-----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, PSF/JKUHQOYQ/BA8vZwQJSKdgobTJU+N/uUpUpZOukMsBzKjqYhcnThKFssC4g+o VXfshxHWc9TqQIdlxjxmXw== 0001116502-01-500415.txt : 20010516 0001116502-01-500415.hdr.sgml : 20010516 ACCESSION NUMBER: 0001116502-01-500415 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOLLYWOOD MEDIA CORP CENTRAL INDEX KEY: 0000912544 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RETAIL STORES, NEC [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: 1635079 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: HOLLYWOOD COM INC DATE OF NAME CHANGE: 20000511 FORMER COMPANY: FORMER CONFORMED NAME: BIG ENTERTAINMENT INC DATE OF NAME CHANGE: 19930924 10-Q 1 hollywood-10q.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 March 31, 2001 [ ] 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 MEDIA CORP. (Exact name of registrant as specified in its charter) Florida 65-0385686 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2255 Glades Road, Suite 237 West Boca Raton, Florida 33431 (Address of principal executive offices) (zip code) (561) 998-8000 (Registrant's telephone number) Hollywood.com, Inc. (Former Name) Indicated by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ----- As of May 10, 2001, the number of shares outstanding of the issuer's common stock, $.01 par value, was 25,837,619. HOLLYWOOD MEDIA CORP. Table of Contents
Page(s) ------- PART I FINANCIAL INFORMATION - ------ --------------------- ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets as of March 31, 2001 (unaudited) and December 31, 2000........................................ 3 Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2001 and 2000 (unaudited) ........................ 4 Condensed Consolidated Statement of Shareholders' Equity for the Three Months ended March 31, 2001 (unaudited)............................ 5 Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2001 and 2000 (unaudited)......................... 6 Notes to Condensed Consolidated Financial Statements (unaudited)......... 7-15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................ 15-26 PART II OTHER INFORMATION - ------- ----------------- ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS..................................... 27 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................... 29 Signature ................................................................................. 31
2 HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31, 2001 2000 ------------- ------------- (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,599,234 $ 1,911,224 Receivables, net 1,614,000 1,866,565 Inventories 728,125 106,700 Prepaid expenses 469,484 687,028 Other receivables 207,550 366,251 Other current assets 241,743 240,450 Deferred advertising - CBS 18,845,194 19,131,714 ------------- ------------- Total current assets 23,705,330 24,309,932 PROPERTY AND EQUIPMENT, net 2,764,512 2,802,840 INVESTMENTS 415,521 805,045 NONCURRENT DEFERRED ADVERTISING - CBS 87,002,721 91,714,019 INTANGIBLE ASSETS, net 3,262,997 3,745,579 GOODWILL, net 43,879,049 45,173,047 OTHER ASSETS 756,354 727,620 ------------- ------------- TOTAL ASSETS $ 161,786,484 $ 169,278,082 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 2,761,660 $ 3,194,105 Other accrued expenses 2,577,351 2,444,113 Notes payable 750,000 750,000 Loan from shareholder/officer 500,000 -- Accrued reserve for closed stores 525,786 798,362 Deferred revenue 1,250,656 1,556,841 Current portion of capital lease obligations 734,033 627,597 ------------- ------------- Total current liabilities 9,099,486 9,371,018 ------------- ------------- CAPITAL LEASE OBLIGATIONS, less current portion 667,211 721,521 ------------- ------------- DEFERRED REVENUE 272,153 331,559 ------------- ------------- MINORITY INTEREST 158,315 160,094 ------------- ------------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred Stock, $.01 par value, 539,127 shares authorized; none outstanding -- -- Common stock, $.01 par value, 100,000,000 shares authorized; 25,007,982 and 24,730,968 shares issued at March 31, 2001 and December 31, 2000, respectively. 250,079 247,309 Warrants outstanding 7,273,335 7,007,013 Deferred compensation (51,033) (102,067) Additional paid-in capital 264,874,901 264,332,941 Accumulated deficit (120,757,963) (112,791,306) ------------- ------------- Total shareholders' equity 151,589,319 158,693,890 ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 161,786,484 $ 169,278,082 ============= =============
The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated statements. 3 HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31, ------------------------------------ 2001 2000 ------------ ------------ NET REVENUES $ 13,352,037 $ 4,077,696 COST OF REVENUES 8,919,185 949,971 ------------ ------------ Gross margin 4,432,852 3,127,725 ------------ ------------ OPERATING EXPENSES: General and administrative 1,829,731 2,343,505 Selling and marketing 925,593 2,418,731 Salaries and benefits 3,119,836 2,432,915 Amortization of CBS advertising - non-cash 5,048,292 4,124,197 Amortization of goodwill and intangibles 1,800,180 1,651,934 Depreciation and amortization 349,898 317,455 Reversal for closed stores and lease termination costs, net (272,016) -- ------------ ------------ Total operating expenses 12,801,514 13,288,737 ------------ ------------ Operating loss (8,368,662) (10,161,012) EQUITY IN EARNINGS OF INVESTMENTS 447,875 1,105,337 OTHER INCOME (EXPENSE): Interest, net (5,911) (59,200) Other, net 4,914 -- ------------ ------------ Loss before minority interest (7,921,784) (9,114,875) MINORITY INTEREST (44,873) (59,151) ------------ ------------ Net loss $ (7,966,657) $ (9,174,026) ============ ============ Basic and diluted net loss per common share $ (0.32) $ (0.42) ============ ============ Weighted average common and common equivalent shares outstanding - basic and diluted 24,706,527 21,830,827 ============ ============
The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated statements. 4 HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2001 (Unaudited)
Common Stock ------------------------------- Warrants Deferred Shares Amount Outstanding Compensation ------------- ------------- ------------- ------------- Balance - December 31, 2000 24,730,968 $ 247,309 $ 7,007,013 $ (102,067) Issuance of common stock, stock options and warrants for services rendered -- -- 266,322 -- Employee stock bonus 4,138 41 -- -- Issuance of common stock - adjustment warrants 125,876 1,259 -- -- Issuance of common stock - services agreement 160,000 1,600 -- -- Amortization of employee stock bonuses -- -- -- 51,034 Shares repurchased and retired (13,000) (130) -- -- Net loss -- -- -- -- ------------- ------------- ------------- ------------- Balance - March 31, 2001 25,007,982 $ 250,079 $ 7,273,335 $ (51,033) ============= ============= ============= =============
[RESTUBBED]
Additional Paid-in Accumulated Capital Deficit Total ------------- ------------- ------------- Balance - December 31, 2000 $ 264,332,941 $(112,791,306) $ 158,693,890 Issuance of common stock, stock options and warrants for services rendered (208,240) -- 58,082 Employee stock bonus 14,959 -- 15,000 Issuance of common stock - adjustment warrants (1,259) -- -- Issuance of common stock - services agreement 797,964 -- 799,564 Amortization of employee stock bonuses -- -- 51,034 Shares repurchased and retired (61,464) -- (61,594) Net loss -- (7,966,657) (7,966,657) ------------- ------------- ------------- Balance - March 31, 2001 $ 264,874,901 $(120,757,963) $ 151,589,319 ============= ============= =============
The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated statements. 5 HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, ------------------------------- 2001 2000 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (7,966,657) $ (9,174,026) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 2,150,078 1,969,389 Equity in earnings of investments, net of return of invested capital 389,524 (638,560) Issuance of compensatory stock options and warrants for services rendered 73,082 51,028 Amortization of deferred compensation costs 51,034 51,033 Provision for bad debts 34,628 25,514 Provision for inventory obsolescence -- 13,444 Amortization of deferred financing costs -- 2,145 Reversal for closed stores and lease terminations costs (272,576) -- Amortization of CBS advertising - non-cash 5,048,292 4,124,197 Minority interest 44,873 59,151 Changes in assets and liabilities: Receivables 411,638 (863,542) Prepaid expenses 217,544 (72,969) Inventories (621,425) 88,095 Other current assets (1,293) (28,552) Other assets (28,734) 7,561 Accounts payable 367,119 (1,313,419) Accrued professional fees (20,082) (15,485) Deferred revenue (416,065) (69,730) Other accrued expenses 129,720 253,558 ------------ ------------ Net cash used in operating activities (409,300) (5,531,168) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Loan to Beach Wrestling LLC (35,000) -- Investment in url -- (1,000,000) Capital expenditures (194,006) (424,612) Return of capital from Tekno Books to minority partner (46,652) (190,282) ------------ ------------ Net cash used in investing activities (275,658) (1,614,894) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from shareholder/officer loan 500,000 -- Net proceeds from issuance of common stock -- 5,303,030 Proceeds from exercise of stock options and warrants -- 6,120,046 Payments to repurchase common stock (61,594) (198,075) Payments under capital lease obligations (65,438) (124,290) ------------ ------------ Net cash provided by financing activities 372,968 11,100,711 ------------ ------------ Net (decrease) increase in cash and cash equivalents (311,990) 3,954,649 CASH AND CASH EQUIVALENTS, beginning of period 1,911,224 2,475,345 ------------ ------------ CASH AND CASH EQUIVALENTS, end of period $ 1,599,234 $ 6,429,994 ============ ============ SUPPLEMENTAL SCHEDULE OF CASH RELATED ACTIVITIES: Interest paid $ 5,193 $ 94,065 ============ ============
The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated statements. 6 HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) BASIS OF PRESENTATION: In the opinion of management, the accompanying condensed consolidated financial statements have been prepared by Hollywood Media Corp. (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 accepted accounting principles generally accepted in the United States have been condensed or omitted pursuant to those rules and regulations. However, the Company believes that the disclosures contained herein are adequate to make the information presented not misleading. The financial statements reflect, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to present fairly the Company's financial position and results of operations. The results of operations and cash flows for the three months ended March 31, 2001 are not necessarily indicative of the results of operations or cash flows which may be recorded for the remainder of 2001. 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, 2000. In the event that the Company requires additional funding, the Company's Chairman of the Board and Chief Executive Officer and the Company's Vice Chairman and President, have indicated their intention to provide the Company, if required, with an amount not to exceed $6 million in order to enable the Company to meet its working capital requirements during 2001; provided, however, that the commitment will terminate to the extent the Company raises no less than $6 million from other sources and such additional funding is not expended on acquisitions. During the first quarter 2001 the Company drew $500,000 of such funding which was repaid subsequent to March 31, 2001. As a result of the financing raised by the Company subsequent to March 31, 2001, described in Note 14, the commitment was reduced to $2.25 million. Accounting Estimates The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates and assumptions embodied in the accompanying financial statements include the adequacy of reserves for accounts receivables and closed stores and the Company's ability to realize the carrying value of goodwill, intangible assets, investments in less than 50% owned companies and other long-lived assets, including the remaining carrying value of deferred advertising received from CBS in 2001 and 2000 in exchange for shares of the Company's common stock. 7 (2) ACQUISITIONS: 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. On September 15, 2000, the Company acquired Theatre Direct NY, Inc. ("TDI") from Cameron Macintosh for 66,291 shares of common stock valued at $505,719 and assumed $750,000 in promissory notes. In addition, the Company placed 195,874 shares in escrow for a period of twelve months. In January 2000 the Company acquired the web address Broadway.com for a purchase price of $1.6 million. The acquisitions of BroadwayTheater.com and TDI in 2000 were accounted for as a purchase and, accordingly, their operating results have been included in the Company's consolidated financial statements since the date of acquisition. The following are unaudited pro forma combined results of operations of the Company and TDI for the three months ended March 31, 2000 as if the acquisition of TDI had occurred on January 1, 2000: Net Revenues $ 10,396,346 ================ Net Loss $ (9,319,162) ================ Pro Forma Diluted Loss Per Share $ (.43) ================ Weighted Average Shares Outstanding 21,897,118 ================ 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 the elimination of overhead charges from the former parent company. They do not purport to be indicative of the results of operations which actually would have resulted had the acquired company 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 and therefore have been excluded from the pro forma combined results of operations. (3) DEBT: In association with the TDI acquisition in September 2000, the Company signed two promissory notes payable to the former owner. The notes payable have a face value of $500,000 and $250,000 and are due on July 31, 2001 and September 26, 2001, respectively. The $500,000 note bears interest at Citibank, N.A. prime plus 1% (8% at March 31, 2001) and the $250,000 note is non-interest bearing. 8 (4) OTHER ACCRUED EXPENSES: Other Accrued Expenses consist of the following: March 31, December 31, 2001 2000 ---------- ---------- Compensation and benefits $ 515,890 $ 496,032 Insurance 80,209 152,978 Acquisition costs 190,330 190,330 Professional fees 146,100 166,182 Licensing fees 105,825 91,800 Interest 96,944 57,159 Royalties 35,246 39,480 Other 1,406,807 1,250,152 ---------- ---------- $2,577,351 $2,444,113 ========== ========== (5) ACCRUED RESERVE FOR CLOSED STORES: In 1998, the Company aggressively pursued closure of its retail kiosk locations. In December 1999, the Company decided to exit its brick and mortar retail operation altogether and closed its remaining kiosks and in-line stores. The Company recorded provisions in 1998, 1999 and 2000, for the asset impairments, inventory write-downs, and the estimated cost of early lease terminations. The balance at March 31, 2001 and December 31, 2000 of $525,786 and $798,362 respectively, consists primarily of estimated liabilities remaining on lease obligations. During the three months ended March 31, 2001, the Company reduced such reserve by $272,576 due to favorable settlements and dismissals of matters related to outstanding lease obligations as a result of exiting the brick and mortar retail business. (6) COMMON STOCK: In February 2001 the Company issued 160,000 shares of common stock valued at $799,564 in exchange for the payment by a third party of $799,564 of certain media, goods and services obligations of the Company. During the three months ended March 31, 2001 the Company issued 125,876 shares of common stock to investors from the August 2000 private placement pursuant to the exercise of certain warrants. Pursuant to the Company's stock repurchase plan, during the three months ended March 31, 2001 the Company repurchased 13,000 shares of its common stock for an aggregate consideration of $61,594, or an average purchase price of $4.74 per share. 9 (7) INVESTMENTS: Investments consist of the following: March 31, December 31, 2001 2000 --------- --------- NetCo Partners (a) $ 859,190 $ 699,331 MovieTickets.com (b) (443,669) 105,714 Beach Wrestling LLC (c) -- -- --------- --------- $ 415,521 $ 805,045 ========= ========= (a) Netco Partners The Company owns a 50% interest in a joint venture called NetCo Partners. The Company records its investment under the equity method of accounting, recognizing 50% of NetCo Partners' income or loss as Equity in Earnings of Investment. The revenues, gross profit and net income of NetCo Partners for the three months ended March 31, 2001 and 2000 are presented below: Three Months Ended March 31, ------------------------------- 2001 2000 ---------- ---------- Revenues $1,171,264 $2,617,126 Gross Profit 998,786 2,202,349 Net Income 996,517 2,210,674 Company's Share of Net Income 498,258 1,105,337 As of March 31, 2001, NetCo Partners has $1,490,997 in accounts receivable. Management of NetCo Partners believes that these receivables will be collected in full and no reserves have been established. These accounts receivable are not included in the Company's consolidated balance sheets. NetCo Partners' deferred revenues, consisting of cash advances received but not yet recognized as revenue, amounted to $410,226 as of March 31, 2001. These deferred revenues are not included in the Company's consolidated balance sheets. As of March 31, 2001, the Company has received cumulative profit distributions from NetCo Partners since its formation totaling $6,002,179, 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 29, 2000 with the movie theater chains AMC Entertainment Inc. and National Amusements, Inc. to form MovieTickets.com, Inc. ("MovieTickets.com"), in which each venture partner 10 initially acquired a 33.33% interest in the joint venture. In August 2000, the joint venture sold a five percent interest in the joint venture to Viacom Inc. in exchange for $25 million of advertising over 5 years. In March 2001, America Online, Inc. purchased a 3% preferred equity interest in MovieTickets.com for $8.5 million in cash. The Company owns 31.67% of the common stock of MovieTickets.com, Inc. joint venture at March 31, 2001. The Company accounts for its investment under the equity method of accounting, recognizing 31.67% of MovieTickets.com income or loss as Equity in Earnings of Investments. During the three months ended March 31, 2001 and the twelve months ended December 31, 2000, the Company loaned $100,000 and $499,000 respectively, in cash to MovieTickets.com. For the three months ended March 31, 2001, the Company recorded a loss of $50,383 from its investment in MovieTickets.com, and received a loan repayment from MovieTickets.com of $599,000. In 2000 the Company issued warrants to acquire 90,573 shares of common stock at an exercise price of $17.875 per share valued at $1,000,000. The fair value of the warrant was recorded as goodwill and is being amortized over a period of ten years. (c) Beach Wrestling LLC. On November 10, 2000 an indirect wholly-owned subsidiary of the Company entered into an agreement with Cisnernos Television Group (CTG) and Siegel Partners to form Beach Wrestling LLC. Each partner owns a one-third ownership interest in Beach Wrestling LLC. Beach Wrestling LLC was formed to develop, market and distribute wrestling events via the Internet and television under the "Beach Wrestling" and "Pro Beach Wrestling" brands. At March 31, 2001, the indirect wholly owned subsidiary of Company had loaned $102,500 to Beach Wrestling LLC. These loans are included in accompanying condensed consolidated balance sheet as other receivables. (8) LOSS PER COMMON SHARE: Basic loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Options and warrants to purchase 4,820,851 and 4,098,510 shares of common stock were not included in the computation of loss per share for the three months ended March 31, 2001 and 2000 respectively, because the result would have been antidilutive for all periods presented. (9) BARTER TRANSACTIONS: The Company periodically enters into barter arrangements with other Internet companies to exchange advertising on each other's web sites. In January 2000, the Emerging Issues Task Force ("EITF") of the Financial Accounting Standards Board ("FASB") reached consensus on EITF Issue No. 99-17, Accounting for Advertising Barter Transactions." As permitted under EITF 99-17 the Company adopted the consensus prospectively for transactions occurring after January 20, 2000. EITF 99-17 allows gross reporting of advertising barter transactions only where barter transactions can be supported by an equivalent quantity of similar cash transactions. The Company recorded $53,130 and $249,830 for the three months ended March 31, 2001 and 2000 respectively, in barter revenue and expense relating to Internet advertising which accounted for approximately four tenths of one percent (0.4%) and six percent (6%) of total revenue for the three months ended March 31, 2001 and 2000, respectively. The Company also records barter revenue and expense under an agreement with the National Association of Theater Owners ("NATO") which the Company acquired through its acquisition of hollywood.com in 1999. In 11 connection with the NATO contract, the Company also acquired rights and obligations under ancillary agreements with individual theaters that participate in the NATO organization. Pursuant to these agreements, the Company hosts web sites for each of the theaters. In addition, the Company provides ongoing web site maintenance services for each of the theaters including providing promotional materials, movie and theater information, advertising and editorial content. In exchange, the theaters promote the Hollywood.com web site to movie audiences by airing movie trailers about Hollywood.com 40 out of 52 weeks per year, before feature films that play in most NATO-member theaters. The Company records revenue and expense from these activities measured at the fair value of the services exchanged. The Company recorded $745,438 for both the three months ended March 31, 2001 and 2000 in revenue and expense under the NATO contract. (10) SEGMENT REPORTING: The Company has six reportable segments: ticketing, business to business (b2b), Internet ad sales, e-commerce, retail and intellectual properties. The ticketing segment sells tickets to live theater events for Broadway, off-Broadway and London on the Internet and to domestic and international travel professionals including travel agencies and tour operators, educational institutions and traveling consumers. The business to business segment (b2b) licenses entertainment content and data and includes the divisions CinemaSource (which licenses movie showtimes and other movie content), and EventSource (which licenses local listings of concerts and music related events) to media, wireless and Internet companies. The Internet ad sales segment sells advertising on the Hollywood.com and Broadway.com web sites. 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 and a 51% interest in Tekno Books, a book development business. The e-commerce segment, which closed in January 2001, sold entertainment-related merchandise over the Internet. The retail segment operated retail studio stores that sold entertainment-related merchandise and was closed in December 1999. The Company evaluates performance based on a comparison of actual profit or loss from operations before income taxes, depreciation, interest, and nonrecurring gains and losses to budgeted amounts. The Company does not have intersegment sales or transfers. The following table illustrates the financial information regarding the Company's reportable segments. 12 The following table presents the financial information regarding the Company's reportable segments. Three Months Ended March 31, --------------------------------- 2001 2000 ------------ ------------ Net Revenues: Ticketing $ 9,728,487 $ -- Business to Business 1,666,756 1,002,508 Internet Ad Sales 1,464,902 2,310,355 Intellectual Properties 475,991 463,099 E-Commerce (a) 15,901 301,734 ------------ ------------ $ 13,352,037 $ 4,077,696 ============ ============ Gross Margin: Ticketing $ 1,203,549 $ -- Business to Business 1,589,457 942,444 Internet Ad Sales 1,457,873 2,052,280 Intellectual Properties 191,652 80,619 E-Commerce (9,679) 52,382 ------------ ------------ $ 4,432,852 $ 3,127,725 ============ ============ Operating Income (Loss): Ticketing $ 74,823 $ -- Business to Business 274,820 54,288 Internet Ad Sales (b) (6,153,128) (7,136,865) Intellectual Properties 107,966 118,789 E-Commerce 19,549 (641,036) Retail (c) 269,063 (28,405) Other (Corporate and other) (2,961,755) (2,527,783) ------------ ------------ $ (8,368,662) $(10,161,012) ============ ============ Capital Expenditures: Ticketing $ 2,006 $ -- Business to Business 10,614 71,983 Internet Ad Sales 154,190 277,626 Intellectual Properties -- 5,188 Other (Corporate and other) 27,290 69,815 ------------ ------------ $ 194,100 $ 424,612 ============ ============ Depreciation and Amortization Expense: Ticketing $ 14,160 $ -- Business to Business 44,360 24,820 Internet Ad Sales 734,752 645,667 Intellectual Properties 1,575 2,205 E-Commerce 1,551 3,606 Other (Corporate and other) 1,353,680 1,293,091 ------------ ------------ $ 2,150,078 $ 1,969,389 ============ ============ 13 (a) The e-commerce segment was closed in January 2001. (b) Includes $5,048,292 and $4,124,197 in amortization of non-cash CBS advertising for the three months ended March 31, 2001 and 2000, respectively. (c) The retail segment was closed on December 31, 1999. (11) COMMITMENTS AND CONTINGENCIES: 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. Steven B. Katinsky v. The Times Mirror Company, Hollywood.com, Inc. and Hollywood Online Inc. filed on September 8, 2000 in Superior Court of the State of California for the County of Los Angeles. Claim against Tribune Company (formerly The Times Mirror Company) and the Company seeking a performance cycle bonus allegedly owing to the plaintiff by Tribune Company in connection with the sale of Hollywood Online Inc. from Tribune Company to the Company. The claimant is seeking monetary damages in excess of $19.8 million for alleged fraud by the defendants in connection with the sale of Hollywood Online Inc. to the Company. The lawsuit was dismissed in December 2000 and the parties were ordered to arbitrate the dispute. The lawsuit is presently in consolidated arbitration with the Interviews.com v. Hollywood Online, Inc. arbitration referenced below. The Company is indemnified by Tribune Company for the amount of any such performance cycle bonus payable to the plaintiff. The Company believes that all claims by the claimant against the Company are without merit and intends to defend them vigorously. Interviews.com v. Hollywood Online, Inc. filed on August 17, 2000 in Superior Court of the State of California for the County of Los Angeles. The claim was dismissed in January 2001 and the parties were given the right to arbitrate the dispute. The lawsuit is presently in consolidated arbitration with the Steven B. Katinsky v. The Times Mirror Company arbitration referred above. This dispute involves a claim by Interviews.com that the Company's wholly owned subsidiary, hollywood.com, Inc. (formerly known as Hollywood Online, Inc.), did not timely perform its obligations with respect to the transfer of several domain names under an Assignment Agreement dated December 17, 1997. Interviews.com is owned and controlled by Steven Katinsky, the claimant in the matter described above. All matters related to this claim occurred prior to the Company's acquisition of Hollywood Online, Inc. in May 1999 and all domain names subject to the dispute have been transferred to the claimant. The domain names transferred were not being utilized by the Company and were not related to the Company's business. The claimant is seeking monetary damages in excess of $5 million. The Company believes that this claim is without merit and intends to defend it vigorously. (12) RECLASSIFICATION Certain amounts in the 2000 financial statements have been classified to conform with the 2001 classification. 14 (13) SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES For The Three Months Ended March 31, 2001: o Capital lease transactions totaled $117,564. o Warrants to acquire 70,000 shares of common stock at exercise prices of $3.00 and $4.25 per share and valued at $266,322 were granted to placement agents for proceeds raised in 2000. o The Company issued 160,000 shares of common stock valued at $799,564 in exchange for payment of $799,564 in certain media, goods and services statements of the Company by a third party. o The Company issued 4,138 shares of common stock valued at $15,000 as an incentive stock bonus to an officer. For the Three Months ended March 31, 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 at an exercise price of $17.875 per share and 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 Viacom. (14) SUBSEQUENT EVENT: In May 2001 the Company received $4.25 million in cash from two accredited investors in exchange for 942,362 shares of the Company's common stock. Also in May 2001 the Company received $3.0 million in cash from Viacom, Inc. consisting of a $1.4 million investment in the Company in exchange for 310,425 shares of the Company's common stock and a $1.6 million prepayment of advertising and promotion commitments to the Company. See Part II, Item 2. 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 Media Corp. (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 15 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, Inc. The Company is also subject to other risks detailed herein or detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 2000 and in other filings by the Company with the Securities and Exchange Commission. Overview We are an entertainment-focused media and Internet company that offers widely recognized brands and a broad collection of entertainment content data and related information in the industry, which we license to media and other companies including the New York Times, AOL Time Warner, Yahoo!, Sprint, AT&T Wireless, Verizon and others. The Company owns an extensive ticketing network and is engaged in the development and licensing of intellectual properties and licensing of books. The Company generates revenues through the business-to-business syndication of entertainment-related content, the sale of live theater tickets, the sale of advertising and from advances paid by publishers and royalties received from our library of book titles. Business to Business Syndication Divisions 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 newspapers, wireless companies, Internet sites, and other media outlets, including newspapers such as The New York Times and Newsday, Internet companies including AOL's Digital City, Yahoo!, Lycos, Excite, Ticketmaster and wireless providers such as Sprint PCS, AT&T Wireless and Verizon. CinemaSource also syndicates 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 City in April 2000 to provide event listings for up to 200 cities nationwide. In addition to Digital City, other EventSource customers include the web sites of The New York Times and Knight Ridder. TheaterSource. We launched the TheaterSource business in mid-2000 as a further expansion of the operations of EventSource. TheaterSource compiles and 16 syndicates a comprehensive database of theater productions and showtimes, covering shows on Broadway, off-Broadway, touring companies, community playhouses, dinner theaters throughout North America and in London's West End theater district. ConcertSource. We launched this business in October 2000. ConcertSource offers extensive local listings of concerts and music-related events from major arenas to small local jazz clubs, including a complete listing of every performance from major touring groups to hometown bands. ConcertSouce currently covers concert and event listings for the top 60 markets in the United States and plans to expand its coverage to more than 200 markets throughout North America. Baseline. We own and operate Baseline, a business which includes a pay-per-use subscription web site (located at Baseline.hollywood.com) and various publications including the Motion Picture Finance Investor newsletter, geared to movie studios, investment banks, news agencies, consulting firms and other professionals in the entertainment industry. We acquired Baseline 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. Baseline is a comprehensive database of information on over 67,000 films and television programs, as well as biographies on 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 Bloomberg, Daily Variety, People Magazine, Lexis-Nexis, 20th Century Fox, DreamWorks, Paramount Pictures, Sony Pictures, MGM, Warner Bros., E! Entertainment Television, Boston Consulting Group and Booz, Allen, Hamilton. Ticketing Divisions Theatre Direct International and Broadway.com. We acquired Theatre Direct International (TDI) as of September 15, 2000. Founded in 1990, TDI is a live theater marketing and sales agency serving over 40,000 domestic and international travel professionals, traveling consumers and New York-area theater patrons. TDI is a ticketing wholesaler to the travel industry that provides groups and individuals with access to theater tickets and knowledgeable service, covering shows on Broadway, long running shows off-Broadway and shows in London. TDI sells tickets through an 800 toll-free number, through SABRE (a travel agent reservation system), via the Broadway.com web site and by fax. As a marketing agency, TDI represents 12 producers and 17 Broadway shows to the travel industry around the world. The 17 Broadway shows are Aida, Beauty and the Beast, Blast, Cabaret, Chicago, Contact, 42nd Street, Jane Eyre, Kiss Me Kate, Les Miserables, Rent, Riverdance, The Full Monty, The Lion King, The Sound of Music, The Rocky Horror Show and The Phantom of the Opera. In addition, TDI's education division, Broadway Classroom, markets group tickets to schools across the country. TDI's offline ticketing service complements the online ticketing services available on Broadway.com. The combined companies provide live theater ticketing and related content for all Broadway shows and most shows running off-Broadway and in London's West End at over 200 venues in multiple markets to a customer base consisting of over 40,000 travel agencies, tour operators, corporations and educational institutions, in addition to numerous newspapers and web site. MovieTickets.com. MovieTickets.com Inc., was launched in late May 2000. At March 31, 2001, each of Hollywood Media Corp., AMC Entertainment, Inc. and National Amusements, Inc. owns approximately 31.67% of the outstanding common stock of MovieTickets.com, Inc. The venture entered into an agreement in 2000 with Viacom Inc. whereby Viacom acquired a five percent interest for $25 million of 17 advertising over five years. MovieTickets.com is promoted through on-screen advertising in each participating exhibitor's movie screens and through $25 million of Viacom advertising and promotion over the next five years. In March 2001, America Online Inc. purchased a 3% preferred equity interest in MovieTickets.com for $8.5 million in cash. In connection with that transaction, MovieTickets.com's ticket inventory will be promoted throughout America Online's interactive properties and ticket inventory of AOL's Moviefone will be featured on MovieTickets.com. As a result, MovieTickets.com will feature online ticket sales for 85% of all Internet-ready movie screens in the country. MovieTickets.com's current participating exhibitors include AMC Entertainment Inc., National Amusements, Inc., Famous Players Inc., Hoyts Cinemas Corporation, Marcus Theaters, Muvico Entertainment and several regional exhibitors. These exhibitors operate theaters located in all of the top 20 markets and approximately 70% of the top 50 markets in the United States and Canada and represent approximately 50% of the top 100 grossing theaters in North America. AMC Entertainment Inc. is the largest movie theater operator in the United States based on box office sales and Famous Players generates approximately half of all box office sales in Canada. The MovieTickets.com web site allows users to purchase movie tickets and retrieve them at "will call" windows or kiosks at theaters. The web site also features bar coded tickets that can be printed at home in participating theaters and presented directly to the ticket taker at the theater. The web site contains movie content from the Company's various units including Baseline for all current and future release movies, movie reviews and synopses, digitized movie trailers and photos, and box office results. The web site generates revenues from service fees charged to users for the purchase of tickets and the sale of advertising. Internet Divisions Hollywood.com. Hollywood.com is a premier entertainment related web site featuring over one million pages of in-depth movie, television and other entertainment content, including movie descriptions and reviews, digitized movie trailers and photos, movie showtimes 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. We sell banner advertising and sponsorships on Hollywood.com through relationships with advertising rep. firms and through an internal sales staff. Some of our recent advertisers include BMW, General Motors, Universal Studios, eBay, Proctor & Gamble, Visa, IBM, Diet Coke, New Line Cinema, MGM, US Army, Sprint, AT&T and Warner Brothers. We promote the Hollywood.com web site through our strategic relationships with Viacom Inc. and the National Association of Theatre Owners ("NATO"). Through exclusive contracts with NATO and over 85 of its member theater exhibitors, we promote the Hollywood.com web site to movie audiences by airing trailers about Hollywood.com before feature films that play in participating theaters and by displaying posters and other promotional materials in those theaters. In exchange, we develop and maintain web sites for many of the theater exhibitors that feature their movie showtimes. In January 2000 we entered into a strategic, seven-year relationship with Viacom Inc. that provides for extensive promotion of the Hollywood.com and Broadway.com web sites. Viacom has agreed to provide Hollywood.com and Broadway.com with $105 million of promotion across its full range of CBS media 18 properties, including the CBS television network, CBS owned and operated television stations, CBS cable networks, Infinity Broadcasting Corporation's radio stations and outdoor billboards and CBS syndicated television and radio programs. At March 31, 2001 approximately $80 million in CBS promotion remains available to us to be used. The promotion provided by Viacom is valued based upon the average price charged by Viacom for similar promotions during the applicable time period. To supplement our internal sales efforts, we also have the right to reallocate a portion of each year's promotional budget and require Viacom to sell up to $1.5 million of advertising on the Hollywood.com and Broadway.com web site. Viacom has agreed to include the Hollywood.com web site in all advertising sale programs and presentations that are appropriate for the sale of advertising on the web site. We will pay an 8% commission on any additional advertising revenues generated by Viacom for us in excess of the $1.5 million guaranteed amount selected by us each year. We have entered into and are pursuing several strategic relationships geared toward leveraging the Hollywood.com brand internationally. We entered into an agreement with America Online Latin America, Inc. in late 1999 pursuant to which we agreed to launch Portuguese and Spanish versions of the Hollywood.com web site to be promoted on AOL in countries throughout Latin America. We launched the br.hollywood.com Portuguese-language web site in Brazil in November 1999 and the mx.hollywood.com and ar.hollywood.com Spanish-language web site in Mexico and Argentina in May 2000. These web sites are tailored to the local movie-going audience and feature much of the same content that is on Hollywood.com, including daily entertainment news, movie descriptions and reviews, movie previews, movie soundtracks, celebrity profiles and biographies and interactive games. Each of these web sites are featured and promoted on the entertainment channels of both AOL Latin America and El Sitio.com, a Latin American-based Internet portal. Broadway.com. We launched Broadway.com on May 1, 2000. Broadway.com features the ability to purchase Broadway, off-Broadway and West End theater tickets online (See - Ticketing Divisions); 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 latest theater news; interviews with stage actors and playwrights; opening-night coverage; original theater reviews; and video excerpts from selected shows. Broadway.com 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 generates revenue from ticket sales, advertising sales, and syndication of its content to other media companies. 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 Anne McCaffrey's Acorna the Unicorn Girl, Leonard Nimoy's Primortals, and Mickey Spillane's Mike Danger. 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). 19 NetCo Partners. In June 1995, the Company and C.P. Group Inc. ("C.P. Group"), entered into an agreement to form NetCo Partners. NetCo Partners is engaged in the development and licensing of Tom Clancy's NetForce. The Company and C.P. Group are each 50% partners in NetCo Partners. Tom Clancy is a shareholder of C.P. Group. At the inception of the partnership, 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, Neil Gaiman's Lifers, and Anne McCaffrey's Saraband. NetCo Partners owns Tom Clancy's NetForce which was licensed to Putnam Berkley for a series of mass market paperbacks and to ABC Television for a television mini-series and video distribution in accordance with the terms of the partnership agreement, and the other properties have reverted back to the Company. 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 1,200 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. Results of Operations The following table summarizes the Company's revenues, cost of revenue and gross margin by division for the three months ended March 31, 2001 ("Q1-01") and 2000 ("Q1-00"), respectively:
Business to Internet Ad Intellectual Ticketing Business Sales Properties (a) E-Commerce Total ----------- ----------- ----------- ------------- --------- ----------- March 31, 2001 - -------------- Net Revenues $ 9,728,487 $ 1,666,756 $ 1,464,902 $ 475,991 $ 15,901 $13,352,037 Cost of Revenue 8,524,938 77,299 7,029 284,339 25,580 8,919,185 ----------- ----------- ----------- ----------- ----------- ----------- Gross Margin $ 1,203,549 $ 1,589,457 $ 1,457,873 $ 191,652 $ (9,679) $ 4,432,852 =========== =========== =========== =========== =========== =========== March 31, 2000 - -------------- Net Revenues $ -- $ 1,002,508 $ 2,310,355 $ 463,099 $ 301,734 $ 4,077,696 Cost of Revenue -- 60,064 258,075 382,480 249,352 949,971 ----------- ----------- ----------- ----------- ----------- ----------- Gross Margin $ -- $ 942,444 $ 2,052,280 $ 80,619 $ 52,382 $ 3,127,725 =========== =========== =========== =========== =========== ===========
20 (a) This does not include the Company's 50% interest in NetCo Partners which is accounted for under the equity method of accounting and is reported as equity in earnings of investments. Composition of our segments is as follows: o Ticketing - Includes our TDI ticketing business as well as the online ticketing operations generated through Broadway.com. o Business to Business (b2b) - Includes our CinemaSource, EventSource, TheaterSource, ConcertSource and Baseline syndication operations. o Internet ad sales - Includes advertising sold on the web sites Hollywood.com and Broadway.com. o Intellectual Properties - Includes our book development and book licensing operation through our 51% owned subsidiary Tekno Books and our 50.5% interest in Fedora, publisher of Mystery Scene Magazine. Does not include our 50% interest in NetCo Partners. o E-Commerce - The Company exited the e-commerce business in January 2001. NET REVENUES Total net revenues for Q1-01 and Q1-00 were $13,352,037 and $4,077,696, respectively an increase of $9,274,341 or 227%. The increase in revenue was primarily due to revenues resulting from the acquisition of TDI and BroadwayTheater.com and the launch of EventSource and Broadway.com. The Company acquired BroadwayTheater.com and TDI (ticketing businesses) in May and September of 2000, respectively. Ticketing revenues were $9,728,487 for Q1-01. We acquired BroadwayTheater.com on May 1, 2000 and TDI on September 15, 2000 therefore there were no ticketing revenues in Q1-00. We launched the Broadway.com website on May 1, 2000 where Broadway, off-Broadway and London theater tickets can be purchased. Ticketing revenue is generated from the sales of live theater tickets for Broadway, off-Broadway and London both online and offline, to domestic and international travel professionals, traveling consumers and New York area theater patrons. Business to business (b2b) revenues were $1,666,756 for Q1-01 as compared to $1,002,508 for Q1-00, an increase of $664,248 or 66%. This increase is attributable to a growth in revenues in our CinemaSource division and revenues from our EventSource division which launched in April 2000 when we entered into a contract with AOL's Digital City to provide event listings for up to 200 cities nationwide. Revenue is generated by the licensing of movie, event and theater showtimes and other content information to newspapers, wireless companies, internet sites and other media outlets such as Yahoo!, Lycos, Ticketmaster, Verizon, AT&T Wireless, Sprint PCS, The New York Times, Newsday and AOL Digital City. Internet ad sales were $1,464,902 for Q1-01 as compared to $2,310,355 for Q1-00 a decrease of $845,453 or 37%. This decrease is attributable to three reasons as follows: (i) recognition of ad revenue primarily on a net basis in Q1-01 resulting from the agreement with an ad rep agency which permits the agency to invoice advertisers on the Company's behalf, as compared to revenue recognition primarily on a gross basis in Q1-00, which accounts for approximately $140,000 of the decline; (ii) a decrease of $197,000 in barter transactions in Q1-01 as compared to Q1-00 due to a decision by the Company to accept less barter and (iii) the balance of the decrease is due to a softening in the online advertising market as a whole. Internet ad sales revenue is predominately derived from the sale of banner advertisements and sponsorships on Hollywood.com and Broadway.com web sites. 21 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 advertising on its web site was $53,130 for Q1-01 and $249,830 for Q1-00, a reduction of $196,700 or 79% and accounted for four tenths of one percent (0.4)% and six percent (6%) of the Company's total net revenue for Q1-01 and Q1-01, respectively. The Company records barter revenue and an equal amount of expense based on the fair value of similar cash transactions that the Company has entered into. 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 revenue and an equal amount of expense earned under a contract with 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 web site 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 web site and movie showtimes for the exhibiting NATO members, promotional materials and movie information and editorial content. The Company recorded $745,438 in promotional non-cash revenue and non-cash expense included in selling and marketing expense under the NATO contract for Q1-01 and Q1-00 respectively. Barter revenue from NATO recorded accounted for 6% and 18% of the Company's total net revenue for Q1-01 and Q1-00 respectively. Revenues from the Company's intellectual properties division increased by $12,892 or 3% from $463,099 for Q1-00 to $475,991 for Q1-01. The increase in revenues is attributable to a greater number of manuscripts being delivered in Q1-01 as compared to Q1-00. The intellectual properties division generates revenues from several different activities including book development and licensing, intellectual property licensing, and publishing Mystery Scene magazine. Revenues vary quarter to quarter dependent on the various stages of the book projects. Revenues are recognized when the earnings process has been completed based on the terms of the various agreements and when ultimate collection of such revenues is no longer subject to contingencies. E-commerce revenue for Q1-01 decreased $285,833 or 95% to $15,901 from $301,734 for Q1-00 as a result of the Company closing its e-commerce business in January 2001. COST OF REVENUE Cost of revenue for Q1-01 was $8,919,185 and $949,971 for Q1-00, an increase of $7,969,214. The increase in the cost of sales is primarily the result of the acquisition of TDI on September 15, 2000 and BroadwayTheater.com on May 1, 2000, our ticketing divisions. The ticketing division generates cost of revenues of approximately 88%. The Company did not own and operate the ticketing divisions in Q1-00; therefore there were no cost of revenue for these divisions in Q1-00. The ticketing divisions account for 96% of the cost of revenues for Q1-01. GROSS MARGIN Gross margin for Q1-01 was $4,432,852 as compared to $3,127,725 for Q1-00, an increase of $1,305,127 or 42%. Gross margin increased because of the substantial increase in revenue from Q1-00 to Q1-01 from the ticketing and business to business segments. As a percentage of net revenues the gross margin percentage in Q1-01 was 33% as compared to 77% in Q1-00. The decrease in gross margin percentage is attributable to our ticketing divisions which we 22 acquired in May and September of 2000 and did not own and operate in Q1-00. The ticketing segment generates a gross margin percentage of approximately 12% while our business to business and Internet ad sales segments generate gross margin percentages of greater than 90%. The addition of ticketing revenue into our mix of revenue streams has therefore reduced the overall gross margin percentage. EQUITY IN EARNINGS OF INVESTMENTS Equity in net earnings of investments consists of the Company's 50% interest in NetCo Partners and 31.67% interest in MovieTickets.com., Inc. Three Months Ended March 31, -------------------------------- 2001 2000 ----------- ----------- NetCo Partners (a) $ 498,258 $ 1,105,337 MovieTickets.com (b) (50,383) -- ----------- ----------- $ 447,875 $ 1,105,337 =========== =========== (a) NetCo Partners: The Company's 50% share in the earnings of NetCo Partners decreased $607,079 or 55% to $498,258 for Q1-01 from $1,105,337 for Q1-00 due primarily to the delivery of a manuscript to the publisher during Q1-00. During Q1-00 book number 5 in the Net Force Series of novels was delivered to the publisher. During Q1-01 a book was not delivered therefore accounting for the decrease in the Company's 50% share in earnings. NetCo has commenced work on book number 6 and expects to deliver the manuscript to the publisher during third quarter 2001. Revenue is recognized on book contracts when the earnings process is complete based on the terms of the contracts and at a point where ultimate collection is substantially assured. (b) MovieTickets.com: The MovieTickets.com website launched in May 2000, therefore there were no earnings or losses for Q1-00. The Company owns approximately 31.67% of the outstanding common stock of MovieTickets.com joint venture and its share of the loss of MovieTickets.com was $50,383 for Q1-01. The web site generates revenues from service fees charged to users for the purchase of tickets and the sale of advertising. Service fees were introduced in November 2000. 23 OPERATING EXPENSES General and administrative expenses. General and administrative expenses decreased $513,774 or 22% to $1,829,731 for Q1-01 from $2,343,505 for Q1-00. This decrease is primarily attributable to cost savings and consolidation measures implemented company-wide, including closing our Santa Monica, CA office in January 2001 as well as closing our e-commerce business division in January 2001 and savings in the areas of recruitment, consulting and freelance fees. The reductions in general and administrative expenses were offset by an increase in general and administrative expenses in our ticketing businesses as a result of the acquisitions of the ticketing businesses in May and September of 2000. As a percentage of revenue, general and administrative expenses decreased to 14% for Q1-01 from 57% for Q1-00. Selling and marketing expenses. Selling and marketing expenses decreased $1,493,138 or 62% to $925,593 for Q1-01 from $2,418,731 for Q1-00. Included in selling and marketing are non-cash barter transactions of $798,568 and $995,268 for the three months ended March 31, 2001 and 2000, respectively. Barter transactions accounted for approximately 86% and 41% of selling and marketing expense for the three months ended March 31, 2001 and 2000, respectively. The decrease in selling and marketing was primarily due to the reductions of on-line advertising and media production. As a percentage of revenue, selling and marketing expenses decreased to 7% for Q1-01 from 59% for Q1-00. Salaries and benefits. Salaries and benefits increased $686,921 or 28% to $3,119,836 for Q1-01 from $2,432,915 for Q1-00. This increase is attributable to payroll associated with our ticketing businesses which the Company did not own and operate during the first quarter of 2000, the launch of our EventSource business in April 2000, and an increase in personnel at the corporate offices to support the growth of the Company, offset by reductions in salaries from consolidation of technology and production from our Santa Monica, CA location into our South Florida location and the closing of our e-commerce division. As a percentage of revenue, salaries and benefits decreased to 23% for Q1-01 from 60% for Q1-00. Amortization. Amortization of goodwill and intangibles was $1,800,180 and $1,651,934 for Q1-01 and Q1-00, respectively. The increase of $148,246 or 9% is attributable to goodwill amortization from the acquisitions of TDI and BroadwayTheater.com. Amortization of CBS advertising relating to the Company's agreement with CBS was $5,048,292 and $4,124,197 for Q1-01 and Q1-00, respectively. Under the Company's agreement with CBS, the Company issued shares of common stock and warrants to purchase common stock in consideration of CBS's advertising and promotional efforts over seven years across its full range of media properties. The value of the Common Stock and warrants issued to CBS has been recorded in the balance sheet as deferred advertising and is being amortized over each related contract year. 24 Depreciation. Depreciation was $349,898 and $317,455 for Q1-01 and Q1-00, respectively. The increase of $32,443 or 10% in depreciation expense is attributable to an increased level of property and equipment from March 31, 2000 to March 31, 2001 of approximately $700,000. Interest Expense, net. Interest expense, net for Q1-01 was $5,911 compared to $59,200 for Q1-00 a decrease of $53,289 or 90%. The decrease is 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. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2001, the Company had cash and cash equivalents of $1,599,234 and working capital of $14,605,844, compared to cash and cash equivalents of $1,911,224 and working capital of $14,938,914 at December 31, 2000. Net cash used in operating activities during the first quarter of 2001 was $409,300, primarily representing cash used to fund the Company's net loss and an increase in ticketing inventory for TDI and Broadway.com. Net cash used in investing activities was $275,658, while $372,968 in cash was provided by financing activities. As a result of all of the above, cash and cash equivalents decreased by $311,990 for the three months ended March 31, 2001. In comparison, during the three months ended March 31, 2000, net cash used in operating activities was $5,531,168, net cash used in investing activities was $1,614,894, and $11,100,711 in cash was provided by financing activities. Net cash used in operating activities improved by $5,121,868 or 93% from $5,531,168 for Q1-00 to $409,300 for Q1-01. Pursuant to the Company's stock repurchase plan, during the three months ended March 31, 2001 the Company repurchased 13,000 shares of its common stock for an aggregate consideration of $61,594, or an average purchase price of $4.74 per share. In May 2001, the Company received $7.25 million in cash consisting of a $4.25 million investment by two accredited investors in exchange for 942,362 shares of the Company's common stock and $3.0 million by Viacom, Inc. consisting of a $1.4 million investment by Viacom, Inc. in exchange for 310,425 shares of the Company's common stock and a $1.6 million prepayment of advertising and promotion commitments. In the event that the Company requires additional funding and cannot secure additional funding, the Company's Chairman of the Board and Chief Executive Officer and the Company's Vice Chairman and President, have indicated their intention to provide the Company, if required, with an amount not to exceed $6 million in order to enable the Company to meet its working capital requirements during 2001; provided, however, that the commitment will terminate to the extent that the Company raises no less than $6 million from other sources and such additional funding is not expended on acquisitions. During the first quarter 2001 the Company drew $500,000 of such funding, which was repaid subsequent to March 31, 2001. As a result of the financing in May 2001 described above, the commitment was reduced to $2.25 million. 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 revenues or results of operations. The Company considers its business to be 25 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. 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. The Company believes that advertising sales in traditional media, such as television generally are lower in the first and third quarters of each year, and that advertising expenditures fluctuate with economic cycles. 26 PART II - OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS In February 2001 the Company issued 160,000 shares of common stock valued at $799,564 pursuant to the terms of a Services Agreement whereby certain media, goods and services of the Company equaling $799,564 were paid by the third party investor. As of April 25, 2001, the Company raised an aggregate of $7.25 million in cash, consisting of an aggregate $4.25 million investment by Societe Generale and Velocity Investment Partners Ltd., and a $3 million investment by Viacom Inc. consisting of a $1.4 million investment in the Company and a $1.6 million prepayment of future cash advertising and promotion commitments to the Company, as further described below. As of April 25, 2001, the Company agreed to issue an aggregate of 1,252,787 shares of the Company's common stock, $0.01 par value, to the three accredited investors, Societe Generale, Velocity Investment Partners Ltd. and Viacom Inc. (Viacom exercised its preemptive rights pursuant to Section 2.4 of that certain Investor's Rights Agreement dated January 3, 2000 between the Company and Viacom in connection with this financing) at $4.51 per share (which purchase price per share represents 105% of the "Market Price" of the Common Stock, which is defined as the average volume weighted average prices for the 20 business days prior to the closing date) for a total purchase price of $5.65 million in cash. The investors also received series A warrants to acquire an aggregate of 614,059 shares of common stock at a price of $6.44 per share (150% of the Market Price at closing). If on each of January 30, 2002 and April 30, 2002, any investor holds at least seventy-five percent of any such investor's shares of common stock issued to it in the transaction, then the exercise price of the series A warrants will be decreased to $5.37 per share and $4.51 per share, respectively, on such dates. The Company may issue additional shares of common stock to the investors from time to time in amounts in proportion to each of their respective investments on the terms set forth in the series B Warrant in the form attached hereto as Exhibit 10.5. In connection with this investment, Viacom also invested an additional one million six hundred thousand dollars ($1,600,000) in the Company as a prepayment of future cash advertising and promotion commitments owing under the Advertising and Promotion Agreement (the "Ad/Promo Agreement") dated as of January 3, 2000, between the Company and Viacom. Such payment shall reduce the "Annual Additional Promo Commitment" (as such term is defined in the Ad/Promo Agreement) by $1,500,000 for calendar year 2002 and by $1,500,000 for calendar year 2003. 27 Each Securities Purchase Agreement, Registration Rights Agreement, and Warrants entered into by, or issued to, as the case may be, each of Societe Generale, Velocity Investment Partners Ltd. and Viacom is substantially identical to the forms of such documents attached hereto as Exhibits and incorporated herein by reference, except that (a) the forms attached hereto as Exhibits and incorporated herein by reference, are the forms of documents executed by Societe Generale, (b) the Warrants issued to Velocity are identical to the forms filed as Exhibits 10.3 and 10.4 hereto, except that Velocity received 177,524 series A warrant shares, and (c) Viacom executed similar documents as the Exhibits attached hereto and incorporated herein by reference, except that (i) the Company issued to Viacom an aggregate of 310,425 shares of the Company's common stock, and (ii) Viacom received series A warrants to acquire an aggregate of 162,973 shares of common stock. The foregoing description does not purport to be complete and is qualified in its entirety by reference to agreements attached hereto as Exhibits 10.2, 10.3, 10.4 and 10.5, which Exhibits are incorporated herein by reference. During the quarter ended March 31, 2001, the Company issued stock options and warrants to purchase an aggregate of 790,599 shares of the Company's common stock, including 717,000 stock options granted to employees at exercise prices ranging from $3.875 to $6.50 per share and warrants to purchase a total of 70,000 shares at exercise prices ranging from $3.0 to $4.25 per share. Options granted to employees are subject to vesting periods ranging from six months to four years and generally expire five years from the date of issuance. The 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. 28
Item 6. Exhibits and Reports on Form 8-K. --------------------------------- (a) Exhibits: Incorporated by Exhibit Description Reference From ------- ----------- -------------- 3.1 Third Amended and Restated Articles of Incorporation (1) 3.2 Articles of Amendment to Articles of Incorporation of the Company for Designation of Preferences, Rights and Limitations of 7% Series D Convertible Preferred Stock (2) 3.3 Articles of Amendment to Articles of Incorporation of the Company for Designation of Preferences, Rights and Limitations of 7% Series D-2 Convertible Preferred Stock (3) 3.4 Articles of Amendment to Articles of Incorporation of the Company amending Designation of Preferences, Rights and Limitations of Series A Variable Rate Convertible Preferred Stock (4) 3.5 Articles of Amendment to Articles of Incorporation of the Company amending Designation of Preferences, Rights and Limitations of Series B Variable Rate Convertible Preferred Stock (4) 3.6 Bylaws (5) 4.1 Form of Common Stock Certificate (5) 4.2 Rights Agreement dated as of August 23, 1996 between the Company and American Stock Transfer & Trust Company, as Rights Agent (6) 10.1 Services Agreement dated as of February 9, 2001 between the Company and * Lakeside Ventures, LLC 10.2 Securities Purchase Agreement dated as of April 25, 2001 between * Hollywood Media Corp., Societe Generale and Velocity Investment Partners Ltd. 10.3 Registration Rights Agreement dated as of April 25, 2001 between * Hollywood Media Corp., Societe Generale and Velocity Investment Partners Ltd. 10.4 "A" Warrant issued to Societe Generale * 10.5 "B" Warrant issued to Societe Generale *
* Filed as an exhibit to this Form 10-Q. 29 (1) Incorporated by reference from the exhibit filed with the Company's Annual Report on Form 10-K for the year ended December 31, 2000. (2) Incorporated by reference from the exhibit filed with the Company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1998. (3) Incorporated by reference from the exhibit filed with the Company's Registration Statement on Form S-3 (No. 333-68209). (4) Incorporated by reference from exhibits filed with the Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 1999. (5) Incorporated by reference from the exhibit filed with the Company's Registration Statement on Form SB-2 (No. 33-69294). (6) Incorporated by reference from exhibit 1 to the Company's Current Report on Form 8-K filed on October 20, 1999. (b) Reports on Form 8-K The Company did not file any Current Report on Form 8-K during the quarter ended March 31, 2001. 30 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 MEDIA CORP. Date: May 14, 2001 By: /s/ Mitchell Rubenstein ------------------------------------ Mitchell Rubenstein, Chairman of the Board and Chief Executive Officer (Principal executive, financial and accounting officer) 31 EX-10.1 2 ex10-1.txt SERVICES AGREEMENT Execution Copy ================================================================================ SERVICES AGREEMENT by and between LAKESIDE VENTURES LLC, and HOLLYWOOD MEDIA CORP. Dated as of February 9, 2001 ================================================================================ Table of Contents
Page ---- 1. Designated Services; Issuance of Shares.........................................................1 1.1 Designated Services, Etc...............................................................1 1.2 Issuance of Shares, Etc................................................................2 2. Closing.........................................................................................2 3. Representations and Warranties of the Company...................................................2 3.1 Organization, Standing and Power.......................................................3 3.2 Authority; Execution and Delivery; Enforceability......................................3 3.3 No Conflicts; Consents.................................................................3 3.4 Authorization..........................................................................4 3.5 Capitalization.........................................................................4 3.6 SEC Reports............................................................................4 3.7 Litigation, etc........................................................................4 3.8 Acknowledgment.........................................................................4 4. Representations and Warranties of Lakeside......................................................5 4.1 Organization, Standing and Power.......................................................5 4.2 Authority; Execution and Delivery; Enforceability......................................5 4.3 No Conflicts; Consents.................................................................5 4.4 Limited Liability Company Action; Authorizations.......................................6 4.5 Knowledge and Experience...............................................................6 4.6 Not Organized to Purchase..............................................................6 4.7 Litigation, etc........................................................................6 5. Restrictions on Transfer Imposed by the Securities Act..........................................6 5.1 Legends, Etc...........................................................................6 5.2 Removal of Legend and Transfer Restrictions............................................7 5.3 Rule 144...............................................................................7 6. Conditions to Closing...........................................................................7 6.1 Conditions to Lakeside's Obligations...................................................7 6.2 Conditions to Obligations of the Company...............................................8 7. Additional Agreements of the Company............................................................8 7.1 Right of First Negotiation and Last Refusal............................................8 7.2. "Piggyback" Registration...............................................................9 7.3. Expenses of Registration..............................................................10 7.4. Registration Procedures...............................................................10 7.5. Indemnification.......................................................................11 7.6. Rule 144 Reporting....................................................................11 7.7 Adjustment to Payments................................................................11 i 8. Indemnification................................................................................12 9. Miscellaneous..................................................................................12 9.1 Waivers and Amendments................................................................12 9.2 Survival..............................................................................12 9.3 No Third-Party Beneficiaries..........................................................12 9.4 Successors and Assigns................................................................12 9.5 Entire Agreement......................................................................13 9.6 Notices...............................................................................13 9.7 Severability..........................................................................13 9.8 Brokers and Expenses, Etc.............................................................13 9.9 Governing Law.........................................................................14 9.10 Captions..............................................................................14 9.11 Execution in Counterpart..............................................................14 Exhibits Exhibit A - Description of Designated Services Exhibit B - Form of Company Counsel Opinion
ii SERVICES AGREEMENT SERVICES AGREEMENT, dated as of February 9, 2001(this "Agreement") by and between LAKESIDE VENTURES LLC, a Delaware limited liability company with principal offices located at 210 East 39th Street, New York, New York 10016 ("Lakeside"); and HOLLYWOOD MEDIA CORP., a Florida corporation, with principal offices located at 2255 Glades Road, Boca Raton, Florida 33413 (the "Company"). PREAMBLE WHEREAS, the Company desires to retain Lakeside to provide the Designated Services (as defined herein) for the Service Period (as defined herein); WHEREAS, Lakeside wishes to provide the Company with such Designated Services; WHEREAS, the Company wishes to acquire such Designated Services by the issuance to Lakeside of Shares (as defined herein) of the Company on the terms and conditions contained herein and Lakeside is willing to provide the Designated Services on such terms; NOW, THEREFORE, the Parties, intending to be bound hereby, do agree as follows: 1. Designated Services; Issuance of Shares. --------------------------------------- 1.1 Designated Services, Etc. (a) Designated Services. For the period of One (1) year from the date hereof (the "Service Period") the Company has retained Lakeside to furnish, and Lakeside shall furnish, the services described in Exhibit A hereto (the "Designated Services"). (b) Payment Notices. The Company shall notify Lakeside in writing (a "Payment Notice") of any payment obligation of Lakeside with respect to the Designated Services not earlier than thirty (30) Business Days and not later than ten (10) Business Days prior to the date such payments are due (the "Due Date"). Each Payment Notice shall set forth the amount of the payment to be made by Lakeside, the identity of the payee, the Due Date therefor and such other pertinent information as shall permit Lakeside to timely make such payment to the respective payee, and to properly account for the same in its books and records. In addition, each Payment Notice shall also set forth the aggregate dollar value of the Designated Services provided by Lakeside to the Company as of the date of such Payment Notice (but excluding any payment to be made by Lakeside on the Due Date referenced therein). In no event shall Lakeside be required to provide the Company with Designated Services pursuant to this Agreement with an aggregate dollar value in excess of $800,000 (the "Designated Services Cap"). Lakeside shall notify the Company in writing within ten (10) Business Days of receiving any Payment Notice in the event that the amount payable by Lakeside on the Due Date specified in such Payment Notice would cause the aggregate dollar value of the Designated Services provided by Lakeside to the Company pursuant to this Agreement to exceed the Designated Services Cap. For purposes hereof, "Business Day" shall mean any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed. (c) Notice of Payment. Lakeside shall notify the Company in writing on or prior to the Due Date with respect to a Payment Notice of the payment by Lakeside of the amount set forth in such Payment Notice or, if Lakeside fails to make such payment, the reason therefor. 1.2 Issuance of Shares, Etc. ----------------------- (a) Issuance of Shares. In consideration of Lakeside's (i) providing the Designated Services to the Company during the Service Period, and (ii) making the payment to the Company specified in Section 1.2(b) below, the Company has authorized the issuance and sale to Lakeside of One Hundred Sixty Thousand (160,000) shares of its common stock, $.01 par value per share (the "Shares") (the "Payment"). The Shares have the rights and provisions as set forth in the Company's Articles of Incorporation, as amended from time to time (the "Certificate of Incorporation"). Subject to Section 6.2 hereof, the Company shall deliver to Lakeside on the date hereof one or more certificates (collectively, the "Certificates") representing the Shares used by the Company to pay Lakeside for the Designated Services. The Certificates shall be issued in the name of Lakeside Ventures LLC. (b) Payment of Par Value. Subject to Section 6.1 hereof, Lakeside shall, on the date hereof, pay to the Company, in immediately available funds, $1,600 in cash to an account specified by the Company to Lakeside. 2. Closing. -------- Subject to satisfaction of the conditions contained in Section 6 hereof, the closing of the transaction shall be held at the offices of Pavia & Harcourt, 600 Madison Avenue, New York, New York 10022, on the date hereof, or at such other time and place as the parties hereto shall agree. The closing referred to in this Section 2 is hereinafter referred to as the "Closing" and the date of the Closing is hereinafter referred to as the "Closing Date". 3. Representations and Warranties of the Company. --------------------------------------------- The Company hereby makes the following representations and warranties, each of which is true, correct and complete on the date hereof (except where specifically provided otherwise), and each of which shall survive the Closing Date and the transactions contemplated hereby as set forth in Section 9.2 hereof. 2 3.1 Organization, Standing and Power. The Company is duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has full corporate power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to own, lease or otherwise hold its properties and assets and to conduct its businesses as presently conducted, other than such franchises, licenses, permits, authorizations and approvals the lack of which, individually or in the aggregate, have not had and could not reasonably be expected to have a material adverse effect (i) on the business, assets, condition (financial or otherwise) or results of operations of the Company, or (ii) on the ability of the Company to perform its obligations and to consummate the transactions contemplated by this Agreement (a "Company Material Adverse Effect"). 3.2 Authority; Execution and Delivery; Enforceability. The Company has full power and authority to execute this Agreement and to consummate the transactions contemplated hereby. The execution and delivery by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary corporate action on its part. The Company has duly executed and delivered this Agreement and this Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. 3.3 No Conflicts; Consents. The execution and delivery by the Company of this Agreement and the consummation of the transactions contemplated hereby and compliance by Company with the terms hereof do not conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, any provision of (i) the Certificate of Incorporation or by-laws of the Company, (ii) any contract to which the Company is bound or by which any of its properties or assets are bound or (iii) any judgment, order or decree or statute, law, ordinance, rule or regulation applicable to the Company or the properties or assets of the Company, other than, in the case of clauses (ii) and (iii) above, any such items that, individually or in the aggregate, have not had and could not reasonably be expected to have a Company Material Adverse Effect. No consent of, or registration, declaration or filing with, any governmental entity is required to be obtained or made by or with respect to the Company in connection with the execution, delivery and performance of this Agreement or the consummation by the Company of the transactions contemplated hereby. 3.4 Authorization. ------------- (a) Corporate Action; Authorizations. All corporate action on the part of the Company and its officers and directors necessary for execution, delivery and performance of this Agreement, and the sale, issuance and delivery of the Shares, has been taken. The Company has obtained any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by this Agreement. (b) Valid Issuance. The Shares, when issued, will be duly authorized, validly issued, fully paid and nonassessable, will be free of any lien, charge or encumbrance caused or created by the Company and no personal liability shall attach to the ownership thereof; provided, however, that the Shares may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein, and as may be required by future changes in such laws. 3 (c) No Preemptive Rights. Other than certain preemptive rights in favor of Viacom, Inc., no person has any right of first refusal, first offer, or any preemptive rights in connection with the issuance of Shares. 3.5 Capitalization. -------------- (a) Common Stock. The authorized capital stock of the Company consists of (i) 1,000,000,000 shares of common stock (the "Common Stock"), of which 24,939,178 shares of Common Stock were issued and outstanding on February 5, 2001; since such date there has been no material change in the number of shares of Common Stock issued and outstanding; and (ii) 1,000,000 shares of preferred stock, none of which were issued and outstanding on the date hereof. All issued and outstanding shares have been duly authorized and validly issued and are fully paid and nonassessable. (b) Registered Stock. The Common Stock constitutes the only class of equity securities of the Company or its subsidiaries registered or required to be registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 3.6 SEC Reports. The 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 date such forms, reports and documents were filed. 3.7 Litigation, etc. There is no action, suit or proceeding pending against the Company or to the Company's knowledge, threatened against the Company, that questions the validity of this Agreement or the right of the Company to enter into this Agreement or to consummate the transactions contemplated hereby. 3.8 Acknowledgment. The Company acknowledges that Lakeside reserves the right to pledge the Shares at any time. 4. Representations and Warranties of Lakeside. ------------------------------------------ Lakeside hereby makes the following representations and warranties, each of which is true, correct and complete on the date hereof (except where specifically provided otherwise), and each of which shall survive the Closing Date and the transactions contemplated hereby as set forth in Section 9.2 hereof. 4.1 Organization, Standing and Power. Lakeside is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and has full power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to own, lease or otherwise hold its properties and assets and to conduct its businesses as presently conducted, other than such franchises, licenses, permits, authorizations and approvals, the lack of which, individually or in the aggregate, have not had and could not reasonably be 4 expected to have a material adverse effect (i) on the business, assets, condition (financial or otherwise) or results of operations of Lakeside, or (ii) on the ability of Lakeside to perform its obligations and to consummate the transactions contemplated by this Agreement (a "Lakeside Material Adverse Effect"). 4.2 Authority; Execution and Delivery; Enforceability. Lakeside has full power and authority to execute this Agreement and to consummate the transactions contemplated hereby. The execution and delivery by Lakeside of this Agreement and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary action on its part. Lakeside has duly executed and delivered this Agreement and this Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. 4.3 No Conflicts; Consents. The execution and delivery by Lakeside of this Agreement and the consummation by it of the transactions contemplated hereby and compliance by Lakeside with the terms hereof do not conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, any provision of (i) the Certificate of Formation or Operating Agreement of Lakeside, (ii) any contract to which Lakeside is bound or by which any of its properties or assets are bound or (iii) any judgment, order or decree or statute, law, ordinance, rule or regulation applicable to Lakeside or the properties or assets of Lakeside, other than, in the case of clauses (ii) and (iii) above, any such items that, individually or in the aggregate, have not had and could not reasonably be expected to have a Lakeside Material Adverse Effect. No consent of, or registration, declaration or filing with, any governmental entity is required to be obtained or made by or with respect to Lakeside in connection with the execution, delivery and performance of this Agreement or the consummation by Lakeside of the transactions contemplated hereby. 4.4 Limited Liability Company Action; Authorizations. All action on the part of Lakeside and its managers and members necessary for execution, delivery and performance of this Agreement has been taken. Lakeside has obtained any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by this Agreement. 4.5 Knowledge and Experience. Lakeside acknowledges that it can bear the economic risk of the Shares and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the Shares. Lakeside has been furnished with and has had access to such information as Lakeside considered necessary to make an informed decision and determination as to the acquisition of the Shares. Lakeside is an "accredited investor" as defined in Rule 501(a) promulgated under the Securities Act or is an entity comprised solely of accredited investors. 5 4.6 Not Organized to Purchase. Lakeside has not been organized solely for the purpose of purchasing the Shares. 4.7 Litigation, etc. There is no action, suit or proceeding pending against Lakeside or to Lakeside's knowledge, threatened against Lakeside, that questions the validity of this Agreement or the right of Lakeside to enter into this Agreement or to consummate the transactions contemplated hereby. 5 Restrictions on Transfer Imposed by the Securities Act. 5.1 Legends, Etc. ------------ (a) Legends. Each Certificate representing the Shares shall be endorsed with the following legend: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND ARE "RESTRICTED SECURITIES" WITHIN THE MEANING OF RULE 144 UNDER THE ACT. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED, EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE ACT, (ii) IN COMPLIANCE WITH THE RESALE LIMITATIONS OF RULE 144 UNDER THE ACT, OR (iii) PURSUANT TO AN APPLICABLE EXEMPTION FROM REGISTRATION UNDER THE ACT AND, IN THE CASE OF (ii) AND (iii), SUBJECT TO AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED AS TO SAID SALE, OFFER OR TRANSFER. (b) Blue Sky Law. Each Certificate may also contain any other legends required by applicable state blue-sky laws. 5.2 Removal of Legend and Transfer Restrictions. Any legend endorsed on a Certificate pursuant to Sections 5.1(a) and/or 5.1(b) shall be removed, and the Company shall issue a Certificate without such legend to the holder of such securities (a) if such securities are registered and sold pursuant to an effective registration statement under the Securities Act and a prospectus meeting the requirements of Section 10 of the Securities Act is available and delivered in connection with such sale or (b) if such holder satisfies the requirements of Rule 144(k) of the Securities Act. 6 5.3 Rule 144. Lakeside is aware of the adoption and requirements of Rule 144 by the SEC promulgated under the Securities Act, which permits limited public resales of securities acquired in a nonpublic offering, subject to the satisfaction of certain conditions. Lakeside understands that under Rule 144, the conditions include, among other things, the availability of certain current public information about the issuer and the resale occurring not less than one year after the party has purchased and fully paid for the securities to be sold, certain limitations on the volume of shares to be offered and sold in any three-month period, certain requirements as to manner of resale and certain notice of sale filing requirements with the SEC. 6. Conditions to Closing. --------------------- 6.1 Conditions to Lakeside's Obligations. The obligations of Lakeside to accept the Shares at the Closing are subject to the fulfillment to its satisfaction, on or prior to the Closing Date, of the following conditions, any of which may be waived by Lakeside in its sole discretion: (a) Truth of Representations and Warranties; Performance of Obligations. The representations and warranties made by the Company in Section 3 hereof shall be true, correct and complete on the Closing Date; the Company shall have performed all obligations and conditions herein required to be performed or observed by it. (b) State Securities Law. The sale of the Shares shall have been qualified with applicable state's securities law as required, and evidence of all such qualifications shall have been furnished to Lakeside's counsel. (c) Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to Lakeside and its counsel, and Lakeside and its counsel shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. (d) Opinion of Counsel. The Company shall have delivered to Lakeside an opinion of counsel to the Company dated as of the Closing Date, substantially in the form of Exhibit B hereto. 7 6.2 Conditions to Obligations of the Company. The obligations of the Company to issue and deliver the Shares at the Closing are subject to the fulfillment to its satisfaction, on or prior to the Closing Date, of the following conditions, any of which may be waived by the Company in its sole discretion: (a) Truth of Representations and Warranties; Performance of Obligations. The representations and warranties made by Lakeside in Section 4 hereof shall be true, correct and complete on the Closing Date; Lakeside shall have performed all obligations and conditions herein required to be performed or observed by it. (b) Board Approval. The board of directors of the Company shall have approved and authorized the transactions contemplated by this Agreement. (c) Proceedings and Documents. All limited liability company and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to the Company and its counsel, and the Company and its counsel shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. 7. Additional Agreements of the Company. ------------------------------------ 7.1 Right of First Negotiation and Last Refusal. ------------------------------------------- (a) Notice of Transaction. In the event that the Company intends to enter into a subsequent transaction in which it will exchange its or its subsidiaries' securities for services similar to the Designated Services to be provided by Lakeside under this Agreement (each, a "Transaction"), at any time within one (1) year from the date of Closing, the Company shall provide a written notice thereof to Lakeside (the "Notice of Transaction"). Lakeside shall have the exclusive right of first negotiation with respect to such Transaction for a period of ten (10) Business Days after the receipt of such Notice of Transaction by Lakeside. If Lakeside and the Company are unable, in good faith, to reach an agreement regarding the terms and conditions of such Transaction within such ten (10) Business Day period, then the Company shall have the right to negotiate the terms and conditions of the Transaction with a third party. The foregoing right of first registration shall not apply to any transactions between the Company and Viacom/CBS. (b) Notice of Offer. Notwithstanding Section 7.1(a) above, in the event the Company receives a bona fide offer from a third party with respect to a Transaction, then prior to entering into such Transaction, the Company shall provide written notice to Lakeside, setting forth the terms and conditions of the third-party offer (the "Notice of Offer"). Lakeside shall have five (5) Business Days from the receipt of such Notice of Offer to match the terms of the Notice of Offer. If Lakeside offers to match the Notice of Offer, then Lakeside and the Company shall enter into such Transaction on such terms. The foregoing matching right shall not apply to any transactions between the Company and Viacom/CBS. 8 7.2. "Piggyback" Registration. ----------------------- (a) Registrable Securities. If at any time or from time to time, the Company shall determine to register shares of Common Stock for its own account or the account of any of its stockholders, other than a registration on Form S-1 or S-8 relating solely to employee stock option or purchase plans, or a registration on Form S-4, or any successor to such forms, which does not include substantially the same information as would be required to be included in a registration statement covering the sale of Registrable Securities (as defined below), the Company will: (i) promptly give to Lakeside written notice thereof; and (ii) include in such registration, and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within twenty (20) days after receipt of such written notice from the Company, by Lakeside, except as set forth in Section 7.2(b) below. For purposes hereof, "Registrable Securities" means (i) any and all shares of Common Stock issued to Lakeside pursuant to this Agreement; and (ii) any and all shares of Common Stock issued in respect of the securities referred to in the foregoing Clause (i) as a result of a stock split, dividend, recapitalization or the like, which has not been sold to the public. As to any particular Registrable Securities, such securities shall cease to be "Registrable Securities" when (w) a registration statement registering such securities under the Securities Act has been declared or ordered effective by the SEC and such securities have been sold or otherwise transferred by the holder thereof pursuant to and in accordance with the plan of distribution with respect to such securities disclosed in the prospectus (compliant with Rule 424(b) under the Securities Act) forming part of such registration statement; (x) such securities have been sold in accordance with the resale requirements of Rule 144 (or any successor rule or provision) adopted by the SEC under the Securities Act; (y) such securities shall have been transferred and new certificates evidencing such securities without legends restricting further transfer shall have been delivered by the Company; subsequent public distribution of such securities shall neither require registration under the Securities Act nor qualification (or any similar filing) under any state securities or "blue sky" law then in effect; or (z) such securities no longer shall be issued and outstanding. (b) Underwritten Public Offer. If the registration as to which the Company gives notice is in respect of a registered underwritten public offering the Company shall so advise Lakeside as a part of the written notice given pursuant to Section 7.2(a)(i). If the managing underwriter of an offering of securities effected pursuant to this Section 7.2 reasonably shall determine and advise the Company in writing that in its opinion the aggregate number of Registrable Securities requested to be included in the Company's registration statement creates a substantial risk that the proceeds or the price per share that the Company (or in the case of a registration which does not include any securities being offered or sold for the Company's own account, the person(s) 9 for whose account the registration statement is filed) would receive pursuant to the offering would be materially reduced or that the success of the offering otherwise would be materially adversely affected, then the number of Registrable Securities to be included in the Company's registration statement for the account of Lakeside shall be reduced to the aggregate amount deemed appropriate by such managing underwriter; provided, however, if securities are being offered for the account of other persons or entities as well as the Company, then with respect to the Registrable Securities intended to be included for the account of Lakeside, the proportion by which the number of Registrable Securities intended to be included by Lakeside is reduced shall not exceed the proportion by which the number of securities intended to be registered by such other persons or entities is reduced. If Lakeside disapproves of the terms of the underwriting, it may elect to withdraw therefrom by written notice to the Company and the managing underwriter. Any Registrable Securities excluded or withdrawn from such underwriting shall be forthwith withdrawn from such registration. 7.3 Expenses of Registration. All registration expenses incurred in connection with any registration, qualification or compliance pursuant to Section 7.2 ("Registration Expenses") shall be borne solely by the Company. 7.4 Registration Procedures. In the case of each registration, qualification or compliance effected by the Company pursuant to this Agreement, the Company will keep Lakeside advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense the Company will: (a) Prepare and file with the SEC a registration statement with respect to the Registrable Securities and such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement. (b) Furnish to Lakeside such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as Lakeside may reasonably request in order to facilitate the disposition of Registrable Securities owned by it. (c) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or "blue sky" laws of such jurisdictions as shall be reasonably requested by Lakeside, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or, except as required under the Securities Act, to file a general consent to service of process in any such states or jurisdictions. 10 (d) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange or U.S. automated inter-dealer quotation system of a registered national securities association on which similar securities issued by the Company are then listed. 7.5 Indemnification. In connection with any registration of Shares pursuant to Section 7.2 hereof the parties agree to enter into a customary agreement providing for indemnification by each party with respect to information supplied by such party in connection with such registration. 7.6 Rule 144 Reporting. From and after such time as Lakeside is eligible under Rule 144 to effect resales of the Shares, the Company hereby agrees to file with the SEC all periodic and other reports required to be so filed by it under the Securities Act and the Exchange Act and the rules and regulations thereunder (or, if the Company is not then required to file such reports, it shall, as promptly as reasonably practicable after the written request of Lakeside, make publicly available the requisite "Rule 15c2-11 information" in respect of the Company so long as and solely to the extent necessary to permit resales of the Shares pursuant to Rule 144), and it shall take such further reasonable action, to the extent required from time to time, to enable Lakeside to resell Shares pursuant to Rule 144 without registration under the Securities Act. Upon the reasonable request of Lakeside, the Company shall as promptly as reasonably practicable deliver to Lakeside a written statement as to whether it has complied with the foregoing information and filing requirements. 7.7. Adjustment. The parties agree that the following provisions shall apply in the event that Lakeside, in its sole discretion, elects during the Service Period to enter into an agreement with a third party (the "Counterparty") to hedge all or a portion of its position in the Shares comprising the Payment (the "Counterparty Agreement"). In the event that the Counterparty Agreement contains provisions requiring an adjustment to the financial terms of such transaction if the Company consolidates or merges with, or transfers all or substantially all of its Shares or assets to another entity as a result of which the Shares cease to be publicly traded (a "Merger Event"), and, in addition, as a result of such Merger Event, the Counterparty determines that (x) the creditworthiness of the resulting, surviving or transferee entity is materially weaker than that of the Company immediately prior to such Merger Event, or (y) there is a diluting or concentrative effect on the theoretical value of the Shares for purposes of the exercise, settlement or payment terms applicable to such agreement, and as a result of such determination by the Counterparty, Lakeside incurs additional costs or expenses to the Counterparty in connection with such hedging transaction, then in such event, and provided a Merger Event occurs within 24 months of the date hereof, Lakeside and the Company agree to negotiate in good faith and agree upon an adjustment that will compensate Lakeside for any such additional costs or expenses. Notwithstanding the foregoing, Lakeside agrees that any adjustment hereunder shall not exceed $50,000 in the aggregate, provided that either: (i) the securities into which the Shares are exchanged as a result of the Merger Event are publicly traded on the NASDAQ stock market or a national securities exchange both before and after the Merger Event and the surviving entity of the Merger Event shall have a market capitalization immediately prior to the Merger Event which exceeds the market capitalization of the Company immediately prior to the Merger Event; or (ii) in the case of a Merger Event where the surviving entity acquires the Shares for cash consideration, the cash consideration per Share is equal to or greater than $6.5625. 11 8 Indemnification. Each party hereto (the "Indemnifying Party") hereby indemnifies the other party hereto, and its respective officers, directors, employees, stockholders, agents and representatives against, and holds them harmless from, any loss, liability, claim, damage or expense (including reasonable legal fees and expenses), as incurred (payable promptly upon written request), arising from, in connection with or otherwise with respect to any breach of any representation or warranty of the Indemnifying Party contained in this Agreement or in any document delivered in connection herewith or any breach of any covenant of the Indemnifying Party contained in this Agreement. 9. Miscellaneous. ------------- 9.1 Waivers and Amendments. No amendment or waiver of any provision of this Agreement, and no consent to any departure by Lakeside herefrom, shall in any event be effective unless the same shall be in writing and signed by the Company. 9.2 Survival. The representations and warranties made herein shall survive the Closing of the transactions contemplated hereby until the second anniversary of the Closing, notwithstanding any investigation made by the party to whom such representations are made. All written statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of either party pursuant hereto or in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by such party hereunder as of the date of such certificate or instrument. 9.3 No Third-Party Beneficiaries. This Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein expressed or implied shall give or be construed to give to any person or entity, other than the parties hereto and such assigns, any legal or equitable rights hereunder. 9.4 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. This Agreement and the rights hereunder may not be assigned, transferred or conveyed by either party hereto without the prior written consent of the other party hereto, which consent may not be unreasonably withheld or delayed. 9.5 Entire Agreement. This Agreement, together with the Exhibits hereto, constitutes the full and entire understanding and agreement between the parties hereto with regard to the subjects hereof and thereof and they supersede, merge and render void every other prior written and/or oral understanding or agreement between the parties hereto with respect to such subject matters. 12 9.6 Notices. All notices and other communications provided for hereunder shall be in writing (including by telecopier) and, mailed, telecopied or delivered to the parties hereto at their respective addresses indicated beneath their signatures hereto or, as to either party, at such other address as shall be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section. All such notices and other communications shall, when mailed or telecopied, respectively, be effective when deposited in the mails, or telecopied, addressed as aforesaid. 9.7 Severability. In case any provision of this Agreement shall be found by a court of law of competent jurisdiction to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. 9.8 Brokers and Expenses, Etc. ------------------------- (a) Brokers. Each of the parties hereto (i) represents and warrants that it has retained no finder or broker in connection with the transactions contemplated by this Agreement and (ii) hereby agrees to indemnify and to hold the other party harmless from and against any liability for any commission or compensation in the nature of a finder's fee to any broker or other person or firm (and the costs and expenses of defending against such liability or asserted liability) for which it or any of its employees or representatives is responsible. (b) Expenses. The Company and Lakeside shall each bear its own expenses and legal fees in connection with the consummation of this transaction. (c) Taxes. The Company hereby agrees that it will pay, and will save Lakeside harmless from, any and all liability with respect to any stamp or similar taxes which may be determined to be payable in connection with the execution and delivery and performance of this Agreement or any modification, amendment or alteration of the terms or provisions of this Agreement, and that it will similarly pay and hold Lakeside harmless from all issue taxes in respect of the issuance of the Shares to Lakeside. 9.9 Governing Law. This Agreement shall be governed by and construed in accordance with the law of the State of New York. 9.10 Captions. The table of contents and captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. 9.11 Execution in Counterpart. This Agreement may be executed in any number of counterparts and by parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. 13 IN WITNESS WHEREOF, the parties hereby have duly executed and delivered this Media Services Agreement effective as of the date first above written. LAKESIDE VENTURES LLC By: ---------------------------- Name: Fred B. Tarter Title: President Address for Notices: 210 East 39th Street New York, New York 10016 Attention: Fred B. Tarter, Manager Telephone: 212-679-3800 Telecopier: 212-679-3816 HOLLYWOOD MEDIA CORP. By: ---------------------------- Name: W. Robert Shearer Title: Senior Vice President and General Counsel Address for Notices: 2255 Glades Road, Suite 237W Boca Raton, Florida 33431 Attention: Mitchell Rubenstein, Chief Executive Officer Telephone: (561) 998-8000 Telecopier: (561) 998-2974 EXHIBIT A DESCRIPTION OF DESIGNATED SERVICES Designated Services: Lakeside shall have the obligation to pay the bills listed below, whether for media, goods or services, as directed by the Company now or in the future in accordance with the terms of this Agreement. [See attached] EXHIBIT B FORM OF COMPANY COUNSEL OPINION EX-10.2 3 ex10-2.txt SECURITIES PURCHASE AGREEMENT ================================================================================ SEcurities purchase AGREEMENT between hollywood media corp. and societe generale and VELOCITY investment partners ltd. dated as of April 25, 2001 ================================================================================ SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of April 25 2001, among HOLLYWOOD MEDIA CORP., a Florida corporation (the "Company"), SOCIETE GENERALE, a bank organized under the laws of France ("SG"), and VELOCITY INVESTMENT PARTNERS LTD., a company organized under the laws of the Cayman Islands ("Velocity") (SG and Velocity together, the "Purchasers"). W I T N E S S E T H: WHEREAS, the Company proposes to issue and sell in the aggregate (a) 942,362 shares (the "Common Shares") of the Company's Common Stock (the "Common Stock"), (b) warrants to purchase up to 451,086 shares of Common Stock pursuant to the terms set forth in the "A" Warrants, the form of which is annexed hereto as Exhibit A, and (c) warrants to acquire up to 1,098,129 shares of Common Stock pursuant to the terms set forth in the "B" Warrants, the form of which is annexed hereto as Exhibit B (the "A" Warrants and the "B" Warrants, collectively, the "Warrants") on a private placement basis pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933, as amended, and the Purchasers desire to purchase the Common Shares and the Warrants, on the terms and subject to the conditions set forth herein; and WHEREAS, the registered holders of the Common Shares and the Warrants will have registration rights with respect to such Common Shares and shares of Common Stock and/or, if applicable, other securities issuable upon exercise of the Warrants (such shares of Common Stock and/or, if applicable, other securities, the "Warrant Shares") pursuant to the terms of the Registration Rights Agreement between the Company and the Purchasers (the "Registration Rights Agreement"). NOW THEREFORE, in consideration of the premises, representations, warranties, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I DEFINITIONS Section 1.01. Certain Definitions. The following terms shall have the following respective meanings: "Affiliate" of a Person means another Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first- mentioned Person. The term "control" (including the terms "controlling," "controlled by" and "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Call Period" has the meaning set forth in Section 2.03. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of corporate stock, including each class of common stock and preferred stock, of such Person. "Closing" has the meaning set forth in Section 2.02. "Commission" means the United States Securities and Exchange Commission. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Governmental Authority" means any federal or state government or political subdivision thereof and any agency or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Material Adverse Effect" has the meaning set forth in Section 3.01. "Person" means an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, Governmental Authority or other entity of any kind. "Redemption Date" has the meaning set forth in Section 2.03. "Redemption Price" has the meaning ascribed to such term in Section 2.03. "Redemption Right" has the meaning set forth in Section 2.03. "Reset Period" means the 20 Trading Day intervals beginning on each of October 30, 2001, January 30, 2002, April 30, 2002 and July 30, 2002, or in the event that a registration statement has not been declared effective with respect to the resale of the shares of Common Stock underlying the Warrants by October 30, 2001, then the 20 Trading Day intervals beginning on the one month, four month, seven month and ten month anniversaries of such date that a registration statement with respect to the resale of the shares of the Common Stock underlying the Warrants has been declared effective. "SEC Reports" means, collectively, the Company's Annual Report on Form 10-K for the year ended December 31, 2000. "Securities Act" means the Securities Act of 1933, as amended. 'Trading Days" means any day on which the principal market on which the Common Stock trades is open. "Transaction Documents" means, collectively, this Agreement, the Registration Rights Agreement and the Warrants. "United States" has the meaning ascribed to such term in Rule 902(p) of Regulation S under the Securities Act. 2 "U.S. Person" has the meaning ascribed to such term in Rule 902(o) of Regulation S under the Securities Act. ARTICLE II SALE AND PURCHASE Section 2.01. Agreement to Sell and to Purchase; Purchase Price. On the terms and subject to the conditions set forth in this Agreement, the Company hereby agrees to issue and sell to the Purchasers, and each Purchaser, severally and not jointly, hereby agrees to purchase from the Company, the number of Common Shares set forth opposite such Purchaser's name on Annex A at the purchase price set forth opposite such Purchaser's name on Annex A, payable in immediately available funds to the Company (such purchase price with respect to any Purchaser, the "Purchase Price"). Section 2.02. Closing. The closing of the sale and purchase of the Common Shares and the Warrants (the "Closing") shall be deemed to take place as of May 1, 2001; provided however that (A) SG shall pay $500,000 of its allocable portion of the Purchase Price on May 15, 2001 (the "Deferred Purchase Price Payment Date") against delivery of 110,866 shares of Common Stock as of such date and (B) Velocity shall pay $250,000 of its allocable portion of the Purchase Price on the Deferred Purchase Price Payment Date against delivery of 55,433 shares of Common Stock as of such date. At the Closing, the following closing transactions shall take place, each of which shall be deemed to occur simultaneously with the Closing: (i) the Company shall execute, issue and deliver to each Purchaser certificates evidencing the Common Shares deliverable to such Purchaser as set forth on Annex A (other than Common Shares deliverable in respect of the Deferred Purchase Price Payment date which shall be deliverable as of such date) in such denominations as such Purchaser shall reasonably request; (ii) the Company shall execute, issue and deliver to each Purchaser the number of "A" Warrants and "B" Warrants to purchase shares of Common Stock deliverable to such Purchaser as set forth on Annex A; (iii) each Purchaser shall pay the Purchase Price (other than amounts payable in respect of the Deferred Purchase Price Payment Date which shall be delivered as of such date) by wire transfer as set forth on Annex A to the account designated by the Company in writing prior to the Closing; (iv) the Company shall pay the expenses of the Purchasers set forth in Section 7.02 hereof by wire transfer to the account designated by each Purchaser, in writing prior to the Closing; provided that, if a Purchaser so elects, such expenses may be netted against payment of its Purchase Price payable to the Company pursuant to clause (iii) above; (v) the Company and the Purchasers shall execute and deliver the Registration Rights Agreement; (vi) the Company shall deliver to the Purchasers a certificate executed by the Secretary of the Company, signing in such capacity, dated the date of the Closing (A) certifying that attached thereto are true and complete copies of the resolutions duly adopted by the Board of Directors of the Company authorizing the execution and delivery of the Transaction Documents and the consummation of the transactions contemplated thereby (including, without limitation, the issuance and sale of the Common Shares and the Warrants and the reservation and issuance of the Warrant Shares upon exercise of the Warrants), which authorization shall be in full force and effect on and as of the date of such certificate, (B) certifying and attesting to the office, incumbency, due authority and specimen signatures of each Person who executed any Transaction Document for or on behalf of the Company and (C) certifying as to the accuracy of the representations and warranties of the Company contained in the Transaction Documents; (vii) W. Robert Shearer, Senior Vice President and General Counsel to the Company, shall deliver to the Purchasers an opinion, dated the date of the Closing and addressed to the Purchasers, covering customary matters; and (viii) the Purchasers shall have received evidence satisfactory to them indicating that availability under the Company's $6.0 million line of credit shall be reduced as a result of this transaction only to the extent of the portion of the Purchase Price paid on the Deferred Purchase Price Payment Date. 3 Section 2.03. Redemption (a) The Company shall have the right (the "Redemption Right") from the first Trading Day of each Reset Period until the fifth Trading Day of each such Reset Period (the "Call Period") to repurchase, all, or less than all, of the Common Shares owned by any Purchaser (pro rata between the Purchasers based upon their relative ownership at the time of Closing) at $5.637 (the "Redemption Price"). The Company may exercise its Redemption Right only if shares of Common Stock are issuable pursuant to the "B" Warrants in respect of such Reset Period as of the date of delivery of the notice of redemption. (b) In order to exercise its Redemption Right, the Company shall deliver to each Purchaser a notice of redemption setting forth the date of redemption, which shall be five (5) Trading Days from the date of the notice (the "Redemption Date") and shall be within the period specified in Section 2.03(a) above that the Redemption Right may be effected. Any such notice of redemption shall be irrevocable. The Company shall pay the Redemption Price to each Purchaser, in cash, on the Redemption Date. Notwithstanding the receipt of such notice of redemption, each Purchaser shall be entitled to sell shares of Common Stock at any time prior to the Redemption Date. (c) In addition to the foregoing, if (i) the Company fails to have a registration statement declared effective with respect to the resale of the shares of Common Stock underlying the Warrants within eight (8) months of the date of Closing; (ii) the Company has failed to timely deliver any Warrant Shares to a Purchaser pursuant to an effective exercise of the Warrants, and upon receipt of notice of the failure to deliver the Warrant Shares, has not delivered such shares within five (5) days of receiving such notice; or (iii) the Company has failed to remove a restrictive legend from any security within 15 days of when such legend may be removed pursuant to Section 5.02 hereof, then each Purchaser may demand that the Company repurchase all, or less than all, of the Common Shares owned by such Purchaser at $5.637 per share, which amount shall be paid within five (5) Trading Days from when a Purchaser demands such redemption. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY As a material inducement to the Purchasers to purchase the Common Shares and the Warrants, the Company hereby represents and warrants to the Purchasers that on and as of the date hereof and on and as of the Deferred Purchase Price Payment Date (such reaffirmation to be evidenced by acceptance of the payments made by SG and Velocity as of such date): Section 3.01. Organization and Standing. The Company and each of its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority, and all authorizations, licenses, permits and certifications necessary for it to own its properties and assets and to carry on its business as it is now being conducted (and, to the extent described therein, as described in the SEC Reports) and proposed to be conducted. The Company and each of its subsidiaries is duly qualified to transact business and is in good standing in each jurisdiction in which the character of the properties owned or leased by it or the nature of its businesses makes such qualification necessary, except where the failure to so qualify or be in good standing would not have a material adverse effect on the business, assets, operations, properties, condition (financial or otherwise) or 4 prospects of the Company and its subsidiaries, taken as a whole, or any adverse effect on the Company's ability to consummate the transactions contemplated by, or to execute, deliver and perform its obligations under, each of the Transaction Documents (a "Material Adverse Effect"). Section 3.02. Securities of the Company. The authorized Capital Stock of the Company consists of one hundred million shares of Common Stock and one million shares of preferred stock; as of March 31, 2001, 25,161,532 shares of common stock and no shares of preferred stock were outstanding and 1,450,000 shares of Common Stock were reserved for issuance upon exercise of outstanding warrants. Except as set forth in the SEC Reports, the Company has no other authorized, issued or outstanding equity securities or securities containing any equity features, or any other securities convertible into, exchangeable for or entitling any person to otherwise acquire any other securities of the Company containing any equity features. The Company has no stock option, incentive or similar plan other than the (1) 1993 Stock Option Plan under which 3,150,000 shares of Common Stock may be issued, (2) the Directors Plan, under which 100,000 shares of Common Stock may be issued, and (3) the 2000 Stock Incentive Plan under which 1,250,000 shares of Common Stock may be issued. All of the outstanding shares of Capital Stock of the Company have been duly and validly authorized and issued, and are fully paid and nonassessable. The Common Shares and the Warrants and all of the Warrant Shares have been duly and validly authorized. When issued against payment therefor as provided in this Agreement, the Common Shares and the Warrants will be validly issued and will constitute valid and enforceable obligations of the Company, enforceable against the Company in accordance with their respective terms (subject to the effects of applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and general principles of equity). When issued upon exercise of the Warrants (assuming payment of the exercise price therefor), the Warrant Shares will be validly issued, fully paid and nonassessable, free and clear of all preemptive rights, claims, liens, charges, encumbrances and security interests of any nature whatsoever. A sufficient number of shares of Common Stock has been duly reserved and will remain available for issuance upon exercise of the Warrants. Except as set forth in Schedule 3.02, this Section 3.02 and the SEC Reports, there are no outstanding options, warrants, conversion rights, subscription rights, preemptive rights, rights of first refusal or other rights or agreements of any nature outstanding to subscribe for or to purchase any shares of Capital Stock of the Company or any other securities of the Company of any kind binding on the Company. Except as set forth in Schedule 3.02, neither the issuance of the Common Shares or the Warrants nor the issuance of the Warrant Shares is subject to any preemptive rights, rights of first refusal or other similar limitation. Except as otherwise required by law, there are no restrictions upon the voting or transfer of any shares of the Company's Capital Stock pursuant to the Company's Certificate of Incorporation, bylaws or other documents. Except as provided herein or in the other Transaction Documents, there are no agreements or other obligations (contingent or otherwise) that may require the Company to repurchase or otherwise acquire any shares of its Capital Stock. Section 3.03. Authorization; Enforceability. The Company has the corporate power and authority to execute, deliver and perform the terms and provisions of each of the Transaction Documents to be executed, delivered or performed by it and has taken all necessary corporate action to authorize the execution, delivery and performance by it of, and the consummation of the transactions contemplated by, the Transaction Documents and such corporate action remains in full force and effect. No other corporate proceeding on the part of the Company is necessary, and no consent of any 5 shareholder of the Company is required, for the valid execution and delivery by the Company of the Transaction Documents, and the performance and consummation by the Company of the transactions contemplated by the Transaction Documents to be performed by the Company. The Company has duly executed and delivered, or concurrently herewith is executing and delivering, each of the Transaction Documents. Assuming the due execution of this Agreement and the Registration Rights Agreement by the Purchasers, this Agreement, the Registration Rights Agreement, the Common Stock and the Warrants constitute the valid and binding obligations of the Company, enforceable against the Company in accordance with each of their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). Section 3.04. No Violation; Consents. (a) The execution, delivery and performance by the Company of the Transaction Documents and the consummation of the transactions contemplated thereby to be performed by the Company do not and will not (i) contravene the applicable provisions of any law, statute, rule, regulation, order, writ, injunction, judgment or decree of any court or Governmental Authority to or by which the Company or any of its subsidiaries or any of its respective property or assets is bound, (ii) violate, result in a breach of or constitute (with due notice or lapse of time or both) a default or give rise to an event of acceleration under any contract, lease, loan or credit agreement, mortgage, security agreement, trust indenture or other agreement or instrument to which the Company is a party or by which it or any of its subsidiaries is bound or to which any of its respective properties or assets is subject, nor result in the creation or imposition of any lien, security interest, charge or encumbrance of any kind upon any of the properties, assets or Capital Stock of the Company or any of its subsidiaries, or (iii) violate any provision of the organizational and other governing documents of the Company or any of its subsidiaries. (b) No consent, approval, authorization or order of, or filing or registration with, any court or Governmental Authority or other Person is required to be obtained or made by the Company for the execution, delivery and performance of the Transaction Documents or the consummation of any of the transactions contemplated thereby (other than the registration of the resale of the Common Shares and the Warrant Shares with the Commission and pursuant to any state "blue sky" laws as contemplated by the Registration Rights Agreement), except for those consents or authorizations previously obtained and those filings previously made. Section 3.05. Securities Act Representations. The Company has not offered or sold and will not offer or sell any shares of its Capital Stock (including any shares of Common Stock or any warrants) in this offering other than the Common Shares and the Warrants. Assuming the accuracy of the Purchasers' representations pursuant to Section 4.02 hereof, the sale of the Common Shares and the Warrants hereunder is, and the issuance of the Warrant Shares upon exercise of the Warrants will be, exempt from the registration requirements of the Securities Act. Neither the Company, nor any of its Affiliates, or, to its knowledge, any Person acting on its or their behalf has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the Common Shares, Warrants or Warrant Shares. Neither the Company, 6 nor any of its Affiliates, nor to its knowledge, any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security other than pursuant to this Agreement under circumstances that would require registration under the Securities Act of the Common Shares or Warrants to be issued under this Agreement. The Company is eligible to use Form S-3 under the Securities Act to file the Registration Statement (as defined in the Registration Rights Agreement). The Company has not provided the Purchasers with any material non-public information that, according to applicable law, rule or regulation, should have been disclosed publicly by the Company. Section 3.06. Solvency; No Default. (a) (a) The Company is, and upon giving effect to the transactions contemplated hereby to be performed by it as of the Closing will be, Solvent. "Solvent" means that, as of the date of determination, (i) the then fair saleable value of the assets of the Company (on a consolidated basis) exceeds the then total amount (on a consolidated basis) of its debts and other liabilities, (including any guarantees and other contingent, subordinated, unmatured or unliquidated liabilities whether or not reduced to judgment, disputed or undisputed, secured or unsecured), (ii) the Company has sufficient funds and cash flow to pay its liability on its existing debts as they become absolute and matured, (iii) final judgments against the Company in pending or, to the Company's knowledge, threatened actions for money damages will not be rendered at a time when, or in an amount such that, the Company will be unable to satisfy any such judgments promptly in accordance with their terms (taking into account (a) the maximum reasonable amount of such judgments in any such actions (other than amounts that would be remote), (b) the earliest reasonable time at which such judgments would be rendered and (c) any reasonably expected insurance recovery with respect thereto), and (iv) the Company does not have unreasonably small capital with which to engage in its present business. (b) The Company is not, and immediately after the consummation of the transactions contemplated hereby to be performed by the Company will not be, in default of (whether upon the passage of time, the giving of notice or both) its organizational and other governing documents, or any provision of any security issued by the Company, or of any agreement, instrument or other undertaking to which the Company is a party or by which it or any of its property or assets is bound, or the applicable provisions of any law, statute, rule, regulation, order, writ, injunction, judgment or decree of any court or Governmental Authority to or by which the Company or any of its property or assets is bound, which default or violation, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Section 3.07. No Brokers. Other than amounts payable by the Company to Cardinal Capital Management, Inc., no broker, finder, agent or similar intermediary is entitled to any broker's, finder's, placement or similar fee or other commission in connection with the transactions contemplated hereby based on any agreement, arrangement or understanding with the Company. Section 3.08. SEC Reports; Financial Condition; No Adverse Changes. (a) (a) The audited consolidated financial statements of the Company and the related notes thereto as of December 31, 2000 reported on by Arthur Andersen LLP, independent accountants, copies of which have heretofore been furnished to the Purchasers and are publicly available, present fairly the financial condition, 7 results of operations and cash flows of the Company (on a consolidated basis) at such date and for the periods set forth therein (such audited consolidated financial statements, collectively, the "Financial Statements"), copies of which have heretofore been furnished to the Purchasers and are publicly available, present fairly the financial condition, results of operations and cash flows of the Company (on a consolidated basis) at such date and for the periods set forth therein, subject to normal year end adjustments with respect to December 31, 2001 Financial Statements). The Financial Statements, including the related schedules and notes thereto (if any), have been prepared in accordance with generally accepted accounting principles as set forth in the opinions and pronouncements of the Accounting Principles Board of American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board as in effect on the date of filing of such documents with the Commission, applied on a consistent basis (except for changes concurred in by the Company's independent public accountants) unless otherwise expressly stated therein. Except as disclosed in the SEC Reports, during the period from January 1, 2001 to and including the date hereof, there has been no sale, transfer or other disposition by the Company of any material part of the business, property or securities of the Company and no purchase or other acquisition of any business, property or securities by the Company material in relation to the financial condition of the Company. (b) Except as are fully reflected or reserved against in the Financial Statements and the notes thereto, there are no liabilities or obligations with respect to the Company or any of its subsidiaries of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due) that, either individually or in the aggregate, after taking into account (a) the maximum reasonable amount of any liability that may arise on account of any litigation or any other contingent liability or obligation (other than amounts that would be remote), (b) the earliest reasonable time at which any such liability or obligation may become due and (c) any reasonably expected insurance recovery with respect thereto, could reasonably be expected to have a Material Adverse Effect. (c) Since December 31, 2000, except as set forth in the SEC Reports, there has been no development or event, nor any prospective development or event known to the Company or any of its subsidiaries, or any litigation, proceeding or other action seeking an injunction or other restraining order, damages or other relief from a court or administrative agency of competent jurisdiction pending, threatened or, to the knowledge of the Company, contemplated, or any action of any Governmental Authority, that has had or could reasonably be expected to have a Material Adverse Effect. Section 3.09. Use of Proceeds; Federal Regulations. No part of the net proceeds from the sale of the Common Shares and the Warrants will be used in a manner that would violate the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System. The Company will not use such proceeds other than for or in connection with general working capital. Section 3.10. Subsidiaries. As of the date hereof, the Company has no subsidiaries other than those listed on Schedule 3.10 hereto. 8 Section 3.11. No Integrated Offering. Neither the Company nor any of its Affiliates, nor to its knowledge any Person acting on its behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security under circumstances that would require registration under the Securities Act of the offer and sale of the Common Shares and Warrants. Section 3.12. No Litigation. Except as set forth on Schedule 3.12, no litigation or claim (including those for unpaid taxes), or environmental proceeding against the Company or any of its subsidiaries is pending, threatened or, to the Company's best knowledge, contemplated that, if determined adversely, would (after taking into consideration any reasonably expected insurance recovery with respect thereto) have a Material Adverse Effect on the Company. There is no action, suit or proceeding pending against the Company or any of its subsidiaries seeking to restrain or enjoin the performance of, prevent the consummation of, or otherwise challenge the Transaction Documents or the transactions contemplated thereby. Section 3.13. Environmental Matters. The Company and each of its subsidiaries is in compliance in all material respects with all applicable state and federal environmental laws, and no event or condition has occurred that may interfere in any material respect with the compliance by the Company or any of its subsidiaries with any environmental law or that may give rise to any liability under any environmental law that, individually or in the aggregate, would have a Material Adverse Effect. Section 3.14. Intellectual Property. The Company (and/or its subsidiaries) owns or has licenses to use certain patents, copyrights and trademarks ("intellectual property") associated with its business. The Company and its subsidiaries have all intellectual property rights that are needed to conduct the business of the Company and its subsidiaries as it is now being conducted as disclosed in the SEC Reports. The intellectual property rights that the Company (and/or its subsidiaries) owns are valid and enforceable. The use of such intellectual property by the Company (and/or its subsidiaries') does not infringe upon or conflict with any right of any third party in any material respect, and neither the Company nor any of its subsidiaries has received notice, written or otherwise, of any such infringement or conflict. Except as set forth in the SEC Reports, the Company has no knowledge of any infringement of its (and/or its subsidiaries) intellectual property by any third party in any material respect. Section 3.15. Insurance. The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its subsidiaries are engaged. The Company has no reason to believe that it and its subsidiaries will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost. Section 3.16. Related Party Transactions. Except as set forth in the SEC Reports, none of the officers, directors, employees or 5% or greater shareholders of the Company is presently a party to any transaction with the Company or any of its subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or the advances of money or otherwise requiring payments to or from any such officer, director, employee or shareholder or, to the knowledge of the Company, any corporation, partnership, trust or other 9 entity in which any such officer, director, employee or shareholder has a substantial interest or is an officer, director, trustee or partner. Section 3.17. Permits. The Company and each of its subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the "Company Permits"), and there is no action pending or, to the knowledge of the Company, threatened regarding suspension or cancellation of any of the Company Permits except for such Company Permits the failure of which to possess, or the cancellation or suspension of which, would not, individually or in the aggregate, have a Material Adverse Effect. To the best of its knowledge neither the Company nor any of its subsidiaries is in material conflict with, or in material default or material violation of, any of the Company Permits. Section 3.18. Internal Accounting Controls. The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient, in the judgment of the Company's board of directors, to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Section 3.19. Tax Returns. The Company has filed or caused to be filed all Federal tax returns and all material state and local tax returns required to have been filed by it and has paid or caused to be paid all taxes shown to be due and payable by it on such returns or on any assessments received by it, except any such tax, the validity or amount of which is being contested in good faith by appropriate proceedings and as to which the Company has set aside on its books adequate reserves with respect thereto in accordance with generally accepted accounting principles. Neither the Company nor its subsidiaries has received any tax assessment, notice of audit, notice of proposed adjustment or deficiency notice from any taxing authority. Section 3.20. Disclosure. The statements contained in the SEC Reports and the schedules, certificates and exhibits furnished to the Purchasers by or on behalf of the Company in connection herewith do not contain any untrue statement of a material fact and do not omit to state any material fact necessary to make the statements herein or therein not misleading in light of the circumstances under which they were made. The SEC Reports contain all material information concerning the Company required to be set forth therein, and no event or circumstance has occurred or exists since December 31, 2000, that would require the Company to disclose such event or circumstance in order to make the statements in the SEC Reports not misleading as of the date of the Closing but that has not been so disclosed. The Company hereby acknowledges that the Purchasers are and will be relying on the SEC Reports and the Company's representations, warranties and covenants contained herein in making an investment decision with respect to the Common Shares and the Warrants and will be relying thereon (together with future reports filed with the Commission) in 10 connection with any transfer of Common Shares, Warrants and Warrant Shares or any acquisition of Warrant Shares upon exercise of the Warrants. ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS Each Purchaser hereby acknowledges, represents, warrants and covenants, severally and not jointly, to the Company that on and of the date hereof and on and as of the Deferred Purchase Price Payment Date (such reaffirmation to be evidenced by the payments made by SG and Velocity as of such date): Section 4.01. Authorization; Enforceability; No Violations. (a) Such Purchaser is duly organized, validly existing and in good standing under the laws of its jurisdiction, has all requisite power and authority to execute, deliver and perform the terms and provisions of this Agreement and the Registration Rights Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Agreement and the Registration Rights Agreement and to consummate the transactions contemplated hereby and thereby to be performed by it. (b) The execution, delivery and performance by such Purchaser of this Agreement and the Registration Rights Agreement and the consummation by such Purchaser of the transactions contemplated hereby and thereby to be performed by it do not and will not violate any provision of (i) such Purchaser's organizational documents or (ii) any law, statute, rule, regulation, order, writ, injunction, judgment or decree to which such Purchaser is subject. Such Purchaser has duly executed and delivered this Agreement and has executed and delivered, or concurrently herewith is executing and delivering, the Registration Rights Agreement. Assuming the due execution hereof and thereof by the Company, each of this Agreement and the Registration Rights Agreement constitutes the legal, valid and binding obligation of such Purchaser, enforceable against such Purchaser in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). Section 4.02. Securities Act Representations; Legends. (a) Such Purchaser understands that: (i) the offering and sale of the Common Shares and the Warrants to be issued and sold hereunder is intended to be exempt from the registration requirements of the Securities Act; (ii) neither the Common Shares or the Warrants nor the Warrant Shares have been registered under the Securities Act or any other applicable securities laws and such securities may be resold only if registered under the Securities Act and any other applicable securities laws or if an exemption from such registration requirements is available; and (iii) the Company is required to register any resale of the Common Shares, the Warrants or the Warrant Shares under the Securities Act and any other applicable securities laws only to the extent provided in the Registration Rights Agreement. (b) The Common Shares and the Warrants to be acquired by such Purchaser pursuant to this Agreement and the Warrant Shares issuable upon exercise of the Warrants are being acquired for its own account, for investment purposes, and not with a view to, or for sale in connection with, any 11 distribution thereof (other than the resale of Common Shares and Warrant Shares pursuant to an effective registration statement as contemplated by the Registration Rights Agreement) in violation of the Securities Act or any other securities laws that may be applicable. (c) Such Purchaser is not an affiliate (as such term is defined in the Securities Act) of the Company. (d) Such Purchaser (i) has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Common Shares and the Warrants and is capable of bearing the economic risks of such investment, including a complete loss of its investment in the Common Shares and the Warrants; (ii) believes that its investment in the Common Shares and the Warrants are suitable for it based upon its objectives and financial needs, and such Purchaser has adequate means for providing for its current financial needs and business contingencies and has no present need for liquidity of investment with respect to the Common Shares and the Warrants; (iii) has no present plan, intention or understanding and has made no arrangement to sell the Common Shares, the Warrants or the Warrant Shares at any predetermined time or for any predetermined price; (iv) has not purchased, sold or entered into any put option, short position or similar arrangement with respect to the Common Stock, and will not, for so long as it owns any Common Shares, Warrants or Warrant Shares, purchase, sell or enter into any such put option, short position or similar arrangement in any manner that violates the provisions of the Securities Act or the Exchange Act. (e) No oral or written statements or representations have been made to such Purchaser by or on behalf of the Company in connection with the offering and sale of the Common Shares and the Warrants hereunder other than those set forth in the SEC Reports, or as set forth herein or in the other Transaction Documents, and such Purchaser is not subscribing for the Common Shares and the Warrants as a result of, or in response to, any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or presented at any seminar or meeting. (f) Such Purchaser acknowledges that the Securities Act restricts the transferability of securities, such as the Common Shares, Warrants and Warrant Shares, issued in reliance upon the exemption from the registration requirements of the Securities Act provided by Section 4(2) thereunder, and that, subject to Section 5.02 hereof, the certificates representing the Common Shares, the Warrants and the Warrant Shares will bear a legend in substantially the following form, by which such Purchaser and each subsequent holder of such securities will be bound: THE SECURITIES REPRESENTED BY THIS CERTIFICATE (AND AS OF THE DATE OF ORIGINAL ISSUANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE, ANY UNDERLYING SECURITIES) HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE OR ANY SECURITIES ISSUABLE UPON THE CONVERSION HEREOF MAY NOT BE 12 OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED OTHER THAN (A) TO HOLLYWOOD MEDIA CORP. (THE "COMPANY") OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO RULE 144 UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT. THE HOLDER OF THIS CERTIFICATE AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY OR ANY SECURITY ISSUED UPON CONVERSION HEREOF IS TRANSFERRED (UNLESS SUCH SECURITY IS TRANSFERRED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY PROPOSED TRANSFER PURSUANT TO CLAUSES (B), (C) OR (D) ABOVE, THE COMPANY MAY REQUIRE THAT THE TRANSFEROR FURNISH IT WITH AN OPINION OF COUNSEL CONFIRMING THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE RESPECTIVE MEANINGS ASSIGNED TO THEM IN REGULATION S UNDER THE SECURITIES ACT. Section 4.03. No Brokers. No broker, finder, agent or similar intermediary is entitled to any broker's, finder's, placement or similar fee or other commission in connection with the transactions contemplated hereby based on any agreement, arrangement or understanding with such Purchaser. Section 4.04. No Influence on Business. Each Purchaser covenants and agrees, severally and not jointly, with the Company that it does not presently intend to: (a) in any manner exercise or attempt to exercise a controlling influence over the management or policies of the Company or attempt to influence the business activities or decisions or the Company; (b) propose a director or slate of directors to serve on the board of directors of the Company; (c) have or seek to have a representative of such Purchaser be appointed to serve as a director of the Company or participate as an observer at meetings of the board of directors (or committees thereof) or have or seek to have any employee or representative of such Purchaser serve as an officer, agent or employee of the Company; (d) attempt to influence the dividend policies or practices of the Company; (e) solicit or participate in soliciting proxies with respect to any matter presented to the shareholders of the Company; (f) dispose or threaten to dispose of the Common Shares, Warrants or Warrant Shares to any third party in any manner as a condition to specific action or non-action by the Company; or (g) enter into any joint venture, enterprise or undertaking of any kind with the Company. Section 4.05. Limitations on Resales. (a) SG covenants and agrees, that it (together with its Affiliates) will not transfer the Common Shares or the Warrants to any Person (together with such Person's Affiliates), other than the Company or Affiliates of SG, in a transaction or series of transactions, in an aggregate principal amount in excess of such principal amount as would be convertible or exercisable 13 at the date of transfer into in excess of 2% of the issued and outstanding shares of Common Stock of the Company. SG further covenants and agrees, severally and not jointly, that it will not knowingly transfer to any Person (together with such Person's Affiliates), other than the Company or Affiliates of SG, in a transaction or series of transactions, Warrant Shares in an aggregate amount in excess of 2% of the issued and outstanding shares of Common Stock of the Company (based upon the number of shares of Common Stock of the Company issued and outstanding on the applicable date of transfer); in furtherance thereof, SG covenants and agrees that it shall not during any five (5) consecutive trading days transfer Warrant Shares in secondary market transactions in which the identity of the acquiror is not known to SG in an amount in excess of 2% of the issued and outstanding shares of Common Stock of the Company (based upon the number of shares of Common Stock of the Company issued and outstanding on the applicable date of transfer). SG covenants and agrees that the foregoing transfers to third parties shall be made in bona fide, arms-length transactions and that upon any such transfer, it will not retain the power to control the disposition of the securities transferred or, in the case of Warrant Shares, to direct the voting with respect thereto. (b) SG covenants and agrees that it (together with its Affiliates) will not, on any day during the twenty (20) Trading Days prior to, or any day of ,any Reset Period, sell or otherwise transfer shares of Common Stock in an aggregate amount equal to more than fifteen percent (15%) of the average daily trading volume of the Common Stock during the fifteen (15) Trading Days preceding such forty (40) Trading Day period. (c) Velocity covenants and agrees that it (together with its Affiliates) will not, on any day during the twenty (20) Trading Days prior to, or any day of, any Reset Period, sell or otherwise transfer shares of Common Stock in an aggregate amount equal to more than ten percent (10%) of the average daily trading volume of the Common Stock during the fifteen (15) Trading Days preceding such forty (40) Trading Day period. ARTICLE V COVENANTS Section 5.01. Limitation on Issuance of Securities. (a) The Company will not make any offer to sell, solicit any offer to buy, agree to sell or sell any security or right to acquire any security, except at such time and in such manner so as not to cause the loss of any of the exemptions for the offer and sale of the Common Shares or the Warrants hereunder and for the issuance of the Warrant Shares upon exercise of the Warrants from the registration requirements under the Securities Act or under the securities or "blue sky" laws of any jurisdiction in which such offer, sale or issuance is made. (b) In addition to the foregoing limitation on the issue of securities, for a period commencing on the date of the Closing and ending four (4) months after a registration statement relating to the resale of the Common Shares and Warrant Shares is declared effective, without obtaining the prior written consent of the Purchasers, the Company will not (1) issue a floating convertible or similar security that provides for a minimum conversion price less than $4.5099 or (2) issue common stock or securities convertible into common stock in a capital raising transaction at a price that is less than 90% 14 of the then existing Market Price at the time of issuance. For purposes of the foregoing "Market Price" means the lesser of (i) the ten (10) day average closing price preceding the closing or (ii) the closing price on the closing date of such transaction. Notwithstanding the foregoing, the Company shall be able to issue any such securities in connection with strategic transactions to a strategic investor and in connection with any exercise by Viacom, Inc. of its participation rights related to this transaction or any other such strategic transaction. (c) Each Purchaser, until 12 months following the effectiveness of the Registration Statement, shall have the right to participate, up to the amount such Purchaser invested at the Closing (the "Participation Interest"), in issuances by the Company for capital raising purposes of equity securities (or securities convertible into or exercisable for, equity securities) other than bona fide underwritten offerings registered under the Securities Act or issuances of securities in connection with strategic transactions to a strategic investor. In the event the Company proposes to issue a security to which the Purchasers would be entitled to participate pursuant to the foregoing, the Company shall notify each Purchaser in writing at least 15 days prior to the issuance date of the proposed issuance date, the terms of such offering and such Purchaser's Participation Interest up to which it is entitled to participate. In order to participate in such offering, a Purchaser must notify the Company in writing at least ten (10) days prior to the designated issuance date and specify the amount of securities, up to its pro rata amount, that it wishes to purchase. If a Purchaser does not so notify the Company, the Company may issue such securities on the terms set forth in the notice to such Purchaser. In the event the terms of the offer are subsequently varied by the Company, the Company must then again notify such Purchaser as set forth above. Section 5.02. Transfer Restrictions; Delivery of Warrant Shares. (a) Each Purchaser acknowledges that any proposed offer, sale, pledge or other transfer of Common Shares, Warrants or Warrant Shares prior to the date that is two (2) years from the Closing (or such other date as may be required pursuant to Rule 144 under the Securities Act (or similar successor provision) as in effect from time to time), in the absence of registration under the Securities Act, is limited. Accordingly, prior to such passage of time or such registration, the Common Shares, the Warrants or the Warrant Shares may be offered, sold, pledged or otherwise transferred only (i) to the Company, (ii) in an offshore transaction in accordance with Rule 904 under the Securities Act, (iii) pursuant to any other exemption from registration provided by the Securities Act, (iv) pursuant to Rule 144 under the Securities Act or (v) pursuant to an effective registration statement under the Securities Act; in the case of any transfer pursuant to clause (ii), (iii) or (iv), the Company shall be entitled to receive an opinion of the selling Purchaser's counsel, in form and substance reasonably satisfactory to the Company, to the effect that registration is not required in connection with such disposition. Any Common Shares or Warrants sold to the Company may not be reissued or resold. (b) The Company agrees to issue certificates representing the Common Shares, Warrants or Warrant Shares without the legend referenced in Section 4.02(a) above at such time as (i) the holder thereof is permitted to dispose of such Common Shares, Warrants or Warrant Shares pursuant to Rule 144 (k) under the Securities Act (to the extent applicable), (ii) such Common Shares, Warrants or Warrant Shares are sold to a purchaser or purchasers who (in 15 the opinion of counsel to the seller or such purchaser(s), in form and substance reasonably satisfactory to the Company) are able to dispose of such securities publicly without registration under the Act and such legend is no longer required to be included on the certificates representing the Common Shares, Warrants or Warrant Shares or (iii) such Common Shares, Warrants or Warrant Shares are sold or are available for resale pursuant to an effective registration statement under the Securities Act. (c) In the alternative to physical delivery of certificates for Warrant Shares, if delivery of the Warrant Shares pursuant to any conversion thereunder may be effectuated by electronic book-entry through The Depositary Trust Company ("DTC"), delivery of Warrant Shares pursuant to such conversion shall, if requested by the relevant Purchaser (or holder of Warrant Shares), settle by book-entry transfer through DTC by the third trading day following the date of exercise of the Warrants pursuant to the terms thereof, as appropriate. The parties agree to coordinate with DTC to accomplish this objective. Section 5.03. Rules 144; Current Information. For so long as any Common Shares, Warrants or Warrant Shares are outstanding, the Company will (i) cause its Common Stock to continue to be registered under Section 12 of the Exchange Act, file all reports required to be filed by it under the Securities Act and the Exchange Act and will take such further actions as any Purchaser may reasonably request, all to the extent required from time to time to enable a Purchaser to sell Common Shares, Warrants and Warrant Shares without registration under the Securities Act pursuant to the safe harbors and exemptions provided by Rule 144 under the Securities Act (to the extent applicable), as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission, and (ii) furnish each Purchaser with all reports, proxy statements and registration statements that the Company files with the Commission or distributes to its securityholders pursuant to the Securities Act and the Exchange Act at the times of such filings and distributions (unless such documents are available electronically from the Commission or elsewhere without charge and within a period reasonably contemporaneous with the filing thereof with the Commission, in which case such documents need not be provided to any Purchaser). Upon the request of a Purchaser, the Company will deliver to such Purchaser a written statement as to whether it has complied with the foregoing requirements. Section 5.04. Reservation of Warrant Shares. The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued shares of Common Stock or its issued shares of Common Stock held in its treasury, or both, sufficient shares of Common Stock to provide for the issuance of the Warrant Shares in an amount equal to the balance of the Warrant Shares not then yet issued. Section 5.05. Publicity. The Company shall, no later than 10 business days after the Closing, (i) file a Form 8-K or Form 10-Q with the Commission disclosing the transactions contemplated by this Agreement (attaching the Transaction Documents as exhibits thereto), (ii) publicly announce the Company's financial results for the three months ended March 31, 2001, and (iii) at its option, at any time issue a press release with respect to the Transaction Documents, in a form which has been reviewed and is reasonably acceptable to the Purchasers. 16 ARTICLE VI INDEMNIFICATION Section 6.01. Indemnification. In consideration of the Purchasers' execution and delivery of this Agreement, the Registration Rights Agreement and in addition to all of the Company's other obligations under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless the Purchasers and all of their partners, officers, directors, employees, members and any of the foregoing persons' agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "Indemnitees") from and against any and all losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action or which indemnification hereunder is sought), and including reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"), incurred by any Indemnitee as a result of, or arising out of any cause of action, suit or claim brought or made against such Indemnitee by a third party and arising out of or resulting from the breach by the Company of any representation, warranty or covenant in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby. Notwithstanding the foregoing, Indemnified Liabilities shall not include any liability of any Indemnitee to the extent arising out of such Indemnitee's breach of the Transaction Documents, willful misconduct or fraudulent action(s). To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. Except as otherwise set forth herein, the mechanics and procedures with respect to the rights and obligations under this Article VII shall be the same as those set forth in Section 4 of the Registration Rights Agreement, including, without limitation, those procedures with respect to the settlement of claims and Company's right to assume the defense of claims. ARTICLE VII MISCELLANEOUS Section 7.01. Press Releases and Disclosure. No party hereto shall issue any press release or make any other public disclosure related to this Agreement or any of the transactions contemplated hereby without the prior written approval of the other party hereto, except as may be necessary or appropriate in the opinion of the party seeking to make disclosure to comply with the requirements of applicable law or stock exchange rules. If any such press release or public disclosure is so required, the party making such disclosure shall consult with the other party prior to making such disclosure, and the parties shall use all reasonable efforts, acting in good faith, to agree upon a text for such disclosure that is satisfactory to all parties. Section 7.02. Expenses. Except as otherwise expressly provided for herein, the Company will pay all of SG's and Velocity's attorneys' fees and expenses incurred in connection with the negotiation of the Transaction Documents, subject to a maximum of $32,000 ($5,000 of which was previously paid by the Company) and $10,000, respectively. The expenses of SG and Velocity shall be payable at the Closing (and on the Deferred Purchase Price Payment Date, as applicable) and may be netted, to the extent payable pursuant to 17 the preceding sentence, against the Purchase Price otherwise payable to the Company by SG and Velocity. Section 7.03. Notices. All notices, demands, requests, consents, approvals or other communications required or permitted to be given hereunder or that are given with respect to this Agreement shall be in writing and shall be personally served or deposited in the mail, registered or certified, return receipt requested, postage prepaid or delivered by reputable air courier service with charges prepaid, or transmitted by hand delivery, telegram, telex or facsimile, addressed as set forth below, or to such other address as such party shall have specified most recently by written notice: (i) if to the Company, to: Hollywood Media Corp., 2255 Glades Rd., Ste. 237W, Boca Raton, Florida, Attention: Mitchell Rubenstein, Chairman and CEO, Facsimile No.: (561) 998-2974, with copies (which shall not constitute notice) to: Hollywood Media Corp., 2255 Glades Rd., Ste. 237W, Boca Raton, Florida, Attention: W. Robert Shearer, Senior Vice President and General Counsel, Facsimile No.: (561) 998-2974; and (ii) if to any Purchaser at the address of such Purchaser set forth on Annex A. Notice shall be deemed given on the date of service or transmission if personally served or transmitted by telegram, telex or facsimile. Notice otherwise sent as provided herein shall be deemed given on the third business day following the date mailed or on the next business day following delivery of such notice to a reputable air courier service. Section 7.04. Entire Agreement. This Agreement (together with the other Transaction Documents and all other documents delivered pursuant hereto and thereto) constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements, representations, understandings, negotiations and discussions between the parties, whether oral or written, with respect to the subject matter hereof. Section 7.05. Amendment and Waiver. This Agreement may not be amended, modified, supplemented, restated or waived except by a writing executed by the party against which such amendment, modification or waiver is sought to been enforced. Waivers may be made in advance or after the right waived has arisen or the breach or default waived has occurred. Any waiver may be conditional. No waiver of any breach of any agreement or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof nor of any other agreement or provision herein contained. No waiver or extension of time for performance of any obligations or acts shall be deemed a waiver or extension of the time for performance of any other obligations or acts. Section 7.06. Assignment; No Third Party Beneficiaries. This Agreement and the rights, duties and obligations hereunder may not be assigned or delegated by the Company or any Purchaser without the prior written consent of the other parties hereto; provided that each Purchaser may assign or delegate its rights, duties and obligations hereunder to any Affiliate of such Purchaser. Except as provided in the preceding sentence, any purported assignment or delegation of rights, duties or obligations hereunder made without the prior written consent of the other party hereto shall be void and of no effect. This Agreement and the provisions hereof shall be binding upon and shall inure to the benefit of each of the parties and their respective successors and permitted assigns. This Agreement is not intended to confer any rights or benefits on any Persons other than as set forth above. 18 Section 7.07. Severability. This Agreement shall be deemed severable, and the invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of this Agreement or of any other term or provision hereof. Furthermore, in lieu of any such invalid or unenforceable term or provision, the parties hereto intend that there shall be added as a part of this Agreement a provision as similar in terms to such invalid or unenforceable provision as may be possible and be valid and enforceable. Section 7.08. Further Assurances. Each party hereto, upon the request of any other party hereto, shall do all such further acts and execute, acknowledge and deliver all such further instruments and documents as may be necessary or desirable to carry out the transactions contemplated by this Agreement. Section 7.09. Titles and Headings. Titles, captions and headings of the sections of this Agreement are for convenience of reference only and shall not affect the construction of any provision of this Agreement. Section 7.10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, INTERPRETED UNDER, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED WITHIN THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS THEREOF. Section 7.11. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, all of which taken together shall constitute one and the same instrument. 19 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by the undersigned, thereunto duly authorized, as of the date first set forth above. HOLLYWOOD MEDIA CORP. By: ------------------------------------------- Name: Title: SOCIETE GENERALE By: ------------------------------------------- Name: Title: VELOCITY INVESTMENT PARTNERS LTD. By: ------------------------------------------- Name: Title: 20 Annex A ------- Purchasers ----------
- ----------------------------------------------------- ------------------------------------------------ --------------------------- Shares of Common Stock/Warrants Purchased from Aggregate Purchaser Name the Company Purchase Price and Notice Address Paid at Closing - ----------------------------------------------------- ------------------------------------------------ --------------------------- 576,504 Common Shares $2,600,000 Societe Generale 273,562 "A" Warrant Shares c/o SG Cowen Securities Corporation 658,878 "B" Warrant Shares 1221 Avenue of the Americas New York, NY 10020 Attn: Guillaume Pollet Facsimile No.: (212) 278-5467 Telephone No.: (212) 278-5260 with a copy to: - -------------- Jones, Day, Reavis & Pogue 599 Lexington Avenue New York, New York 10022 Attn: J. Eric Maki Facsimile No.: (212) 755-7306 Telephone No.: (212) 326-3780 - ----------------------------------------------------- ------------------------------------------------ --------------------------- Velocity Investment Partners Ltd. 365,858 Common Shares $1,650,000 333 West Wacker Drive 177,524 "A" Warrant Shares Suite 1410 439,251"B" Warrant Shares Chicago, IL 60606 Attn: Richard Marks or John Ziegelman Facsimile No.: 312-236-3030 Telephone No.: 312-236-4411 - ----------------------------------------------------- ------------------------------------------------ ---------------------------
EX-10.3 4 ex10-3.txt REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of May 1, 2001, is entered into among HOLLYWOOD MEDIA CORP., a Florida corporation (the "Company"), SOCIETE GENERALE, a bank organized under the laws of France ("SG"), and VELOCITY INVESTMENT PARTNERS, a company organized under the laws of the Cayman Islands ("Velocity") (SG and Velocity, together, the "Purchasers"). WHEREAS, the Company and the Purchasers have entered into that certain Securities Purchase Agreement (the "Securities Purchase Agreement"), dated as of April 25, 2001, pursuant to which the Company has agreed to issue and sell to the Purchasers an aggregate of (i) 942,362 shares of its Common Stock (the "Common Shares"), (ii) "A" warrants to purchase up to 451,086 shares of its Common Stock and (iii) "B" warrants to acquire up to 1,098,129 shares of its Common Stock (the "A" and "B" warrants together, the "Warrants"); and WHEREAS, pursuant to the terms of, and in partial consideration for, the Purchasers' agreement to enter into the Securities Purchase Agreement, the Company has agreed to provide each Purchaser with certain registration rights with respect to the Common Stock. "Common Stock" means the Company's Common Stock, par value $0.01 per share; NOW, THEREFORE, in consideration of the foregoing premises, the representations, warranties, covenants and agreements contained herein and in the Securities Purchase Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I DEFINITIONS Section 1.1 Definitions. Capitalized terms used herein and defined in the Securities Purchase Agreement shall have the same respective meanings herein as are ascribed to them therein. In addition, the following terms shall have the meanings ascribed to them below: "Purchasers" shall mean the Purchasers referenced in the preamble, and, unless the context otherwise requires, shall include each such Purchaser for so long as it owns any Registrable Securities and any assignee or transferee of the Common Shares, the Warrants, the Warrant Shares or the Registrable Securities to which the registration rights conferred by this Agreement have been transferred in compliance with this Agreement and that is the registered holder of the Common Shares, the Warrants, the Warrant Shares or the Registrable Securities, as the case may be. "Registrable Securities" means all of the Common Shares, the Warrant Shares and any other securities of the Company that are issued or issuable upon the exercise of the Warrants (the "Common Securities") until (i) a registration statement under the Securities Act covering the offer and sale of the Common Securities has been declared effective by the Commission and the Common Securities have been disposed of pursuant to such effective registration statement, (ii) the Common Securities are sold under circumstances in which all of the applicable conditions of Rule 144 (or any similar provision then in force) under the Securities Act ("Rule 144") are met, (iii) such Common Securities have been otherwise transferred and the Company has delivered a new certificate or other evidence of ownership for the Common Securities not bearing a restrictive legend or (iv) such time as, in the opinion of counsel to the Company, which counsel shall be reasonably acceptable to each Purchaser, such Common Securities may be sold without any time, volume or manner limitation pursuant to Rule 144(k) (or any similar provision then in effect) under the Securities Act. "Registration Statement" means the registration statement filed by the Company pursuant to Section 2.1(a) and any additional registration statement filed by the Company pursuant to Section 2.1(b). "Underwriter" means a securities dealer that purchases any Registrable Securities as principal in an underwritten offering and not as part of such dealer's market-making activities. "Warrant Shares" means the shares of Common Stock issuable upon exercise of the Warrants. ARTICLE II REGISTRATION RIGHTS Section 2.1 Registration Requirements. The Company shall use its commercially reasonable efforts to effect the registration of the Registrable Securities (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act) as would permit or facilitate the sale or distribution of all the Registrable Securities in the manner (including manner of sale) and in all states reasonably requested by any Purchaser. Such commercially reasonable efforts by the Company shall include the following: (a) The Company will as expeditiously as possible, and in no event later than June 29, 2001 (the "Filing Deadline"), prepare and file with the Commission a registration statement (the "Registration Statement") on Form S-3 (if use of such form is then available to the Company pursuant to the rules of the Commission and, if not, on such other form promulgated by the Commission for which the Company then qualifies and that counsel for the Company shall deem appropriate and which form shall be available for the resale of the Registrable Securities to be registered thereunder in accordance with the provisions of this Agreement and in accordance with the intended method of distribution of such Registrable Securities), and use its commercially reasonable efforts to cause such filed Registration Statement to become effective by the Effectiveness Deadline. The "Effectiveness Deadline" shall mean, as applicable, (i) in the event such Registration Statement is not subject to review by the Commission, five (5) business days after the date that the Company is first advised by the Commission, whether orally or in writing, that such Registration Statement will not be subject to review by the Commission and (ii) in the event such Registration Statement shall be subject to review by the Commission, the earlier of one hundred and twenty (120) days from the date of this Agreement or five (5) business days after the date that the Company is first advised by the 2 Commission, whether orally or in writing, that it has no further comments in connection with its review of the Registration Statement. The Company will as expeditiously as possible prepare and file with the Commission such amendments and supplements to the Registration Statement and the prospectus used in connection therewith as may be necessary to keep the Registration Statement effective for a period of not less than: (i) in the case of a non-underwritten offering of Registrable Securities, until there shall no longer be any Registrable Securities or (ii) with respect to an underwritten offering of Registrable Securities, ninety (90) days after the commencement of the distribution of Registrable Securities covered by the Registration Statement (but not before the expiration of the period referred to in Section 4(3) of the Securities Act and Rule 174 thereunder, if applicable), and the Company will comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition by a Purchaser as set forth in the Registration Statement. (b) The number of Registrable Securities covered by the initial Registration Statement shall equal 2,491,577 shares of Common Stock of the Company. If at any time the initial Registration Statement is not sufficient to cover all Registrable Securities the Company shall as expeditiously as possible (and in no event more than forty-five (45) days from the date of the event that results in such change) file a post-effective amendment to the Registration Statement (or, if necessary file or cause to be filed a new or additional Registration Statement) to reflect the registration of the offer and resale of such additional or other securities and use its commercially reasonable efforts to cause such post-effective amendment or new or additional Registration Statement to become effective within one hundred and twenty (120) days (or in the event such Registration Statement is not subject to review by the Commission or, if subject to review by the Commission, five (5) business days after the date that the Company is first advised by the Commission, whether orally or in writing, that such Registration Statement will not be subject to review by the Commission or that it has no further comments in connection with its review of the Registration Statement) from the date of the event that results in such change. In the event the filing of a new or additional Registration Statement is required, references herein to the Registration Statement shall also refer to such new or additional registration statement (except that for purposes of Section 2.1(a) above, the Filing Deadline shall refer to the end of the forty-five (45) day period referenced above and the Effectiveness Deadline shall refer to the end of the one hundred and twenty (120) day or shorter period (based upon completion of the Commission's review of such Registration Statement) referenced above). (c) The Company will, prior to filing the Registration Statement or prospectus or any amendment or supplement thereto, furnish to each Purchaser, its counsel, and each Underwriter, if any, of the Registrable Securities covered by such Registration Statement copies of such Registration Statement and prospectus or any amendment or supplement thereto as proposed to be filed, together with exhibits thereto, as well as any comment letters received from the Commission, which documents will be subject to review and approval by the foregoing persons (such approval not to be unreasonably withheld or delayed), and thereafter furnish to each Purchaser, its counsel and each Underwriter, if any, such number of copies of such Registration Statement, each amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein), the prospectus included in such Registration Statement (including each preliminary prospectus) and such other documents or information, as any Purchaser, its counsel or each 3 Underwriter may reasonably request in order to facilitate the disposition of the Registrable Securities. (d) The Company will use its commercially reasonable efforts to (i) register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions in the United States as any Purchaser may reasonably (in light of its intended plan of distribution) request and (ii) if applicable, cause such Registrable Securities to be registered with or approved by such other governmental agencies or authorities in the United States as may be necessary by virtue of the business and operations of the Company and do any and all other acts and things that may be reasonably necessary or advisable to enable such Purchaser to consummate the disposition of the Registrable Securities; provided that the Company will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for the fulfillment of its obligation under this paragraph (d), (B) subject itself to taxation in any such jurisdiction or (C) consent or subject itself to general service of process in any such jurisdiction. (e) The Company will promptly notify the Purchasers upon the occurrence of any of the following events in respect of the Registration Statement or related prospectus in respect of an offering of Registrable Securities: (i) receipt of any request for additional information by the Commission or any other federal or state governmental authority during the period of effectiveness of the Registration Statement for amendments or supplements to the Registration Statement or related prospectus; (ii) the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iii) receipt of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; (iv) the happening of any event that makes any statement made in the Registration Statement or related prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the Registration Statement, related prospectus or documents so that (or the Company otherwise becomes aware of any statement included in the Registration Statement, related prospectus or documents that is untrue in any material respect or that requires the making of any changes in the Registration Statement, related prospectus or documents so that), in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the related prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (v) the Company's reasonable determination that a post-effective amendment to the Registration Statement would be appropriate (in which event the Company will promptly make available to the Purchasers any such supplement or amendment to the Registration Statement and, as applicable, the related prospectus). (f) The Company will enter into customary agreements (including, if applicable, an underwriting agreement in customary form and that is reasonably satisfactory to the Company) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of the Registrable Securities (each Purchaser may, at its option, require that any or 4 all of the representations, warranties and covenants of the Company to or for the benefit of any applicable Underwriter also be made to and for the benefit of such Purchaser). (g) The Company will make available to such Purchaser (and will deliver to its counsel) and each Underwriter, if any, subject to restrictions imposed by the United States federal government or any agency or instrumentality thereof, copies of all correspondence between the Commission and the Company, its counsel or auditors and will also make available, subject to restrictions imposed by the United States federal government or any agency or instrumentality thereof, for inspection by each Purchaser, its counsel, any Underwriter participating in any disposition pursuant to a Registration Statement and any attorney, accountant or other professional retained by each Purchaser or such Underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the "Records") as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers and employees to supply all information reasonably requested by any Inspectors in connection with the Registration Statement. Records that the Company determines, in good faith, to be confidential and that it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary in the reasonable opinion of the Inspectors to avoid or correct a misstatement or omission in the Registration Statement or (ii) the disclosure or release of such Records is requested or required pursuant to oral questions, interrogatories, requests for information or documents or a subpoena or other order from a court of competent jurisdiction or other process; provided that prior to any disclosure or release pursuant to clause (ii), the Inspectors shall provide the Company with prompt notice of any such request or requirement so that the Company may seek an appropriate protective order or waive such Inspectors' obligation not to disclose such Records; and, provided further, that if failing the entry of a protective order or the waiver by the Company permitting the disclosure or release of such Records, the Inspectors, upon written advice of counsel, are compelled to disclose such Records, the Inspectors may disclose that portion of the Records that counsel has advised the Inspectors that the Inspectors are compelled to disclose. The Company may require, as a condition to the disclosure to any Inspector of any confidential information, that such Inspector execute and deliver to the Company a written agreement, in form and substance reasonably satisfactory to the Company, pursuant to which such Inspector agrees to the confidential treatment of such information as contemplated above. Each Purchaser agrees that information obtained by it as a result of such inspections (not including any information obtained from a third party who is not prohibited from providing such information by a contractual, legal or fiduciary obligation to the Company) shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of the Company or its Affiliates unless and until such information is made generally available to the public. Each Purchaser further agrees that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential. (h) The Company will furnish to each Purchaser and to each Underwriter, if any, a signed counterpart, addressed to each Purchaser and such Underwriter, of (1) an opinion or opinions of counsel to the Company and (2) a comfort letter or comfort letters from the Company's independent public accountants, each in customary form and covering such matters of the type customarily covered by opinions or comfort letters, as the case may be, as any 5 Purchaser or the managing Underwriter therefor reasonably requests. The Company agrees that, (x) upon effectiveness of the Registration Statement and (y) if requested by Purchasers holding in the aggregate a majority of Registrable Securities, upon the effectiveness of each amendment thereto subsequent to effectiveness of the Registration Statement, whether by the filing of a post-effective amendment thereto or the incorporation by reference of reports subsequently filed with the Commission, it will cause to be delivered to the Purchasers (i) if applicable and only to the extent permitted by the rules of the AICPA, a comfort letter in customary form from its independent public accountants and (ii) if applicable, an opinion of counsel to the Company, covering customary matters, including a statement providing negative assurances as to the absence of any untrue statement of a material fact or omission to state any material fact required to be stated therein or necessary to make the statements contained in the Registration Statement and in the case of the related prospectus (as so amended), in light of circumstance in which they were made, not misleading. (i) The Company will comply with all applicable rules and regulations of the Commission, including, without limitation, compliance with applicable reporting requirements under the Exchange Act, and will make available to its security holders, as soon as reasonably practicable, an earning statement covering a period of twelve (12) months, beginning within three (3) months after the effective date of the Registration Statement, which earning statement shall satisfy the provisions of Section 11(a) of the Securities Act. (j) The Company will appoint the then existing transfer agent and registrar for the Common Stock as its transfer agent and registrar for all the Registrable Securities covered by the Registration Statement not later than the effective date of the Registration Statement. (k) The Company shall take all steps necessary to enable each Purchaser to avail itself of the prospectus delivery mechanism set forth in Rule 153 (or successor thereto) under the Securities Act, if available. (l) In connection with an underwritten offering, the Company will cooperate, to the extent reasonably requested by the managing Underwriter for the offering or a Purchaser, in customary efforts to sell the securities under the offering, including, without limitation, participating in "road shows" on a schedule as shall be reasonably satisfactory to, and not unduly burdensome on, the Company; provided that the Company shall not be obligated to participate in more than one such offering in any twelve (12) -month period and any such participation by the Company shall be at the expense of the managing Underwriter or the requesting Purchaser unless the Company shall also be offering securities in such underwritten offering. (m) The Company may require each Purchaser promptly to furnish in writing to the Company such information regarding the intended methods of distribution of the Registrable Securities as the Company may from time to time reasonably request and such other information as may be legally required in connection with such registration, including, without limitation, all such information as may be requested by the Commission or the NASD or any state securities commission or similar authority. If a Purchaser fails to provide such information requested in connection with such registration within ten (10) business days after receiving such written request, then the Company may cease 6 pursuit of such registration in respect of a Purchaser's Registrable Securities until such information is provided. (n) Each Purchaser agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 2.1(e) hereof, such Purchaser will forthwith discontinue disposition of Registrable Securities pursuant to the Registration Statement until such Purchaser's receipt of the copies of the supplemented or amended prospectus contemplated by Section 2.1(e)(iv) hereof, and, if so directed by the Company, such Purchaser will deliver to the Company all copies, other than permanent file copies then in such Purchaser's possession, of the most recent prospectus covering the Registrable Securities at the time of receipt of such notice. (o) Notwithstanding any other provision set forth in this Agreement, no Purchaser may undertake to sell Registrable Securities by means of an underwriten offering without the prior written consent of the Company, which may be withheld by the Company in its sole discretion. Section 2.2 Registration Expenses. In connection with registration hereunder, the Company shall pay the following registration expenses incurred in connection therewith (the "Registration Expenses"): (i) all registration and filing fees, (ii) fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of a single firm of counsel retained by Company in connection with blue sky qualifications of the Registrable Securities), (iii) printing expenses, (iv) the Company's internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), (v) the fees and expenses incurred in connection with the listing or quotation of the Registrable Securities, (vi) fees and disbursements of counsel for the Company and customary fees and expenses for independent certified public accountants retained by the Company (including the expenses of any (A) opinion letters or costs associated with delivery by counsel to the Company of an opinion letter or opinion letters or (B) comfort letters or costs associated with the delivery by independent certified public accountants of a comfort letter or comfort letters, in each case required by or requested pursuant to Section 2.1(h) hereof), and (vii) the fees and expenses of any special experts retained by the Company in connection with such registration. The Company shall have no obligation to pay any underwriting fees, discounts or commissions, or any transfer taxes attributable to the sale of Registrable Securities, or the cost of any special audit required by the Purchasers, such costs to be borne by the Purchasers. ARTICLE III PAYMENTS BY THE COMPANY Section 3.1 Payments by the Company. In the event the Registration Statement is not filed by the Filing Deadline or declared effective by the Effectiveness Deadline (or after the Registration Statement has been declared effective by the Commission, sales of all the Registrable Securities (including any Registrable Securities required to be registered pursuant to Section 2.1(b) hereof) cannot be made pursuant to the Registration Statement (by reason of a stop order, the Company's failure to update the Registration Statement, the need to file and have declared effective a post-effective amendment or any other reason outside the control of the Purchasers), then the Company will make payments to the Purchasers in such amounts and at such times as shall be 7 determined pursuant to this Section 3.1 as partial relief for the damages to the Purchasers by reason of any such delay in or reduction of its ability to resell the Registrable Securities (which remedy shall not be exclusive of any other remedies available at law or in equity). The Company shall pay to each Purchaser pro rata based on their relative ownership of Registrable Securities an amount equal to (i) $63,750 times (ii) the sum of: (A) the number of months (prorated per day for partial months) following the Filing Deadline that the Registration Statement is not filed pursuant to Section 2.1(a) or following the Effectiveness Deadline that the Registration Statement is not declared effective by the Commission, as the case may be, plus (B) the number of months (prorated per day for partial months) following the Effectiveness Deadline that sales cannot be made pursuant to the Registration Statement after the Registration Statement has been declared effective for more than 10 days in any 365-day period. Such amounts shall be paid in cash. ARTICLE IV INDEMNIFICATION AND CONTRIBUTION Section 4.1 Indemnification by the Company. The Company agrees to indemnify and hold harmless each Purchaser, its partners, Affiliates, officers, directors, employees and duly authorized agents, and each Person or entity, if any, who controls a Purchaser within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, together with the partners, Affiliates, officers, directors, employees and duly authorized agents of such controlling Person or entity (collectively, the "Controlling Persons"), from and against any loss, claim, damage, liability, reasonable attorneys' fees, costs or expenses and costs and expenses of investigating and defending any such claim (collectively, "Damages"), joint or several, and any action in respect thereof to which each Purchaser, its partners, Affiliates, officers, directors, employees and duly authorized agents, and any such Controlling Person may become subject under the Securities Act or otherwise, insofar as such Damages (or proceedings in respect thereof) arise out of, or are based upon, any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or prospectus relating to the Registrable Securities or any preliminary prospectus, or arises out of, or are based upon, any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of any prospectus or preliminary prospectus, in light of the circumstances in which they were made) not misleading, except insofar as the same are based upon information furnished in writing to the Company by each Purchaser or an Underwriter expressly for use therein, and shall reimburse each Purchaser, its partners, Affiliates, officers, directors, employees and duly authorized agents, and each such Controlling Person for any reasonable legal and other expenses reasonably incurred by such Purchaser, its partners, Affiliates, officers, directors, employees and duly authorized agents, or any such Controlling Person in investigating or defending or preparing to defend against any such Damages or proceedings as such expenses are incurred; provided, however, that the Company shall not be liable to such Purchaser to the extent that any such Damages arise out of or are based upon an untrue statement or omission made in any preliminary prospectus if (i) such Purchaser failed to send or deliver a copy of the final prospectus with or prior to the delivery of written confirmation of the sale by such Purchaser to the Person asserting the claim from which such Damages arise and (ii) the final prospectus would have corrected such untrue statement or alleged untrue statement or such omission or alleged omission; provided further, however, that the Company shall not be liable in any such case to the extent that any such Damages arise out of or are based upon an untrue statement or alleged untrue 8 statement or omission or alleged omission in any prospectus if (x) such untrue statement or omission or alleged omission is corrected in an amendment or supplement to such prospectus and (y) having previously been furnished by or on behalf of the Company with copies of such prospectus as so amended or supplemented, a Purchaser thereafter fails to deliver such prospectus as so amended or supplemented prior to or concurrently with the sale of a Registrable Security to the Person asserting the claim from which such Damages arise. The Company also agrees to indemnify any Underwriters of the Registrable Securities, their officers and directors and each Person or entity who controls such Underwriters on customary terms. Section 4.2 Indemnification by the Purchasers. Each Purchaser, severally and not jointly, agrees to indemnify and hold harmless the Company, its partners, Affiliates, officers, directors, employees and duly authorized agents and each Person or entity, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, together with the partners, Affiliates, officers, directors, employees and duly authorized agents of such controlling Person, to the same extent as the foregoing indemnity from the Company to the Purchasers, but only with reference to information related to each Purchaser or its plan of distribution furnished in writing by such Purchaser or on its behalf expressly for use in any registration statement or prospectus relating to the Registrable Securities, or any amendment or supplement thereto, or any preliminary prospectus; provided that the maximum amount for which any Purchaser shall be liable under this indemnity shall not exceed the net proceeds received by such Purchaser from the sale of the Registrable Securities, pursuant to the registration statement in question, less any amounts previously paid by such Purchaser to purchase Registrable Securities. In case any action or proceeding shall be brought against the Company or its partners, Affiliates, officers, directors, employees or duly authorized agents or any such controlling Person or its partners, Affiliates, officers, directors, employees or duly authorized agents, in respect of which indemnity may be sought against such Purchaser, Purchaser shall have the rights and duties given to the Company, and the Company or its partners, Affiliates, officers, directors, employees or duly authorized agents, or such controlling Person, or its partners, Affiliates, officers, directors, employees or duly authorized agents, shall have the comparable rights and duties given to the Purchasers by Section 4.1. The Purchasers also agree, severally and not jointly, to indemnify and hold harmless any Underwriters of the Registrable Securities with reference to the same information as to which each Purchaser agrees to indemnify the Company referenced above, their officers and directors and each Person who controls such Underwriters on customary terms. The Company shall be entitled to receive indemnities on customary terms from Underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, to the same extent as provided above, with respect to information so furnished in writing by such persons specifically for inclusion in any prospectus or the Registration Statement. Section 4.3 Conduct of Indemnification Proceedings. Promptly after receipt by any person or entity in respect of which indemnity may be sought pursuant to Section 4.1 or 4.2 (an "Indemnified Party") of notice of any claim or the commencement of any action, the Indemnified Party shall, if a claim in respect thereof is to be made against the Person against whom such indemnity may be sought (an "Indemnifying Party"), notify the Indemnifying Party in writing of the claim or the commencement of such action; in the event an Indemnified Party shall fail to give such notice as provided in this Section 4.3 and the Indemnifying Party to whom notice was not given was unaware of the proceeding to which such notice would have related and was materially prejudiced by the 9 failure to give such notice, the indemnification provided for in Section 4.1 or 4.2 shall be reduced to the extent of any actual prejudice resulting from such failure to so notify the Indemnifying Party; provided, that the failure to notify the Indemnifying Party shall not relieve it from any liability that it may have to an Indemnified Party otherwise than under Section 4.1 or 4.2. If any such claim or action shall be brought against an Indemnified Party, the Indemnifying Party shall be entitled to participate therein, and, to the extent that it wishes, jointly with any other similarly notified Indemnifying Party, to assume the defense thereof with counsel reasonably satisfactory to the Indemnified Party. After notice from the Indemnifying Party to the Indemnified Party of its election to assume the defense of such claim or action, the Indemnifying Party shall not be liable to the Indemnified Party for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof other than reasonable costs of investigation; provided that the Indemnified Party shall have the right to employ separate counsel to represent the Indemnified Party and its controlling persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Indemnified Party against the Indemnifying Party, but the fees and expenses of such counsel shall be for the account of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) in the reasonable judgment of the Company and such Indemnified Party, representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interest between them, it being understood, however, that the Indemnifying Party shall not, in connection with any one such claim or action or separate but substantially similar or related claims or actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for all Indemnified Parties or for fees and expenses that are not reasonable. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any claim or pending or threatened proceeding in respect of which the Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party unless such settlement includes an unconditional release of such Indemnified Party from all liability arising out of such claim or proceeding. Whether or not the defense of any claim or action is assumed by an Indemnifying Party, such Indemnifying Party will not be subject to any liability for any settlement made without its consent, which consent will not be unreasonably withheld. Section 4.4 Contribution. If the indemnification provided for in this Article IV is unavailable to the Indemnified Parties in respect of any Damages referred to herein, then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Damages (i) as between the Company and the Purchasers, on the one hand, and the Underwriters, on the other hand, in such proportion as is appropriate to reflect the relative benefits received by the Company and the Purchasers, on the one hand, and the Underwriters, on the other hand, from the offering of the Registrable Securities, or if such allocation is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits but also the relative fault of the Company and the Purchasers, on the one hand, and of the Underwriters, on the other hand, in connection with the statements or omissions that resulted in such Damages, as well as any other relevant equitable considerations, and (ii) as between the Company, on the one hand, and the Purchasers, on the other hand, in such proportion as is appropriate to reflect the relative fault of the Company and of the Purchasers in connection with such statements or omissions, as well as any other relevant equitable considerations. The relative benefits received by the 10 Company and the Purchasers, on the one hand, and the Underwriters, on the other hand, shall be deemed to be in the same proportion as the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company and the Purchasers bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the prospectus. The relative fault of the Company and the Purchasers, on the one hand, and of the Underwriters, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and the Purchasers or by the Underwriters. The relative fault of the Company, on the one hand, and of the Purchasers, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 4.4 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Party as a result of the Damages referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 4.4, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and the Purchasers shall in no event be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities of each Purchaser were offered to the public (less underwriting discounts and commissions) less the amount paid by the Purchasers to the Company for the Common Shares and the Warrants exceeds the amount of any damages that any Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. ARTICLE V MISCELLANEOUS Section 5.1 Term. The registration rights provided to the holders of Registrable Securities hereunder shall terminate on such date as there shall be no Registrable Securities; provided, however, that the provisions of Article IV hereof shall survive any termination of this Agreement. 11 Section 5.2 Rule 144. The Company covenants that it will file all reports required to be filed by it under the Securities Act and the Exchange Act and that it will take such further action as registered holders of Registrable Securities may reasonably request, all to the extent required from time to time to enable the Purchasers to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. If at any time the Company is not required to file such reports, it will, upon the reasonable request of any registered holder of Registrable Securities, make publicly available other information so long as necessary to permit sales pursuant to Rule 144, within the limitations of the exemption provided thereby. Upon the request of such Purchaser, the Company will deliver to such Purchaser a written statement as to whether it has complied with such requirements. Section 5.3 Restrictions or Sale by the Company and Others. If, and to the extent, reasonably requested by the managing Underwriter or Underwriters in the case of an underwritten public offering, that includes Registrable Securities as contemplated by Section 2.1, the Company shall use commercially reasonable efforts to cause its Affiliates to agree not to effect any public sale or distribution of any securities similar to those being registered in accordance with Section 2.1 hereof, or any securities convertible into or exchangeable or exercisable for such securities during the thirty (30) days prior to, and during the period beginning on the effective date of the Registation Statement (except as part of the Registration Statement) until all of the Registrable Securities offered thereunder have been sold pursuant to such underwritten public offering, provided, however, that such period shall not exceed one hundred and eighty (180) days following the effective date of the Registration Statement. Section 5.4 Amendment and Modification. Any provision of this Agreement may be waived, provided that such waiver is set forth in a writing executed by the party against whom the enforcement of such waiver is sought. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of the registered holders of a majority of the then outstanding Registrable Securities (for the purposes of determining whether the consent of such holders have been obtained, the registered holder of Warrants shall be deemed to hold the underlying Registrable Securities issuable upon exercise thereof (notwithstanding any limitation on exercise). Notwithstanding the foregoing, the waiver of any provision hereof with respect to a matter that relates exclusively to the rights of registered holders of Registrable Securities whose securities are being resold pursuant to a Registration Statement and does not directly or indirectly affect the rights of other holders of Registrable Securities may be given by holders of a majority of the Registrable Securities being so resold; provided that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. No course of dealing between or among any Persons having any interest in this Agreement will be deemed effective to modify, amend or discharge any part of this Agreement or any rights or obligations of any Person under or by reason of this Agreement. Section 5.5 Successors and Assigns; Entire Agreement. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, 12 however, that the benefits and right contemplated hereunder to be provided to any holder of the Common Shares, the Warrants, the Warrant Shares or the Registrable Securities shall be limited to the registered holder thereof. This Agreement and the rights, duties and obligations hereunder may not be assigned or delegated by the Company or any Purchaser without the prior written consent of the other parties hereto, which shall not be unreasonably withheld. Notwithstanding the foregoing, no consent shall be required for a Purchaser to assign its interest to any of its Affiliates. This Agreement, together with the Securities Purchase Agreement and the Warrants sets forth the entire agreement and understanding between the parties as to the subject matter hereof and thereof and merges and supersedes all prior discussions, agreements and understandings (written or oral) of any and every nature between them with respect to such subject matter. Section 5.6 Separability. In the event that any provision of this Agreement or the application of any provision hereof is declared to be illegal, invalid or otherwise unenforceable by a court of competent jurisdiction, the remainder of this Agreement shall not be affected except to the extent necessary to delete such illegal, invalid or unenforceable provision unless that provision held invalid shall substantially impair the benefits of the remaining portions of this Agreement. Section 5.7 Notices. All notices, demands, requests, consents, approvals or other communications required or permitted to be given hereunder or that are given with respect to this Agreement shall be in writing and shall be personally served or deposited in the mail, registered or certified, return receipt requested, postage prepaid, or delivered by reputable air courier service with charges prepaid, or transmitted by hand delivery, telegram, telex or facsimile, addressed as set forth below, or to such other address as such party shall have specified most recently by written notice: (i) if to the Company, to: Hollywood Media Corp., 2255 Glades Rd., Ste. 237W, Boca Raton, Florida 33431, Attention: Mitchell Rubenstein, Chairman and CEO, Facsimile No.: (561) 998-2974, with copies (which shall not constitute notice) to: Hollywood Media Corp., 2255 Glades Rd., Ste. 237W, Boca Raton, Florida 33431, Attention: W. Robert Shearer, Facsimile No.; (561) 998-2974 and (ii) if to the Purchasers at the addresses for notices set forth in Annex A to the Securities Purchase Agreement. Notice shall be deemed given on the date of service or transmission if personally served or transmitted by telegram, telex or facsimile. Notice otherwise sent as provided herein shall be deemed given on the third business day following the date mailed or on the next business day following delivery of such notice by a reputable air courier service. Section 5.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAW OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS THEREOF. Section 5.9 Headings. The headings in this Agreement are for convenience of reference only and shall not constitute a part of this Agreement, nor shall they affect their meaning, construction or effect. 13 Section 5.10 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original instrument, and all of which together shall constitute one and the same instrument. Section 5.11 Further Assurances. Each party shall cooperate and take such action as may be reasonably requested by the other party in order to carry out the provisions and purposes of this Agreement and the transactions contemplated hereby. Section 5.12 Remedies. In the event of a breach or a threatened breach by any party to this Agreement of its obligations under this Agreement, any party injured or to be injured by such breach will be entitled to specific performance of its rights under this Agreement or to injunctive relief, in addition to being entitled to exercise all rights provided in this Agreement and granted by law. The parties agree that the provisions of this Agreement shall be specifically enforceable, it being agreed by the parties that the remedy at law, including monetary damages, for breach of any such provision will be inadequate compensation for any loss and that any defense or objection in any action for specific performance or injunctive relief that a remedy at law would be adequate is waived. 14 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by the undersigned, thereunto duly authorized, as of the date first set forth above. HOLLYWOOD MEDIA CORP. By: ------------------------------ Name: Title: SOCIETE GENERALE By: ------------------------------ Name: Title: VELOCITY INVESTMENT PARTNERS LTD. By: ------------------------------ Name: Title: 15 EX-10.4 5 ex10-4.txt THE SECURITIES REPRESENTED BY THIS CERTIFICATE (AND, AS OF THE DATE OF ORIGINAL ISSUANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE, ANY UNDERLYING SECURITIES) HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE OR ANY SECURITIES ISSUABLE UPON THE EXERCISE HEREOF MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED OTHER THAN (A) TO HOLLYWOOD MEDIA CORP. (THE "COMPANY") OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO RULE 144 UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT. THE HOLDER OF THIS CERTIFICATE AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY OR ANY SECURITY ISSUED UPON EXERCISE HEREOF IS TRANSFERRED (UNLESS SUCH SECURITY IS TRANSFERRED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY PROPOSED TRANSFER PURSUANT TO CLAUSES (B), (C) OR (D) ABOVE, THE COMPANY MAY REQUIRE THAT THE TRANSFEROR FURNISH IT WITH AN OPINION OF COUNSEL CONFIRMING THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE RESPECTIVE MEANINGS ASSIGNED TO THEM IN REGULATION S UNDER THE SECURITIES ACT. WARRANT to Purchase Shares of Common Stock of HOLLYWOOD MEDIA CORP. Certificate No. W-A-1 ---- THIS IS TO CERTIFY THAT, SOCIETE GENERALE, or its registered assigns, is entitled to purchase in whole or in part from time to time from HOLLYWOOD MEDIA CORP., a Florida corporation (the "Company"), at any time up to 5:00 p.m., New York time, on May 1, 2006 (the "Expiration Date"), 273,562 shares of Common Stock, par value $0.01, of the Company (the "Common Stock") at a purchase price of $6.44 per share of Common Stock (the "Exercise Price", as adjusted from time to time pursuant to Sections 2 and 4 below), subject to the terms and conditions herein. Each exercise made hereunder must be for a minimum of the lesser of (x) one thousand (1,000) shares of Common Stock and (y) the entire remaining number of shares of Common Stock covered by this Warrant. All capitalized terms used herein without definition shall have the respective meanings assigned thereto in the Securities Purchase Agreement, dated as of April 25, 2001 (the "Securities Purchase Agreement"), entered into among the Company, Societe Generale ("SG") and Velocity Investment Partners, Ltd. ("Velocity") (SG and Velocity, together the "Purchasers"). SECTION 1. Exercise of Warrant. (a) At any time until 5:00 p.m., New York time, on the Expiration Date, the registered holder of this Warrant (the "Holder") may exercise this Warrant, on one or more occasions, in whole or in part, by delivering to the Company, (a) a written notice of the Holder's election to exercise this Warrant in substantially the form of Annex A hereto, which notice (the "Exercise Notice") shall specify the number of shares of Common Stock to be purchased and may be delivered by facsimile transmission, (b) a certified or bank check or checks payable to the Company, or by wire transfer of immediately available funds, in an aggregate amount equal to the aggregate Exercise Price for the number of shares of Common Stock as to which this Warrant is being exercised (unless the Holder elects to effect a Cashless Exercise (as hereinafter defined) pursuant to this Section 1) and (c) this Warrant. Subject to applicable law, in the event the Holder may resell shares of Common Stock acquired upon exercise of this Warrant without restriction pursuant to an effective registration statement or otherwise, the Company shall cause the transfer agent with respect to its Common Stock, which transfer agent is participating in the Depositary Trust Company ("DTC") Fast Automated Securities Transfer ("FAST") program, to electronically transmit the shares of Common Stock issuable to the Holder upon exercise of this Warrant by crediting the account of the Holder's prime broker with DTC through DTC's Deposit Withdrawal Agent Commission ("DWAC") system, within three (3) business days after exercise of this Warrant by the Holder. In the event the Holder otherwise elects in writing, however, or such shares of Common Stock can not be resold without restriction, the Company shall, as promptly as practicable and in any event within three (3) business days after exercise of this Warrant by the Holder, cause the transfer agent to deliver to the Holder a stock certificate or certificates representing the aggregate number of shares of Common Stock issuable to the Holder as a result of such exercise. The stock certificate or certificates representing shares of Common Stock so delivered shall be in such denominations as may be specified in the Exercise Notice and shall be registered in the name of the Holder or, subject to compliance with Section 9.03 below, such other name or names as shall be designated in such Exercise Notice. (b) Shares of Common Stock shall be deemed to have been issued and the Holder or, subject to compliance with Section 9.03 below, any other Person so designated to be named therein shall be deemed to have become a Holder of record of such shares, including, to the extent permitted by law, the right to vote such shares or to consent or to receive notice as a stockholder, as of the date of the date of receipt of the Exercise Notice; provided that the payment of the Exercise Price is received by the Company within twenty-four hours of receipt of the Exercise Notice and this Warrant is received by the Company within three (3) business days of receipt of the Exercise Notice. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of shares of Common Stock, execute and deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the shares of Common Stock represented by the unexercised portion of this Warrant, which new Warrant shall in all other respects be identical to this Warrant, or, if the Company 2 elects, it shall make appropriate notation on this Warrant and the same returned to the Holder. (c) Upon exercise of this Warrant, in whole or in part, the Holder may elect, only at such time as there shall not be an effective registration statement covering the resale of shares of Common Stock to be issued upon exercise of this Warrant, to receive a reduced number of shares of Common Stock in lieu of tendering the Exercise Price in cash ("Cashless Exercise"). In such case, the number of shares of Common Stock to be issued to the Holder shall be computed using the following formula: X = Y(A-B) ------ A where: X = the number of shares of Common Stock to be issued to the Holder; Y = the number of shares of Common Stock for which an election to exercise under this Warrant has been made; A = The Market Price (as hereinafter defined) of one share of Common Stock on the trading day immediately prior to the date that the Exercise Notice is duly surrendered to the Company for full or partial exercise; and B = the Exercise Price. The "Market Price" per share of Common Stock or any other security at any date means (i) the average closing sale price for such security for the five (5) consecutive trading days immediately prior to (but excluding) the date of determination on The Nasdaq Stock Market, Inc., or such other U.S. national securities exchange, as reported by The Nasdaq Stock Market, Inc. or, if not so reported by The Nasdaq Stock Market, Inc., the average of the high bid and low asked quotations for one share of such security as reported by the National Quotations Bureau Incorporated or similar organization for such five consecutive trading days, (ii) if the closing price for such security cannot be calculated in the manner specified in clause (i) at the relevant time, the fair market value of one share of such security as of the date of determination as determined in good faith by the Board of Directors of the Company. (d) All shares of Common Stock issuable upon the exercise of this Warrant shall, upon payment therefor in accordance herewith, be duly and validly issued, fully paid and nonassessable and free and clear of any liens (unless created by or through the Holder of this Warrant). The Company shall not be required to issue a fractional share of Common Stock upon exercise of this Warrant. As to any fraction of a share that the Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the applicable Market Price determined in accordance with the foregoing. SECTION 2. Reset Adjustments. (a) If on January 30, 2002, SG holds at least 75% of the Common Shares issued to it pursuant to the Securities Purchase Agreement and 75% of any shares of Common Stock, if any, issued upon exercise of SG's "B" Warrant (in each case, net of any sales of Common Stock sold 3 short by SG), then the Exercise Price shall be reset to $5.37. (b) If on April 30, 2002, SG holds at least 75% of the Common Shares issued to it pursuant to the Securities Purchase Agreement and 75% of any shares of Common Stock, if any, issued upon exercise of SG's "B" Warrant (in each case, net of any sales of Common Stock sold short by SG) then the Exercise Price shall be reset to $4.51. (c) Within twenty (20) Trading Days of each of January 30, 2002 and April 30, 2002, if SG is entitled to a reset under this Section 2, it shall deliver to the Company a certificate signed by an officer of SG certifying (i) the number of shares of Common Shares and shares of Common Stock issued upon the exercise of SG's "B" Warrant held by SG as of January 30, 2002 and April 30, 2002, as applicable, and (ii) SG's short position, if any, with respect to the Common Stock as of January 30, 2002 and April 30, 2002, as applicable. Any shares redeemed pursuant to Section 2.02 (a) of the Securities Purchase Agreement shall not be included in any calculation under this Section 2. (d) Each of the reset Exercise Prices set forth in Sections 2(a) and (b) shall be adjusted consistent with the principals set forth in Section 4 herein. SECTION 3. Transfer, Division and Combination. Subject to Section 9.03 hereof, transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company, upon surrender of this Warrant to the Company, together with a written assignment of this Warrant, substantially in the form of Annex B hereto, duly executed by the Holder or its agent or attorney. Upon such surrender, the Company shall, subject to Section 9.03 hereof, (a) execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, (b) issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned and (c) promptly cancel this Warrant. SECTION 4. Antidilution Provisions. 4.01 Changes in Common Stock. In the event that at any time or from time to time the Company shall, (i) pay a dividend or make a distribution on its Common Stock in shares of Common Stock or other shares of capital stock of the Company, (ii) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (iv) increase or decrease the number of shares of Common Stock outstanding by reclassification of its Common Stock, then the number of shares of Common Stock issuable upon exercise of this Warrant immediately after the happening of such event shall be adjusted so that, after giving effect to such adjustment, the Holder of this Warrant shall be entitled to receive the number of shares of Common Stock upon exercise of this Warrant that the Holder would have been entitled to receive had this Warrant been exercised immediately prior to the happening of such event (or, in the case of a dividend or distribution of shares of Common Stock, immediately prior to the record date therefor). An adjustment made pursuant to this Section 4.01 shall become effective immediately after the distribution date, retroactive to the record date therefor in the case of a dividend or 4 distribution in shares of Common Stock, and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. 4.02 Cash Dividends and Other Distributions. In the event that at any time or from time to time the Company shall distribute to holders of Common Stock (i) any dividend or other distribution (including any dividend or distribution made in connection with a consolidation or merger in which the Company is the surviving corporation) of cash, evidences of its indebtedness, shares of its capital stock or any other assets or securities or (ii) any options, warrants, securities or other rights to subscribe for or purchase any of the foregoing (other than (A) any dividend or distribution described in Section 4.01, (B) any rights, options, warrants or securities described in Section 4.03 or Section 4.04 and (C) any cash dividends or other cash distributions made to holders of Common Stock from current or retained earnings, provided that such dividends do not exceed $500,000 in any fiscal year), then the number of shares of Common Stock that may be acquired upon exercise of this Warrant immediately prior to such record date for any such distribution shall be increased to a number determined by multiplying the number of shares of Common Stock that may be acquired upon the exercise of this Warrant immediately prior to such record date for any such distribution by a fraction, the numerator of which shall be the Market Price per share of Common Stock as of such record date and the denominator of which shall be such Market Price per share of Common Stock less the sum of (x) the amount of cash, if any, distributed per share of Common Stock and (y) the then fair value (as determined in good faith by the Company's Board of Directors, whose determination shall be evidenced by a board resolution that will be sent to Holders) of the portion, if any, of the distribution applicable to one share of Common Stock consisting of evidences of indebtedness, shares of stock, securities, other property, warrants, options or subscription or purchase rights; and the Exercise Price shall be decreased to an amount determined by dividing the Exercise Price immediately prior to such record date by the above fraction. Such adjustments shall be made, and shall only become effective, whenever any such distribution is made; provided, however, that the Company is not required to make an adjustment pursuant to this Section 4.02 if at the time of such distribution the Company makes the same distribution to Holders of Warrants as it makes to holders of Common Stock pro rata based on the number of shares of Common Stock for which such Warrants are exercisable. No adjustment shall be made pursuant to this Section 4.02 if such adjustment would have the effect of decreasing the number of shares of Common Stock issuable upon exercise of this Warrant or increasing the Exercise Price. 4.03 Issuance of Common Stock. In the event that at any time or from time to time the Company shall (other than (i) upon the exercise, exchange or conversion of any securities of the Company that are exercisable or exchangeable for, or convertible into, shares of Common Stock and that are outstanding as of the date of the issuance of this Warrant (the "Initial Issuance Date"), or (ii) upon the exercise of stock options granted under or pursuant to any stock option plan of the Company that has been approved by its Board of Directors), issue shares of Common Stock for a consideration per share that is less than the lesser of the then effective Exercise Price or the Market Price per share of Common Stock on the date of issuance, the number of shares of Common Stock that may be acquired upon the exercise of this Warrant immediately after such issuance shall be increased by multiplying the number of shares of Common Stock issuable upon exercise of this Warrant immediately prior to such issuance by a fraction, the numerator of which shall be the sum of (A) the number of shares of Common Stock outstanding on the date of such issuance plus (B) the number of additional shares of Common Stock to be issued and the 5 denominator of which shall be the sum of (X) the number of shares of Common Stock outstanding on the date of such issuance plus (Y) the number of shares of Common Stock that the aggregate offering price of the total number of shares of Common Stock so to be issued would purchase at the lesser of the then effective Exercise Price or such Market Price. In the event of any such adjustment, the Exercise Price shall be decreased to an amount determined by dividing the Exercise Price immediately prior to such issuance by the aforementioned fraction. Such adjustment shall be made, and shall only become effective, whenever such shares are issued. No adjustment shall be made pursuant to this Section 4.03 if such adjustment would have the effect of decreasing the number of shares of Common Stock issuable upon exercise of this Warrant or increasing the Exercise Price. In case the consideration for any shares of Common Stock may be paid in whole or in part in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors of the Company. Such adjustment shall be made successively whenever the date of such issuance is fixed. 4.04 Issuance of Convertible Securities. In the event that at any time or from time to time the Company shall issue rights, options or warrants to acquire, or securities convertible or exchangeable into, Common Stock (other than the issuance by the Company of stock options under or pursuant to any stock option plan of the Company that has been approved by its Board of Directors) entitling the holders thereof to acquire shares of Common Stock at an exercise or conversion price per share that (when aggregated, as applicable, with the price or other consideration received for any such rights, options or warrants exercisable for Common Stock or for such securities convertible or exchangeable into Common Stock) for consideration per share that is less than the lesser of the then effective Exercise Price or Market Price on the date of issuance of such Common Stock, the number of shares of Common Stock that may be acquired upon exercise of this Warrant immediately after such issuance shall be increased by multiplying the number of shares of Common Stock that may be acquired upon exercise of this Warrant immediately prior to such issuance by a fraction, the numerator of which shall be the sum of (A) the number of shares of Common Stock outstanding on the date of such issuance plus (B) the number of additional shares of Common Stock to be issued (or into which the convertible or exchangeable securities so to be issued are initially convertible), and the denominator of which shall be the sum of (X) the number of shares of Common Stock outstanding on the date of such issuance plus (Y) the number of shares of Common Stock that the aggregate offering price of the total number of shares of Common Stock so to be issued (or the aggregate issue price of the convertible or exchangeable securities so to be issued) would purchase at the lesser of the then Effective Exercise Price or such Market Price on the date of issuance of such convertible securities. In the event of any such adjustment, the Exercise Price shall be decreased to a number determined by dividing the Exercise Price immediately prior to such issuance by the aforementioned fraction. Such adjustment shall be made, and shall only become effective, whenever such rights, options, warrants or securities are issued. No adjustment shall be made pursuant to this Section 4.04 if such adjustment would have the effect of decreasing the number of shares of Common Stock issuable upon exercise of this Warrant or increasing the Exercise Price. In case the price for such securities may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors of the Company. Such adjustment shall be made successively whenever the date of such issuance is fixed. 6 4.05 Combination; Liquidation. (a) Except as provided in Section 4.05(b), in the event of a Combination (as hereinafter defined), the Holder shall have the right to receive upon exercise of this Warrant the kind and amount of shares of capital stock or other securities or property that the Holder would have been entitled to receive upon completion of or as a result of such Combination had such Warrant been exercised immediately prior to such event or to the relevant record date for any such entitlement. Unless paragraph (b) is applicable to a Combination, the Company shall provide, as a condition to such Combination, that the surviving or acquiring Person (the "Successor Company") in such Combination will enter into an agreement confirming the Holders' rights pursuant to this Section 4.05(a) and providing for adjustments, that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 3. The provisions of this Section 4.05(a) shall similarly apply to successive Combinations involving any Successor Company. A "Combination" means an event in which the Company consolidates with or merges with or into another Person. (b) In the event of (i) a Combination where consideration to the holders of Common Stock in exchange for their shares is payable solely in cash or (ii) the dissolution, liquidation or winding-up of the Company, the Holder of this Warrant shall be entitled to receive, upon surrender of this Warrant, such cash distributions on an equal basis with the holders of Common Stock, as if this Warrant had been exercised immediately prior to such event, less the product of the Exercise Price times the number of shares of Common Stock with respect to which this Warrant was then exercisable. In the event of any Combination described in this Section 4.05(b), the surviving or acquiring Person and, in the event of any dissolution, liquidation or winding-up of the Company, the Company shall distribute as promptly as practicable under the circumstances to the Holder upon surrender of this Warrant, the funds, if any, necessary to pay the Holder the amounts to which the Holder is entitled as described above. 4.06 Superseding Adjustment. Upon the expiration of any rights, options, warrants or conversion or exchange privileges that resulted in adjustments pursuant to this Section 4, if any thereof shall not have been exercised, the number of shares of Common Stock issuable upon the exercise of this Warrant shall be readjusted pursuant to the applicable section of Section 4 as if (i) the only shares of Common Stock issuable upon exercise of such rights, options, warrants, conversion or exchange privileges were the shares of Common Stock, if any, actually issued upon the exercise of such rights, options, warrants or conversion or exchange privileges and (ii) shares of Common Stock actually issued, if any, were issuable for the consideration actually received by the Company upon such exercise plus the aggregate consideration, if any, actually received by the Company for this issuance, sale or grant of all such rights, options, warrants or conversion or exchange privileges whether or not exercised and the Exercise Price shall be readjusted inversely; provided, however, that no such readjustment shall have the effect of decreasing the number of shares of Common Stock issuable upon the exercise of this Warrant below the number of shares of Common Stock issuable upon the exercise of this Warrant, or increasing the Exercise Price to an amount below the Exercise Price in effect, immediately prior to any adjustment made therein on account of such issuance, sale or grant of such rights, options, warrants or conversion or exchange privileges. 7 4.07 Minimum Adjustment. The adjustments required by the preceding sections of this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that no adjustment of the Exercise Price or the number of shares of Common Stock issuable upon exercise of this Warrant that would otherwise be required shall be made unless and until such adjustment either by itself or with other adjustments not previously made increases or decreases by at least 1% the Exercise Price or the number of shares of Common Stock issuable upon exercise of this Warrant immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. In computing adjustments under this Section 4, fractional interests in Common Stock shall be taken into account to the nearest one-tenth of a share. 4.08 Notice of Adjustment. Whenever the Exercise Price or the number of shares of Common Stock and other property, if any, issuable upon exercise of the Warrants is adjusted, as herein provided, the Company shall deliver to the Holder of this Warrant a certificate setting forth, in reasonable detail, the event requiring the adjustment and the method by which such adjustment was calculated (including a description of the basis on which (i) the Company's Board of Directors determined the then fair value of any evidences of indebtedness, other securities or property or warrants, options or other subscription or purchase rights and (ii) the Market Price of the Common Stock was determined, to the extent such determinations were required hereunder), and specifying the Exercise Price and the number of shares of Common Stock issuable upon exercise of this Warrant after giving effect to such adjustment. 4.09 Notice of Certain Transactions. In the event that the Company shall propose to (a) pay any dividend payable in securities of any class to the holders of its Common Stock or to make any other non-cash dividend or distribution to the holders of its Common Stock, (b) offer the holders of its Common Stock rights to subscribe for or to purchase any securities convertible into shares of Common Stock or shares of stock of any class or any other securities, rights or options, (c) issue to the holders of its Common Stock any (i) shares of Common Stock, (ii) rights, options or warrants entitling the holders thereof to subscribe for shares of Common Stock or (iii) securities convertible into, or exchangeable or exercisable for, shares of Common Stock (in the case of (i), (ii) and (iii), if such issuance or adjustment would result in an adjustment hereunder), (d) effect any capital reorganization, reclassification, consolidation or merger, (e) effect the voluntary or involuntary dissolution, liquidation or winding-up of the Company or (f) make a tender offer or exchange offer with respect to the Common Stock, the Company shall within five (5) days after any such event send the Holder a notice of such proposed action or offer unless the same is publicly announced. Such notice shall, to the extent the same has not been publicly announced, specify the record date for the purposes of such dividend, distribution or rights, or the date such issuance or event is to take place and the date of participation therein by the holders of Common Stock, if any such date is to be fixed, and shall, to the extent the same has not been publicly announced and if the same would have any effect on the Common Stock and on the number of shares of Common Stock, the number and kind of any other shares of stock and other property issuable upon exercise of this Warrant and the Exercise Price (after giving effect to any adjustment pursuant to Section 4 that will be required as a result 8 of such action), specify such effect. Such notice shall be given as promptly as possible and (x) in the case of any action covered by clause (a) or (b) above, at least 10 days prior to the record date for determining holders of the Common Stock for purposes of such action or (y) in the case of any other such action, at least twenty (20) days prior to the date of the taking of such proposed action or the date of participation therein by the holders of Common Stock, whichever shall be the earlier. Notwithstanding anything contained herein to the contrary, the Company shall not provide to the Holder any material non-public information in order to satisfy its obligations pursuant to this Section 4.09. 4.10 Adjustment to Warrant Certificate. This Warrant Certificate need not be changed because of any adjustment made pursuant to this Section 4, and any Warrant issued after such adjustment may state the same Exercise Price and the same number of shares of Common Stock issuable upon exercise of the Warrant as are stated in this Warrant. The Company, however, may at any time in its sole discretion make any change in the form of this Warrant that it may deem appropriate to give effect to such adjustments and that does not affect the substance of this Warrant, and any Warrant thereafter issued or countersigned, whether in exchange or substitution for this Warrant or otherwise, may be in the form as so changed. SECTION 5. [Intentionally Omitted] SECTION 6. Taking of Record; Stock and Warrant Transfer Books. In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision hereof refers to the taking of a record of such holders, the Company shall in each such case take such a record as of the close of business on a business day. SECTION 7. Expenses, Transfer Taxes and Other Charges. The Company shall pay any and all expenses (other than transfer taxes) and other charges, including all costs associated with the preparation, issue and delivery of stock or warrant certificates, that are incurred in respect of the issuance or delivery of shares of Common Stock upon exercise of this Warrant pursuant to Section 1 hereof or in connection with any division or combination of this Warrant pursuant to Section 3 hereof. The Company shall not, however, be required to pay any tax that may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which this Warrant is registered, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of any such tax, or has established, to the satisfaction of the Company, that such tax has been paid. SECTION 8. No Voting Rights. This Warrant shall not entitle the Holder to any voting or other rights as a stockholder of the Company. SECTION 9. Miscellaneous. 9.01 Office of Company. So long as any of this Warrant remains outstanding, the Company shall maintain an office in the United States of America where this Warrant may be presented for exercise, transfer, division or combination as in this Warrant provided. Such office shall be at 2255 Glades Road, Suite 237W Boca Raton, Florida or at the office of such registrar and transfer agent as the Company may from time to time designate, unless and until 9 the Company shall designate and maintain some other office for such purposes and give notice thereof to all Holders. 9.02 Notices Generally. Any notices and other communications pursuant to the provisions hereof shall be sent in accordance with Section 7.03 of the Securities Purchase Agreement. 9.03 Restrictions on Transferability; Restriction on Exercise. (A) This Warrant and the shares of Common Stock issuable upon exercise of this Warrant shall be transferable only in a transaction that is in compliance with the provisions of the Securities Act and applicable state securities or "blue sky" laws, and the Holder and each of its successors and assigns shall be bound by the provisions of this Section 9.03. In the event this Warrant is not registered under the Securities Act and applicable state securities or "blue sky" laws, the Company may condition the sale, transfer or other disposition of this Warrant (or any interest herein) upon receipt of a legal opinion, in form and substance, and by counsel, reasonably acceptable to the Company, to the effect that such sale, transfer or other disposition is being made pursuant to an exemption from, or in a transaction not subject to, any registration requirement under the Securities Act and applicable state securities or "blue sky" laws. No opinion shall be required to exercise this Warrant. In the event the shares of Common Stock or other securities issuable upon the exercise of this Warrant are not registered under the Securities Act and applicable state securities or "blue sky" laws, the Company may condition the sale, transfer or other disposition of such shares or other securities (or any interest herein) upon receipt of a legal opinion, in form and substance, and by counsel, reasonably acceptable to the Company, to the effect that such sale, transfer or other disposition is being made pursuant to an exemption from, or in a transaction not subject to, any registration requirement under the Securities Act and applicable state securities or "blue sky" laws. (B) Notwithstanding any other provision of this Warrant, as of any date prior to the Expiration Date, the aggregate number of shares of Common Stock into which this Warrant, together with any other shares of Common Stock then beneficially owned (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) by the Holder and its affiliates (excluding shares of Common Stock otherwise deemed beneficially owned as a result of the convertibility of the Notes and held by the Holder or its affiliates), shall not exceed 4.9% of the total outstanding shares of Common Stock as of such date. In addition, notwithstanding any other provision of this Warrant, during any consecutive 61-day period the Holder (together with its affiliates) may not (x) exercise this Warrant into a number of shares of Common Stock exceeding 9.9% of the Company's issued and outstanding shares of Common Stock as of the first of such 61-day period or sell shares of Common Stock (whether acquired upon exercise of this Warrant or otherwise in excess of 9.9% of the Company's issued and outstanding shares of Common Stock as of the first day of such 61-day period). The foregoing limitations or exercise of this Warrant may not be waived, modified or amended. The Company shall have no obligation to monitor compliance with the foregoing limitation. 9.04 Assignment. This Warrant and the rights, duties and obligations hereunder may not be assigned or delegated by the Company or any Holder may not assign its rights hereunder, without the prior written consent of the other party, which consent shall not be unreasonably withheld. 10 Notwithstanding the foregoing, no consent shall be required for a transfer by a Holder to any of its Affiliates. 9.05 Saturdays, Sundays or Holidays. If the last appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or legal holiday, then such action may be taken or such right may be exercised on the next succeeding day. 9.06 Governing Law. This Warrant shall be governed by, and construed in accordance with, the law of the State of New York without giving effect to conflicts of law principles thereof. 9.07 Limitation of Liability. No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the Exercise Price or as a stockholder of the Company, whether such liability is asserted by the Company, by any creditor of the Company or any other Person. 11 IN WITNESS WHEREOF, the Company has duly executed this Warrant. Dated May 1, 2001 HOLLYWOOD MEDIA CORP. By ----------------------------------------- Name: Title: 12 Annex A ------- ELECTION TO PURCHASE (To Be Executed Upon Exercise of Warrant) The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant, to receive shares of Common Stock of Hollywood Media Corp. and [herewith tenders payment of the Exercise Price for such shares in the amount of $ ] [hereby elects to effect a Cashless Exercise] in accordance with the terms of this Warrant. The undersigned requests that [certificates for such shares in denominations of be registered in the name of whose address is and that such shares be delivered to , whose address is ]. [Such shares be delivered to [the undersigned] [other person] electronically through DTC]. The undersigned represents and warrants that the number of shares of Common Stock to be received pursuant to this Election to Purchase, together with the shares of Common Stock beneficially owned by the undersigned (and its affiliates) on the date of this Election to Purchase, if applicable, do not exceed 4.9% of the outstanding shares of Common Stock of the Company (as set forth in the Company's most recent filing with the Securities and Exchange Commission unless the Company shall notify the Holder that a greater or lesser number of shares is outstanding). Capitalized terms used but not defined herein shall have the respective meanings ascribed to them in the Warrant to which Election to Purchase is attached. [Name of Holder] By: --------------------------------------- Name: Title: NOTE: The above signature(s) must correspond with the name written upon the face of this Warrant in every particular, without alteration or enlargement or any change whatever. Date: ---------- Annex B ------- ASSIGNMENT ---------- (To be signed only upon assignment of this Warrant) FOR VALUE RECEIVED, hereby sells, assigns and transfers unto whose address is and whose social security number or other identifying number is , the within Warrant, together with all right, title and interest represented thereby, and does hereby irrevocably constitute and appoint , attorney, to transfer said Warrant on the books of the within-named Company, with full power of substitution in the premises. By: --------------------------------------- Name: Title: NOTE: The above signature(s) must correspond with the name written upon the face of this Warrant in every particular, without alteration or enlargement or any change whatever. Date: EX-10.5 6 ex10-5.txt THE SECURITIES REPRESENTED BY THIS CERTIFICATE (AND, AS OF THE DATE OF ORIGINAL ISSUANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE, ANY UNDERLYING SECURITIES) HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE OR ANY SECURITIES ISSUABLE UPON THE CONVERSION HEREOF MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED OTHER THAN (A) TO HOLLYWOOD MEDIA CORP. (THE "COMPANY") OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO RULE 144 UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT. THE HOLDER OF THIS CERTIFICATE AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY OR ANY SECURITY ISSUED UPON CONVERSION HEREOF IS TRANSFERRED (UNLESS SUCH SECURITY IS TRANSFERRED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY PROPOSED TRANSFER PURSUANT TO CLAUSES (B), (C) OR (D) ABOVE, THE COMPANY MAY REQUIRE THAT THE TRANSFEROR FURNISH IT WITH AN OPINION OF COUNSEL CONFIRMING THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE RESPECTIVE MEANINGS ASSIGNED TO THEM IN REGULATION S UNDER THE SECURITIES ACT. COMMON STOCK ADJUSTMENT WARRANT to Purchase Shares of Common Stock of HOLLYWOOD MEDIA CORP. Certificate No. W-B-1 ----- THIS IS TO CERTIFY THAT SOCIETE GENERALE, or its registered assigns, is entitled to purchase, subject to the terms and conditions set forth herein, in whole or in part, from HOLLYWOOD MEDIA CORP., a Florida corporation (the "Company"), at any time in accordance with the terms and conditions set forth in Section 1(a), up to a maximum of 658,878 shares of Common Stock, par value $0.01 as set forth in Section 1(b) of the Company (the "Common Stock"). A portion of the purchase price paid to the Company on the date of original issuance of this Warrant shall be allocable to the payment of the par value of any shares of Common Stock issued upon exercise of this Warrant, and accordingly, no additional exercise price shall be payable upon exercise of this Warrant. Each exercise made hereunder must be for a minimum of the lesser of (x) one thousand (1,000) shares of Common Stock and (y) the entire remaining number of shares of Common Stock covered by this Warrant. All capitalized terms used herein without definition shall have the respective meanings assigned thereto in the Securities Purchase Agreement, dated as of April 25, 2001 (the "Securities Purchase Agreement"), entered into among the Company and the Purchasers named therein. SECTION 1. (a) (a) Exercise of Warrant. The registered holder of this Warrant (the "Holder") may elect to exercise this Warrant effective as of the last day of each twenty (20) Trading Day period beginning on each of October 30, 2001, January 30, 2002, April 30, 2002 and July 30, 2002 (each an "Exercise Period"), as it shall elect, by delivering to the Company a written notice of the Holder's election to exercise this Warrant in substantially the form of Annex A hereto (the "Exercise Notice"), which notice shall be delivered on or before the later of (i) fifteen (15) Trading Days immediately following the expiration of each Exercise Period or (ii) five (5) Trading Days after receipt of a notice from the Company of the Holder's failure to provide the notice in clause (i), and shall specify the number of shares of Common Stock to be acquired (which shall be the number of shares determined by Section 1(b) below for each Exercise Period). Such Exercise Notice may be delivered by facsimile transmission. Notwithstanding the preceding sentence, if a registration statement has not been declared effective with respect to the resale of the shares of Common Stock underlying this Warrant by October 30, 2001 then the four Exercise Periods shall be delayed until one month, four months, seven months and ten months, respectively, after a registration statement has been declared effective and the first twenty (20) Trading Days of each monthly period beginning on October 30, 2001 until such time that a registration statement has been declared effective shall each be deemed an additional Exercise Period. A Holder may only exercise this Warrant one time during any given Exercise Period. In connection with the exercise of this Warrant, the Company shall maintain a record to reflect the number of shares issued to each Holder pursuant to each exercise of this Warrant. Subject to applicable law, in the event the Holder may resell shares of Common Stock acquired upon exercise of this Warrant without restriction pursuant to an effective registration statement or otherwise, the Company shall cause the transfer agent with respect to its Common Stock, which transfer agent is participating in the Depositary Trust Company ("DTC") Fast Automated Securities Transfer ("FAST") program, to electronically transmit the shares of Common Stock issuable to the Holder upon exercise of this Warrant by crediting the account of the Holder's prime broker with DTC through DTC's Deposit Withdrawal Agent Commission ("DWAC") system, within three (3) business days after exercise of this Warrant by the Holder. In the event the Holder otherwise elects in writing, however, or such shares of Common Stock can not be resold without restriction, the Company shall, as promptly as practicable and in any event within three (3) business days after exercise of this Warrant by the Holder, cause the transfer agent to deliver to the Holder a stock certificate or certificates representing the aggregate number of shares of Common Stock issuable to the Holder as a result of such exercise. The stock certificate or certificates representing shares of Common Stock so delivered shall be in such denominations as may be specified in the Exercise Notice and shall be registered in the name of the Holder or, subject to compliance with Section 7.03 below, such other name or names as shall be designated in such Exercise Notice. 2 (b) Number of Warrant Shares. The number of Warrant Shares that will be issued upon the first exercise of this shall be: ($5.18643 - Reset Price) - ---------------------------- X 465,638 (less any shares redeemed by the Company Reset Price under Section 2.03(a) of the Securities Purchase Agreement) The number of Warrant Shares that will be issued upon each subsequent exercise of this Warrant during shall be: [lower of {$5.18643 or Prior Reset Price}] -Reset Price - ----------------------------------------------------------- X 465,638, plus any shares issued upon Re set Price exercise of this Warrant during any prior Reset Period (less any shares redeemed by the Company under Section 2.03(a) of the Securities Purchase Agreement).
'"Reset Price" means for each Exercise Period, the lowest Average Price during the twenty consecutive Trading Days that comprise such Reset Period. "Prior Reset Price" means the lowest Reset Price of any Exercise Period preceding the Exercise Period in question. "Average Price" means the average of the ten (10) lowest closing sale prices of the Common Stock as reported by Bloomberg L.P. during the twenty (20) consecutive Trading Days preceding the determination date, it being understood that there is one Average Price for each Trading Day of each Exercise Period. Notwithstanding the preceding sentence, in no event shall the Average Price be less than $2.15. Promptly after determining the Reset Price during each Exercise Period, the Company shall deliver its written calculations to the Holders. (c) Notwithstanding any other provision of this Warrant, this Warrant shall expire immediately if, at any time after a registration statement with respect to the shares of Common Stock underlying this Warrant has been declared effective, and provided that such registration statement remains effective, the Common Stock traded higher than $9.02 for either (i) thirty (30) consecutive Trading Days subsequent to such effectiveness; or (ii) thirty-five (35) out of forty (40) consecutive Trading Days subsequent to such effectiveness provided that the average daily trading volume during such 30 or 35 Trading Day period, as applicable, is at least 30,000 shares of Common Stock, as reported by Bloomberg L.P. Notwithstanding the forgoing, this Warrant shall not expire pursuant to this Section 1(c) if (i) the Company has breached, in any material respect, any of the covenants contained in the Securities Purchase Agreement, the Registration Rights Agreement or this Warrant; (ii) the Company has failed to timely deliver to the Holder any shares issuuable upon exercise of this Warrant or the "A" Warrant pursuant to an effective exercise of such Warrants 3 and upon receipt of notice of the failure to deliver such shares, has not delivered the shares within five (5) days of receiving such notice, or (iii) the Company has failed to remove a restrictive legend from any shares issued upon an effective exercise of this Warrant or the "A" Warrant within fifteen (15) days of when such legend may be removed pursuant to Section 5.02 of the Securities Purchase Agreement. (d) Shares of Common Stock shall be deemed to have been issued and the Holder or, subject to compliance with Section 7.03 below, any other Person so designated to be named therein shall be deemed to have become a Holder of record of such shares, including, to the extent permitted by law, the right to vote such shares or to consent or to receive notice as a stockholder, as of the last day of each Exercise Period. (e) All shares of Common Stock issuable upon the exercise of this Warrant shall, be duly and validly issued, fully paid and nonassessable and free and clear of any liens (unless created by or through the Holder of this Warrant). The Company shall not be required to issue a fractional share of Common Stock upon exercise of this Warrant. As to any fraction of a share that the Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the applicable Market Price determined in accordance with the foregoing. SECTION 2. Transfer, Division and Combination. Subject to Section 7.03 hereof, transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company, upon surrender of this Warrant to the Company, together with a written assignment of this Warrant, substantially in the form of Annex B hereto, duly executed by the Holder or its agent or attorney. Upon such surrender, the Company shall, subject to Section 7.03 hereof, (a) execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, (b) issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned and (c) promptly cancel this Warrant. SECTION 3. Antidilution Provisions. 3.01 Changes in Common Stock. In the event that at any time or from time to time the Company shall, (i) pay a dividend or make a distribution on its Common Stock in shares of Common Stock or other shares of capital stock of the Company, (ii) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (iv) increase or decrease the number of shares of Common Stock outstanding by reclassification of its Common Stock, then the number of shares of Common Stock issuable upon exercise of this Warrant immediately after the happening of such event shall be adjusted so that, after giving effect to such adjustment, the Holder of this Warrant shall be entitled to receive the number of shares of Common Stock upon exercise of this Warrant that the Holder would have been entitled to receive had this Warrant been exercised immediately prior to the happening of such event (or, in the case of a dividend or distribution of shares of Common Stock, immediately prior to the record date therefor). An adjustment made pursuant to this Section 3.01 shall become effective immediately after the distribution date, retroactive to the record date therefor in the case of a dividend or 4 distribution in shares of Common Stock, and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. 3.02 Cash Dividends and Other Distributions. In the event that at any time or from time to time the Company shall distribute to holders of Common Stock (i) any dividend or other distribution (including any dividend or distribution made in connection with a consolidation or merger in which the Company is the surviving corporation) of cash, evidences of its indebtedness, shares of its capital stock or any other assets or securities or (ii) any options, warrants, securities or other rights to subscribe for or purchase any of the foregoing (other than (A) any dividend or distribution described in Section 3.01, (B) any rights, options, warrants or securities described in Section 3.03 or Section 3.04, and (C) any cash dividends or other cash distributions made to holders of Common Stock from current or retained earnings, provided that such dividends do not exceed $500,000 in any fiscal year), then the number of shares of Common Stock that may be acquired upon exercise of this Warrant immediately prior to such record date for any such distribution shall be increased to a number determined by multiplying the number of shares of Common Stock that may be acquired upon the exercise of this Warrant immediately prior to such record date for any such distribution by a fraction, the numerator of which shall be the Market Price per share of Common Stock as of such record date and the denominator of which shall be such Market Price per share of Common Stock less the sum of (x) the amount of cash, if any, distributed per share of Common Stock and (y) the then fair value (as determined in good faith by the Company's Board of Directors, whose determination shall be evidenced by a board resolution that will be sent to Holders) of the portion, if any, of the distribution applicable to one share of Common Stock consisting of evidences of indebtedness, shares of stock, securities, other property, warrants, options or subscription or purchase rights. Such adjustments shall be made, and shall only become effective, whenever any such distribution is made; provided, however, that the Company is not required to make an adjustment pursuant to this Section 3.02 if at the time of such distribution the Company makes the same distribution to Holders of Warrants as it makes to holders of Common Stock pro rata based on the number of shares of Common Stock for which such Warrants are exercisable. No adjustment shall be made pursuant to this Section 3.02 if such adjustment would have the effect of decreasing the number of shares of Common Stock issuable upon exercise of this Warrant. 3.03 Combination; Liquidation. (a) (a) Except as provided in Section 3.03(b), in the event of a Combination (as hereinafter defined), the Holder shall have the right to receive upon exercise of this Warrant the kind and amount of shares of capital stock or other securities or property that the Holder would have been entitled to receive upon completion of or as a result of such Combination had such Warrant been exercised immediately prior to such event or to the relevant record date for any such entitlement. Unless paragraph (b) is applicable to a Combination, the Company shall provide, as a condition to such Combination, that the surviving or acquiring Person (the "Successor Company") in such Combination will enter into an agreement confirming the Holders' rights pursuant to this Section 3.03(a) and providing for adjustments, that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 3. The provisions of this Section 3.03(a) shall similarly apply to successive Combinations involving any Successor Company. A "Combination" means an event in which the Company consolidates with or merges with or into another Person. 5 (b) In the event of (i) a Combination where consideration to the holders of Common Stock in exchange for their shares is payable solely in cash or (ii) the dissolution, liquidation or winding-up of the Company, the Holder of this Warrant shall be entitled to receive, upon surrender of this Warrant, such cash distributions on an equal basis with the holders of Common Stock, as if this Warrant had been exercised immediately prior to such event. In the event of any Combination described in this Section 3.03(b), the surviving or acquiring Person and, in the event of any dissolution, liquidation or winding-up of the Company, the Company shall distribute as promptly as practicable under the circumstances to the Holder upon surrender of this Warrant, the funds, if any, necessary to pay the Holder the amounts to which the Holder is entitled as described above. (c) In the event of an adjustment pursuant to this Section 3 at any time prior to the end of the last Exercise Period, the per share prices specified in Section 1(b) shall be equitably adjusted to reflect the consideration paid in connection with such Combination or otherwise in keeping with this Section 3. 3.04 Superseding Adjustment. Upon the expiration of any rights, options, warrants or conversion or exchange privileges that resulted in adjustments pursuant to this Section 3, if any such rights, options, warrants or conversion or exchange privilege thereof shall not have been exercised, the number of shares of Common Stock issuable upon the exercise of this Warrant shall be readjusted pursuant to the applicable section of Section 3 as if (i) the only shares of Common Stock issuable upon exercise of such rights, options, warrants, conversion or exchange privileges were the shares of Common Stock, if any, actually issued upon the exercise of such rights, options, warrants or conversion or exchange privileges and (ii) shares of Common Stock actually issued, if any, were issuable for the consideration actually received by the Company upon such exercise plus the aggregate consideration, if any, actually received by the Company for this issuance, sale or grant of all such rights, options, warrants or conversion or exchange privileges whether or not exercised; provided, however, that no such readjustment shall have the effect of decreasing the number of shares of Common Stock issuable upon the exercise of this Warrant below the number of shares of Common Stock issuable upon the exercise of this Warrant immediately prior to any adjustment made therein on account of such issuance, sale or grant of such rights, options, warrants or conversion or exchange privileges. 3.05 Minimum Adjustment. The adjustments required by the preceding sections of this Section 3 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that no adjustment of the number of shares of Common Stock issuable upon exercise of this Warrant that would otherwise be required shall be made unless and until such adjustment either by itself or with other adjustments not previously made increases or decreases by at least 1% of the number of shares of Common Stock issuable upon exercise of this Warrant immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Section 3 and not previously made, would result in a minimum adjustment. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its 6 occurrence. In computing adjustments under this Section 3, fractional interests in Common Stock shall be taken into account to the nearest one-tenth of a share. 3.06 Notice of Adjustment. Whenever the number of shares of Common Stock and other property, if any, issuable upon exercise of the Warrants is adjusted, as herein provided, the Company shall deliver to the Holder of this Warrant a certificate setting forth, in reasonable detail, the event requiring the adjustment and the method by which such adjustment was calculated (including a description of the basis on which (i) the Company's Board of Directors determined the then fair value of any evidences of indebtedness, other securities or property or warrants, options or other subscription or purchase rights and (ii) the Market Price of the Common Stock was determined, to the extent such determinations were required hereunder), and specifying the number of shares of Common Stock issuable upon exercise of this Warrant after giving effect to such adjustment. 3.07 Notice of Certain Transactions. In the event that the Company shall propose to (a) pay any dividend payable in securities of any class to the holders of its Common Stock or to make any other non-cash dividend or distribution to the holders of its Common Stock, (b) offer the holders of its Common Stock rights to subscribe for or to purchase any securities convertible into shares of Common Stock or shares of stock of any class or any other securities, rights or options, (c) issue to the holders of its Common Stock any (i) shares of Common Stock, (ii) rights, options or warrants entitling the holders thereof to subscribe for shares of Common Stock or (iii) securities convertible into, or exchangeable or exercisable for, shares of Common Stock (in the case of (i), (ii) and (iii), if such issuance or adjustment would result in an adjustment hereunder), (d) effect any capital reorganization, reclassification, consolidation or merger, (e) effect the voluntary or involuntary dissolution, liquidation or winding-up of the Company or (f) make a tender offer or exchange offer with respect to the Common Stock, the Company shall within five days after any such event send the Holder a notice of such proposed action or offer unless the same is publicly announced. Such notice shall, to the extent the same has not been publicly announced, specify the record date for the purposes of such dividend, distribution or rights, or the date such issuance or event is to take place and the date of participation therein by the holders of Common Stock, if any such date is to be fixed, and shall, to the extent the same has not been publicly announced and if the same would have any effect on the Common Stock and on the number of shares of Common Stock, the number and kind of any other shares of stock and other property issuable upon exercise of this Warrant (after giving effect to any adjustment pursuant to Section 3 that will be required as a result of such action), specify such effect. Such notice shall be given as promptly as possible and (x) in the case of any action covered by clause (a) or (b) above, at least 10 days prior to the record date for determining holders of the Common Stock for purposes of such action or (y) in the case of any other such action, at least 20 days prior to the date of the taking of such proposed action or the date of participation therein by the holders of Common Stock, whichever shall be the earlier. Notwithstanding anything contained herein to the contrary, the Company shall not provide to the Holder any material non-public information in order to satisfy its obligations pursuant to this Section 3.09. 3.08 Adjustment to Warrant Certificate. This Warrant Certificate need not be changed because of any adjustment made pursuant to this Section 3, and any Warrant issued after such adjustment may state the same number of shares of Common Stock issuable upon exercise of the Warrant as are 7 stated in this Warrant. The Company, however, may at any time in its sole discretion make any change in the form of this Warrant that it may deem appropriate to give effect to such adjustments and that does not affect the substance of this Warrant, and any Warrant thereafter issued or countersigned, whether in exchange or substitution for this Warrant or otherwise, may be in the form as so changed. SECTION 4. Taking of Record; Stock and Warrant Transfer Books. In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision hereof refers to the taking of a record of such holders, the Company shall in each such case take such a record as of the close of business on a business day. SECTION 5. Expenses, Transfer Taxes and Other Charges. The Company shall pay any and all expenses (other than transfer taxes) and other charges, including all costs associated with the preparation, issue and delivery of stock or warrant certificates, that are incurred in respect of the issuance or delivery of shares of Common Stock upon exercise of this Warrant pursuant to Section 1 hereof or in connection with any division or combination of this Warrant pursuant to Section 2 hereof. The Company shall not, however, be required to pay any tax that may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which this Warrant is registered, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of any such tax, or has established, to the satisfaction of the Company, that such tax has been paid. SECTION 6. No Voting Rights. This Warrant shall not entitle the Holder to any voting or other rights as a stockholder of the Company. SECTION 7. Miscellaneous. 7.01 Office of Company. So long as any of this Warrant remains outstanding, the Company shall maintain an office in the United States of America where this Warrant may be presented for exercise, transfer, division or combination as in this Warrant provided. Such office shall be at: 2255 Glades Road, Suite 237W Boca Raton, Florida, or at the office of such registrar and transfer agent as the Company may from time to time designate, unless and until the Company shall designate and maintain some other office for such purposes and give notice thereof to all Holders. 7.02 Notices Generally. Any notices and other communications pursuant to the provisions hereof shall be sent in accordance with Section 7.03 of the Securities Purchase Agreement. 7.03 Restrictions on Transferability; Restriction on Exercise. (A) (A) This Warrant and the shares of Common Stock issuable upon conversion of this Warrant shall be transferable only in a transaction that is in compliance with the provisions of the Securities Act and applicable state securities or "blue sky" laws, and the Holder and each of its successors and assigns shall be bound by the provisions of this Section 7.03. In the event this Warrant is not registered under the Securities Act and applicable state securities or "blue sky" laws, the Company may condition the sale, transfer or other disposition of this Warrant (or any interest herein) upon receipt of a legal opinion, in form and substance, and by counsel, reasonably acceptable to the Company, to the 8 effect that such sale, transfer or other disposition is being made pursuant to an exemption from, or in a transaction not subject to, any registration requirement under the Securities Act and applicable state securities or "blue sky" laws. No opinion shall be required to exercise this Warrant. In the event the shares of Common Stock or other securities issuable upon the exercise of this Warrant are not registered under the Securities Act and applicable state securities or "blue sky" laws, the Company may condition the sale, transfer or other disposition of such shares or other securities (or any interest herein) upon receipt of a legal opinion, in form and substance, and by counsel, reasonably acceptable to the Company, to the effect that such sale, transfer or other disposition is being made pursuant to an exemption from, or in a transaction not subject to, any registration requirement under the Securities Act and applicable state securities or "blue sky" laws. (B) Notwithstanding any other provision of this Warrant, as of any date prior to the Expiration Date, the aggregate number of shares of Common Stock into which this Warrant, together with any other shares of Common Stock then beneficially owned (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) by the Holder and its affiliates (excluding shares of Common Stock otherwise deemed beneficially owned as a result of the convertibility of the Notes and held by the Holder or its affiliates), shall not exceed 4.9% of the total outstanding shares of Common Stock as of such date (the "4.9% Limitation"). In addition, notwithstanding any other provision of this Warrant, during any consecutive 61-day period the Holder (together with its affiliates) may not (x) exercise this Warrant into a number of shares of Common Stock exceeding 9.9% of the Company's issued and outstanding shares of Common Stock as of the first of such 61-day period or sell shares of Common Stock (whether acquired upon exercise of this Warrant or otherwise in excess of 9.9% of the Company's issued and outstanding shares of Common Stock as of the first day of such 61-day period). The foregoing limitations or exercise of this Warrant may not be waived, modified or amended. The Company shall have no obligation to monitor compliance with the foregoing limitation. If any shares to be issued upon the exercise of this Warrant would cause the Holder to hold greater than 4.9% of the total outstanding Common Stock then the Company agrees not to issue such shares until such time that such Holder can take delivery of such shares. 7.04 Assignment. This Warrant and the rights, duties and obligations hereunder may not be assigned or delegated by the Company or any Holder without the prior written consent of the other party, which consent shall not be unreasonably withheld. Nothwithstanding the foregoing, no consent shall be required for a transfer by a Holder to any of its Affiliates. 7.05 Saturdays, Sundays or Holidays. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or legal holiday then such action may be taken or such right may be exercised on the next succeeding day. 7.06 Governing Law. This Warrant shall be governed by, and construed in accordance with, the law of the State of New York without giving effect to conflicts of law principles thereof. 7.07 Limitation of Liability. No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the Holder, shall 9 give rise to any liability of the Holder for the Exercise Price or as a stockholder of the Company, whether such liability is asserted by the Company, by any creditor of the Company or any other Person 10 IN WITNESS WHEREOF, the Company has duly executed this Warrant. Dated: May 1, 2001 HOLLYWOOD MEDIA CORP. By ----------------------------------------- Name: Title: 11 Annex A ------- ELECTION TO EXERCISE (To Be Executed Upon Exercise of Warrant) The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant, to receive ______ shares of Common Stock of Hollywood Media Corp. in accordance with the terms of this Warrant. The undersigned requests that [certificates for such shares in denominations of ________ be registered in the name of ________________ whose address is ________________ and that such shares be delivered to __________________, whose address is __________________]. [Such shares be delivered to [the undersigned] [other person] electronically through DTC]. The undersigned represents and warrants that the number of shares of Common Stock to be received pursuant to this Election to Exercise, together with the shares of Common Stock beneficially owned by the undersigned (and its affiliates) on the date of this Election to Purchase do not exceed 4.9% of the outstanding shares of Common Stock of the Company (as set forth in the Company's most recent filing with the Securities and Exchange Commission unless the Company shall notify the Holder that a greater or lesser number of shares is outstanding). Capitalized terms used but not defined herein shall have the respective meanings ascribed to them in the Warrant to which Election to Exercise is attached. [Name of Holder] By: ----------------------------------------- Name: Title: NOTE: The above signature(s) must correspond with the name written upon the face of this Warrant in every particular, without alteration or enlargement or any change whatever. Date: ---------- Annex B ------- ASSIGNMENT ---------- (To be signed only upon assignment of this Warrant) FOR VALUE RECEIVED, hereby sells, assigns and transfers unto whose address is and whose social security number or other identifying number is , the within Warrant, together with all right, title and interest represented thereby, and does hereby irrevocably constitute and appoint , attorney, to transfer said Warrant on the books of the within-named Company, with full power of substitution in the premises. By: ---------------------------------- Name: Title: NOTE: The above signature(s) must correspond with the name written upon the face of this Warrant in every particular, without alteration or enlargement or any change whatever. Date: -----END PRIVACY-ENHANCED MESSAGE-----