepresentation. Notwithstanding the
foregoing, no Holder of Registrable Securities shall be required to make a
contribution in excess of the aggregate proceeds received by such Holder from
the sale of Registrable Securities held by such Holder in connection with the
offering that gave rise to the contribution obligation.
(e) The obligations of the Company and Holders under
this Section 1.6 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.7. Information by Holder. Any Holder or Holders of
Registrable Securities included in any registration shall promptly furnish to
the Company such information regarding such Holder or Holders and the
distribution proposed by such Holder or Holders as the Company may request in
writing and as shall be required in connection with any registration,
qualification or compliance referred to herein.
1.8. Rule 144 Reporting. From and after such time as the
Holders are eligible under Rule 144 to effect resales of Registrable Securities
held by them, the Company hereby agrees to file with the SEC all periodic and
other reports required to be so filed by it under the Securities Act and the
Exchange Act and the rules and regulations thereunder (or, if the Company is not
then required to file such reports, it shall, as promptly as reasonably
practicable after the written request of any Holder of Registrable Securities
therefore, make publicly available the requisite "Rule 15c2-11 information" in
respect of the Company so long as and solely to the extent necessary to permit
resales of Registrable Securities pursuant to Rule 144), and it shall take such
further reasonable action, to the extent required from time to time, to enable
such Holder to resell Registrable Securities without registration under the
Securities Act. Upon the reasonable request of any Holder of Registrable
Securities, the Company shall as promptly as reasonably practicable deliver to
such Holder a written statement as to whether it has complied with the foregoing
information and filing requirements.
1.9. "Market Stand-Off" Agreement. Each Holder hereby agrees
that, during the period (not to exceed 180 days with respect to the Follow-on
Offering, provided the Follow-on Offering is consummated within one year from
the date hereof, and 90 days with respect to every other registration) specified
by the Company and an underwriter of Common Stock or other securities of the
Company following the effective date of a registration statement of the Company
filed under the Securities Act, it shall not, to the extent requested by the
Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without
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limitation, any short sale), grant any option to purchase, pledge or otherwise
transfer or dispose of (other than to donees who agree to be similarly bound)
any securities of the Company held by it at any time during such period except
securities included in such registration; provided, however, that such agreement
shall not be required unless all officers and key employees of the Company enter
into similar agreements.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to any securities of the Company
held by any Holder (and the shares of securities of every other person subject
to the foregoing restriction) until the end of such period.
2. Right of First Refusal.
2.1. Restrictions on Transfer. No Holder may effect any sale,
exchange, transfer, assignment, gift, pledge, encumbrance, hypothecation or
alienation of any shares of any series or class of capital stock of the Company
(the "Stock") or any direct or indirect interest in or right to such shares, now
held by or hereafter acquired by such stockholder, whether voluntarily or
involuntarily or by operation of law (hereinafter collectively referred to as a
"Transfer"), for a period of one year after the date hereof, except to a
Permitted Transferee.
2.2. Right of First Refusal. Until the seventh anniversary of
the date hereof, if a Holder of Stock (an "Offering Stockholder") desires to
Transfer any or all of the shares of Stock then owned by such Offering
Stockholder (the "Transfer Stock") to any person other than a Permitted
Transferee of such Holder or in any manner other than in a bona fide public
distribution pursuant to an effective registration statement under the
Securities Act, such Offering Stockholder shall give written notice (the "Offer
Notice") to the Company of the terms and conditions of the proposed sale, and
the Company shall have the right and option (but not the obligation) to purchase
the Transfer Stock at the price and upon the other terms and conditions set
forth in the Offer Notice. The right of first refusal provided for herein shall
be exercisable by the Company upon delivery of written notice (the "Purchase
Notice") to the Offering Stockholder not more than 10 business days after
receipt by the Company of the Offer Notice (the "Exercise Period"). If the
Company exercises its right of first refusal hereunder, consummation of the
purchase of the Transfer Stock pursuant thereto shall occur on such date as the
Company and the Offering Stockholder mutually shall agree, but in no event later
than 10 business days next following the date on which the Company shall have
delivered the Purchase Notice to the Offering Stockholder; subject to extension
of such 10-day period as necessary to comply with applicable securities and
other laws and regulations. Upon exercise of the foregoing right of first
refusal, the Company and the Offering Stockholder shall be contractually
obligated to consummate the purchase contemplated thereby and shall use their
reasonable best efforts to obtain all requisite consents and approvals in
connection therewith. If the Company declines to purchase the Transfer Stock as
provided in this Section 2.2, the Offering Stockholder thereafter shall have the
right for a period of 120 days next following the expiration of the Exercise
Period (the "Open Sale Period") to transfer all or any portion of the Transfer
Stock subject to the Transfer Offer, free and clear of the restrictions and
limitations of this Section 2.2, in one or a series of bona fide transactions;
provided, however, that such transfer may only be effected pursuant to general
terms and conditions (including price) not more beneficial to the Offering
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Stockholder than those contained in the Offer Notice. If any Transfer Stock is
not sold or transferred pursuant to the provisions of this Section 2.2 prior to
the expiration of the Open Sale Period, such Transfer Stock again shall become
subject to the provisions and restrictions hereof. The Company may assign its
rights under this Section 2.2 to Approved Transferees who shall be entitled to
deliver the Purchase Notice and purchase the Transfer Stock in accordance with
the identical terms of this Section 2.2.
Notwithstanding any of the foregoing, the provisions of this
Section 2.2 no longer shall be of any force or effect (a) at such time as
Mitchell Rubenstein and Laurie S. Silvers shall have sold 60% or more of the
Common Stock beneficially owned by them on the date hereof; provided, however,
that Transfers of Common Stock by them to family members, to charitable
organizations or to trusts for estate planning purposes shall not constitute
Transfers for purposes of this paragraph; or (b) if at any time after the second
anniversary of this agreement, 15% or less of the Common Stock is beneficially
owned by CBS and its Permitted Transferees. The terms of clause (b) in the
preceding sentence shall not be applicable if CBS and its Permitted Transferees
beneficially own 15% or less of the Common Stock as a result of Transfers by CBS
or its Permitted Transferees of at least 50% of the Common Stock acquired by CBS
or its assignees pursuant to the Stock Purchase Agreement and the Warrant.
2.3. Permitted Transferees. "Permitted Transferee" shall mean
any subsidiary of CBS that owns interests in multiple Internet businesses and
which agrees to be bound by the terms and subject to the conditions of this
Agreement. All Stock transferred to a Permitted Transferee shall continue to
constitute and remain "Stock" hereunder and each such transferee shall be
treated as a Holder for all purposes of this Agreement. The prohibitions and
restrictions contained in Section 2.1 and 2.2 hereof shall not apply to transfer
to any Permitted Transferees.
Notwithstanding the foregoing, any attempt by CBS to transfer
Stock in violation of this Section 2, whether voluntary or involuntary, shall be
null and void, and the Company neither shall effect such a transfer nor treat
any purported transferee as a Holder in respect of any shares intended to be
transferred.
2.4. Preemptive Rights.
(a) Until the seventh anniversary of the date hereof
and subject to the terms and conditions specified in this Section 2.4, CBS shall
have the right to purchase the CBS Percentage of all (or any portion of) New
Securities that the Company may from time to time issue.
(b) If the Company proposes to issue New Securities,
it shall give CBS written notice of its intention to do so (the "Notice"),
describing the type of New Securities and the price and the terms upon which the
Company proposes to issue such New Securities. CBS shall have five business days
from the date of delivery of any such Notice to agree in writing to purchase for
cash up to the CBS Percentage of such New Securities for the price and upon the
terms specified in the Notice by giving written notice to the Company and
stating therein the quantity of New Securities to be purchased (not to exceed
the CBS Percentage).
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(c) If CBS fails to exercise such right to purchase
within such five business day period, then the Company shall have 120 days
thereafter to sell the New Securities specified in the Notice, at a price and
upon general terms not more favorable to the purchaser thereof than specified in
the Notice.
(d) Notwithstanding any other provision of this
Section 2.4, if an issuance of New Securities by the Company is by means of an
underwritten offering, and the managing underwriter advises the Company in
writing that marketing or other factors require a limitation on the number of
shares to be acquired by CBS in such offering, then the Company shall so advise
CBS, and CBS's right to acquire New Securities in such offering shall be so
limited.
2.5. Assignment of TMC's Rights of First Refusal. Until the
seventh anniversary of the date hereof and with respect to the right of first
refusal in favor of the Company heretofore granted by The Times Mirror Company
("TMC") to the Company as set forth in Section 4 of that certain Shareholder
Agreement (the "TMC Shareholder Agreement") dated as of January 10, 1999 (the
"TMC Right of First Refusal"), in the case of any proposed sale or transfer by
TMC of shares of Common Stock, the Company shall in a timely fashion (and
consistent with the TMC Right of First Refusal) determine whether to exercise
such right. If the Company either declines to exercise such right or elects to
exercise such right for less than all of TMC's shares of Common Stock, the
Company promptly shall so notify CBS and thereupon assign to CBS the TMC Right
of First Refusal and provide to CBS all such information reasonably requested by
CBS in connection therewith. Thereafter (but nevertheless in a timely fashion in
accordance with all notice and time periods required by the TMC Right of First
Refusal), CBS may elect (subject to the restrictions in Section 3.1(i) hereof)
to purchase all or any portion of TMC's shares of Common Stock upon the
identical terms and conditions as specified in the TMC Shareholder Agreement.
2.6. Legends. Each certificate representing shares of Common
Stock will be endorsed with the following legends:
(a) THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") AND ARE "RESTRICTED SECURITIES" WITHIN THE MEANING OF RULE 144 UNDER THE
ACT. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED,
EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii)
IN COMPLIANCE WITH THE RESALE LIMITATIONS OF RULE 144 UNDER THE ACT, OR (iii)
PURSUANT TO AN APPLICABLE EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUBJECT
TO AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS
NOT REQUIRED AS TO SAID SALE, OFFER OR TRANSFER.
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO AN AGREEMENT
BETWEEN THE COMPANY AND THE HOLDER DATED AS OF AUGUST 26, 1999, THAT RESTRICTS
THE SALE, ASSIGNMENT AND TRANSFER OF THE
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SECURITIES REPRESENTED HEREBY. A COPY OF SUCH AGREEMENT IS AVAILABLE, WITHOUT
CHARGE, FROM THE SECRETARY OF THE COMPANY.
(b) Other Legends. Any other legends required by
applicable state securities or "blue-sky" laws.
(c) The Company need not register a transfer of
legended shares of Common Stock and may also instruct its transfer agent not to
register the transfer of the shares of Common Stock, unless the conditions
specified in each of the foregoing legends are satisfied.
2.7. Removal of Legend and Transfer Restrictions. Any legend
endorsed on a certificate pursuant to subsection 2.7(a) and/or 2.7(b) and the
"stop transfer" instructions with respect to such legended securities shall be
removed, and the Company shall issue a certificate without such legend to the
holder of such securities if (a) such securities are registered and sold
pursuant to an effective registration statement under the Securities Act and a
prospectus meeting the requirements of Section 10 of the Securities Act is
available and delivered in connection with such sale or (b) if the Holder
satisfies the requirements of Rule 144(k) and, where reasonably deemed necessary
by the Company, if the Company is provided with an opinion of counsel
(reasonably satisfactory to the Company), to the effect that the Holder meets
the requirements of Rule 144(k) and a public sale, transfer or assignment of
such Securities may be made without registration under the Securities Act.
3. Other Covenants.
3.1. Standstill. Until the seventh anniversary of the date
hereof, CBS agrees (and shall cause its Permitted Transferees to agree) that
except as specifically permitted or contemplated by this Agreement or the Stock
Purchase Agreement, CBS and its Permitted Transferees and each of their
respective Affiliates shall not, directly or indirectly, in one or in a series
of related transactions (and whether acting alone or together in concert with
others):
(i) acquire, or offer or agree, attempt, seek or
propose to acquire, directly or indirectly, any equity securities, voting debt
securities or property of the Company or any of its successors or subsidiaries
(or any direct or indirect beneficial ownership rights, options or interests
therein), if, after giving effect thereto, CBS and its affiliates beneficially
own (as defined in Rule 13d-3 under the Exchange Act) in excess of 34.8% of the
outstanding Common Stock;
(ii) solicit proxies or consents or become a
"participant" in a "solicitation" (as such terms are defined or used in
Regulation 14A under the Exchange Act), of proxies or consents with respect to
any securities of the Company (or any of its successors or subsidiaries) or
initiate, encourage, entice or induce the submission of any stockholder proposal
or "election contest" (as such term is defined or used in Rule 14a-11 under the
Exchange Act) with respect to the Company (or any of its successors or
subsidiaries) or, directly or indirectly, act to facilitate, encourage, or
induce others to take any such action;
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(iii) take any action for the purpose of convening a
meeting of the stockholders the Company (or any of its successors or
subsidiaries) or initiate any process to solicit or obtain consents of
stockholders in lieu of a meeting or, directly or indirectly, act to facilitate,
encourage, or induce others to take such action;
(iv) except as may be required by applicable laws,
rules or regulations, make any public announcement or disclosure in respect of
any plan, commitment, contract, arrangement or understanding relating to any
acquisition of capital stock of the Company or a merger, business combination,
sale of assets, liquidation, restructuring, recapitalization or other
extraordinary corporate transaction relating to the Company or any of its
successors or subsidiaries;
(v) deposit capital stock of the Company into a
voting trust or subject capital stock of the Company to voting agreements, or
grant to or constitute any Persons(s) with any proxy or power-of-attorney with
respect to any capital stock of the Company to any person not designated by the
Company who is not an officer, director or employee of CBS or a Permitted
Transferee;
(vi) form, join or in any way participate in a
"group" (within the meaning of Section 13(d)(3) of the Exchange Act) for the
purpose of acquiring, holding, voting or disposing of securities of the Company
or any of its successors or subsidiaries or otherwise with respect to the
Company or taking any other actions restricted or prohibited under any clause of
this Section 3.1;
(vii) disclose publicly any intention, plan or
arrangement inconsistent with the foregoing or the other provisions of this
Agreement relating to any capital stock of the Company; or
(viii) enter into any discussions, negotiations,
arrangements or understandings with any third party with a view to, or advising,
aiding, abetting, soliciting, inducing or encouraging, any action prohibited by
any of the foregoing.
Notwithstanding the foregoing, if the Company's Board of
Directors approves and/or recommends to its stockholders for approval any
Change-in-Control Transaction, then the restrictions contained in this Section
3.1 shall not apply to CBS during the pendency of any such approved or
recommended Change-in-Control Transaction and said restrictions shall cease to
be of any further force or effect upon the consummation of any such approved or
recommended Change-in-Control Transaction.
3.2. Voting by CBS and its Affiliates.
(a) Until the seventh anniversary of the date hereof,
notwithstanding the number of shares of Common Stock owned by CBS and its
Affiliates, CBS shall only have the discretionary right to vote up to 34.8% of
the outstanding shares of the Common Stock at any meeting of the shareholders of
the Company or otherwise at any time that a vote of the shareholders of the
Company is taken (by written consent or otherwise). CBS and its Affiliates
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shall vote all shares of Common Stock beneficially owned by them in excess of
34.8% of the outstanding shares of the Common Stock in the same proportion as
all other shareholders (other than CBS and its Affiliates) of the Company vote
on any matter.
(b) Until the seventh anniversary of the date hereof,
CBS and its Affiliates, as holders of Common Stock, shall be present, in person
or by proxy, at all meetings of shareholders of the Company so that all shares
of Common Stock directly or indirectly owned by them may be counted for the
purpose of determining the presence of a quorum at any such meeting.
3.3. Financial Information. Until such time as the CBS
Percentage is equal to or less than 10%, beginning with the first full monthly
period after the date hereof, the Company shall provide CBS with unaudited
monthly, quarterly, and annual financial information, as appropriate, consisting
of summarized financial information as described in SEC Regulation S-X, each
prepared in accordance with generally accepted accounting principles in the U.S.
("GAAP") within 30 days following each period end. The Company will promptly
notify CBS of any adjustment made to this financial information. In addition,
the Company shall provide CBS with annual audited financial statements prepared
in accordance with GAAP, together with an audit opinion from a "Big 5" public
accounting firm no later than 90 days following period end.
Until such time as the CBS Percentage is equal to or less than
10%, if CBS or any of its Affiliates notifies the Company that it is required to
include summarized Company financial information in its consolidated financial
statements, then the Company shall provide CBS or the affiliate with (a) audited
annual financial statements of the Company prepared in accordance with GAAP and
applicable SEC regulations within 75 days following period end; and (b) reviewed
(by a "Big 5" public accounting firm) quarterly financial statements within 40
days following period end.
Until such time as the CBS Percentage is equal to or less than
10%, if CBS or any of its Affiliates notifies the Company that it has determined
that the Company constitutes an unconsolidated subsidiary qualifying as a
"significant subsidiary" (as defined by SEC Regulation S-X) at the 20% level,
then the Company shall provide to CBS or the Affiliate (w) draft audited annual
financial statements within 50 days following period end, (x) audited annual
financial statements within 75 days following period end; (y) reviewed (by a
"Big 5" public accounting firm) quarterly financial statements within 35 days
following period end; and (z) final quarterly financial statements within 40
days following period end in accordance with the requirements of Form 10-QSB
promulgated by the SEC.
4. General.
4.1. Amendments. Any amendment or modification to this
Agreement or the rights of either party must be by the written agreement of the
parties hereto.
17
<PAGE>
4.2. Governing Law. This Agreement shall be governed in all
respects by the laws of the State of New York as such laws are applied to
agreements between New York residents entered into and to be performed entirely
within New York.
4.3. Successors and Assigns. Nothing in this Agreement,
express or implied, is intended to confer on any party other than the
signatories hereto any rights, remedies, obligations or liabilities under of by
reason of this Agreement. Except as otherwise expressly 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.
4.4. Entire Agreement. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof,
and this Agreement shall supersede and cancel all prior agreements between the
parties hereto with regard to the subject matter hereof.
4.5. Severability. If any provision of this Agreement, or the
application thereof, is for any reason and to any extent determined by a court
of competent jurisdiction to be invalid or unenforceable, the remainder of this
Agreement and the application of such provision to other persons or
circumstances will be interpreted so as best to reasonably effect the intent of
the parties hereto. The parties agree to use their best efforts to replace such
void or unenforceable provision of this Agreement with a valid and enforceable
provision which will achieve, to the extent greatest possible, the economic,
business and other purposes of the void or unenforceable provision.
4.6. Notices, etc. All notices or other communications
required or permitted to be given hereunder shall be in writing and shall be
delivered by hand or sent, postage prepaid, by registered, certified or express
mail or reputable overnight courier service and shall be deemed given when so
delivered by hand, or if mailed, three days after mailing (one business day in
the case of express mail or overnight courier service), as follows:
<TABLE>
<CAPTION>
<S> <C>
if to CBS, to:
CBS Corporation
51 West 52nd Street
New York, NY 10019
Attention: Fredric G. Reynolds, Executive Vice President and Chief
Financial Officer
with a copy to:
CBS Corporation
51 West 52nd Street
New York, NY 10019
Attention: Louis J. Briskman, Executive Vice President and
General Counsel
18
<PAGE>
if to the Company, to:
Hollywood.com, Inc.
2255 Glades Road, Suite 237 W
Boca Raton, FL 33431-7383
Attention: Mitchell Rubenstein, Chief Executive Officer
with a copy to:
Hollywood.com, Inc.
2255 Glades Road, Suite 237 W
Boca Raton, FL 33431-7383
Attention: W. Robert Shearer, General Counsel
with a copy (which shall not constitute notice
pursuant to this Section 4.6) to:
Greenberg Traurig
MetLife Building, 15th Floor
200 Park Avenue
New York, NY 10166
Attention: Clifford E. Neimeth, Esq.
</TABLE>
4.7. Titles and Subtitles The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
4.8. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereby have executed this Agreement on the date
first above written.
CBS CORPORATION
By: /s/ Fredric G. Reynolds
---------------------------
Fredric G. Reynolds
Executive Vice President and
Chief Financial Officer
HOLLYWOOD.COM, INC.
By: /s/ W. Robert Shearer
-------------------------
W. Robert Shearer
Senior Vice President
and General Counsel
20
================================================================================
VOTING AGREEMENT
among
CBS CORPORATION,
HOLLYWOOD.COM, INC.,
AND EACH OF THE OTHER PARTIES SIGNATORY HERETO
Dated January 3, 2000
================================================================================
<PAGE>
VOTING AGREEMENT
This VOTING AGREEMENT ("Agreement") is entered into on this 3rd day of
January 2000, by and among CBS Corporation, a Pennsylvania corporation ("CBS"),
Hollywood.com, Inc., a Florida corporation with principal offices located at
2255 Glades Road, Suite 237 W, Boca Raton, Florida 33431-7383 (the "Company"),
and each of the other parties signatory hereto (each a "Stockholder" and
collectively, the "Stockholders").
WITNESSETH:
WHEREAS, CBS has entered into a Stock Purchase Agreement with the
Company dated August 26, 1999 (the "Stock Purchase Agreement") pursuant to which
CBS has agreed to purchase shares of common stock, $.01 par value, (the "Common
Stock") of the Company; and
WHEREAS, each of the Stockholders own shares of Common Stock ("Shares")
of the Company; and
WHEREAS, as an inducement and condition for CBS and the Company to
enter into the Stock Purchase Agreement, each of CBS, the Company and the
Stockholders have agreed to enter into a voting agreement as hereinafter set
forth.
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual agreements and covenants contained herein, the parties, intending to be
legally bound, hereby agree as follows:
1.1 Voting Covenants by the Company. As of the date of this Agreement,
the Company's Board of Directors ("Board") comprises nine directors. CBS shall
have the right from time to time to nominate for election to the Board a number
of individuals (the "CBS Designees") equal to the product of the CBS Percentage
(as defined below) and the total number of members of the Board (rounded down to
the nearest whole number); provided that so long as the Advertising and
Promotion Agreement between CBS and Hollywood.com, Inc. or the Content License
Agreement between CBS and Hollywood.com, Inc., each of even date herewith, have
not terminated or expired, CBS shall have the right to nominate at least one CBS
Designee. CBS shall designate the CBS Designees each year sufficiently in
advance of the Company's distribution of its annual proxy statement. The Company
shall use its reasonable best efforts to cause the nomination and election from
time to time of the CBS Designees. In connection therewith, the Company agrees
to solicit proxies for, and recommend that its stockholders vote in favor of,
each of the CBS Designees. If a CBS Designee shall cease to be a member of the
Board for any reason other than expiration of his or her term, the Company shall
promptly, upon the request of CBS, use its reasonable best efforts to cause the
election or appointment of a person selected by CBS to replace such designee.
For purposes of this Section 1.1, the "CBS
1
<PAGE>
Percentage" shall mean, on any date of determination, that percentage determined
by dividing (a) the number of outstanding shares of Common Stock CBS (or a CBS
affiliate) then holds, by (b) the total number of shares of Common Stock of the
Company then outstanding.
1.2 Voting Covenants by Stockholders. In any and all elections for
members of the Board (whether at a meeting or by written consent in lieu of a
meeting), each of the Stockholders shall vote or cause to be voted all shares of
the Common Stock now or hereinafter directly or indirectly owned (of record or
beneficially) by it, or over which it has voting control, and otherwise shall
use its best efforts so as to elect to the Company's Board the CBS Designees.
1.3 Voting Covenants by CBS. In any and all elections for members of
the Board (whether at a meeting or by written consent in lieu of a meeting), CBS
shall vote or cause to be voted all shares of the Common Stock owned by it (or
its affiliates), or over which it has voting control, and otherwise shall use
its best efforts so as to elect to the Company's Board (a) each individual
nominated for election to the Board by the Company and (b) each individual
nominated for election to the Board by The Times Mirror Company, pursuant to the
terms and conditions of Section 7.1 of that certain Shareholder Agreement, dated
January 10, 1999, between the Company and The Times Mirror Company, and a
renewal or extension of the term of Section 7.1 of such Shareholder Agreement
(without otherwise modifying or amending any other term or condition of Section
7.1), which renewal or extension period shall not extend beyond the term of this
Agreement.
2. Stockholder Capacity. No person executing this Agreement who is or
becomes during the term hereof a member of the Board makes any agreement or
understanding herein in his or her capacity as such member of the Board. Each
Stockholder who signs this Agreement signs solely in his or her capacity as the
record and/or beneficial owner of shares of Common Stock of the Company.
3. General.
3.1. Waivers and Amendments. Any amendment or modification to
this Agreement or the rights of any party hereto must be by the written
agreement of the parties hereto.
3.2. Governing Law. This Agreement shall be governed in all
respects by the laws of the State of New York as such laws are applied to
agreements between New York residents entered into and to be performed entirely
within New York.
3.3. Successors and Assigns. Except as specifically set forth
in this Agreement, nothing in this Agreement, express or implied, is intended to
confer on any party other than the signatories hereto any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
3.4. Entire Agreement. Except as set forth below, this
Agreement and the other documents delivered pursuant hereto constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and this Agreement
2
<PAGE>
shall supersede and cancel all prior agreements between the parties hereto with
regard to the subject matter hereof.
3.5. Severability. If any provision of this Agreement, or the
application thereof, is for any reason and to any extent determined by a court
of competent jurisdiction to be invalid or unenforceable, the remainder of this
Agreement and the application of such provision to other persons or
circumstances will be interpreted so as best to reasonably effect the intent of
the parties hereto. The parties agree to use their best efforts to replace such
void or unenforceable provision of this Agreement with a valid and enforceable
provision which will achieve, to the extent greatest possible, the economic,
business and other purposes of the void or unenforceable provision.
3.6. Notices, etc. All notices or other communications
required or permitted to be given hereunder shall be in writing and shall be
delivered by hand or sent, postage prepaid, by registered, certified or express
mail or reputable overnight courier service and shall be deemed given when so
delivered by hand, or if mailed, three days after mailing (one business day in
the case of express mail or overnight courier service), as follows:
<TABLE>
<CAPTION>
<S> <C>
if to CBS, to:
CBS Corporation
51 West 52nd Street
New York, NY 10019
Attention: Fredric G. Reynolds, Executive Vice President and
Chief Financial Officer
with a copy to:
CBS Corporation
51 West 52nd Street
New York, NY 10019
Attention: Louis J. Briskman, Executive Vice President and
General Counsel
if to the Company, to:
Hollywood.com, Inc.
2255 Glades Road, Suite 237 W
Boca Raton, FL 33431-7383
Attention: Mitchell Rubenstein, Chief Executive Officer
3
<PAGE>
with a copy to:
Hollywood.com, Inc.
2255 Glades Road, Suite 237 W
Boca Raton, FL 33431-7383
Attention: W. Robert Shearer, General Counsel
with a copy (which shall not constitute
notice pursuant to this Section 3.6) to:
Greenberg Traurig
MetLife Building, 15th Floor
200 Park Avenue
New York, NY 10166
Attention: Clifford E. Neimeth, Esq.
if to any of the Stockholders, at the address
set forth on Schedule I hereto.
</TABLE>
3.7. Titles and Subtitles The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
3.8. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
3.9. Termination of Board Rights. Notwithstanding anything to
the contrary set forth herein, the Company's obligations under Section 1.1 and
the Stockholders' obligations under Section 1.2 shall terminate and be of no
further force and effect upon the acquisition ("Competitor Acquisition") by CBS
(or any of its affiliates or its assignees hereunder), directly or indirectly,
of an equity interest in excess of 15% in any entity who, directly or
indirectly, owns, operates or controls a Competitive Site. CBS shall remain
subject to its obligations under Section 1.3 of this Agreement following any
Competitor Acquisition, provided that CBS's voting obligations shall be limited
to the number of individuals that would have been nominated for election to the
Board by the Company and The Times Mirror Company if CBS's rights under Section
1.1 remained in effect at the time of any such nominations. As used herein, a
"Competitive Site" means a website that has as its primary function and its
principal theme the delivery of news or information related to movies, movie
celebrities or the motion picture industry or the sale of movie- or
television-related merchandise. The definition of "Competitive Site" shall not
include a website that has as its primary function and its principal theme the
sale of music to consumers in CD, cassette or music video format or in or
through any and all other
4
<PAGE>
formats, media, methods, processes or technologies (including, but not limited
to, Internet streaming), whether now known or hereafter invented.
3.10. Term. This Agreement, and all rights and obligations
hereunder shall become effective on the date first set forth above, and shall
terminate on the earlier of: (a) seven years thereafter; (b) the termination or
expiration of the Advertising and Promotion Agreement between CBS and
hollywood.com, Inc. and the Content License Agreement between CBS and
hollywood.com, Inc., each of even date herewith, whichever later occurs; and (c)
the date on which the CBS Percentage is less than 10% as a result of CBS's sale
of its Common Stock (and excluding, for avoidance of doubt, any other diminution
or dilution of the CBS Percentage or any transfer of Common Stock to an
affiliate of CBS), at which time this Agreement, and all rights and obligations
hereunder, shall cease to be of further force or effect.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereby have executed this Agreement on
the date first above written.
CBS CORPORATION
By: /s/ Fredric G. Reynolds
---------------------------
Name: Fredric G. Reynolds
Executive Vice President
and Chief Financial Officer
HOLLYWOOD.COM, INC.
By:/s/ Mitchell Rubenstein
--------------------------
Name: Mitchell Rubenstein
Chief Executive Officer
THE TIMES MIRROR COMPANY
By:/s/ Edward L. Blood
-------------------
Edward L. Blood
Vice President
6
<PAGE>
Schedule I to Voting Agreement
------------------------------
Number of Shares of
Stockholder Name and Address Common Stock Beneficially Owned
- ---------------------------- -------------------------------
Mitchell Rubenstein
c/o Hollywood.com, Inc.
2255 Glades Road
Suite 237 West
Boca Raton, FL 33431-7383 1,469,199*
Laurie S. Silvers
c/o Hollywood.com, Inc.
2255 Glades Road
Suite 237 West
Boca Raton, FL 33431-7383 1,469,199*
Mr. and Mrs. Martin H. Greenberg
1524 University Avenue, Suite 305
Green Bay, WI 54302 296,624
The Times Mirror Company
220 West First Street
Los Angeles, California 90012
Attention: Thomas Unterman 2,300,075
* Except for 100,000 shares owned individually by each of Mr. Rubenstein and Ms.
Silvers, all of the shares are held jointly as tenants by their entities.
I-1
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 6,429,994
<SECURITIES> 0
<RECEIVABLES> 2,108,148
<ALLOWANCES> 123,082
<INVENTORY> 1,145,194
<CURRENT-ASSETS> 35,755,211
<PP&E> 3,102,389
<DEPRECIATION> (1,049,813)
<TOTAL-ASSETS> 199,275,272
<CURRENT-LIABILITIES> 6,327,001
<BONDS> 0
0
0
<COMMON> 232,096
<OTHER-SE> 182,845,949
<TOTAL-LIABILITY-AND-EQUITY> 199,275,272
<SALES> 4,077,696
<TOTAL-REVENUES> 4,077,696
<CGS> 949,971
<TOTAL-COSTS> 13,288,737
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,200
<INCOME-PRETAX> (9,174,026)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,174,026)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,174,026)
<EPS-BASIC> (0.42)
<EPS-DILUTED> (0.42)
</TABLE>
