-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RyizMF6Ai9w7O9qeVPulIjRkn8IRRsxUhjLva/c5XZ6+1nm428JgrBqejgIJsORk 1F1QmNPCyywY2DOtByI7+g== /in/edgar/work/20000815/0001042910-00-001493/0001042910-00-001493.txt : 20000922 0001042910-00-001493.hdr.sgml : 20000921 ACCESSION NUMBER: 0001042910-00-001493 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOLLYWOOD COM INC CENTRAL INDEX KEY: 0000912544 STANDARD INDUSTRIAL CLASSIFICATION: [5990 ] IRS NUMBER: 650385686 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14332 FILM NUMBER: 701297 BUSINESS ADDRESS: STREET 1: 2255 GLADES RD STREET 2: STE 237 W CITY: BOCA RATON STATE: FL ZIP: 33431 BUSINESS PHONE: 5619988000 MAIL ADDRESS: STREET 1: 2255 GLADES RD STREET 2: STE 237 W CITY: BOCA RATON STATE: FL ZIP: 33431 FORMER COMPANY: FORMER CONFORMED NAME: BIG ENTERTAINMENT INC DATE OF NAME CHANGE: 19930924 10-Q 1 0001.txt QUARTERLY REPORT 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 June 30, 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 33431 Boca Raton, Florida (zip code) (Address of principal executive offices) (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 August 10, 2000, the number of shares outstanding of the issuer's common stock, $.01 par value, was 23,464,533. HOLLYWOOD.COM, INC. Table of Contents
Page(s) ------- PART I FINANCIAL INFORMATION - ------ --------------------- ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets as of June 30, 2000 (unaudited) and December 31, 1999............................................ 3 Consolidated Statements of Operations for the Six and Three Months ended June 30, 2000 and 1999 (unaudited) ............................. 4 Consolidated Statement of Shareholders' Equity for the Six Months ended June 30, 2000 (unaudited)................................... 5 Consolidated Statements of Cash Flows for the Six Months ended June 30, 2000 and 1999 (unaudited).............................. 6 Notes to Consolidated Financial Statements (unaudited)....................... 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................................................................... 16 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 ................................................................................... 28
2 HOLLYWOOD.COM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30, December 31, 2000 1999 ------------- ------------- (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 2,385,049 $ 2,475,345 Receivables, net 2,469,369 1,155,999 Merchandise inventories 1,252,084 1,246,733 Prepaid expenses 1,626,218 1,687,347 Other receivables 21,448 18,037 Other current assets 89,237 67,541 Note receivable 1,496,041 -- Deferred advertising - CBS 21,579,445 -- ------------- ------------- Total current assets 30,918,891 6,651,002 PROPERTY AND EQUIPMENT, net 2,565,201 1,877,959 INVESTMENTS 2,117,722 549,975 NONCURRENT DEFERRED ADVERTISING - CBS 104,084,559 -- INTANGIBLE ASSETS, net 4,588,677 3,770,590 GOODWILL, net 45,512,247 46,483,647 OTHER ASSETS 2,401,707 3,149,652 ------------- ------------- TOTAL ASSETS $ 192,189,004 $ 62,482,825 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 2,371,820 $ 2,181,089 Accrued professional fees 189,888 199,514 Other accrued expenses 1,692,410 1,579,682 Loan from shareholder/officer 2,050,000 -- Deferred advertising - CBS -- 2,344,950 Accrued reserve for closed stores 744,778 2,366,432 Deferred revenue 358,499 308,061 Note payable -- 1,928,138 Current portion of capital lease obligations 548,155 561,015 ------------- ------------- Total current liabilities 7,955,550 11,468,881 ------------- ------------- CAPITAL LEASE OBLIGATIONS, less current portion 774,813 995,213 ------------- ------------- DEFERRED REVENUE 287,507 249,117 ------------- ------------- MINORITY INTEREST 100,015 270,828 ------------- ------------- COMMITMENTS AND CONTINGENCIES (Note 11) SHAREHOLDERS' EQUITY: Preferred Stock, $.01 par value, 539,127 shares authorized; none outstanding -- -- Common stock, $.01 par value, 100,000,000 shares authorized; 23,501,433 (unaudited) and 15,143,216 shares issued and outstanding at June 30, 2000 235,014 151,432 and December 31,1999, respectively Warrants outstanding 6,096,704 5,096,704 Deferred compensation (204,134) (306,200) Additional paid-in capital 258,814,502 105,500,656 Accumulated deficit (81,870,967) (60,943,806) ------------- ------------- Total shareholders' equity 183,071,119 49,498,786 ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 192,189,004 $ 62,482,825 ============= =============
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 3 HOLLYWOOD.COM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2000 AND 1999 (Unaudited)
Six Months Ended June 30, Three Months Ended June 30, ---------------------------- ----------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ NET REVENUES $ 9,983,245 $ 3,055,190 $ 5,905,549 $ 1,739,416 COST OF REVENUE 2,879,710 1,310,957 1,843,092 629,792 ------------ ------------ ------------ ------------ Gross profit 7,103,535 1,744,233 4,062,457 1,109,624 ------------ ------------ ------------ ------------ OPERATING EXPENSES: General and administrative 5,211,512 2,342,774 2,954,654 1,324,510 Selling and marketing 5,297,684 1,240,528 2,878,953 876,332 Salaries and benefits 5,160,505 1,814,705 2,727,590 1,115,897 Amortization of CBS advertising 9,375,904 -- 5,251,707 -- Depreciation and amortization 658,475 614,039 341,020 333,214 Amortization of goodwill and intangibles 3,330,569 646,832 1,678,635 638,975 Reserve for closed stores and leased termination costs 9,755 47,797 9,755 47,797 ------------ ------------ ------------ ------------ Total operating expenses 29,044,404 6,706,675 15,842,314 4,336,725 ------------ ------------ ------------ ------------ Operating loss (21,940,869) (4,962,442) (11,779,857) (3,227,101) EQUITY IN NET EARNINGS - INVESTMENTS 1,253,959 1,122,591 148,622 28,401 OTHER: Interest, net (115,803) (368,962) (56,603) (178,186) Other, net 28,407 9,062 28,407 (1,035) ------------ ------------ ------------ ------------ Loss before minority interest (20,774,306) (4,199,751) (11,659,431) (3,377,921) MINORITY INTEREST (152,855) (238,952) (93,704) (86,144) ------------ ------------ ------------ ------------ Net loss $(20,927,161) $ (4,438,703) $(11,753,135) $ (3,464,065) ============ ============ ============ ============ Basic and diluted loss per common share $ (0.93) $ (0.45) $ (0.51) $ (0.32) ============ ============ ============ ============ Weighted average common and common equivalent shares outstanding - basic and diluted 22,544,098 10,033,911 23,257,368 10,813,406 ============ ============ ============ ============
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 4 HOLLYWOOD.COM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2000 (Unaudited)
Additional Common Paid-in Warrants Stock Capital Outstanding ------------- ------------- ------------- Balance - December 31,1999 $ 151,432 $ 105,500,656 $ 5,096,704 Issuance of common stock and common stock warrants pursuant to CBS agreement 66,720 130,037,885 7,114,781 Stock options and warrants exercised 14,117 19,325,448 (7,114,781) Issuance of common stock - acquisition 832 1,164,164 -- Common stock warrants issued in connection with investment in Movietickets.com -- -- 1,000,000 Issuance of stock options and warrants for services rendered -- 75,029 -- Issuance of common stock - payment of note payable 1,525 1,926,613 -- Issuance of common stock - franchise agreement 1,000 1,649,000 -- Amortization of employee stock bonuses -- Shares repurchased (612) (864,293) -- Net loss -- -- -- ------------- ------------- ------------- Balance - June 30, 2000 $ 235,014 $ 258,814,502 $ 6,096,704 ============= ============= =============
[RESTUBBED] Deferred Accumulated Compensation Deficit Total ------------- ------------- ------------- Balance - December 31,1999 $ (306,200) $ (60,943,806) $ 49,498,786 Issuance of common stock and common stock warrants pursuant to CBS agreement -- -- 137,219,386 Stock options and warrants exercised -- -- 12,224,784 Issuance of common stock - acquisition -- -- 1,164,996 Common stock warrants issued in connection with investment in Movietickets.com -- -- 1,000,000 Issuance of stock options and warrants for services rendered -- -- 75,029 Issuance of common stock - payment of note payable -- -- 1,928,138 Issuance of common stock - franchise agreement -- -- 1,650,000 Amortization of employee stock bonuses 102,066 102,066 Shares repurchased -- -- (864,905) Net loss -- (20,927,161) (20,927,161) ------------- ------------- ------------- Balance - June 30, 2000 $ (204,134) $ (81,870,967) $ 183,071,119 ============= ============= =============
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 5 HOLLYWOOD.COM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, ---------------------------------- 2000 1999 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(20,927,161) $ (4,438,703) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of deferred advertising - CBS 9,375,904 -- Depreciation and amortization 3,989,044 1,260,871 Equity in earnings, net of return of invested capital (567,747) (578,548) Issuance of stock options and warrants for services rendered 75,029 156,373 Amortization of employee stock bonuses 102,066 102,066 Recognition of deferred gain -- (9,062) Provision for bad debts 54,502 -- Provision for inventory obsolescence 18,559 -- Amortization of deferred financing costs 4,290 204,756 Reserve for closed store and lease termination costs 9,755 47,797 Minority interest 152,855 238,952 Changes in assets and liabilities: Receivables (1,371,283) 392,779 Prepaid expenses 79,935 33,052 Merchandise inventories (23,910) 73,426 Other current assets (25,986) (47,765) Other assets 27,746 50,172 Accounts payable 45,682 (989,207) Accrued professional fees (9,626) (44,233) Deferred revenue 88,828 (17,400) Other accrued expenses 131,318 2,207 ------------ ------------ Net cash used in operating activities (8,770,200) (3,562,467) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Cash paid for acquisitions, net of cash received (232,376) (7,245,544) Investment in trademarks (1,070,000) -- Capital expenditures, net (1,178,810) (106,165) Return of capital from Tekno Books to minority partner (323,668) (163,620) ------------ ------------ Net cash used in investing activities (2,804,854) (7,515,329) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net repayments from revolving line of credit -- (758,917) Proceeds from shareholder/officer loan 2,050,000 711,000 Repayments of shareholder/officer loan -- (811,000) Loan to employee, net (1,496,041) -- Net proceeds from issuance of common stock 5,303,030 14,577,334 Proceeds from exercise of stock options and warrants 6,756,283 1,701,814 Payments to repurchase common stock (864,905) -- Repayments under capital lease obligations (263,609) (244,437) ------------ ------------ Net cash provided by financing activities 11,484,758 15,175,794 ------------ ------------ Net (decrease) increase in cash and cash equivalents (90,296) 4,097,998 CASH AND CASH EQUIVALENTS, beginning of period 2,475,345 729,334 ------------ ------------ CASH AND CASH EQUIVALENTS, end of period $ 2,385,049 $ 4,827,332 ------------ ------------ SUPPLEMENTAL SCHEDULE OF CASH RELATED ACTIVITIES: Interest paid $ 152,843 $ 174,472 ============ ============
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 6 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 six months ended June 30, 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 were 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 website, usatoday.com, latimes.com, iWon.com, The Washington Post website, the Boston Globe website, the Newsday website, and the websites of Knight Ridder and Advance/Newhouse. 7 (b) hollywood.com, Inc.: On May 20, 1999, the Company acquired all of the capital stock of Hollywood Online Inc., ("hollywood.com"), 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 website offering viewers movie information, movie trailers, box office charts, movie soundtracks, photos and exclusive interactive games, celebrity interviews, local movie showtimes, and coverage of movie premieres, film festivals and movie-related events. Hollywood.com has an exclusive contract with the National Association of Theatre Owners ("NATO"). Through this contract, Hollywood.com promotes its website 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 websites 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 Baseline II, Inc. and Paul Kagan Associates, Inc., which includes the PKBaseline.com website now (called Hollywoodpro.com), several publications, including the Motion Picture Investor newsletter, and a consumer oriented movie website (the "Baseline assets"). PK Baseline is a subscription pay per use website 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 is integrating part of the content on the PKBaseline.com website into the Hollywood.com website and continues to operate PKBaseline.com as a business to business subscription 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 in 1999 of $48.9 million is being amortized over 10 years. (d) Broadwaytheater.com, Inc.: On May 1, 2000, the Company acquired substantially all of the assets of Broadwaytheater.com, Inc., ("BroadwayTheater.com") a privately held company, for $135,000 in cash and 83,214 shares of the Company's common stock valued at $14.00 per share. The seller of Broadwaytheater.com, Inc. has the right to earn up to a maximum of 85,714 additional shares of the Company's common stock if the business meets specified gross profit targets during the three years following the closing of the acquisition. Broadwaytheater.com sells theater tickets online predominately for Broadway and Off-Broadway theater performances, through the Broadway.com website. This acquisition was accounted for as a purchase and, accordingly, the operating results of Broadwaytheater.com have been included in the Company's consolidated financial statements since the date of acquisition. The excess of the aggregate purchase price over the fair market value of net assets acquired of $1.3 million is being amortized over 10 years. 8 (e) Broadway.com, Inc.: On January 6, 2000 the Company acquired the web address Broadway.com for a purchase price of $1.6 million; $1 million in cash and 35,294 shares of common stock valued at $17.00 per share. The common stock was issued in 1999 and delivered in anticipation of the January 2000 closing. The Company launched the Broadway.com website on May 1, 2000. In addition to selling tickets to live theater events, the Broadway.com website offers the Web's most comprehensive database of professional theater showtime listings, with listings for more than 2,400 venues around the country and in London, as well as show synopses, cast and crew credits and biographies, digitized show previews and showtunes, a community chat area and interviews. The purchase price of CinemaSource (a), hollywood.com (b) and Baseline II (c) and Broadwaytheater.com (d) was allocated to assets and liabilities acquired as follows:
2000(d) 1999(a)(b)(c) ------------ ------------ Tangible assets $ 35,430 $ 2,471,539 Intangible assets -- 4,564,513 Goodwill 1,506,991 39,783,840 Liabilities assumed (145,049) (519,539) ------------ ------------ Total purchase price 1,397,372 46,300,353 Less value of common stock and warrants issued (1,164,996) (37,126,671) Less value of note issued -- (1,928,138) ------------ ------------ Subtotal $ 232,376 $ 7,245,544 ============ ============ Paid in cash - purchase price, net of cash $ 205,376 $ 6,354,805 Paid in cash - acquisition costs 27,000 890,739 ------------ ------------ Total cash paid, net of cash acquired $ 232,376 $ 7,245,544 ============ ============
The Company incurred $185,008 in purchase price adjustments during the six months ended June 30, 2000 relating to acquisitions in 1999 which has been included in Goodwill. 9 The following are unaudited pro forma combined results of operations of the Company, hollywood.com, CinemaSource and Baseline II for the six and three months ended June 30, 1999, as if the acquisitions of hollywood.com, CinemaSource and Baseline II had occurred on January 1, 1999: Six Months Three Months Ended Ended June 30, 1999 June 30, 1999 ------------- ------------- Net Revenues $ 4,395,487 $ 2,185,327 =========== ============ Net Loss $(9,178,411) $ (5,618,674) =========== ============ Pro Forma Diluted Loss Per Share $ (.69) $ (.40) =========== ============ Weighted Average Shares Outstanding 13,262,788 14,042,283 =========== ============ 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. The pre-acquisition results of operations of Broadwaytheater.com are not material to the Company's consolidated results of operations. (3) NOTE RECEIVABLE: On April 14, 2000, the Compay advanced $1,737,513 to an employee of the Company, former shareholder of CinemaSource, in order for the employee to pay his tax liability relating to the sale of CinemaSource by him to the Company. As of June 30, 2000. $241,472 of the loan has been repaid to the Company leaving a balance of $1,496,041. The loan has a 1 year term, bears interest at prime plus 1% and is secured by shares of Common Stock of the Company owned by the borrower. (4) 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. This note was paid on June 16, 2000 by issuing 152,548 shares of common stock valued at approximately $12.64 per share. During the second quarter of 2000, the Company's Chairman of the Board and Chief Executive Officer and the Company's Vice Chairman and President advanced $2,050,000 to the Company to enable the Company to meet its obligation to lend to a former shareholder of CinemaSource funds to pay the shareholder's taxes under the purchase agreement between the Company and the former shareholder of CinemaSource. The loan bears interest at the JP Morgan Bank prime rate of interest. (5) OTHER ACCRUED EXPENSES: Included in other accrued expenses of $1,692,410 at June 30, 2000 is accrued payroll and payroll taxes, accrued vacation, taxes payable, packaging fees payable and accrued expenses. 10 (6) 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 $7,114,781 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 exercise price of these warrants was $10,937,002 consisting of $5,468,501 in cash and $5,468,501 in additional promotional advertising from CBS. 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 in the accompanying December 31, 1999 consolidated balance sheet as accrued reserve for closed stores. On May 1, 2000, the Company acquired substantially all the assets of Broadwaytheater.com for cash and 83,214 shares of common stock valued at $14.00 per share. On June 16, 2000, the Company issued 152,548 shares of common stock valued at approximately $12.64 per share in order to pay-off an unsecured promissory note payable to Times Mirror Company. In 1998, the Company's Board of Directors approved a plan for the repurchase of the Company's common stock. Pursuant to the plan, during the six months ended June 30, 2000 the Company repurchased 61,200 shares of its common stock for an aggregate consideration of $864,905, or an average purchase price of $14.13 per share. During the six months ended June 30, 2000, the Company issued 1,411,624 shares of common stock upon the exercise of outstanding stock options and warrants, for which the Company received $6,756,283 in cash exercise proceeds and $5,468,501 in additional promotional advertising from CBS. (7) 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 Net Earnings - Investments. NetCo Partners is engaged in the 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. 11 The revenues, gross profit and net income of NetCo Partners for the six and three months ended June 30, 2000 and 1999 are presented below:
Six Months Ended June 30, Three Months Ended June 30, -------------------------------------- ----------------------------------- 2000 1999 2000 1999 ----------------- -------------------- ---------------- ------------------ Revenues $3,072,773 $2,755,870 $455,647 $66,898 Gross Profit 2,575,918 2,238,158 373,569 56,094 Net Income 2,593,476 2,245,181 382,802 56,802
The revenues, gross profit and net income of NetCo Partners for the three months ended June 30, 2000 is principally attributable to delivery of the manuscripts for various young adult novels in the Tom Clancy's NetForce series of books to the publisher. As of June 30, 2000, NetCo Partners has $1,800,191 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 $767,584 as of June 30, 2000. As of June 30, 2000, the Company has received cumulative profit distributions from NetCo Partners since its formation totaling $4,433,153, in addition to reimbursement of substantially all amounts advanced by the Company to fund the operations of NetCo Partners. (b) MOVIETICKETS.COM, INC.: The Company entered into a joint venture agreement on February 2, 2000 with the movie theater chains AMC Entertainment Inc. and National Amusements, Inc. to form MovieTickets.com,Inc. Each partner owned one-third of the MovieTickets.com, Inc. ("MovieTickets.com") joint venture at June 30, 2000. The Company records its investment under the equity method of accounting, recognizing one-third of MovieTickets.com income or loss as equity in net earnings - investments. For the six months ended June 30, 2000, the Company recorded a loss of $42,779 in its investment in MovieTickets.com. The MovieTickets.com website which launched in late May, 2000 allows users to purchase movie tickets online. At June 30, 2000, the Company contributed $200,000 in cash to MovieTickets.com and issued warrants to acquire 90,573 shares of common stock valued at $1,000,000. (8) 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. 12 The following table sets forth the computation of basic and diluted loss per share for the six and three months ended June 30, 2000 and 1999:
Six Months Ended June 30, Three Months Ended June 30, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Net Loss $(20,927,161) $ (4,438,703) $(11,753,135) $ (3,464,065) Preferred Stock Dividends -- (91,460) -- 7,802 ------------ ------------ ------------ ------------ Net Loss Available to Common $(20,927,161) $ (4,530,163) $(11,753,135) $ (3,456,263) Shareholders Weighted Average Shares Outstanding 22,544,098 10,033,911 23,257,368 10,813,406 ------------ ------------ ------------ ------------ Basic and Diluted Loss per Share $ (0.93) $ (0.45) $ (0.51) $ (0.32) ============ ============ ============ ============
Inclusion of convertible preferred shares as dilutive securities would have an antidilutive effect on the loss per share calculation. Accordingly, these shares have been excluded from the calculation for the six and three months ended June 30, 2000 and 1999. Options and warrants to purchase 3,992,850 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 six months ended June 30, 2000 because the result would be antidilutive. (9) SEGMENT REPORTING: The Company has six reportable segments: Internet ad sales, business to business, ticketing, e-commerce, retail, and intellectual properties. The Internet ad sales segment sells advertising on the Hollywood.com, Broadway.com and Hollywood.com international websites. The business to business segment licenses entertainment content and data and includes the divisions CinemaSource (which licenses movie showtimes and content), EventSource (which licenses local event data) and TheaterSource (which licenses live theater showtimes and content) to Internet and media companies. The ticketing segment sells tickets to live theater events for Broadway, off-Broadway and London's West End on the Internet. 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 intellectual properties created by best-selling authors and media celebrities, which it licenses across all media, including books, film and television. 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. 13 The following table illustrates the financial information regarding the Company's reportable segments.
Six Months Ended June 30, Three Months Ended June 30, --------------------------------- --------------------------------- 2000 1999 2000 1999 ---------------- --------------- ----------------- -------------- Net Revenues: Internet Ad Sales $ 4,868,499 $ 712,195 $ 2,558,144 $ 712,195 Business to Business 2,356,349 197,526 1,353,841 197,526 Ticketing 1,360,850 -- 1,360,850 -- E-Commerce 446,043 182,029 144,309 104,121 Retail 23,370 935,663 23,370 238,763 Intellectual Properties 928,134 1,027,777 465,035 486,811 Other -- -- -- -- ------------ ------------ ------------ ------------ $ 9,983,245 $ 3,055,190 $ 5,905,549 $ 1,739,416 ============ ============ ============ ============ Gross Profit: Internet Ad Sales $ 4,388,861 $ 646,680 $ 2,336,580 $ 646,680 Business to Business 2,217,429 183,684 1,274,985 183,684 Ticketing 212,476 -- 212,476 -- E-Commerce 11,259 28,738 45,524 19,591 Retail -- 269,764 -- 40,112 Intellectual Properties 273,510 615,367 192,892 219,557 Other -- -- -- -- ------------ ------------ ------------ ------------ $ 7,103,535 $ 1,744,233 $ 4,062,457 $ 1,109,624 ============ ============ ============ ============ Operating Income (Loss): Internet Ad Sales (a) $(15,600,589) (550,372) $ (8,437,024) $ (550,372) Business to Business 122,306 76,790 75,830 76,790 Ticketing 125,401 -- 125,401 -- E-Commerce (1,384,155) (492,636) (743,119) (283,764) Retail (42,058) (1,401,828) (13,653) (608,730) Intellectual Properties 141,072 416,767 130,118 105,024 Other (5,302,846) (3,011,163) (2,917,410) (1,966,049) ------------ ------------ ------------ ------------ $(21,940,869) $ (4,962,442) $(11,779,857) $ (3,227,101) ============ ============ ============ ============ Depreciation and Amortization: Internet Ad Sales $ 1,311,817 $ 225,301 $ 666,150 $ 225,301 Business to Business 54,054 1,956 29,234 1,956 Ticketing -- -- -- -- E-Commerce 8,178 -- 4,572 -- Retail -- 167,996 -- 84,595 Intellectual Properties 3,780 2,540 1,575 1,314 Other 2,611,215 863,078 1,318,124 659,023 ------------ ------------ ------------ ------------ $ 3,989,044 $ 1,260,871 $ 2,019,655 $ 972,189 ============ ============ ============ ============ Interest, net: Internet Ad Sales $ 8,984 $ -- $ 8,299 $ -- Business to Business 779 -- 243 -- Ticketing -- -- -- -- E-Commerce -- -- -- -- Retail 85,400 300,488 46,220 145,289 Intellectual Properties (3,812) (1,989) (1,865) (905) Other 24,452 70,463 3,706 33,802 ------------ ------------ ------------ ------------ $ 115,803 $ 368,962 $ 56,603 $ 178,186 ============ ============ ============ ============ Capital Expenditure: Internet Ad Sales $ 893,850 $ 22,490 $ 626,294 $ 22,490 Business to Business 130,735 -- 58,752 -- Ticketing -- -- -- -- E-Commerce 12,378 65,058 2,308 -- Retail -- -- -- -- Intellectual Properties 5,188 -- -- -- Other 136,659 18,617 66,844 -- ------------ ------------ ------------ ------------ $ 1,178,810 $ 106,165 $ 754,198 $ 22,490 ============ ============ ============ ============
(a) Includes $9,375,904 and $5,251,707 in amortization of non-cash CBS advertising for the six and three months ended June 30,2000, respectively. 14 (10) USE OF ESTIMATES: The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Significant estimates include management's estimate that accounts receivable of NetCo Partners as of June 30, 2000 will be collected in full, and that no reserve for uncollectible accounts is necessary (see Note 7). (11) COMMITMENTS AND CONTINGENCIES: 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. (12) RECLASSIFICATION: Certain amounts in the 1999 financial statements have been reclassified to conform with the 2000 classification. (13) SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES: For the Six Months ended June 30, 2000: o The Company issued 100,000 shares of common stock, valued at $1,650,000. This amount was accrued for at December 31, 1999 in accrued reserve for closed stores. o Warrants to acquire 90,573 shares of common stock valued at $1.0 million were issued in connection with the Company's investment in MovieTickets.com, Inc. o The Company recorded $5,468,501 in deferred advertising in connection with the exercise of warrants by CBS. o Capital lease transactions totaled $30,349. o A note payable for $1,928,138 was paid by issuing 152,548 shares of common stock valued at approximately $12.64 per share. For the Six Months ended June 30, 1999: o The Company recorded the conversion of $5,784,773 of Series A,B,C,D, and D-2 Preferred Stock into 1,472,419 shares of common stock. o Non-cash dividends on its Series A,B,C,D and D-2 Convertible Preferred Stock in the amount of $83,657 were recorded, of which $79,808 was paid through the issuance of 6,675 shares of common stock. o Capital lease transactions totaled $56,068. o The Company issued 2,500 shares of restricted stock valued at $46,250 as an incentive stock bonus to an officer. (14) ACCRUED RESERVE FOR CLOSED STORES : The Company recorded a liability for estimated cost of early lease terminations and other costs related to the closure of the Company's brick and mortar retail operations of $2,366,432 at December 31, 1999. During 2000 $1,650,000 of the liability was satisfied, see Note 6. The balance in accrued reserve for closed stores at June 30, 2000 was $744,778. 15 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 Viacom. 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 data 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 Digital Cities, Excite, Ticketmaster/CitySearch and Zip2, and the sale of merchandise throughout our family of entertainment-related websites. 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 and live theater 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 website 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 for $5,468,501 in cash and $5,468,501 in additional promotional advertising. CBS Corporation merged with and into Viacom Inc. in May 2000. Internet Businesses HOLLYWOOD.COM. Hollywood.com is a premier entertainment related website 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 entertainment awards shows and film festivals and exclusive video coverage of movie premieres. Hollywood.com is established on the Internet as a leading entertainment website with approximately 221.5 million page impressions recorded during the three months ended June 30, 2000. 16 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 website 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 website 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 websites 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 website. 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 websites. CBS has agreed to include the Hollywood.com website in all advertising sale programs and presentations that are appropriate for the sale of advertising on the website. 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. BROADWAY.COM. We launched the Broadway.com website 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 and hundreds of college and local live theater venues; the ability to purchase Broadway, Off-Broadway and West End 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 website also offers 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 generates revenue from advertising sales, ticket sales and syndication of content to other Internet companies. 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 website to be promoted on AOL in countries throughout Latin America. We launched the br.hollywood.com Portuguese-language website in Brazil in November 1999 and the mx.hollywood.com and ar.hollywood.com Spanish-language websites in Mexico and Argentina in May 2000. These websites 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. Each of these websites are featured and promoted on the entertainment channels of both AOL Latin America and El Sitio.com, a Latin American-based Internet portal. 17 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 new Legend personal computers along with Legend's new Chinese-language portal, FM365.com. Legend's market share of personal computers sales in China has climbed steadily to over 27%. Subsequent to June 30, 2000 the Company launched China.Hollywood.com. The Company has also entered into an agreement in principle to form a strategic partnership to distribute Hollywood.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 website, usatoday.com, latimes.com, iWon.com, The Washington Post website, the Boston Globe website, and the Newsday website. 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. 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 websites of The New York Times and Knight Ridder. BASELINE. We own and operate the PKBaseline.com website (now called Hollywoodpro.com), a pay-per-use website 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 website 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. 18 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 website 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 websites and the website is promoted on over 12,000 affiliate websites, 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 website. 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 primarily from advertising and syndication. Recent examples of this strategy include the launch of Broadway.com, MovieTickets.com, Mx.hollywood.com and ar.hollywood.com. MOVIETICKETS.COM. MovieTickets.com, a joint venture among Hollywood.com, AMC Entertainment Inc., and National Amusements, Inc was launched in late May 2000. 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 Viacom Inc. 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., Famous Players Inc and Marcus Theaters and several regional exhibitors. 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 website allows users to purchase movie tickets and retrieve them at "will call" windows or ATM machines at theaters. The website also features 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 website 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. 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. 19 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 Company is currently working to develop an area on the Hollywood.com website initially dedicated to mysteries. 20 Results of Operations The following table summarizes the Company's net revenues, cost of revenues and gross profit by business segment for the six months ended June 30, 2000 ("Y2-00") and 1999 ("Y2-99") and the three months ended June 30, 2000 ("Q2-00") and 1999 ("Q2-99"), respectively:
Internet Business E- Intellectual Ad Sales to Business Ticketing Commerce Properties Retail Total ------------ ------------ ------------ ------------ ------------ ------------ ------------- Y2-00 Net Revenues $4,868,499 $2,356,349 $1,360,850 $ 446,043 $ 928,134 $ 23,370 $9,983,245 Cost of Revenues 479,638 138,920 1,148,374 434,784 654,624 23,370 2,879,710 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Gross Profit $4,388,861 $2,217,429 $ 212,476 $ 11,259 $ 273,510 $ -- $7,103,535 ========== ========== ========== ========== ========== ========== ========== Y2-99 Net Revenues $ 712,195 $ 197,526 $ -- $ 182,029 $1,027,777 $ 935,663 $3,055,190 Cost of Revenues 65,515 13,842 -- 153,291 412,410 665,899 1,310,957 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Gross Profit $ 646,680 $ 183,684 $ -- $ 28,738 $ 615,367 $ 269,764 $1,744,233 ========== ========== ========== ========== ========== ========== ========== Q2-00 Net Revenues $2,558,144 $1,353,841 $1,360,850 $ 144,309 $ 465,035 $ 23,370 $5,905,549 Cost of Revenues 221,564 78,856 1,148,374 98,785 272,143 23,370 1,843,092 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Gross Profit $2,336,580 $1,274,985 $ 212,476 $ 45,524 $ 192,892 $ -- $4,062,457 ========== ========== ========== ========== ========== ========== ========== Q2-99 Net Revenues $ 712,195 $ 197,526 $ -- $ 104,121 $ 486,811 $ 238,763 $1,739,416 Cost of Revenues 65,515 13,842 -- 84,530 267,254 198,651 629,792 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Gross Profit $ 646,680 $ 183,684 $ -- $ 19,591 $ 219,557 $ 40,112 $1,109,624 ========== ========== ========== ========== ========== ========== ==========
NET REVENUES Total net revenues for the six months ended June 30, 2000 and 1999 were $9,983,245 and $3,055,190, respectively. Net revenues increased $6,928,055 or 227% from Y2-99 to Y2-00. Net revenue for the three months ended June 30, 2000 increased to $5,905,549 from $1,739,416 for the three months ended June 30,1999, an increase of $4,166,133 or 240%. Net revenues increased in both periods predominately due to increases in revenues from the Company's Internet ad sales, business to business, and ticketing segments. The Company acquired the businesses that generate Internet ad sales revenues and business to business revenues in May and August of 1999. In addition, on May 1, 2000 the Company acquired a company that sells live theater tickets over the Internet which was integrated into the Broadway.com website. Internet ad sales revenue for Y2-00 increased to $4,868,499 from $712,195 for Y2-99, an increase of $4,156,304; and increased $1,845,949 or 259% from $712,195 for Q2-99 to $2,558,144 for Q2-00. Internet ad sales revenue is derived from the sale of banner advertisements and sponsorships on the Hollywood.com and Broadway.com websites. 21 The Hollywood.com website was acquired by the Company on May 20, 1999 and the Broadway.com website was launched by the Company on May 1, 2000. Barter transactions that generate non-cash advertising revenue, (included in Internet ad sales revenues), in which the Company received advertising or other services in exchange for content or advertising on its websites was $808,776 for Y2-00 and $558,946 for Q2-00 and accounted for 8.1% and 9.4% of total net revenue for Y2-00 and Q2-00, respectively. Barter transactions related to advertising revenue accounted for less than 1% of total net revenue for Y2-99 and Q2-99. In future periods, management intends to maximize cash advertising revenue, although the Company will continue to enter into barter relationships when deemed appropriate as a cashless method for the Company to market its business. The Company also records barter income earned under a contract with the National Association of Theatre Owners ("NATO"), which the Company acquired through its acquisition of hollywood.com on May 20,1999. This income is included in internet ad sales revenue. 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. The Company recorded $1,490,875 and $745,437 in promotional non-cash revenue and non-cash expense under the NATO contract for Y2-00 and Q2-00, respectively. Barter income recorded accounted for 15% and 13% of total net revenue for Y2-00 and Q2-00, respectively. In Y2-99 and Q2-99 the Company recorded $422,415 in revenue or 14% and 24% of total net revenue, respectively. Business to business revenue for Y2-00 increased to $2,356,349 from $197,526 for Y2-99, an increase of $2,158,823, and increased $1,156,315 to $1,353,841 for Q2-00 from $197,526 for Q2-99. Business to business revenue is generated by the licensing of movie, event and theater showtimes and other content information to other Internet companies including Yahoo!, Excite, Zip2, NBCi, Go Network, and usatoday.com. The Company acquired the business to business operations of CinemaSource and Baseline on May 18, 1999 and August 31, 1999, respectively. Ticketing revenue for Y2-00 and Q2-00 was $1,360,850. Ticketing revenue is generated from the sales of live theater tickets for Broadway, Off-Broadway and London's West End on the Internet. The Company acquired Broadwaytheater.com on May 1, 2000. Tickets can be purchased on the Broadway.com website. E-commerce revenue increased $264,014 or 145% from $182,029 for Y2-99 to $446,043 for Y2-00 and increased $40,188 or 39% from $104,121 for Q2-99 to $144,309 for Q2-00. Revenue increased due to improved product promotion through the Company's relationship with CBS, other affiliate relationships, and increased traffic on the website. Revenues from the Company's intellectual properties segment decreased $99,643 or 9.7% to $928,134 for Y2-00 from $1,027,777 for Y2-99 and decreased $21,776 or 4.5% from $486,811 for Q2-99 to $465,035 for Q2-00. The decrease in revenues is attributable to a lesser number of manuscripts being delivered for Y2-00 and Q2-00 as compared to Y2-99 and Q2-99. The intellectual properties division generates revenues from several different activities including book development and licensing, intellectural 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 ultimate collection of such revenues is no longer subject to contingencies. Retail revenues decreased from $935,663 for Y2-99 to $23,370 for Y2-00 and from $238,763 for Q2-99 to $23,370 for Q2-00. The revenue recognized in Y2-00 and Q2-00 represents proceeds received for the liquidation of inventory remaining after the closure of all the brick and mortar locations in December 1999. 22 COST OF REVENUE Cost of revenue increased to $2,879,710 for Y2-00 from $1,310,957 for Y2-99. As a percentage of net revenues, cost of revenues was 29% for Y2-00 and 43% for Y2-99. The increase in the cost of revenues was primarily the result of increased Internet ad sales, increased business to business revenues, the addition of ticketing revenues offset by decreased retail revenues which generate lower gross margins. As a percentage of net revenue, cost of revenue was 31% and 36% for Q2-00 and Q2-99, respectively. Cost of revenues consists of the cost of products sold over the Internet, including shipping and handling costs, for the Company's e-commerce and ticketing segments. For the Internet ad sales segment and business to business segment cost of revenues includes commissions due to ad agencies, ad rep firms and other third parties for revenue generated. Cost of revenue for the Company's intellectual properties segment includes fees and royalties paid to authors and co-editors. EQUITY IN NET EARNINGS - INVESTMENTS Equity in net earnings of investments consists of the Company's 50% interest in NetCo Partners and one-third interest in MovieTickets.com,Inc. The Company's equity in net earnings of investments increased by 11.7% or $131,368 to $1,253,959 for Y2-00 from $1,122,591 for Y2-99. Equity in net earnings of investments increased $120,221 from $28,401 for Q2-99 to $148,622 for Q2-00. On book projects, as it relates to NetCo Partners, revenues are typically recognized upon delivery of the manuscripts to the publishers. Equity in earnings increased because more manuscripts were delivered in Y2-00 and Q2-00 than in Y2-99 and Q2-99. This increase was offset by the recognition of $42,779 in losses generated by MovieTickets.com,Inc. for Y2-00 and Q2-00. MovieTickets.com,Inc. began its operations in late May 2000. OPERATING EXPENSES GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased $2,868,738 or 122% to $5,211,512 for Y2-00 from $2,342,774 for Y2-99 and $1,630,144 or 123% to $2,954,654 for Q2-00 from $1,324,510 for Q2-99. This increase is primarily attributable to the acquisition of three Internet businesses in May and August of 1999 and expenses relating to the launch and operations of Broadway.com as well as the Hollywood.com international websites during Q2-00. General and administrative expenses for Y2-99 and Q2-99 only reflect five weeks of general and administrative expenses relating to the Internet businesses acquired in 1999 as compared to Y2-00 and Q2-00, which include six months and three months of expenses, respectively from the Internet businesses acquired in 1999 plus the expenses associated with the additional websites launched and operated in 2000. SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased $4,057,156 or 327% to $5,297,684 for Y2-00 from $1,240,528 for Y2-99 and increased $2,002,621 or 229% to $2,878,953 for Q2-00 from $876,332 for Q2-99. Included in selling and marketing are non-cash barter transactions of $2,299,651 and $642,415 for Y2-00 and Y2-99, respectively and $1,304,383 and $422,415 for Q2-00 and Q2-99, respectively. Barter transactions accounted for approximately 43% and 52% of selling and marketing expense for Y2-00 and Y2-99, respectively and 45% and 48% for Q2-00 and Q2-99, respectively. Excluding non-cash barter transactions, the increase in selling and marketing expense of $2,399,920 from Y2-99 to Y2-00 and $1,120,653 from Q2-99 to Q2-00 is primarily the result of increased advertising on radio, television, online and outdoor for the Company's Internet ad sales and e-commerce segments and additional advertising related to the launch of Broadway.com on May 1, 2000. In addition, the Company incurred production costs associated with advertising on CBS's media properties. The Company and CBS entered into a seven year agreement in January 2000 therefore there were no comparable costs in Y2-99 and Q2-99. SALARIES AND BENEFITS. Salaries and benefits increased $3,345,800 or 184% to $5,160,505 for Y2-00 from $1,814,705 for Y2-99 and increased $1,611,693 or 144% to $2,727,590 for Q2-00 from $1,115,897 for Q2-99. This increase is attributable to the addition of three Internet businesses in May and August of 1999, the launch of four websites during the second quarter of 2000 and an increase in the infrastructure to support the growth of the Company. 23 AMORTIZATION. Amortization of goodwill and intangibles was $3,330,569 and $646,832 for Y2-00 and Y2-99, respectively and $1,678,635 and $638,975 for Q2-00 and Q2-99, respectively. The increase in amortization is attributable to goodwill and intangibles recorded with the three Internet businesses acquired in May and August of 1999 and the ticketing company acquired on May 1, 2000. Amortization of CBS advertising relating to the Company's agreement with Viacom was $9,375,904 for Y2-00 and $5,251,707 for Q2-00. Under the Company's agreement with Viacom, the Company issued shares of Common Stock and warrants in consideration for 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. The agreement with Viacom closed on January 4, 2000; therefore there is no comparable expense for the period Y2-99 and Q2-99. DEPRECIATION AND AMORTIZATION. Depreciation and amortization was $658,475 for Y2-00 and $614,039 for Y2-99 and $341,020 for Q2-00 and $333,214 for Q2-99. The increase in depreciation and amortization expense is attributable to the increase in capital expenditures to support the websites launched during Q2-00, additional capital expenditures required to support the growth in traffic on the Company's websites and additional equipment required for the expansion of the business to business segment. INTEREST EXPENSE, NET. Interest expense, net for Y2-00 was $115,803 compared to $368,962 for Y2-99 and $56,603 for Q2-00 as compared to $178,186 for Q2-99. The decrease is primarily 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 obligations and inventory line of credit as it relates to the Company's retail operations that were closed in December 1999. NET LOSS The Company generated a net loss of $20,927,161 for Y2-00 as compared to a net loss of $4,438,703 for Y2-99, an increase of $16,488,458 or 371%. For Q2-00 the net loss increased by $8,289,070 or 239% from $3,464,065 for Q2-99 to $11,753,135 for Q2-00. A significant portion of the increased loss for Y2-00 and Q2-00 is amortization of non-cash CBS advertising and amortization of goodwill and intangibles attributable to the acquisition of three Internet businesses in 1999 and an online theater ticketing business in 2000. These non-cash expenses were $12,706,473 for Y2-00 and $6,930,342 for Q2-00 as compared to $646,832 for Y2-99 and $638,975 for Q2-99.Net loss for Y2-00 compared to Y2-99 excluding amortization of CBS advertising and goodwill and intangibles was $8,220,688 for Y2-00 as compared to $3,791,871 for Y2-99 and $4,822,793 for Q2-00 as compared to $2,825,090 for Q2-99. On a per share basis, the loss per common share increased by $.48 from ($.45) for Y2-99 to ($.93) for Y2-00, while the loss per common share increased by $.19 from ($.32) for Q2-99 to ($.51) for Q2-00. If non-cash amortization of CBS advertising and goodwill and intangibles are excluded from the loss per share calculation then loss per share for Q2-00 decreased by $.05 to ($.21) for Q2-00 from ($.26) for Q2-99. The Company has made several modifications to its initial business plan in an effort to reverse its losses. During 1999, the Company closed its brick and mortar retail operations and focused on its Internet business. The Company acquired three Internet businesses in 1999 and one in 2000. The Company is evaluating the operations of all its new Internet businesses and is working toward achieving economies of scale among all its operations to result in reduced general and administrative expenses and salaries and benefits. The Company is presently focusing its resources on the expansion of its Internet business. The Company plans to expand its Internet operations, both through acquisitions and strategic alliances and through internal development. While the Company believes that these measures will ultimately reverse its operating losses, there can be no assurances that for the foreseeable future the revenues generated by the Internet operations and the intellectual properties division will be sufficient to offset the associated expenses incurred. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2000 the Company had cash and cash equivalents of $2,385,049 and working capital of $22,963,341 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 Y2-00 was $8,770,200 primarily representing cash used to fund the Company's net loss, launch and promotion of four websites, and approximately $550,000 of non-recurring expenses. Net cash used in investing activities was $2,804,854, while $11,484,758 in cash was provided by financing activities. As a result of the above, cash and cash equivalents decreased by $90,296 for the six months ended June 30, 2000. During the six months ended June 30, 1999, net cash used in operating activities was $3,562,467, net cash used in investing activities was $7,515,329, and $15,175,794 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 $7,114,781 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. 24 On May 1, 2000, the Company acquired substantially all the assets of Broadwaytheater.com for cash and 83,214 shares of common stock valued at $14.00 per share. On June 16, 2000, the Company issued 152,548 shares of common stock valued at approximately $12.64 per share in order to repay an unsecured promissory note. In 1998, the Company's Board of Directors approved a plan for the repurchase of the Company's common stock. Pursuant to the plan, during the six months ended June 30, 2000 the Company repurchased 61,200 shares of its common stock for an aggregate consideration of $864,905, or an average purchase price of $14.13 per share. During the second quarter of 2000, the Company's Chief Executive Officer and President advanced $2,050,000 to the Company to enable the Company to meet its obligation to lend to a former shareholder of CinemaSource funds to pay the shareholder's taxes under the purchase agreement between the Company and the former shareholder of CinemaSource. During the six months ended June 30, 2000, the Company issued 1,411,624 shares of common stock upon the exercise of outstanding stock options and warrants, for which the Company received $6,756,283 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 sufficient revenues to offset expenses we will require further financing to fund our ongoing 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 e-commerce 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 PART II - OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS During the quarter ended June 30, 2000, the Company issued a total of 104,625 shares of its common stock upon the exercise of outstanding warrants and options with exercise prices ranging from $5.00 to $6.125 per share. The Company received gross proceeds of $636,239 for issuance of this common stock and paid no fees or commissions related thereto. On May 1, 2000, the Company acquired substantially all the assets of Broadwaytheater.com for cash and 83,214 shares of common stock valued at $14.00 per share. On June 16, 2000, the Company issued 152,548 shares of common stock valued at approximately $12.64 per share in order to satisfy an unsecured promissory note payable. During the quarter ended June 30, 2000, the Company issued stock options and warrants to purchase an aggregate of 355,155 shares of the Company's common stock, including 330,155 stock options granted to employees at exercise prices ranging from $9.25 to $15.625. 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 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
Incorporated by Exhibit No. Description Reference From ----------- ----------- -------------- 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 Company and American Stock Transfer & Trust Co., as Rights Agent (3) 10.1 Asset Purchase Agreement dated as of April 19, 2000 by and between Hollywood.com, Inc. and BroadwayTheater.com, Inc. (4) 27.1 Financial Data Schedule *
- ------------------ * 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 June 30, 2000. 27 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.COM, INC. Date: August 14, 2000 By: /s/ Mitchell Rubenstein ------------------------------------ Mitchell Rubenstein, Chairman of the Board and Chief Executive Officer (Principal executive, financial and accounting officer) 28 EX-10.10 2 0002.txt ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT BY AND BETWEEN HOLLYWOOD.COM, INC AND BROADWAYTHEATER.COM, INC. Dated as of April 19, 2000 ASSET PURCHASE AGREEMENT ------------------------ ASSET PURCHASE AGREEMENT, dated as of April 19, 2000, by and between HOLLYWOOD.COM, INC., a Delaware corporation ("Buyer"), and BROADWAYTHEATER.COM, INC., a New York corporation ("Seller"). W I T N E S S E T H : WHEREAS, upon the terms and subject to the conditions hereinafter set forth, Seller desires to sell, assign and transfer to Buyer, and Buyer desires to purchase and acquire from Seller, all of Seller's right, title and interest in the Assets (as defined herein); WHEREAS, for federal income tax purposes, it is intended that the Acquisition (as defined below) shall qualify as a reorganization under section 368(a)(1)(C) of the Internal Revenue code of 1986, as amended (the "Code"), pursuant to which substantially all of the Assets shall be transferred to Buyer in exchange for Buyer voting stock and other consideration and pursuant to such plan of reorganization Seller shall be liquidated with the stock and other consideration distributed to the shareholders of Seller. NOW THEREFORE, in consideration of the premises and the mutual representations, warranties, covenants and agreements hereinafter set forth, the parties hereto hereby agree as follows: ARTICLE I ACQUISITION AND TRANSFER OF ASSETS Section 1.1. Assets to be Acquired. Upon the terms and subject to the conditions hereinafter set forth, Seller shall sell, assign, transfer, convey and deliver to Buyer, and Buyer shall purchase, acquire and accept from Seller (the "Acquisition"), free and clear of all Liens (as defined in Section 1.1(b) below), all right, title and interest of Seller in, to and under all of the assets, properties, rights, contracts, claims, operations and business of Seller (collectively, the "Assets") (but excluding the Excluded Assets, as defined in Section 1.2 below), whether or not appearing on the books of Seller, including, without limitation, the following: (i) all contracts and agreements to which Seller is a party (collectively, the "Assigned Contracts") that are listed on Schedule 1.1(a) hereto; (ii) all of the furniture, supplies, computers, office equipment, fixtures and other fixed assets owned by Seller (the "Fixed Assets"); (iii) all trademarks, tradenames, logos, service marks, brand marks, brand names, domain names, patents, copyrights, inventions, customer lists, and proprietary know-how or information owned or used by Seller and all registrations thereof and pending applications therefor (collectively, the "Intangible Property"); (iv) all trade accounts receivable of Seller; (v) all papers, databases, computer programs, disks, software, and other books, records, documents and materials owned by Seller (the "Books and Records"); (vi) all assets of Seller (other than Excluded Assets) as to which Buyer assumes any liability; (vii) all rights of Seller under or pursuant to all warranties, representations and guarantees made by suppliers, manufacturers and contractors in connection with any of the foregoing Assets; and (viii) all goodwill relating to the foregoing Assets. (b) For the purposes of this Agreement, "Lien" shall mean any lien, pledge, mortgage, deed of trust, security interest, claim, lease, charge, option, right of first refusal, easement or other real estate declaration, covenant, condition, restriction or servitude, transfer restriction under any shareholder or similar agreement, or encumbrance. Section 1.2. Excluded Assets. Notwithstanding anything in Section 1.1 to the contrary, the parties hereto expressly agree that Seller is not hereunder selling, assigning, transferring, conveying or delivering to Buyer, and Buyer is not purchasing, acquiring or accepting, the following assets, rights and properties (collectively, the "Excluded Assets"): (ii) any insurance policies, bonds, letters of credit or other similar items, or any cash surrender value in regard thereto; (ii) any claim, right or interest in or to any refund for federal, state or local franchise, income or other taxes or fees of any nature whatsoever for periods on or prior to the Closing Date (as defined in Section 9.1 below) and any interest (or similar amount) thereon; (iii) any of Seller's corporate books and records of internal proceedings or tax records, and any books and records that Seller is required by law to retain (the "Corporate Records"), but Buyer shall have access to the same to the extent permitted by Section 10.3 below; and (iv) any employment, consulting or similar agreement. Section 1.3. Assumed and Excluded Liabilities. (a) Buyer shall not assume or be bound by any obligations, liabilities (including without limitation, liabilities in respect of Taxes (as defined in Section 3.13(a) below) and "employee benefit plans" (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended) or any other pension plans or employee benefit arrangements) or commitments of Seller or any of its affiliates of any kind, character or description, whether absolute, accrued, known, unknown, asserted, unasserted, due or to become due, contingent or otherwise ("Liabilities"), in connection with the Assets or otherwise, other than the following: 2 (i) obligations and liabilities arising after the Closing Date under the Assigned Contracts in respect of the period following such Closing Date; and (ii) all trade accounts payable arising in the ordinary course of business of Seller. Any ad valorem Taxes relating to a period straddling the Closing Date shall be prorated to the Closing Date, and the portion allocable to the period prior to the Closing Date shall be promptly paid or reimbursed by Seller, and the portion allocable to the period after the Closing Date shall be promptly paid or reimbursed by Buyer. All other Liabilities of Seller shall remain the sole responsibility of Seller. ARTICLE II CONSIDERATION Section 2.1. Amount and Form of Consideration. (a) The aggregate consideration (the "Initial Consideration") to be paid on the Closing Date by Buyer to Seller for the Assets shall consist of the following: (i) $135,000 in cash (the "Cash Consideration"); plus (ii) 83,214 fully paid and nonassessable shares of the common stock, $.01 par value per share (the "Common Stock"), of Hollywood.com, Inc. (the "Parent Company"); a Florida corporation and the wholly owning parent company of Buyer (the "Initial Stock Consideration"); plus (iii) the assumption by Buyer of certain of the obligations and liabilities of Seller pursuant to Section 1.3 above. (b) In addition, Seller shall have the ability to earn additional consideration (the "Additional Consideration" and, together with the Initial Consideration, the "Consideration") payable in Common Stock on the following terms: (i) If the Gross Profit of the Business for the period from April 1, 2000 to March 31, 2001 (a) equals or exceeds $860,724, then Buyer shall cause Parent Company to issue to Seller or its designee on May 15, 2001 shares of Common Stock valued at the Per Share Price with an aggregate value of $400,000, or (b) exceeds $474,676 but is less than $860,724, then Buyer shall cause Parent Company to issue to Seller or its designee on May 15, 2001 shares of Common Stock valued at the Per Share Price with an aggregate value equal to the product of (1) $400,000 and (2) the quotient of the Gross Profit for such period less $474,676 divided by $386,048. (ii) If the Gross Profit of the Business for the period from April 1, 2001 to March 31, 2002 (a) 3 equals or exceeds $1,075,905, then Buyer shall cause Parent Company to issue to Seller or its designee on May 15, 2002 shares of Common Stock valued at the Per Share Price with an aggregate value of $400,000, or (b) exceeds $860,724 but is less than $1,075,905 then Buyer shall cause Parent Company to issue to Seller or its designee on May 15, 2002 shares of Common Stock valued at the Per Share Price with an aggregate value equal to the product of (1) $400,000 and (2) the quotient of the Gross Profit for such period less $860,724 divided by $215,181. (iii) If the Gross Profit of the Business for the period from April 1, 2002 to March 31, 2003 (a) equals or exceeds $1,344,881, then Buyer shall cause Parent Company to issue to Seller or its designee on May 15, 2003 shares of Common Stock valued at the Per Share Price with an aggregate value of $400,000, or (b) exceeds $1,075,905 but is less than $1,344,881 then Buyer shall cause Parent Company to issue to Seller or its designee on May 15, 2003 shares of Common Stock valued at the Per Share Price with an aggregate value equal to the product of (1) $400,000 and (2) the quotient of the Gross Profit for such period less $1,075,905 divided by $268,976. (c) As used in Section 2.1(b) above, the terms set forth below shall have the following meanings: (i) "Business" means the business of selling tickets for live theater performances through the Internet currently operated by Seller and which is being sold to Buyer pursuant to this Agreement. (ii) "Gross Profit" means all revenue generated from the sale of tickets for live theater performances less cost of goods sold and commissions paid in connection therewith. (iii) "Per Share Price" means, as of each date on which Common Stock is issued pursuant to Section 2.1(b), the average of (a) $14.00 and (b) the closing sale price of the Common Stock on the Nasdaq Stock Market for the ten (10) trading days ending on the day immediately preceding such issuance date; provided that the per share price shall in no event be less than $14.00. (d) The payments that may be made pursuant to Section 2.1(b) are not contingent on Matthew Kupchin's or Andrew Kupchin's employment with the Buyer. Section 2.2. Allocation of Purchase Price. The Consideration and other relevant items shall be allocated among the Assets acquired hereunder by Buyer in accordance with the requirements of Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code"). Buyer shall provide Seller with a draft of such allocation within 90 days after the Closing Date. Seller shall notify Buyer within thirty (30) days of receipt of such draft allocation of any objection 4 Seller may have thereto. Seller and Buyer agree to resolve any disagreement with respect to such allocation in good faith consistent herewith. Seller and Buyer each agree to report and file all Tax Returns (as defined in Section 3.13(a)) (including amended Tax Returns and claims for refund) consistent with such allocation, and shall take no position contrary thereto or inconsistent therewith (including, without limitation, in any audits or examinations by any taxing authority or any other proceedings). Seller and Buyer shall cooperate in the filing of any forms (including Form 8594) with respect to such allocation, including any amendments to such forms required with respect to any adjustment to the Consideration pursuant to this Agreement. Notwithstanding any other provisions of this Agreement, the foregoing agreement shall survive the Closing Date without limitation. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER Seller hereby represents and warrants to Buyer as follows: Section 3.1. Organization. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of New York, and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. All of the outstanding capital stock of Seller is owned beneficially and of record by Matt Kupchin. Seller does not have any subsidiaries and does not own stock or partnership or membership interests in any entity. Section 3.2. Authorization of Agreement. Seller has full corporate power and authority to execute and deliver this Agreement and each other agreement, document, instrument or certificate contemplated by this Agreement or to be executed by Seller in connection with the consummation of the transactions contemplated by this Agreement (all such other agreements, documents, instruments and certificates are hereafter collectively referred to as the "Seller Documents") and to perform fully its obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and each of the Seller Documents have been duly and validly authorized and approved by the Board of Directors and shareholders of Seller and by all other necessary corporate action on behalf of Seller. This Agreement has been, and on or prior to the Closing each of the Seller Documents will be, duly and validly executed and delivered by Seller and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement constitutes, and each of the Seller Documents when so executed and delivered will constitute, the legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its respective terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). Section 3.3. Consents and Approvals; No Violation. 1. No filing with, notification to or consent, authorization, waiver, approval, order, license, certificate or Permit of, any Government Body (as defined in Section 3.14 below) is necessary for Seller's execution, delivery or performance of this Agreement or any of the Seller Documents or the consummation by Seller of the transactions contemplated by this Agreement and the Seller Documents. 5 (b) None of the execution and delivery by Seller of this Agreement and the Seller Documents, the consummation of the transactions contemplated hereby or thereby or compliance by Seller with any of the provisions hereof or thereof will (i) conflict with or result in any breach of any provision of the Certificate of Incorporation or By-laws of Seller, (ii) violate any order, injunction, judgment, decree, ruling, writ, assessment or arbitration award (each, an "Order") or statute, rule or regulation of any Government Body by which Seller or any of its properties or assets is bound, (iii) conflict with, violate, result in the breach or termination of, or (with or without due notice or the lapse of time or both) constitute a default or give rise to any "takeback" right or right of termination or acceleration or right to increase the obligations under or otherwise modify any of the terms, conditions or provisions of any note, bond, mortgage, license, franchise, Permit, indenture, contract, agreement or other instrument or obligation to which Seller is a party, or by which Seller or any of its properties or assets is or may be bound, or (iv) result in the creation of any Lien upon any of the Assets. Section 3.4. Title to Assets. Seller has good and marketable title to all of the Assets, free and clear of all Liens. Upon the sale, assignment, transfer and conveyance of the Assets to Buyer hereunder, there will be vested in Buyer good and marketable title to such Assets, free and clear of all Liens other than those placed thereon by Buyer. Section 3.5 No Undisclosed Liabilities. Schedule 3.5 sets forth all outstanding trade accounts payable of Seller. Except as set forth on Schedule 3.5, Seller has no Liabilities of any kind, and, to Seller's knowledge, there is no basis for the assertion of any claim or Liability of any nature against Seller. Seller has no indebtedness for borrowed money. Section 3.6. Results of Operations. Seller's revenue and gross profit for the first quarter of the year 2000, determined in accordance with generally accepted accounting principles were no less than $966,000 and $118,000, respectively. The foregoing revenue and gross profit amounts do not include any extraordinary or non-recurring sources of revenue or any revenues resulting from contracts that were not negotiated and entered into by Seller on an arm's length basis. Section 3.7. Litigation, etc. There is no judicial, administrative or arbitral action, suit, proceeding (public or private), claim or governmental proceeding (each, a "Legal Proceeding") pending or, to the knowledge of Seller, threatened that questions the validity of this Agreement, the Seller Documents or any action taken or to be taken by Seller in connection with the consummation of the transactions contemplated hereby or thereby. (i) No investigation or review by any Government Body with respect to Seller is pending or, to the knowledge of Seller, threatened, nor has any Government Body indicated to Seller an intention to conduct the same, (ii) there is no Legal Proceeding pending or, to the knowledge of Seller, threatened against or affecting Seller or its assets at law or in equity, or before any Government Body (and, to the knowledge of Seller, there is no basis for any such Legal Proceeding not so set forth which, if adversely determined, could adversely affect Seller or Buyer) and (iii) there is no outstanding or, to the knowledge of Seller, threatened Order of any Government Body against, affecting or naming Seller or affecting any of the Assets. Except as set forth on Schedule 3.7 hereto, during the three years preceding the date of this Agreement, no Legal Proceeding has been commenced or, to the knowledge of Seller, threatened against or affecting Seller or its assets at law or in equity, or before any Government Body. On and after the date hereof 6 until the Closing, Seller will notify Buyer of the existence or threat of any investigation, review, Legal Proceeding or Order which would be required to be disclosed on Schedule 3.7. Section 3.8. Compliance with Law. Seller has not violated or failed to comply in any material respect with any statute, law, ordinance, regulation, rule or Order of any Government Body. Section 3.9. Employment Agreements. Seller is not now and has never been a party to any employment, compensation, consulting, severance or indemnification agreement or any other agreement with a present or former employee of Seller that provides for severance payments or stay bonuses contingent upon a change in control of Seller or a sale of its business or assets. Section 3.10. Certain Agreements. (a) Except as set forth on Schedule 1.1(a) hereto, neither Seller nor any of its properties or assets is a party to or bound by any (i) lease or rental agreement, (ii) non-compete agreement, (iii) contract granting a right of first refusal or for the acquisition, sale or lease of any assets of Seller, (iv) mortgage, pledge, conditional sales contract, security agreement or other similar contract with respect to any property of Seller, (v) loan agreement, credit agreement, promissory note, guarantee, subordination agreement, letter of credit or other similar type of contract, or (vi) any other material contract. Seller has delivered to Buyer true, correct and complete copies of the Assigned Contracts, including all amendments, modifications, supplements, side letters or consents affecting the obligations of any party thereunder. (b) To the best of Seller's knowledge, each Assigned Contract is valid and enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). Seller is not in breach of or in default under any Assigned Contract and, to Seller's knowledge, there has not occurred any event which, after the giving of notice or lapse of time or both, would constitute a default under or result in a breach of an Assigned Contract by any party subject thereto. No previous or current party to any Assigned Contract (i) has given notice of or made a claim with respect to any breach or default under any Assigned Contract or (ii) has given notice of termination or non-renewal of any Assigned Contract. Except as set forth on Schedule 3.10(b), each of the Assigned Contracts is freely transferable by Seller to Buyer and no third party consents are required for such transfer. Section 3.11. Real Property. (a) Seller does not now own and has not ever owned any real property. (b) Other than the lease agreement, dated November 1999 (the "Lease"), between Seller, as occupancy-sub-tenant, and Soups R Us, Inc., as Tenant-landlord, Seller is not a party to any lease, sublease, license, sublicense or other agreement or arrangement with respect to any real property, and has not used or occupied, does not use or occupy, and does not have any right to use or occupy, now or in the future, any real property. 7 Section 3.12. Intangible Property. (a) Schedule 3.12 hereto sets forth a list of each trademark, trade name, logo, service mark, brand mark, brand name, domain name, patent, and copyright owned or used by Seller, and a list of all registrations thereof and pending applications therefor. Except as set forth on Schedule 3.12, each of the foregoing assets listed on such Schedule as being owned by Seller is owned by Seller free and clear of any and all Liens and is in good standing and no other person or entity (including any past or present officer, employee or consultant of Seller) has any claim of ownership or right of use with respect thereto. Except as set forth on Schedule 3.12, to the best of Seller's knowledge, the use, modification, compilation, reproduction, public display or performance, or distribution of the foregoing by Seller does not, and the use, modification, compilation, reproduction, public display or performance, or distribution thereof by Buyer immediately after the Closing will not, conflict with, infringe upon, violate or interfere with or constitute an appropriation of any right, title, interest or goodwill, including, without limitation, any intellectual property right, trademark, trade name, service mark, brand mark, brand name, computer program, domain name, database, patent, industrial design, copyright or any pending application therefor of any other person or entity and there have been no claims made and Seller has not received any notice or otherwise acquired any knowledge that any of the foregoing is invalid or conflicts with the asserted rights of any other person or has not been used or enforced or has been failed to be used or enforced in a manner that would result in the abandonment, cancellation or unenforceability of any of the Intangible Property. (b) Seller is not a party to or bound by any contract, license or other agreements relating to the Intangible Property. Section 3.13. Taxes. (a) For purposes of this Agreement: (i) "Tax" or "Taxes" shall mean all taxes, charges, fees, imposts, levies or other assessments by any governmental authority, including all net income, gross receipts, capital, sales, use, ad valorem, value added, transfer, franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation, property and estimated taxes, customs duties, fees, assessments and charges of any kind whatsoever, and all interest, penalties, fines, additions to tax or other amounts imposed by any governmental authority which relate in any way to the assessment of collection of any taxes or the filing of any Tax Return, and shall include any transferee or successor liability in respect of Taxes (whether by contract or otherwise) and any liability in respect of any Tax as a result of being a member of any Affiliated Group, including any consolidated, combined, unitary or similar group. (ii) "Tax Return" means any return (including any consolidated, combined or unitary return in which Seller is, or was, included or includible), declaration, report, claim for refund, separate election or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. (iii) "Affiliated Group" means any affiliated group within the meaning of Section 1504 of the Code, or any consolidated, combined, unitary or similar group defined under a similar provision of state, local or foreign law. (b) Seller has (i) filed when due or will file when due (taking into account extensions) with the appropriate federal, state, local, foreign and 8 other governmental agencies, all Tax Returns required to be filed by it or on its behalf, all of which Tax Returns were true or will be true, complete and correct as of the time of filing, (ii) paid when due and payable (and, until the Closing Date, will timely pay) all required Taxes (except for Taxes which are being contested in good faith, and for which adequate reserves will be established in accordance with GAAP). (c) There are no Taxes assessed or asserted or claimed in writing to be due by any governmental authority or otherwise in respect of any Tax Returns filed by Seller or on Seller's behalf, and no issues have been raised (and are currently pending) by any governmental authority in connection with any such Tax returns. (d) Seller has duly and timely withheld and paid over to the appropriate governmental authorities all Taxes and other amounts required to be so withheld and paid over for all periods under all applicable laws in connection with amounts paid or owing to any employee, independent contractor, subcontractor, lender, stockholder or other third party or other personnel supplied by any third party. (e) There is no audit, examination, deficiency, or refund proceeding pending with respect to any Taxes or Tax Returns of Seller, and no governmental authority has given written notice of the commencement of any audit, examination or deficiency proceeding with respect to any Taxes or Tax Returns of Seller. (f) Seller has heretofore provided Buyer with copies of all federal, state, local, and foreign Tax Returns filed by, or on behalf of, Seller for taxable periods commencing on or after January 1, 1995. (g) Seller is not a party to or bound by any Tax sharing, Tax indemnification or similar agreements (or portions of any agreements) with respect to (or which relate to) the Assets. (h) Seller does not have, nor has Seller ever had, with respect to its business or the Assets, a permanent establishment (within the meaning of any applicable tax treaty) in any foreign country, nor do they engage or have they ever engaged in a trade or business in any foreign country that has subjected its business or the Assets to tax in such foreign country. (i) Seller is not, with respect to the Assets, a party to any joint venture, partnership or other arrangement that constitutes a partnership for federal income tax purposes. (j) The performance of the transactions contemplated by this Agreement will not (either alone or upon the occurrence of any additional or subsequent event) result in, nor do the Liabilities assumed by Buyer in Section 1.3 otherwise provide for, any payment by Buyer that would constitute an "excess parachute payment" within the meaning of Section 280G of the Code. (k) None of the Assets are (i) property required to be treated as being owned by another Person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect immediately prior to the enactment of the Tax Reform Act of 1986; (ii) "tax-exempt use property" within the meaning of Section 168(h)(l) of the Code; (iii) tax exempt bond financed property within the meaning of Section 168(g) of the Code, or (iv) property used "predominantly outside of the United States" within the meaning of Section 168(g)(4). 9 (l) Seller (and any predecessor of Seller) has since January 1, 2000 been and will be, up to and including the Closing Date, an S Corporation within the meaning of Section 1361 of the Code and under all corresponding provisions of applicable state and local Tax laws to the extent they recognize S corporation status. (m) Seller is not a "foreign person" within the meaning of Section 1445 of the Code. Section 3.14. Permits. Schedule 3.14 hereto sets forth a list of all approvals, authorizations, consents, franchises, licenses, permits or certificates (collectively, "Permits") granted by any government or governmental or regulatory body thereof or political subdivision thereof, whether federal, state, local or foreign, or any agency or instrumentality thereof, or any court or arbitrator (public or private) (each, a "Government Body") and applications, if any, for any of the foregoing, held by Seller. Seller is the holder of all Permits necessary or appropriate to enable it to continue to conduct its business in all material respects as presently conducted. Each of the Permits is in full force and effect. Section 3.15. Related Parties; Related Party Transactions. Neither Seller nor any shareholder of Seller owns any direct or indirect interest of any kind in, or controls or is a director, officer, employee or partner of, or consultant to, or lender to or borrower from or has the right to participate in the profits of, any Person which is (A) a competitor, supplier, customer, landlord, tenant, creditor or debtor of Seller, (B) engaged in a business related to the business of Seller, (C) participating in any transaction to which Seller is a party, or (D) a party to any contract, agreement, indenture, note, bond, loan, instrument, lease, conditional sale contract, mortgage, license, franchise, insurance policy, commitment or other arrangement or agreement with Seller. Section 3.16. Options. There are no outstanding securities of Seller convertible into or evidencing the right to purchase or subscribe for any shares of capital stock of Seller and there are no outstanding or authorized options, warrants, calls, subscriptions, rights, commitments or any other agreements of any character obligating Seller to issue any shares of its capital stock or any securities convertible into or evidencing the right to purchase or subscribe for any shares of such stock. Section 3.17. Year 2000. Each computer program used by Seller in its business is Year 2000 Compliant. "Year 2000 Compliant" means that such program is capable of managing and manipulating data involving dates after the year 1999 without any functional or data abnormality and without inaccurate results related to such dates. Section 3.18. Investor Representations. The shares of Common Stock received by Seller pursuant to this Agreement will be acquired for Seller's own account and not with a view to or in connection with the sale or distribution of any part thereof except for distributions to the sole shareholder of Seller. Section 3.19. Exemption from Registration; Restricted Securities. Seller understands that the shares of Common Stock received by Seller pursuant to this Agreement will not be registered under the Securities Act on the ground that the sale provided for in this Agreement is exempt from registration under the Securities Act, and that the reliance of Buyer on such exemption is predicated in part on Seller's representations set forth in this Agreement. The certificates representing the shares of Common Stock issued to Seller pursuant to this Agreement will bear an appropriate legend reflecting such exempt issuance without registration. Seller understands that the shares of Common 10 Stock received by Seller pursuant to this Agreement are restricted securities within the meaning of Rule 144 under the Securities Act. Section 3.20. Brokers. Other than compensation payable by Seller to Peter Cane in an amount agreed upon between Seller and Peter Cane, no broker, finder or investment banker is entitled to any brokerage fee, finder's fee or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Seller. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller as follows: Section 4.1. Organization. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. Section 4.2. Authorization of Agreement. Buyer has full corporate power and authority to execute and deliver this Agreement and each other agreement, document, instrument or certificate contemplated by this Agreement or to be executed by Buyer in connection with the consummation of the transactions contemplated hereby and thereby (all of such agreements, documents, instruments and certificates required to be executed by Buyer being hereinafter referred to, collectively, as the "Buyer Documents"), and to perform fully its obligations hereunder and thereunder. The execution, delivery and performance by Buyer of this Agreement and each Buyer Document have been duly authorized by the Board of Directors of Parent Company and by all other necessary corporate action on the part of Buyer and Parent Company. This Agreement has been, and at or prior to the Closing, each of the Buyer Documents will be, duly and validly executed and delivered by Buyer and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement constitutes, and each of the Buyer Documents when so executed and delivered will constitute, the legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its respective terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). Section 4.3. Consents and Approvals; No Violations. (a) Assuming the accuracy of Seller's representation and warranty set forth in the last sentence of Section 3.3(a) hereof, except for filings, notifications, authorizations, consents and approvals as may be required under federal and state securities or blue sky laws, no filing with, notification to or consent, authorization, waiver, approval, order, license, certificate or Permit of, any Government Body is necessary for Buyer's execution, delivery or performance of this Agreement or any of the Buyer Documents or the consummation by Buyer or Parent Company of the transactions contemplated by this Agreement and the Buyer Documents. 11 (b) None of the execution and delivery by Buyer of this Agreement or the Buyer Documents, the consummation of the transactions contemplated hereby or thereby or compliance by Buyer with any of the provisions hereof or thereof will (i) conflict with or result in any breach of any provision of the Articles of Incorporation or By-laws of Buyer, (ii) violate any Order or statute, rule or regulation of any Government Body by which Buyer or any of its properties or assets is bound, or (iii) conflict with, violate, result in the breach or termination of, or (with or without due notice or the lapse of time or both) constitute a default or give rise to any "takeback" right or right of termination or acceleration or right to increase the obligations under or modify any of the terms, conditions or provisions of any note, bond, mortgage, license, franchise, Permit, indenture, agreement or other instrument or obligation to which Buyer is a party, or by which Buyer or any of its properties or assets is or may be bound. Section 4.4. Litigation. There are no Legal Proceedings pending or, to the knowledge of Buyer, threatened that question the validity of this Agreement, the Buyer Documents or any action taken or to be taken by Buyer in connection with the consummation of the transactions contemplated hereby or thereby. On and after the date hereof until the Closing, Buyer will notify Seller of the existence or threat of any such Legal Proceeding. Section 4.5. SEC Reports; Financial Statements. (a) Parent Company has filed all required forms, reports and documents required to be filed by it ("SEC Reports") with the Securities and Exchange Commission ("SEC"), each of which has complied as to form in all material respects with all applicable requirements of the Securities Act of 1933, as amended (the "Securities Act"), and the Exchange Act, each as in effect on the dates such forms, reports and documents were filed. The audited consolidated financial statements of Parent Company included in the SEC Reports were prepared in accordance with generally accepted accounting principles ("GAAP") and present fairly the consolidated financial position of Parent Company and its consolidated subsidiaries as of the dates thereof and their consolidated results of operations and changes in financial position for the periods then ended. (b) Brokers. No broker, finder or investment banker is entitled to any brokerage fee, finder's fee or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Buyer. ARTICLE V COVENANTS OF SELLER Section 5.1 Access to Information. From the date of this Agreement until the Closing Date, Seller shall permit Buyer and its representatives, including, without limitation, its legal counsel and accountants, to conduct an appropriate due diligence examination and investigation with respect to Seller. Seller will reasonably cooperate with Buyer's diligence, and such cooperation will include, without limitation, the following: (i) providing Buyer and its representatives with reasonable access to all data, records and other information that they may request in connection with their evaluation of the transactions contemplated by this Agreement (including, without limitation, lists of contact 12 persons, marketing information, and records of negotiations with existing and prospective customers); (ii) allowing Buyer and its representatives to conduct a business, financial and legal review of all aspects of Seller; (iii) affording Buyer and its representatives the opportunity to discuss the affairs, finances, operations and accounts of Seller with Seller's officers, directors, agents and other appropriate personnel; and (iv) facilitating conversations between Buyer and its representatives and representatives of the other parties to the Assigned Contracts. Section 5.2 Conduct of Business. From the date of this Agreement until the earlier of the Closing Date or the Termination Date (as defined in Section 12.1 below) Seller (i) shall not, without the prior written consent of Buyer, amend or modify (or agree to amend or modify), enter into or cancel any agreement of the type to be included in the Assets, (ii) shall use its best efforts to preserve its present relationships with Persons having business dealings with Seller, (iii) (A) shall maintain the books, accounts and records of Seller in the ordinary course of business consistent with past practices and (B) shall comply in all material respects with all contractual and other obligations applicable to the operations of Seller, (iv) shall not subject any of the properties or Assets (whether tangible or intangible) of Seller to any Lien, or incur any indebtedness for borrowed money, (v) shall not acquire any properties or assets or sell, assign, transfer, convey, lease or otherwise dispose of any of the properties or Assets of Seller, (vi) shall not cancel or compromise any debt or claim or waive or release any right of Seller, (vii) shall not introduce any change with respect to the operation of Seller and (viii) shall operate only in the ordinary course of business. The foregoing shall not restrict Seller from canceling any agreement not included in the Assets. Section 5.3 Public Announcements. Seller agrees that it shall not issue any press release or make any public statement, announcement or filing concerning this Agreement or any aspect of the transactions contemplated hereby, without Buyer's prior written consent. Section 5.4 No Breach of Representations and Warranties. Seller agrees that it shall not take any action, and shall use its reasonable commercial efforts not to permit any event to occur, which would result in any of the representations and warranties of Seller contained in this Agreement not being true and correct in any material respect on and as of the Closing Date with the same force and effect as if such representations and warranties had been made on and as of the Closing Date. Section 5.5 Updating Information. Seller shall promptly deliver to Buyer any information concerning events subsequent to the date of this Agreement which is necessary to supplement the representations and warranties contained herein, including the Schedules hereto, or the information delivered by Seller pursuant to any of the covenants contained herein, in order that such representations and warranties (including such Schedules) or the information so delivered be complete and accurate in all material respects, it being understood and agreed that the delivery of such information shall not in any manner constitute a waiver by Buyer of any of the conditions precedent to the Closing hereunder, including, without limitation, the conditions contained in Section 7.1. 13 Section 5.6 Restrictions on Transfer of Stock Consideration. Seller and the Shareholders shall not, directly or indirectly, sell, transfer any beneficial interest in, pledge, hypothecate or otherwise dispose, or offer to sell, transfer any beneficial interest in, pledge, hypothecate or otherwise dispose (collectively, "Transfer"), any shares of Common Stock constituting the Initial Stock Consideration during the 12-month period following the Closing Date. Notwithstanding the foregoing, Seller may distribute the Initial Stock Consideration to the sole shareholder of Seller at any time and the sole shareholder may pledge the Initial Stock Consideration to the Buyer pursuant to the Indemnification Pledge Agreement (as defined in Section 6.3). Section 5.7 Further Actions. Seller agrees to execute and deliver such instruments and promptly take such other actions as may reasonably be required to consummate the transactions contemplated hereby in accordance with the terms hereof. 14 ARTICLE VI COVENANTS OF BUYER Section 6.1 No Breach of Representations and Warranties. Buyer agrees that it shall not take any action, and shall use its reasonable commercial efforts not to permit any event to occur, which would result in any of the representations and warranties of Buyer contained in this Agreement not being true and correct in any material respect on and as of the Closing Date with the same force and effect as if such representations and warranties had been made on and as of the Closing Date. Section 6.2 Confidentiality. Buyer agrees that any written information provided to it in connection with this Agreement will be kept confidential by it and its agents, advisors and employees; provided, however, that disclosure of such information may be made (i) to personnel of Buyer and Parent Company, and to the attorneys, accountants and agents of Buyer and Parent Company, (ii) to the extent the same shall be or shall have otherwise become publicly available other than as a result of a disclosure by Buyer, Parent Company or their agents, advisors or employees, (iii) to the extent required to be disclosed by law or during the course of or in connection with any litigation or other proceeding, or (iv) with the written consent of Seller. Section 6.3 Employment Agreements; Indemnification Pledge Agreement. At the Closing, (i) Buyer shall enter into employment agreements, substantially in the form of Exhibit B hereto (the "Employment Agreements"), with each of Matt Kupchin and Andrew Kupchin, and an indemnification pledge agreement, substantially in the form of Exhibit A hereto (the "Indemnification Pledge Agreement"), with Seller and the sole shareholder of Seller. Section 6.4 Consents and Conditions. Buyer shall use its reasonable efforts to assist Seller in causing each of the conditions precedent to the obligations of Seller to be satisfied. Section 6.5 Further Actions. Buyer agrees to execute and deliver such instruments and take such other actions as may reasonably be required to consummate the transactions contemplated hereby in accordance with the terms hereof. ARTICLE VII CONDITIONS PRECEDENT TO buyer's OBLIGATIONS Section 7.1 Conditions. The obligation of Buyer to consummate the Acquisition on the Closing Date is subject to the satisfaction of the following conditions (any or all of which may be waived by Buyer, in its sole discretion, in whole or in part, to the extent permitted by applicable law): (i) each of the representations and warranties of Seller contained herein shall be true and correct in all material respects on and as of the Closing Date with the same force and effect as though the same had been made on and as of the Closing Date; (ii) Seller shall have performed and complied, in all material respects, with the covenants and provisions of this Agreement required to be performed or complied with by it between the date hereof and the Closing Date; 15 (iii) since the date of this Agreement, no event or circumstance shall have occurred that has had, or is reasonably likely to have, a material adverse effect on the business, assets, properties, liabilities, financial condition or results of operations of Seller; (iv) (A) no Legal Proceeding shall have been instituted or threatened or claim or demand made against Seller or Buyer seeking to restrain or prohibit or to obtain damages with respect to the consummation of the transactions contemplated by this Agreement, or which might, in the reasonable opinion of Buyer, result in a material adverse change in the business, assets, properties, liabilities, financial condition or results of operations of Seller and (B) there shall not be in effect any Order of a Government Body of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement; (v) Theatre Direct International shall have consented to the assignment to Buyer of the contract between Seller and Theatre Direct International, as amended on April 14, 2000; (vi) Buyer shall have received a certificate of the Secretary of Seller, dated the Closing Date, setting forth resolutions of the Board of Directors and of the shareholders of Seller authorizing the execution and delivery of this Agreement and each document and instrument required to be executed and delivered by Seller hereunder and the consummation of the transactions contemplated hereby and thereby, and certifying that such resolutions were duly adopted and have not been rescinded or amended as of the Closing Date; (vii) Seller and the sole shareholder of Seller shall have executed and delivered to Buyer the Indemnification Pledge Agreement in the form of Exhibit A hereto and each of Matt Kupchin and Andrew Kupchin shall have executed and delivered to Buyer the Employment Agreements in the form of Exhibit B hereto; and (viii) Seller shall have executed and delivered to Buyer (A) all documents to be delivered at the Closing in accordance with the terms of this Agreement and (B) such other documents and instruments as Buyer may reasonably request and which Seller can obtain with reasonable commercial efforts in order to consummate the transactions contemplated by this Agreement. 16 ARTICLE VIII CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS Section 8.1 Conditions. The obligation of Seller to consummate the Acquisition on the Closing Date is subject to the satisfaction of the following conditions (any or all of which may be waived by Seller, at the sole option of Seller, in whole or in part to the extent permitted by applicable law): (i) each of the representations and warranties of Buyer contained herein shall be true and correct in all material respects on and as of the Closing Date with the same force and effect as though the same had been made on and as of the Closing Date; (ii) Buyer shall have performed and complied, in all material respects, with the covenants and provisions of this Agreement required to be performed or complied with by it between the date hereof and the Closing Date; (iii) Seller shall have received a certificate of the Secretary of Parent Company, dated the Closing Date, setting forth resolutions of the Board of Directors of Parent Company authorizing the execution and delivery of this Agreement and each document and instrument required to be executed and delivered by Buyer or Parent Company hereunder and the consummation of the transactions contemplated hereby and thereby, and certifying that such resolutions were duly adopted and have not been rescinded or amended as of the Closing Date; and (iv) Buyer shall have executed and delivered to Seller (A) all documents to be delivered at the Closing in accordance with the terms of this Agreement and (B) such other documents and instruments as Seller may reasonably request and which Buyer can obtain with reasonable commercial efforts in order to consummate the transactions contemplated by this Agreement. ARTICLE IX THE CLOSING Section 9.1 Closing Date. Except as hereinafter provided, the closing of the transactions contemplated by this Agreement (the "Closing") shall take place at a mutually agreeable place and time or soon as practicable following the date on which each of the conditions specified in Section 7.1 and Section 8.1 (other than those as to which the parties agree will be satisfied at the Closing) of this Agreement has been fulfilled (or waived by the party entitled to waive that condition). The date on which the Closing of the Acquisition occurs is referred to herein as the "Closing Date." Section 9.2 Proceedings at the Closing. All proceedings to be taken and all documents to be executed and delivered by Seller in connection with the Closing shall be reasonably satisfactory in form and substance to Buyer and its counsel. All proceedings to be taken and all documents to be executed and delivered by Buyer in connection with the Closing shall be reasonably satisfactory in form and substance to Seller and its counsel. All proceedings to be taken and all documents to be executed and delivered by both parties at the Closing shall be deemed to have been taken and executed simultaneously, and no proceedings shall be deemed taken nor any documents executed or delivered until all have been taken and delivered. 17 Section 9.3 Deliveries by Seller to Buyer. At the Closing, Seller shall deliver, or shall cause to be delivered, to Buyer the following: (i) a bill of sale and assignment and assumption agreement in the form of Exhibit C hereto (the "Bill of Sale and Assignment and Assumption Agreement"), duly executed by Seller; (ii) an affidavit of Seller, in a form reasonably satisfactory to Buyer, stating, under penalties of perjury, Seller's United States taxpayer identification number and that Seller is not a foreign person within the meaning of Section 1445(b)(2) of the Code; and (iii) all other assignments and other instruments or documents as shall be reasonably necessary in the judgment of Buyer to evidence the sale, assignment, transfer and conveyance by Seller to Buyer of the Assets in accordance with the terms hereof, free and clear of all Liens. 18 ARTICLE X ADDITIONAL POST-CLOSING COVENANTS Section 10.1 Further Assurances by Seller. (b) From time to time after the Closing Date, Seller will, at the request of Buyer, execute and deliver such other and further instruments of sale, assignment, transfer and conveyance and take such other and further actions as Buyer may reasonably request in order to make all the benefits of the Assigned Contracts and rights of Seller included in the Assets available to Buyer, to vest in Buyer and put Buyer in possession of the Assets and to transfer to Buyer any contracts and rights of Seller relating to the Assets and to assure to Buyer the benefits thereof and effectuate fully the purposes of this Agreement. Section 10.2 Seller to Change Name. On the Closing Date or as soon thereafter as practicable (but in no event more than 5 business days thereafter), Seller shall adopt (and shall make all appropriate filings so as to adopt), and shall thereafter do business under, a new name which does not contain the words Broadway or Theater or any variation thereof. Section 10.3 Preservation of Corporate Records. Seller shall preserve and keep the Corporate Records for a period of seven years from the Closing Date and shall make such Corporate Records and personnel, if any, of Seller available to Buyer as Buyer may reasonably require (i) in connection with, among other things, any insurance claims by, Legal Proceedings against or governmental investigations of Buyer or (ii) in order to enable Buyer to comply with its obligations under the Code, any other applicable statute with respect to taxation, this Agreement and each other agreement, document or instrument contemplated hereby. If Seller wishes to destroy such Corporate Records after such seven year period, then Seller shall first give 90 days prior written notice to Buyer and Buyer shall have the right at its option and expense, upon prior written notice given to Seller within that 90 day period, to take possession of the Corporate Records within 180 days after the date of such notice. Section 10.4 Confidentiality. From and after the Closing Date, none of Seller, any of its employees or the Shareholders shall divulge, furnish or make available to any person any knowledge or information with respect to the Assets or Buyer (other than in the regular course and in furtherance of the Buyer's business) which is, or which Seller or the sole shareholder of Seller is advised or has reason to believe is, confidential (including, but not limited to, information relating to any marketing, financial or personnel matters in connection with the Assets). ARTICLE XI INDEMNIFICATION Section 11.1 Indemnification. (a) Seller agrees to indemnify and hold Buyer harmless from and against any and all losses, liabilities, obligations, judgments, damages, 19 deficiencies, costs, penalties and expenses (including, without limitation, reasonable attorneys' fees and expenses) (collectively, "Losses") based upon, attributable to or resulting from: (i) any misrepresentation or breach of warranty on the part of Seller under this Agreement or any of the Seller Documents or (B) any breach of covenant or other agreement on the part of Seller under this Agreement, or any of the Seller Documents; (ii) any Liabilities of Seller not expressly assumed by Buyer under the terms of this Agreement, including, without limitation: (A) any liabilities and obligations arising out of or based upon the conduct of the business of Seller prior to the Closing Date (other than obligations or liabilities that are expressly assumed by Buyer under the terms of this Agreement); (B) any claims for any injury to person or property attributable to any services rendered by Seller prior to the Closing Date, regardless of whether such claims are asserted prior to or after the Closing; (C) any claims by any employee or former employee of Seller arising out of the employment or termination of employment of the employee or former employee on or prior to the Closing Date or as a result of the transactions contemplated by this Agreement; and (D) any third party claims with respect to occurrences or events that occurred on or prior to the Closing Date and relate to Seller, its employees or the Assets; (iii) any liabilities and obligations, based in any way on agreements, arrangements or understandings made by or on behalf of Seller, for any brokerage fees, finder's fees, commissions or like payments in respect of the transactions contemplated by this Agreement; (iv) all actions, suits, proceedings, demands, assessments, judgments, costs, penalties and expenses, including reasonable attorneys' fees, incident to the foregoing. (b) Buyer agrees to indemnify and hold Seller harmless from and against any and all Losses attributable to or resulting from: (i) (A) any misrepresentation or breach of warranty on the part of Buyer under this Agreement or any of the Buyer Documents or (B) any breach of covenant or other agreement on the part of Buyer under this Agreement or any of the Buyer Documents; (ii) any liabilities expressly assumed by Buyer pursuant to Section 1.3 hereof; (iii) to the extent Buyer is not indemnified with respect thereto under Section 11.1(a), any claims that arise from Buyer's ownership or operation of the Assets subsequent to the Closing Date, including, without limitation, any claims by any employee or former employee of Buyer arising out of the employment or termination of employment of the employee or former employee subsequent to the Closing Date or as a result of the transactions contemplated by this Agreement; 20 (iv) any liabilities and obligations, based in any way on agreements, arrangements or understandings made by or on behalf of Buyer, for any brokerage fees, finder's fees, commissions or like payments in respect of the transactions contemplated by this Agreement; and (v) all actions, suits, proceedings, demands, assessments, judgments, costs, penalties and expenses, including reasonable attorneys' fees, incident to the foregoing. Section 11.2 Procedures for Indemnification. Whenever a claim shall arise for indemnification under Section 11.1 above, with the exception of claims for litigation expenses in respect of a litigation as to which a notice of claim, as provided below in this Section 11.2, has previously been given, which expenses shall be funded on an ongoing basis, the party entitled to indemnification (the "Indemnified Party") shall promptly notify the party from whom indemnification is sought (the "Indemnifying Party") of such claim and, when known, the facts constituting the basis for such claim; provided, however, that in the event of any claim for indemnification hereunder resulting from or in connection with any claim or Legal Proceeding by a third party, the Indemnified Party shall give such notice thereof to the Indemnifying Party not later than 10 business days prior to the time any response to the asserted claim is required, if possible, and in any event within 5 business days following receipt of notice thereof. Notwithstanding anything in the preceding sentence to the contrary, the failure of any Indemnified Party to so notify the Indemnifying Party shall not relieve the Indemnifying Party from any liability for indemnification it may have if and to the extent that the Indemnifying Party shall not have been prejudiced by such omission. In the event of any such claim for indemnification resulting from or in connection with a claim or Legal Proceeding by a third party, the Indemnifying Party may, at its sole cost and expense, assume the defense thereof; provided, however, that the Indemnifying Party shall first have agreed in writing that it does not and will not contest its responsibility for indemnifying the Indemnified Party in respect of Losses attributable to such claim or Legal Proceeding; and, provided, further, that Seller shall not be entitled to assume the defense of any claim or Legal Proceeding against Buyer for Taxes with respect to a period ending after the Closing Date. If an Indemnifying Party assumes the defense of any such claim or Legal Proceeding, the Indemnifying Party shall be entitled to select counsel and take all steps necessary in the defense thereof; provided, however, that no settlement shall be made without the prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld (and if the Indemnified Party shall withhold its consent to any monetary settlement proposed by the Indemnifying Party and which the other party to the action has indicated it is prepared to accept, the Indemnified Party shall in no event be deemed for purposes of this Agreement, to have suffered Losses in connection with such claim or proceeding in excess of the proposed amount of such settlement); provided, further, that the Indemnified Party may, at its own expense, participate in any such proceeding with the counsel of its choice without any right of control thereof. So long as the Indemnifying Party is in good faith defending such claim or Legal Proceeding, the Indemnified Party shall not compromise or settle such claim without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld. If the Indemnifying Party does not assume the defense of any such claim or Legal Proceeding in accordance with the terms hereof, the Indemnified Party may defend (and, in the case of any claim or Legal Proceeding against Buyer for Taxes with respect to a period ending after the Closing Date, shall defend) against such claim or Legal Proceeding in such manner as it may deem appropriate, including, but not limited to, settling such claim or litigation (after giving prior 21 written notice of the same to the Indemnifying Party and obtaining the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld) on such terms as the Indemnified Party may deem appropriate, and the Indemnifying Party will promptly indemnify the Indemnified Party in accordance with the provisions of this Section 11.2; provided, however, that if the Indemnified Party does not obtain the prior written consent of the Indemnifying Party to any such settlement, and such written consent is not unreasonably withheld by the Indemnifying Party, the Indemnified Party shall not be entitled to indemnification hereunder from such Indemnifying Party with respect to the claim settled. Notwithstanding anything in this Section 11.2 to the contrary, if, in any claim or Legal Proceeding with respect to which the Indemnified Party has given the notice required under this Section 11.2, (i) the Indemnifying Party shall not have promptly employed counsel reasonably satisfactory to the Indemnified Party or (ii) such Indemnified Party shall have reasonably concluded, based upon the opinion of its outside legal counsel, that there may be one or more legal defenses available to it that are different from or additional to those available to the Indemnifying Party, then in either event (x) the Indemnified Party may participate in any such proceeding with the counsel of its choice, the expense for which shall be borne by the Indemnifying Party (but in no event shall the Indemnifying Party be required to pay the fees and expenses of more than one counsel employed by the Indemnified Party with respect to such claim or proceeding) and (y) the Indemnifying Party shall not have the right to direct the defense of any such action on behalf of the Indemnified Party. Section 11.3 Determination of Damages and Related Matters. (a) For purposes of indemnification under Sections 11.1(a)(i)(A) and 11.1(b)(i)(A), any breach of any representation or warranty shall be deemed to constitute a breach of such representation or warranty notwithstanding any limitation or qualification as to materiality set forth in such representation or warranty on the scope, accuracy or completeness thereto, it being the intention of the parties hereto that, each Indemnified Party shall be indemnified and held harmless from and against any and all Losses arising out of or based upon or with respect to the failure of any such representation or warranty to be true, correct and complete in any respect. Notwithstanding the foregoing, no Indemnifying Party shall be liable for purposes of indemnification under Section 11.1(a)(i)(A) or Section 11.1(b)(i)(A) until the amount of the Losses arising thereunder exceed $20,000, at which time the Indemnifying Party shall be liable for any and all Losses. (a) To the extent any payment under this Article XI cannot properly be treated as an adjustment to the Consideration for Tax purposes, then any such amount shall be increased to take account of any net Tax cost incurred by the Indemnified Party by reason of the receipt of any indemnity payment (grossed-up for such increase). Any payment to an Indemnified Party pursuant to this Article XI shall be reduced to take account of any net Tax benefit actually realized by the Indemnified Party in respect of the taxable year in which such Loss is incurred or paid and, with respect to a Tax benefit arising in a year subsequent to the year in which the Loss is paid or incurred, the Indemnified Party shall pay to the Indemnifying Party the amount of such Tax benefit (including, as relevant, any member of its Affiliated Group) when such Tax benefit is actually realized. In computing the amount of any such Tax cost or Tax benefit, the Indemnified Party shall be deemed to recognize all other items of income, gain, loss, deduction or credit before recognizing any item arising from the receipt of any indemnity payment hereunder or the incurrence or payment of any indemnified loss, liability, claim, damage or expense. 22 (b) In the absence of fraud or willful misconduct on the part of the Indemnifying Party or any of its employees or agents, an Indemnifying Party shall not have liability for Losses indemnifiable under Section 11.1(a) or Section 11.1(b) in excess of $2,500,000 in the aggregate; provided, however, that the foregoing cap shall not apply to any Losses in respect of Taxes for which Seller has indemnified Buyer under Section 11.1(a). (c) Until the earlier of three years after the Closing Date and such time as it is no longer possible in law or fact for the Indemnified Party to sustain Losses by reason of any breach hereof or to assert a claim with respect to any such breach or Losses, except as otherwise provided herein, the indemnification provisions of this Article XI shall survive. ARTICLE XII TERMINATION Section 12.1 Termination. This Agreement may be terminated (i) by the written agreement of Seller and Buyer or, (ii) by either Seller or Buyer by written notice to the other given after the date that is thirty (30) days after the date of this Agreement if the Closing shall not have occurred on or before such date. Section 12.2 Liabilities After Termination. Upon any termination of this Agreement pursuant to Section 12.1 above, no party hereto shall thereafter have any further liability or obligation hereunder; provided, however, that no such termination shall relieve any party hereto of any liability for any breach of this Agreement prior to the date of such termination and provided, further, that Seller shall remain bound by Section 5.3 above, Buyer shall remain bound by Section 6.2 above, and each of Seller and Buyer shall remain bound by Section 13.5 below. ARTICLE XIII MISCELLANEOUS Section 13.1 Survival of Representations and Warranties. Seller and Buyer hereby agree that the representations and warranties contained in this Agreement, as supplemented or modified by any amendments to the Schedules hereto made on or prior to the Closing Date, shall survive the execution and delivery of this Agreement and shall further survive the Closing hereunder for a period of three years from the Closing Date, regardless of any investigation made by the parties hereto; provided, however, that the representations and warranties contained in Section 3.13 shall survive for the applicable statute of limitations plus 90 days. Section 13.2 Entire Agreement. This Agreement (with its Schedules and Exhibits) contains, and is intended as, a complete statement of, all of the terms and the arrangements between the parties hereto with respect to the matters provided for herein, and supersedes any previous agreements and understandings among the parties hereto with respect to those matters. Section 13.3 Governing Law; Construction. This Agreement and all agreements related thereto shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts to be made, executed, delivered and performed wholly in such state, but without regard to conflicts of law principles of such state. The table of contents, captions and headings in this Agreement are for reference purposes only and shall be given no effect in 23 the construction and interpretation of this Agreement. No provision of this Agreement shall be construed against either party because such party drafted or caused to be drafted such provision. Each provision of this Agreement shall be construed as if such provision were proposed by both Buyer and Seller. Section 13.4 Transfer Taxes. Seller shall pay when due (i) all transfer and documentary taxes and fees imposed with respect to instruments of conveyance in the transactions contemplated hereby and (ii) all sales, use and other transfer or similar taxes on the transfer of the Assets contemplated hereby. Buyer shall execute and deliver to Seller at the Closing any certificates or other documents as Seller may reasonably request to perfect any exemption from any such transfer, documentary, sales or use tax. Section 13.5 Expenses. Each of Buyer and Seller shall bear its own expenses (including, without limitation, all fees and expenses of financial institutions, accountants, legal counsel, brokers, investment bankers and other advisors), incurred in connection with the negotiation, preparation, execution, review, delivery and performance of this Agreement, each of the other documents and instruments executed in connection with or contemplated by this Agreement or related hereto, and the consummation of the transactions contemplated hereby and thereby. Section 13.6 Notices. Any notice, request, instruction or other communication to be given under this Agreement or otherwise in connection with the Acquisition shall be in writing and shall be delivered by hand or prepaid telecopy, 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 telecopied, or if mailed, three days after mailing (one business day in the case of express mail or overnight courier service) to a party at the following address (or at such other address as such party may have specified by notice given to the other party pursuant to this provision): if to Seller at: 214 West 50th Street, 3R New York, NY 10019 Attention: Matt Kupchin Telecopier No.: (212) 656-1344 with a copy to: David H. Friedlander, Esq. 81 Park Drive Mt. Kisco, NY 10549 Fax (914) 242-9361 24 and if to Buyer at: Hollywood.com, Inc. 2255 Glades Road Suite 237W Boca Raton, Florida 33431 Attention: Mitchell Rubenstein, CEO Telecopier No.: (561) 998-2974 with a copy to: Hollywood.com, Inc. 2255 Glades Road Suite 237W Boca Raton, FL 33431 Attention: W. Robert Shearer, General Counsel Telecopier No.: (561) 998-2974 Section 13.7 Severability. If any provision of this Agreement, or the application of such provision to Buyer, Seller, or any Person or circumstance, shall be held invalid, then the remainder of this Agreement, or the application of such provision to persons, entities or circumstances other than those as to which it is held invalid, shall not be affected thereby. Section 13.8 Binding Effect; No Assignment. (e) This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. Nothing in this Agreement shall create or be deemed to create any third party beneficiary rights in any Person not party to this Agreement. Except as expressly permitted below, no assignment of this Agreement or of any rights or obligations hereunder may be made by either party (by operation of law or otherwise) without the prior written consent of the other party hereto and any attempted assignment without such required consent shall be void. (f) Prior to the Closing, Buyer may assign any and all of its rights and obligations under this Agreement to any third party, if Buyer directly and unconditionally guarantees the obligations of such assignee under this Agreement. After the Closing, Buyer may assign any or all of its rights and obligations with respect to the Assets without the consent of Seller, provided that Buyer shall cause its obligations to Seller under this Agreement in respect of the Acquisition to be binding upon any successor to Buyer and Buyer shall directly and unconditionally guarantee the obligations of such successor. Section 13.9 Amendments. This Agreement may be amended, supplemented or modified, and any provision hereof may be waived, only pursuant to a written instrument making specific reference to this Agreement signed by each of the parties hereto. Section 13.10 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 25 IN WITNESS WHEREOF, the parties hereto have executed this instrument as of the date and year first above written. BROADWAYTHEATER.COM, INC. By:/s/ Matt Kupchin ------------------- Matt Kupchin President HOLLYWOOD.COM, INC. By:/s/ W. Robert Shearer ------------------------ W. Robert Shearer Senior Vice President and General Counsel 26 SCHEDULES 1.1(a) Assigned Contracts 3.5 Liabilities 3.7 Litigation, etc. 3.10(b) Consents 3.12 Intangible Property 3.13 Taxes 3.14 Permits EXHIBITS Exhibit A Form of Indemnification Pledge Agreement Exhibit B Form of Employment Agreements Exhibit C Form of Bill of Sale and Assignment and Assumption Agreement EX-27.1 3 0003.txt
5 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 2,385,049 0 2,604,191 134,822 1,252,084 30,918,891 3,888,561 (1,323,360) 192,189,004 6,459,509 0 0 0 235,014 182,836,105 192,189,004 9,983,245 9,983,245 2,879,710 29,044,404 (28,407) 0 115,803 (20,927,161) 0 (20,927,161) 0 0 0 (20,927,161) (0.93) (0.93)
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