Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
(RULE
14a-101)
PROXY
STATEMENT PURSUANT TO SECTION 14(A) OF
THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment
No. 1)
Filed by
the Registrant x
Filed by
a Party other than the Registrant ¨
Check the
appropriate box:
x
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Preliminary
Proxy Statement
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¨
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Confidential, for Use of the
Commission Only (as permitted by Rule
14a-6(e)(2))
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¨
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Definitive
Proxy Statement
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¨
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Definitive
Additional Materials
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¨
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Soliciting
Material Pursuant to §240.14a-12
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(Name of
Registrant as Specified in Its Charter)
(Name of
Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
x
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(1)
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Title
of each class of securities to which transaction
applies:
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Common
Stock, par value $.01 per share, of Hollywood Media Corp.
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(2)
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Aggregate
number of securities to which transaction
applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule0-11 (set forth the amount on which the filing fee is
calculated and state how it was
determined):
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The
filing fee was determined based on $45,400,000 total consideration proposed to
be paid to Hollywood Media Corp. in the transaction. The total
consideration was based on Hollywood Media Corp. receiving the following
consideration in the transaction (i) $20 million in cash, (ii) a five-year
second lien secured promissory note in the initial principal amount of $8.5
million at an interest rate of 12% per annum (valued at $8.5 million for
purposes of calculating the filing fee), (iii) a warrant to purchase 5% of the
outstanding shares of common stock of Theatre Direct NY, Inc. as of the closing
date on a fully diluted basis at an exercise price of $.01 per share (valued at
$1 million for purposes of calculating the filing fee), (iv) earnout payments of
up to $14 million, and (v) an estimated working capital adjustment of $1.9
million. The filing fee was determined by multiplying 0.00007130 by
the total consideration proposed to be paid to Hollywood Media Corp. in the
transaction.
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(4)
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Proposed
maximum aggregate value of
transaction:
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x
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Fee
paid previously with preliminary
materials:
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¨
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Check
box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify
the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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Subject
to Completion
Preliminary
Copies, dated April 29, 2010
PROPOSED
SALE OF THEATRE DIRECT NY, INC.,
A
WHOLLY-OWNED SUBSIDIARY OF HOLLYWOOD MEDIA CORP.
Dear
Fellow Shareholders:
You are
cordially invited to attend a special meeting of shareholders of Hollywood Media
Corp., a Florida corporation (“Hollywood Media” or the “Company”), to be held on
[___], 2010, at 10:00 a.m., local time, at Hollywood Media’s offices at 2255
Glades Road, Conference Room 123A, Boca Raton, Florida 33431. Conference Room
123A is on the first floor of the building. The accompanying proxy
statement, dated [___], 2010, and proxy card for the special meeting of
Hollywood Media’s shareholders to be held on [___], 2010, are first being mailed
to Hollywood Media’s shareholders on or about [___], 2010.
On
December 22, 2009, Hollywood Media entered into a stock purchase agreement with
Key Brand Entertainment Inc., a Delaware corporation (“Key Brand”), pursuant to
which Key Brand will purchase Hollywood Media’s Broadway Ticketing Division,
through the purchase of all of the outstanding capital stock of Theatre Direct
NY, Inc., a Delaware corporation and a wholly-owned subsidiary of Hollywood
Media (“Theatre Direct”), from Hollywood Media (as amended, the “Stock Purchase
Agreement”).
At the
special meeting of shareholders, Hollywood Media will ask you to consider and
vote upon a proposal to approve the sale of Theatre Direct as contemplated by
the Stock Purchase Agreement. In addition, if there are insufficient
votes in favor of the proposal to approve the sale of Theatre Direct as
contemplated by the Stock Purchase Agreement, Hollywood Media will ask you to
consider and vote upon a proposal to adjourn or postpone the special meeting of
shareholders to solicit additional proxies. The sale of Theatre
Direct as contemplated by the Stock Purchase Agreement is conditioned upon
receiving approval from Hollywood Media’s shareholders, and such approval may be
required under Florida law as the sale of Theatre Direct, which accounts for
approximately 95% of Hollywood Media’s revenues, may constitute a sale of
substantially all of the assets of Hollywood Media.
We encourage you to read the
accompanying proxy statement in its entirety because it describes certain terms
of the proposed sale of Theatre Direct, the consideration to be received by
Hollywood Media and certain documents related to the proposed sale and related
transactions and provides specific information about the special
meeting. You may also obtain more information about Hollywood
Media from documents Hollywood Media has filed with the Securities and Exchange
Commission, which are available without charge through the Securities and
Exchange Commission’s website at http://www.sec.gov.
Your vote is very
important. Whether or not you plan to attend the special meeting,
please complete, sign, date and return the enclosed proxy
card. If your shares of Hollywood Media common stock are held
in “street name” by your broker, bank or other nominee, you should instruct your
broker, bank or other nominee on how to vote your shares of Hollywood Media
common stock using the instructions provided by your broker, bank or other
nominee.
Hollywood
Media’s board of directors appreciates your continuing support and urges you to
support the sale of Theatre Direct pursuant to the Stock Purchase
Agreement.
Sincerely,
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Mitchell
Rubenstein
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Chairman
and Chief Executive Officer
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Neither
the Securities and Exchange Commission nor any state securities regulatory
agency has approved or disapproved the Stock Purchase Agreement or the
transactions contemplated thereby, passed upon the merits or fairness of the
Stock Purchase Agreement or the transactions contemplated thereby or passed upon
the adequacy or accuracy of the disclosure in this document. Any representation
to the contrary is a criminal offense.
Subject
to Completion
Preliminary
Copies, dated April 29, 2010
Hollywood
Media Corp.
2255
Glades Road
Boca
Raton, Florida 33431
NOTICE
OF SPECIAL MEETING OF SHAREHOLDERS
TO
BE HELD ON [___], 2010
Dear
Shareholder:
The
special meeting of shareholders of Hollywood Media Corp. (“Hollywood Media”)
will be held on [___], 2010, at 10:00 a.m., local time, at Hollywood Media’s
offices at 2255 Glades Road, Conference Room 123A, Boca Raton, Florida 33431,
for the following purposes:
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1.
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To
approve the sale of Hollywood Media’s Broadway Ticketing Division, through
the sale of all of the outstanding capital stock of Theatre Direct NY,
Inc. (“Theatre Direct”) by Hollywood Media to Key Brand Entertainment Inc.
(“Key Brand”) as contemplated by the stock purchase agreement between
Hollywood Media and Key Brand, dated as of December 22, 2009, as amended,
attached asAnnex
A to the accompanying proxy statement (the “Stock Purchase
Agreement”). We refer to this proposal as the “Proposal to Sell
Theatre Direct”; and
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2.
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To
approve the adjournment or postponement of the special meeting, if
necessary or appropriate, to solicit additional proxies if there are
insufficient votes at the time of the special meeting to approve the
Proposal to Sell Theatre Direct. We refer to this proposal as the
“Proposal to Adjourn or Postpone the Special
Meeting.”
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Hollywood
Media’s board of directors has fixed the close of business on [___], 2010 as the
record date for the determination of shareholders entitled to notice of and to
vote at the special meeting and at any adjournment or postponement of the
special meeting. On that date, there were [___] shares of Hollywood
Media common stock issued and outstanding and entitled to vote. The
accompanying proxy statement, dated [___], 2010, and proxy card for the special
meeting of Hollywood Media’s shareholders to be held on [___], 2010, are first
being mailed to Hollywood Media’s shareholders on or about [___],
2010. The Proposal to Sell Theatre Direct and the Proposal to Adjourn
or Postpone the Special Meeting are described in more detail in the accompanying
proxy statement, which you should read in its entirety before
voting.
The
approval of the Proposal to Sell Theatre Direct requires the affirmative vote of
holders of at least a majority of Hollywood Media’s issued and outstanding
shares of common stock that are entitled to vote at the special
meeting. The approval of the Proposal to Adjourn or Postpone the
Special Meeting, if necessary or appropriate, requires (i) if a quorum exists at
the special meeting, that the number of shares voted in favor of the Proposal to
Adjourn or Postpone the Special Meeting are greater than those voted against, or
(ii) in the absence of a quorum at the special meeting, the affirmative vote of
the holders of a majority of the shares of our common stock represented at the
special meeting.
Your vote is
important. Please vote your shares whether or not you plan to
attend the meeting.
Accompanying this notice of special
meeting is a proxy card. Whether or not you expect to attend the
special meeting, please complete, sign, date and return the enclosed proxy
card. If you fail to return your proxy card and do not vote in
person at the special meeting, it will have the same effect as a vote against
the Proposal to Sell Theatre Direct, but will not affect the Proposal to Adjourn
or Postpone the Special Meeting if a quorum is present at the special
meeting. If your shares of Hollywood Media common stock are held in
“street name” by your broker, bank or other nominee, you should instruct your
broker, bank or other nominee on how to vote your shares of Hollywood Media
common stock using the instructions provided by your broker, bank or other
nominee. If you attend the special meeting and vote in person, your
vote by ballot will revoke any proxy you previously
submitted. However, if you hold your shares of Hollywood Media common
stock through a broker, bank or other nominee, you must provide a legal proxy
issued from such broker, bank or nominee in order to vote your shares in person
at the special meeting. For specific instructions on voting your
shares, please refer to the voting instructions on the proxy card, the
“QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING” section of the accompanying
proxy statement beginning on page 16 and “THE SPECIAL MEETING” section of the
accompanying
proxy statement beginning on page 23. Your shares will be voted at
the special meeting in accordance with your proxy.
IMPORTANT
NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING
TO BE HELD ON [___], 2010.
The
Securities and Exchange Commission’s proxy rules permit us to provide both paper
copies and electronic versions of the proxy materials. We are
providing this notice to inform you of the Internet availability of the proxy
materials related to our special meeting. At your election, you may
utilize the proxy statement and proxy that are enclosed herewith or visit the
“Investor Relations” section of Hollywood Media’s corporate website at
www.hollywoodmedia.com.
All
shareholders are cordially invited to attend the special meeting.
By
Order of the Board of Directors,
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Laurie
S. Silvers
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President
and Secretary
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Boca
Raton, FL
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[___],
2010
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Hollywood
Media’s Board of Directors has unanimously approved and adopted the Stock
Purchase Agreement and unanimously recommends that Hollywood Media’s
shareholders vote “FOR” approval of the Proposal to Sell Theatre Direct and
“FOR” approval of the Proposal to Adjourn or Postpone the Special Meeting, if
necessary or appropriate, to solicit additional proxies if there are
insufficient votes at the time of the special meeting to approve the Proposal to
Sell Theatre Direct.
In
considering the recommendation of Hollywood Media’s board of directors with
respect to the Proposal to Sell Theatre Direct and the Proposal to Adjourn or
Postpone the Special Meeting, Hollywood Media’s shareholders should be aware
that two of Hollywood Media’s six directors, Mitchell Rubenstein, the Chairman
and Chief Executive Officer of Hollywood Media, and Laurie S. Silvers, the
Vice-Chairman, President and Secretary of Hollywood Media, will directly benefit
from the sale of Theatre Direct and therefore have interests in the Proposal to
Sell Theatre Direct and the Proposal to Adjourn or Postpone the Special Meeting
that are different from, or in addition to, the interests of Hollywood Media’s
shareholders generally. See “SUMMARY TERM SHEET—Interests of
Certain Persons in the Sale of Theatre Direct” beginning on page 7 of the
accompanying proxy statement and “PROPOSAL #1: PROPOSAL TO SELL
THEATRE DIRECT—Interests of Certain Persons in the Sale of Theatre
Direct” beginning on page 57 of the accompanying proxy
statement.
Subject
to Completion
Preliminary
Copies, dated April 29, 2010
TABLE
OF CONTENTS
SUMMARY TERM SHEET
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1
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Parties to the Stock Purchase
Agreement
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1
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The Stock Purchase Agreement and The Sale of
Theatre Direct
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1
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Purchase Price
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2
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Purchase Price Adjustments
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2
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Promissory Note and Related
Agreements
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3
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Warrant
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4
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Earnout
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4
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The Escrow Agreement and Deposit and Expense
Reimbursement
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4
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Financing
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5
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Use of Proceeds from the Sale of Theatre
Direct
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5
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When the Sale of Theatre Direct is Expected to be
Completed
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6
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Reasons for the Sale of Theatre
Direct
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6
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Interests of Certain Persons in the Sale of
Theatre Direct
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7
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Opinion of Hollywood Media’s Financial
Advisor
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10
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Recommendation of Our Board of
Directors
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10
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Non-Competition Agreement
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10
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Governmental and Regulatory
Approvals
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10
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Accounting Treatment
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11
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Material U.S. Federal Income Tax
Consequences
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11
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Other Offers
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11
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Conditions to Closing
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12
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Indemnification
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12
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Termination of the Stock Purchase
Agreement
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13
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Termination Fee
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13
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Effects on Hollywood Media if the Sale of Theatre
Direct is Completed and Nature of Hollywood Media’s Business Following the
Sale of Theatre Direct
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14
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Effects on Hollywood Media if the Sale of Theatre
Direct is Not Completed
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14
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Risk Factors
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14
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Ancillary Agreements
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14
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Transaction Costs Associated with the Sale of
Theatre Direct
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15
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The Special Meeting
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15
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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING
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16
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
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21
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THE SPECIAL MEETING
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23
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Time, Place and Purpose of the Special
Meeting
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23
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Recommendation of Our Board of
Directors
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23
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Record Date and Quorum
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23
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Vote Required for Approval
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24
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Shares Held in “Street Name” by a Broker, Bank or
Other Nominee
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24
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Proxies and Revocation
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25
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Adjournments and
Postponements
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25
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No Appraisal or Dissenters’
Rights
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26
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Solicitation of Proxies
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26
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Internet Availability of Proxy
Materials
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26
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Questions and Additional
Information
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26
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RISK FACTORS
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27
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PROPOSAL #1: PROPOSAL TO SELL THEATRE
DIRECT
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32
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Parties to the Stock Purchase
Agreement
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32
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Background of the Sale of Theatre
Direct
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33
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Background on the Amendments to Amended and
Restated Employment Agreements of Mr. Rubenstein and Ms.
Silvers
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44
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Past Contacts, Transactions or
Negotiations
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46
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Reasons for the Sale of Theatre
Direct
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46
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Opinion of Hollywood Media’s Financial
Advisor
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48
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Governmental and Regulatory
Approvals
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55
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When the Sale of Theatre Direct is Expected to be
Completed
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55
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Effects on Hollywood Media if the Sale of Theatre
Direct is Completed and Nature of Hollywood Media’s Business Following the
Sale of Theatre Direct
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55
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Effects on Hollywood Media if the Sale of Theatre
Direct is Not Completed
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56
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Use of Proceeds from the Sale of Theatre
Direct
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56
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No Appraisal or Dissenters’
Rights
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57
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Interests of Certain Persons in the Sale of
Theatre Direct
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57
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Transaction Costs Associated with the Sale of
Theatre Direct
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61
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Terms of the Stock Purchase
Agreement
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62
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The Sale of Theatre Direct
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62
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Purchase Price
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62
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The Escrow Agreement and Deposit and Expenses
Reimbursement
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68
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Representations and
Warranties
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69
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Covenants
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72
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Conditions to Closing
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79
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Closing Date
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80
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Survival and
Indemnification
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80
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Termination
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82
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Miscellaneous
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85
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Ancillary Agreements
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85
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Hollywood Media Release
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85
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Transition Services
Agreement
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86
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Non-Competition Agreements of Mr. Rubenstein and
Ms. Silvers
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86
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Accounting Treatment
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87
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Material U.S. Federal Income Tax
Consequences
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87
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PROPOSAL #2: PROPOSAL TO ADJOURN OR POSTPONE THE
SPECIAL MEETING
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93
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Vote Required to Approve the Proposal to Adjourn
or Postpone the Special Meeting
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93
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No Appraisal or Dissenters’
Rights
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93
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Recommendation of Our Board of
Directors
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93
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
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94
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SHAREHOLDERS’ PROPOSALS
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96
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DELIVERY OF MATERIALS
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98
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WHERE YOU CAN FIND MORE
INFORMATION
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98
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PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS OF
HOLLYWOOD MEDIA CORP. AND
SUBSIDIARIES
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99
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FINANCIAL STATEMENTS OF THEATRE DIRECT NY,
INC.
(OUR BROADWAY TICKETING
DIVISION)
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105
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SELECTED FINANCIAL DATA OF HOLLYWOOD MEDIA
CORP.
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108
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Annex A
– Stock Purchase Agreement
Annex B
– Terms of the Promissory Note
Annex C
– Form of Warrant
Annex D
– Escrow Agreement
Annex E
– Opinion of Peter J. Solomon Company
Annex F
– Audited Financial Statements of Hollywood Media Corp. included in
its Form 10−K for the period ended December 31,
2009
Subject
to Completion
Preliminary
Copies, dated April 29, 2010
Hollywood
Media Corp.
2255
Glades Road
Boca
Raton, Florida 33431
(561)
322-3450
PROXY
STATEMENT
The board
of directors of Hollywood Media Corp., a Florida corporation (which we refer to
as “Hollywood Media,” the “Company,” “we,” “our,” and “us”) is soliciting the
enclosed proxy for use at the special meeting of Hollywood Media’s shareholders
to be held on [___], 2010, at 10:00
a.m., local time, at Hollywood Media’s offices at 2255 Glades Road, Conference
Room 123A, Boca Raton, Florida 33431. This proxy statement, dated
[___], 2010, and proxy card are first being mailed to Hollywood Media’s
shareholders on or about [___], 2010.
SUMMARY
TERM SHEET
This
summary term sheet, together with the question and answer section that follows,
highlights selected information from the proxy statement about the sale of our
Broadway Ticketing Division, through the sale of all of the outstanding capital
stock of our wholly-owned subsidiary, Theatre Direct NY, Inc., a Delaware
corporation (which we refer to as “Theatre Direct”). This summary
term sheet and the question and answer section may not contain all of the
information that is important to you. For a more complete description
of the sale of Theatre Direct, you should carefully read this proxy statement
and the Stock Purchase Agreement attached hereto as Annex A before you
vote. The location of the more detailed description of each item in
this summary is provided in the parentheses listed below. Also see
“Where You Can Find More Information” on page 98.
Parties
to the Stock Purchase Agreement (page 32)
Hollywood
Media Corp.
Hollywood
Media is a leading provider of online ticketing services, and is comprised of
various businesses focusing primarily on online ticket sales, deriving revenue
primarily from Broadway, Off-Broadway and London’s West End ticket sales to
individuals and groups, as well as advertising and book development license fees
and royalties. Hollywood Media has three main divisions, which are
the Broadway Ticketing Division (including Broadway.com, 1-800-BROADWAY, Theatre
Direct and Theatre.com), the Ad Sales Division (including the U.K.-based
CinemasOnline and our 26.2% equity interest in MovieTickets.com, Inc.), and the
Intellectual Properties Division (consisting of our 51% interest in Tekno Books
and a 50% interest in NetCo Partners).
Key
Brand Entertainment Inc.
Key Brand
Entertainment Inc., a Delaware corporation (which we refer to as, “Key Brand”),
is a leading developer, producer, and distributor of live theatre in North
America and is focused on building a platform dedicated to all types of
theatrical business including stage show licensing, production, and
acquisition. Key Brand continues to build on its significant
expertise and geographic reach to broaden its production platform while
simultaneously presenting Broadway and the West End’s biggest hits to North
America, Japan, the United Kingdom, as well as emerging theatre
markets.
The
Stock Purchase Agreement and The Sale of Theatre Direct (page 62 and Annex A)
Pursuant
to the terms of the stock purchase agreement, dated as of December 22, 2009, as
amended, between Hollywood Media and Key Brand (which we refer to as, the “Stock
Purchase Agreement”), we have agreed to sell our Broadway Ticketing Division,
through the sale of all of the outstanding capital stock of Theatre Direct to
Key Brand (which we refer to as, “the sale of Theatre Direct”).
We have
attached a copy of the Stock Purchase Agreement as Annex A to this proxy
statement. We encourage you to read carefully the Stock Purchase
Agreement in its entirety because it is the legal document that governs the sale
of Theatre Direct.
Purchase
Price (page 62)
If the
sale of Theatre Direct is completed pursuant to the Stock Purchase Agreement
Hollywood Media will receive the following consideration:
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•
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$20
million in cash (subject to working capital adjustments described in the
Stock Purchase Agreement) (see “SUMMARY TERM SHEET—Purchase Price
Adjustment beginning on page 2);
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•
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a
five-year second lien secured promissory note issued by Key Brand in the
initial principal amount of $8.5 million at an interest rate of 12% per
annum;
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•
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a
warrant to purchase 5% of the outstanding shares of common stock of
Theatre Direct on a fully diluted basis as of the closing date of the sale
of Theatre Direct at an exercise price of $.01 per
share;
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|
•
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earnout
payments of up to $14 million contingent upon Theatre Direct and its
subsidiaries achieving certain revenue targets during the Earnout Period
(as defined in “SUMMARY TERM
SHEET—Earnout” beginning on page 4);
and
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•
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up
to a maximum amount of $1.6 million of liabilities with respect to any
payment associated with change of control obligations under the employment
agreements with certain employees of Theatre Direct will be or remain the
liabilities of Theatre Direct from and after the closing date of the sale
of Theatre Direct.
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We
estimate that the total amount of the consideration that Hollywood Media will
receive if the sale of Theatre Direct pursuant to the Stock Purchase Agreement
is completed will be approximately $45.1 million, ignoring the time value of
money and assuming that (i) there is no working capital adjustment to the
purchase price pursuant to the Stock Purchase Agreement (see “SUMMARY TERM SHEET—Purchase Price
Adjustment beginning on page 2), (ii) the promissory note issued by Key
Brand to Hollywood Media is valued at $8.5 million (which is the principal
amount of the promissory note, ignoring any interest Hollywood Media may receive
pursuant to the promissory note), (iii) the warrant issued by Theatre Direct to
Hollywood Media is valued at $1 million (which is the minimum amount of the put
or call option on the warrant (see “SUMMARY TERM SHEET—Warrant
beginning on page 4)), (iv) the entire $14 million of the earnout is paid
by Key Brand to Hollywood Media pursuant to the Stock Purchase Agreement, and
(v) the $1.6 million of liabilities with respect to any payment associated with
change of control obligations under the employment agreements with certain
employees of Theatre Direct that will be or remain the liabilities of Theatre
Direct from and after the closing date of the sale of Theatre Direct is included
in the calculation of the consideration that Hollywood Media will
receive.
Purchase
Price Adjustments (page 63)
Prior to
the closing of the sale of Theatre Direct pursuant to the Stock Purchase
Agreement, Hollywood Media will deliver to Key Brand its good faith estimate of
Theatre Direct’s working capital as of the closing date determined in the manner
described in the Stock Purchase Agreement. The cash consideration of
$20 million to be delivered by Key Brand to Hollywood Media at closing will be
adjusted as follows:
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if
the working capital as reflected on this estimated statement exceeds
$500,000, then the cash consideration of $20 million to be delivered at
closing will be adjusted upward by such difference;
and
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if
the working capital as reflected on this estimated statement is less than
$500,000, then the cash consideration of $20 million will be adjusted
downward by such difference.
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After the
closing date of the sale of Theatre Direct pursuant to the Stock Purchase
Agreement, Hollywood Media will deliver to Key Brand a closing statement setting
forth Hollywood Media’s calculation of Theatre Direct’s working capital as of
the closing date determined in the manner described in the Stock Purchase
Agreement. Subject to Key Brand’s right to challenge Hollywood
Media’s calculation of Theatre Direct’s working capital:
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if
Theatre Direct’s working capital set forth on the closing statement is
greater than the working capital set forth on the estimated statement
described above, then Key Brand shall pay Hollywood Media the amount of
the difference plus accrued interest at the prime rate on such difference;
and
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if
Theatre Direct’s working capital set forth on the closing statement is
less than the working capital set forth on the estimated statement
described above, then Hollywood Media shall pay Key Brand the amount of
the difference plus accrued interest at the prime rate on such
difference.
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Promissory
Note and Related Agreements (page 63 and Annex B)
On the
closing date of the sale of Theatre Direct pursuant to the Stock Purchase
Agreement, Key Brand will deliver to Hollywood Media a promissory note in the
initial principal amount of $8.5 million (which we refer to as, the “Promissory
Note”) with the following terms:
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the
Promissory Note will accrue interest at the rate of 12% per annum with
interest payable quarterly in cash;
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the
Promissory Note will be payable in full on the fifth anniversary of the
closing date of the transactions contemplated by the Stock Purchase
Agreement;
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the
obligations of Key Brand under the Promissory Note will be secured on a
second priority basis by:
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a
perfected pledge of the capital stock of Theatre Direct and each direct or
indirect subsidiary of Theatre Direct (subject, in the case of any foreign
direct subsidiary, to a pledge of 65% of the capital stock of such foreign
subsidiary); and
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a
perfected security interest in substantially all tangible and intangible
assets of Theatre Direct and each direct or indirect US domestic
subsidiary of Theatre Direct (including equipment, investment property,
intellectual property, other general intangibles, real property and
proceeds of the foregoing);
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the
obligations under the Promissory Note and the security interest of
Hollywood Media securing the obligations of Key Brand under the Promissory
Note will be subordinated to senior indebtedness of Key Brand (plus all
interest accrued thereon from and after the closing of the transactions
contemplated by the Stock Purchase Agreement), including amounts
outstanding under that certain Credit, Security, Pledge and Guaranty
Agreement, dated as of January 23, 2008, by and among, inter alios, Key Brand,
JPMorgan Chase Bank, N.A., Toronto Theater Ltd., and the guarantors and
lenders named therein, as amended by Amendment No. 1 to Credit Agreement,
dated as of August 22, 2008, and Amendment No. 2, dated as of December 23,
2009 (which we refer to as, the “Credit Agreement”), up to an amount of
$15 million;
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upon
any adverse change in state or federal ticketing regulations that takes
effect within two years of the closing of the transactions contemplated by
the Stock Purchase Agreement that restricts or limits the amount of
services fees that may be charged on the resale of tickets, the principal
amount of the Promissory Note will be reduced by the amount of any such
reduction in value up to a maximum of $5 million, and such amount shall be
added pro-rata to the remaining earnout amounts payable to Hollywood Media
pursuant to the Stock Purchase Agreement (such amounts are referred to as,
the “Note Adjustment Amounts”), provided that, there will be no reduction
in the Promissory Note if the entire earnout has already been earned at
the time of any such adverse change;
and
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the
obligations of Key Brand under the Promissory Note will accelerate and
become immediately due and payable upon any event of default under the
Promissory Note or a “change of control” of Key Brand or Theatre
Direct.
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The debt
facilities evidenced by the Promissory Note will also be documented pursuant to
a loan agreement, security documents and other ancillary documents containing
terms and conditions (including representations, warranties, affirmative
covenants, negative covenants and events of default) which are substantially the
same as those set forth for the Credit Agreement (with certain
exceptions). In addition, an intercreditor agreement will be executed
between Hollywood Media, Key Brand, and JPMorgan Chase Bank, N.A., which shall
contain market standard provisions as between first lien and second lien
facilities and any other conditions agreed to by JPMorgan Chase Bank, N.A. and
Hollywood Media.
We have
attached a copy of the terms of the Promissory Note as Annex B to this proxy
statement. We encourage you to read carefully the terms of the
Promissory Note in its entirety.
Warrant
(page 64 and Annex
C)
On the
closing date of the sale of Theatre Direct pursuant to the Stock Purchase
Agreement, Key Brand will deliver to Hollywood Media a warrant to purchase 5% of
the outstanding shares of common stock of Theatre Direct as of the closing date
on a fully diluted basis at an exercise price of $.01 per share (which we refer
to as, the “Warrant”) with the following terms:
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the
Warrant may be exercised by Hollywood Media, in whole and not in part,
upon the consummation or occurrence of certain transactions and events
described in the Warrant;
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at
any time after the first (1st) anniversary of the issue date of the
Warrant, Theatre Direct may elect to redeem the Warrant (or the shares of
common stock of Theatre Direct issued upon exercise of the Warrant), in
whole and not in part, by paying to Hollywood Media an amount equal to the
greater of (x) the aggregate fair market value (as defined in
“PROPOSAL #1:
PROPOSAL TO SELL THEATRE DIRECT—Terms of the Stock Purchase
Agreement—Purchase Price—Warrant” beginning on page 64) of the
shares of common stock of Theatre Direct issuable upon exercise of the
Warrant and (y) $1 million; and
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at
any time after the seventh (7th) anniversary of the issue date of the
Warrant, Hollywood Media may elect to put the Warrant, in whole and not in
part, to Theatre Direct in exchange for a payment by Theatre Direct to
Hollywood Media in an amount equal to the greater of (x) the aggregate
fair market value (as defined in “PROPOSAL #1: PROPOSAL TO SELL
THEATRE DIRECT—Terms of the Stock Purchase Agreement—Purchase
Price—Warrant” beginning on page 64) of the shares of common stock
of Theatre Direct issuable upon exercise of the Warrant, and (y) $1
million.
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We have
attached a copy of the form of Warrant as Annex C to this proxy
statement. We encourage you to read carefully the form of Warrant in
its entirety.
Earnout
(page 66)
If
Theatre Direct and its subsidiaries achieve revenues (as defined in “PROPOSAL #1: PROPOSAL TO SELL
THEATRE DIRECT—Terms of the Stock Purchase Agreement—Purchase
Price—Earnout” beginning on page 66) greater than or equal to $125
million in any full fiscal year of Theatre Direct ending during the period from
the closing date of the sale of Theatre Direct pursuant to the Stock Purchase
Agreement until the end of the tenth full fiscal year of Theatre Direct which
occurs after the closing date of the sale of Theatre Direct pursuant to the
Stock Purchase Agreement (which we refer to as, the “Earnout Period”), then Key
Brand will pay to Hollywood Media an amount equal to $7 million, plus the
applicable portion of any of the Note Adjustment Amounts.
In
addition, if Theatre Direct and its subsidiaries achieve revenues greater than
or equal to $150 million during any full fiscal year of Theatre Direct ending
during the Earnout Period, then Key Brand will pay to Hollywood Media an
additional amount equal to $7 million, plus the applicable portion of any of the
Note Adjustment Amounts in accordance with the Stock Purchase
Agreement.
The
Escrow Agreement and Deposit and Expense Reimbursement (page 68 and Annex D)
In
connection with the Stock Purchase Agreement, on December 22, 2009, Hollywood
Media, Key Brand and The Bank of New York Mellon (which we refer to as, the
“Escrow Agent”), entered into an escrow agreement (the “Escrow
Agreement”).
On
December 22, 2009, pursuant to the Stock Purchase Agreement and the Escrow
Agreement, Key Brand deposited $1.2 million with the Escrow
Agent. This amount (and any earnings thereon) will be credited toward
the cash consideration contemplated by the Stock Purchase Agreement and paid to
Hollywood Media at the closing of the sale of Theatre Direct.
If the
Stock Purchase Agreement is validly terminated by Hollywood Media under certain
conditions set forth in the Stock Purchase Agreement and/or the Escrow
Agreement, Hollywood Media may be entitled to receive up to approximately $2.4
million, consisting of the $1.2 million deposit (including any earnings thereon)
from the Escrow Agent, plus reimbursement for all of Hollywood Media’s costs and
expenses incurred in connection with the transactions contemplated by the Stock
Purchase Agreement not to exceed $1.2 million.
We have
attached a copy of the Escrow Agreement as Annex D to this proxy
statement. We encourage you to read carefully the Escrow Agreement in
its entirety.
Financing
(page 77)
Key Brand
intends to pay the $20 million cash payment at the closing of the transactions
contemplated by the Stock Purchase Agreement from borrowings under a secured
credit facility, which may be Key Brand’s existing secured credit facility with
JPMorgan Chase Bank, N.A. and/or any additional secured facilities, or cash on
hand (including cash made available through investments made in Key Brand) or a
combination of cash and borrowings. At this time, Key Brand has not
secured a binding consent or commitment with respect to the financing of the
transactions contemplated by the Stock Purchase Agreement.
Neither
JPMorgan Chase Bank, N.A. nor J.P. Morgan Securities Inc. is acting as an
investment banker with respect to the sale of Theatre Direct pursuant to the
Stock Purchase Agreement. J.P. Morgan Securities, Inc. acted as the
sole bookrunner and the sole lead arranger for Key Brand’s existing secured
credit facility with JPMorgan Chase Bank, N.A.
In
addition to other closing conditions set forth in this proxy statement and the
Stock Purchase Agreement, the obligations of Key Brand to complete the
transactions contemplated by the Stock Purchase Agreement are subject to the
satisfaction or waiver on or prior to the closing date of Key Brand receiving a
written consent from the requisite lenders under the Credit Agreement for Key
Brand to consummate the transactions contemplated by the Stock Purchase
Agreement and Key Brand being entitled to borrow up to $15 million under the
Credit Agreement towards the payment of the cash consideration contemplated by
the Stock Purchase Agreement (which we refer to as, the “Financing Condition”)
(see “PROPOSAL #1: PROPOSAL TO
SELL THEATRE DIRECT—Terms of the Stock Purchase Agreement–Conditions to Closing–
Conditions to Key Brand’s Obligation” beginning on page 79).
Use
of Proceeds from the Sale of Theatre Direct (page 56)
Net
proceeds from the sale of Theatre Direct will be used in connection with our Ad
Sales Division, Intellectual Properties Division, and other remaining businesses
and interests. In addition, following the sale of Theatre Direct
pursuant to the Stock Purchase Agreement and subject to compliance with Florida
law and federal laws and regulations, we expect to either:
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pay
a one-time special cash dividend to our shareholders of approximately
$0.60 per share of Hollywood Media common stock, totaling approximately
$18 million; or
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engage
in a self-tender offer to purchase shares of Hollywood Media common stock
at a per-share price to be determined in the future, totaling
approximately $18 million.
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However,
please note that:
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we
are not required to pay a one-time special cash dividend or engage in a
self-tender offer;
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our
board of directors has made no final decision whether to pay a one-time
special cash dividend or engage in a self-tender offer, and such decision
will be based on what our board of directors determines is in our best
interest and the best interest of our shareholders (subject to compliance
with Florida law and federal laws and
regulations);
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if
our board of directors determines to pay a one-time special cash
dividend:
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the
actual amount of such one-time special cash dividend may be lower or
higher than the amount described above depending on the amount of our
liabilities following the sale of Theatre Direct
and
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other
factors;
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the
timing of the payment of a one-time special cash dividend may vary
depending on a number of factors, including any contingent liabilities or
other unforeseen matters;
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prior
to making such one-time special cash dividend, we will announce, at least
ten days in advance, the record date for such distribution;
and
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only
holders of Hollywood Media’s common stock on the record date for a
one-time special cash dividend will be entitled to receive a one-time
special cash dividend (please note that the record date for such one-time
special cash dividend will be after the closing date of the sale of
Theatre Direct and is different from the record date for determining which
holders of Hollywood Media’s common stock are entitled to vote on the
matters described in this proxy
statement);
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if
our board of directors determines to engage in a self-tender
offer:
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the
actual amount of such self-tender offer may be lower or higher than the
amount described above depending on the amount of our liabilities
following the sale of Theatre Direct and other
factors;
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the
offer period for a self-tender offer may vary depending on a number of
factors, including any contingent liabilities or other unforeseen matters;
and
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we
will announce the offer period and the per-share purchase price on or
prior to the commencement date of such self-tender
offer.
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In the
event that we do not pay a one-time special cash dividend or engage in a
self-tender offer, then we will hold the portion of the net proceeds from the
sale of Theatre Direct that are not used in connection with our Ad Sales
Division, Intellectual Properties Division and other remaining businesses and
interests for future possible strategic opportunities, including possibly
purchasing additional equity in MovieTickets.com, Inc. (in which we currently
own a 26.2% equity interest).
When
the Sale of Theatre Direct is Expected to be Completed (page 55)
We are
asking our shareholders to approve the sale of Theatre Direct pursuant to the
Stock Purchase Agreement at the special meeting. We refer to this
proposal as the “Proposal to Sell Theatre Direct.”
If the
Proposal to Sell Theatre Direct is approved by our shareholders at the special
meeting, we expect to complete the sale of Theatre Direct as soon as practicable
after all of the conditions in the Stock Purchase Agreement have been satisfied
or waived.
We and
Key Brand are working toward satisfying the conditions to closing and completing
the sale of Theatre Direct as soon as reasonably
practicable. However, there can be no assurance that the sale of
Theatre Direct will be completed at all or, if completed, when it will be
completed.
Reasons
for the Sale of Theatre Direct (page 46)
Our board
of directors considered all of the material factors relating to the Stock
Purchase Agreement and the proposed sale of Theatre Direct (including without
limitation the risks set forth in the “RISK FACTORS” section of this
proxy statement beginning on page 27). Our board of directors
believed that many of these material factors supported its decision to approve
the Stock Purchase Agreement and the transactions contemplated thereby, and to
recommend that Hollywood Media’s shareholders vote to approve the sale of
Theatre Direct as contemplated by the Stock Purchase Agreement,
including:
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the
estimated consideration that would be paid to Hollywood Media in the
proposed transaction in comparison to the risks associated with
maintaining the operations of our Broadway Ticketing Division which
include those risk factors discussed in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2009, filed with the Securities and
Exchange Commission (the “SEC”) on March 19,
2010. Specifically, our board of directors believes that the
sale of our Broadway Ticketing Division presents a better alternative than
maintaining it due to, among other things, the risks relating to the fact
that the Broadway Ticketing business is geographically-concentrated in New
York City (which exposes the
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business
to the risk of being shut down in the event of catastrophic events occurring in
New York City), the increased competition in the market of online tickets sales,
and the potential for union strikes at Broadway Theaters which could
significantly disrupt the business;
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the
potential uses for the consideration that would be paid to Hollywood Media
in the proposed transaction, including the ability to pay a one-time
special dividend to our shareholders or engage in a self-tender offer to
purchase shares of our common stock (although we are not required to pay a
one-time special cash dividend or engage in a self-tender offer, see
“SUMMARY TERM
SHEET— Use of
Proceeds from the Sale of Theatre Direct beginning on page
5);
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the
extensive sale process conducted by Hollywood Media and Hollywood Media’s
financial advisor, Peter J. Solomon Company, with respect to the sale of
Theatre Direct;
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the
price proposed by Key Brand represented the highest definitive offer that
Hollywood Media received for the acquisition of Theatre
Direct;
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the
economies of scale and synergies that Key Brand expects to benefit from
following the acquisition of Theatre Direct allowed Key Brand to offer
Hollywood Media consideration that was greater than the value that
Hollywood Media’s board of directors expected to receive from continuing
to own Theatre Direct;
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the
opinion of Peter J. Solomon Company that, as of the date of the opinion
and based upon and subject to the factors and assumptions set forth in
such opinion, the aggregate consideration to be received by Hollywood
Media for all of the outstanding shares of Theatre Direct common stock
pursuant to the Stock Purchase Agreement was fair from a financial point
of view to Hollywood Media;
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that
shareholders of Hollywood Media would continue to own stock in Hollywood
Media and participate in future earnings and potential growth of Hollywood
Media’s Ad Sales Division, Intellectual Properties Division and other
remaining businesses, including Hollywood Media’s minority equity interest
in MovieTickets.com, Inc., Hollywood Media’s right to earnout payments
from the sale of its former subsidiary, Hollywood Media’s right to
exercise or put the Warrant issued pursuant to the Stock Purchase
Agreement, and Hollywood Media’s right to payments under the Promissory
Note and the earnout in connection with the sale of Theatre Direct
pursuant to the Stock Purchase Agreement;
and
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the
terms of the Stock Purchase Agreement,
including:
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the
$20 million in cash to be paid by Key Brand (subject to a working capital
adjustment) and Hollywood Media being released from $1.6 million of
liabilities associated with employment agreements with certain employees
of Theatre Direct, which provides certainty in
value;
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our
ability to terminate the Stock Purchase Agreement in order to accept a
superior proposal, subject to paying a termination fee of $1.2
million;
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the
view of our board of directors, after consulting with the Company’s legal
counsel and financial advisors, that the termination fee of $1.2 million
to be paid by Hollywood Media if the Stock Purchase Agreement is
terminated under certain circumstances was within the range reflected in
similar transactions and not likely to prevent Hollywood Media from
terminating the Stock Purchase Agreement or accepting superior offers to
purchase Theatre Direct;
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our
ability, under certain circumstances, to furnish information to and
conduct negotiations with third parties regarding other unsolicited
acquisition proposals; and
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the
ability of our board of directors, under certain circumstances, to change
its recommendation that our shareholders vote in favor of the Proposal to
Sell Theatre Direct.
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Interests
of Certain Persons in the Sale of Theatre Direct (page 57)
In
considering the recommendation of our board of directors with respect to the
Proposal to Sell Theatre Direct and the Proposal to Adjourn or Postpone the
Special Meeting, our shareholders should be aware that two of our six directors,
Mitchell Rubenstein, our Chairman and Chief Executive Officer, and Laurie S.
Silvers, our Vice-Chairman, President and Secretary, will directly benefit from
the sale of Theatre Direct and therefore have interests in the Proposal to Sell
Theatre Direct and the Proposal to Adjourn or Postpone the Special Meeting that
are different from, or in addition to, the interests of our shareholders
generally. In addition, two executives in our legal department and
two executive officers of Theatre Direct, Matt Kupchin, the President of Theatre
Direct, and Jerome
Kane, the
Vice-President of Theatre Direct, will directly benefit from the sale of Theatre
Direct and therefore have interests in the Proposal to Sell Theatre Direct and
the Proposal to Adjourn or Postpone the Special Meeting that are different from,
or in addition to, the interests of our shareholders generally.
Hollywood
Media’s board of directors was aware of these interests and considered them in
adopting and approving the Stock Purchase Agreement and the sale of Theatre
Direct and recommending that the shareholders of Hollywood Media approve the
sale of Theatre Direct pursuant to the Stock Purchase Agreement. In
addition, the independent members of Hollywood Media’s board of directors
(meeting without the non-independent members of Hollywood Media’s board of
directors) unanimously approved the Stock Purchase Agreement and the sale of
Theatre Direct and recommended that the shareholders of Hollywood Media approve
the sale of Theatre Direct pursuant to the Stock Purchase
Agreement.
Accelerated
Vesting of Restricted Shares of Hollywood Media Common Stock
Upon the
consummation of the sale of Theatre Direct pursuant to the Stock Purchase
Agreement, all of the unvested restricted shares of Hollywood Media common stock
granted to Mitchell Rubenstein, our Chairman and Chief Executive Officer, and
Laurie S. Silvers, our Vice-Chairman, President and Secretary, pursuant to
Hollywood Media’s 2004 Stock Incentive Plan will immediately vest and no longer
be restricted shares. As of April 27, 2010, Mr. Rubenstein held
145,833 unvested restricted shares of Hollywood Media common stock, having a
value of approximately $172,083 based on the closing sales price of our common
stock on such date (which was $1.18), and Ms. Silvers held 87,500 unvested
restricted shares of Hollywood Media common stock, having a value of $103,250
based on the closing sales price of our common stock on such date (which was
$1.18).
Amendments
to Amended and Restated Employment Agreements of Mr. Rubenstein and Ms.
Silvers
On
December 23, 2009, (i) Hollywood Media and Mitchell Rubenstein, our Chairman and
Chief Executive Officer, entered into an amendment to the amended and restated
employment agreement of Mr. Rubenstein, and (ii) Hollywood Media and Laurie S.
Silvers, our Vice-Chairman, President and Secretary, entered into an amendment
to the amended and restated employment agreement of Ms. Silvers, pursuant to
which:
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for
a period of ninety days after the closing of the sale of Theatre Direct
pursuant to the Stock Purchase Agreement, the salaries under Mr.
Rubenstein’s and Ms. Silvers’ employment agreements will continue in place
on their current terms (rather than such salaries being paid at their
current rates through December 31, 2010 per their current employment
agreements);
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after
this ninety-day period, Mr Rubenstein and Ms. Silvers will no longer
receive fixed salaries from Hollywood Media (other than a nominal payment
of $1 per year), and will each instead receive compensation for his or her
services to Hollywood Media in amounts equal to five percent (5%) of the
sum of (i) any future distributions and other proceeds Hollywood Media
receives in respect of its ownership interest in MovieTickets.com, Inc.
and (ii) certain other amounts that may be received by Hollywood Media
from MovieTickets.com, Inc.; and
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Mr.
Rubenstein and Ms. Silvers have voluntarily agreed to defer $812,501 and
$332,189, respectively, in change of control payments that would otherwise
be owed by Hollywood Media to them pursuant to each of their employment
agreements upon the consummation of the sale of Theatre Direct pursuant to
the Stock Purchase Agreement.
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Accordingly,
upon the consummation of the sale of Theatre Direct pursuant to the Stock
Purchase Agreement, Hollywood Media will pay $1.5 million in reduced change of
control payments to Mr. Rubenstein and $1.5 million in reduced change of control
payments to Ms. Silvers.
If Mr.
Rubenstein and/or Ms. Silvers, as applicable, continue to be employed by
Hollywood Media on the first anniversary of the consummation of the sale of
Theatre Direct pursuant to the Stock Purchase Agreement (or if such employment
is terminated on or before such date by Hollywood Media without “cause” or by
Mr. Rubenstein and/or Ms. Silvers, as applicable, for “good reason”), then,
regardless of whether Mr. Rubenstein or Ms. Silvers continues to provide
services to Hollywood Media after the first anniversary of the consummation of
the sale of Theatre Direct pursuant to the Stock Purchase Agreement, one-half of
the deferred change of control payments will
be paid
to Mr. Rubenstein and/or Ms. Silvers, as applicable, upon the receipt by
Hollywood Media of payments on the Promissory Note, on a pro rata basis, and
one-half of such payments will be paid to Mr. Rubenstein and/or Ms. Silvers, as
applicable, upon the receipt by Hollywood Media of payments under the first $7
million tranche of the earnout pursuant to the Stock Purchase Agreement, on a
pro rata basis, according to the following schedule:
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Mr.
Rubenstein will receive:
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4.76%
of all payments of principal and interest received by Hollywood Media on
account of the Promissory Note, with each such payment to be made to Mr.
Rubenstein within five business days of the date Hollywood Media receives
payments of principal and interest on account of the Promissory Note
(provided that any such amounts that would be payable during the first
year following the consummation of the sale of Theatre Direct pursuant to
the Stock Purchase Agreement will be set aside in a “rabbi trust”),
and
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5.79%
of the first $7 million of earnout payments received by Hollywood Media
pursuant to the Stock Purchase Agreement, with each such payment to be
made to Mr. Rubenstein within five business days of the date Hollywood
Media receives the first $7 million of earnout payments pursuant to the
Stock Purchase Agreement (provided that any such amounts that would be
payable during the first year following the consummation of the sale of
Theatre Direct pursuant to the Stock Purchase Agreement will be set aside
in a “rabbi trust”).
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Ms.
Silvers will receive:
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1.94%
of all payments of principal and interest received by Hollywood Media on
account of the Promissory Note, with each such payment to be made to Ms.
Silvers within five business days of the date Hollywood Media receives
payments of principal and interest on account of the Promissory Note
(provided that any such amounts that would be payable during the first
year following the consummation of the sale of Theatre Direct pursuant to
the Stock Purchase Agreement will be set aside in a “rabbi trust”),
and
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2.36%
of the first $7 million of earnout payments received by Hollywood Media
pursuant to the Stock Purchase Agreement, with each such payment to be
made to Ms. Silvers within five business days of the date Hollywood Media
receives the first $7 million of earnout payments pursuant to the Stock
Purchase Agreement (provided that any such amounts that would be payable
during the first year following the consummation of the sale of Theatre
Direct pursuant to the Stock Purchase Agreement will be set aside in a
“rabbi trust”).
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The
portion of any amount that is received by Hollywood Media in respect of the
Promissory Note or the earnout pursuant to the Stock Purchase Agreement before
the first anniversary of the consummation of the sale of Theatre Direct pursuant
to the Stock Purchase Agreement that is payable to Mr. Rubenstein or Ms. Silvers
shall be set aside in a “rabbi trust” until the first anniversary of the
consummation of the sale of Theatre Direct pursuant to the Stock Purchase
Agreement, at which time such amount (plus an amount equal to the interest
earned on obligations held by the rabbi trust in respect of such amount) shall
be paid to Mr. Rubenstein or Ms. Silvers, as applicable.
Change
of Control Payments to Other Executives of Hollywood Media
In
connection with the sale of Theatre Direct pursuant to the Stock Purchase
Agreement, Hollywood Media will pay an aggregate amount of approximately
$400,000 in change of control payments to two executives in Hollywood Media’s
legal department, each of whom will receive these payments in accordance with
their retention agreements, with such amounts payable at the closing of sale of
Theatre Direct pursuant to the Stock Purchase Agreement (provided that Hollywood
Media may defer one-half of these payments by up to one year if it elects to
require the continued employment of one or both of these executives during a
transition period of up to one year).
Change
of Control Payments to Certain Executives of Theatre Direct
In
connection with the sale of Theatre Direct pursuant to the Stock Purchase
Agreement, Theatre Direct is obligated to pay an aggregate amount of
approximately $1.6 million in change of control payments to Matt Kupchin, the
President of Theatre Direct, and Jerome Kane, the Vice-President of Theatre
Direct. Pursuant to the Stock
Purchase
Agreement, up to a maximum amount of $1.6 million of these change of control
obligations will be or remain the liabilities of Theatre Direct from and after
the closing of the sale of Theatre Direct and Hollywood Media will have no
obligation with respect to such liabilities up to a maximum of $1.6
million.
Opinion
of Hollywood Media’s Financial Advisor (page 48 and Annex E)
On
December 18, 2009, Peter J. Solomon Company delivered its opinion to our board
of directors to the effect that, as of such date, based upon, and subject to,
the assumptions made, matters considered and limits of such review, in each case
as set forth in its opinion, the aggregate consideration to be received by
Hollywood Media in connection with the proposed sale of Theatre Direct to Key
Brand pursuant to the Stock Purchase Agreement was fair from a financial point
of view to Hollywood Media.
Peter J.
Solomon Company’s opinion was delivered to our board of directors for its use
and benefit in its evaluation of the sale of Theatre Direct to Key Brand, does
not address the merits of the underlying decision by Hollywood Media to sell
Theatre Direct and does not constitute a recommendation to any Hollywood Media
shareholder as to how such shareholder should vote on the Proposal to Sell
Theatre Direct.
The full
text of the written opinion of Peter J. Solomon Company, dated as of December
18, 2009, which sets forth the assumptions made, matters considered and limits
on the scope of the review undertaken in connection with the opinion is attached
as Annex E to this
proxy statement. We encourage you to read carefully the written
opinion of Peter J. Solomon Company in its entirety.
Recommendation
of Our Board of Directors (page 23)
After
careful consideration, our board of directors unanimously recommends that you
vote:
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“FOR” the Proposal to
Sell Theatre Direct; and
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“FOR” the Proposal to
Adjourn or Postpone the Special Meeting, if necessary or appropriate, to
solicit additional proxies if there are insufficient votes at the time of
the special meeting to approve the Proposal to Sell Theatre
Direct.
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In
considering the recommendation of our board of directors with respect to the
Proposal to Sell Theatre Direct and the Proposal to Adjourn or Postpone the
Special Meeting, our shareholders should be aware that two of our six directors,
Mitchell Rubenstein, our Chairman and Chief Executive Officer, and Laurie S.
Silvers, our Vice-Chairman, President and Secretary, will directly benefit from
the sale of Theatre Direct and therefore have interests in the Proposal to Sell
Theatre Direct and the Proposal to Adjourn or Postpone the Special Meeting that
are different from, or in addition to, the interests of our shareholders
generally. See “SUMMARY TERM SHEET—Interests of
Certain Persons in the Sale of Theatre Direct” beginning on page 7 and
“PROPOSAL #1: PROPOSAL TO SELL
THEATRE DIRECT—Interests of Certain Persons in the Sale of Theatre
Direct” beginning on page 57.
Non-Competition
Agreement (page 74)
For a
period of seven (7) years from and after the closing date, Hollywood Media has
agreed, subject to certain exceptions, that it shall not, and shall cause its
affiliates (as defined in the Stock Purchase Agreement) not to, directly or
indirectly, own, manage, engage in, operate, control, work for or participate in
the ownership, management, operation or control of, any business, whether in
corporate, proprietorship or partnership form or otherwise, engaged in the sales
of tickets to live musical, live theatrical or other live entertainment
performances in the City of New York, New York or that otherwise competes with
the business of Theatre Direct or its subsidiaries as such business exists as of
the closing date (which we refer to as, a “Restricted Business”).
Governmental
and Regulatory Approvals (page 55)
We are
not aware of any federal or state regulatory requirements that must be complied
with or approvals that must be obtained to complete the sale of Theatre Direct,
other than the filing of this proxy statement with the SEC.
If any
additional approvals or filings are required, we will use our commercially
reasonable efforts to obtain those approvals and make any required filings
before completing the transactions contemplated by the Stock Purchase
Agreement.
As a
result of the sale of Theatre Direct, we will remove the Theatre Direct assets
and liabilities from our consolidated balance sheet and record a gain on the
sale of Theatre Direct equal to the difference between the book value of our
ownership interest in Theatre Direct and the fair value of
the purchase price received.
The sale
of Theatre Direct will be a taxable transaction for us. We will
realize gain with respect to our Theatre Direct stock equal to the difference
between the proceeds received by us on such sale and our tax basis in the stock
sold. Upon the request of Key Brand, we are required to make a joint
election with Key Brand under Internal Revenue Code Section 338(h)(10) to treat
the transaction as a sale of assets rather than as a sale of
stock. It is anticipated that we will have sufficient losses
(including net operating loss carryovers) to offset the gain expected to be
realized from the transaction (other than the Alternative Minimum Tax of 2% on
the gain).
Material
U.S. Federal Income Tax Consequences of a Cash Dividend
We
presently intend to report (and the remainder of this discussion assumes that we
will report) any special cash dividend as a taxable dividend to the extent of
our current or accumulated earnings and profits. Any amount in excess
of accumulated and current earnings and profits will be treated as a non-taxable
return of capital to the extent of the shareholder’s adjusted tax basis in the
shareholder’s common stock and, thereafter, as capital gain. If a
Section 338 (h)(10) election is ultimately made, however, we may consider
whether the transaction should more properly be reported as a "partial
liquidation." The tax rate applicable to a particular holder will
depend on the identity of the holder and, in some cases, the holding period of
their stock. Additionally, a portion of the special cash dividend may
constitute an “extraordinary dividend” to certain holders of Hollywood Media
common stock, which may result in different income tax
consequences.
Material
U.S. Federal Income Tax Consequences of a Tender Offer for Shares of Hollywood
Media Common Stock
Any sale
of shares of common stock pursuant to a self-tender offer by Hollywood Media
will be a taxable transaction for U.S. federal income tax
purposes. In general, if you sell all of your shares pursuant to the
tender offer, then you will recognize gain or loss for U.S. federal income tax
purposes equal to the difference, if any, between the amount of cash received
and your adjusted tax basis in the shares sold pursuant to the tender offer. If
the shares exchanged constitute capital assets in your hands, then such gain or
loss will generally be capital gain or loss. However, shareholders who sell less
than all of their respective shares in the tender offer, or who are treated as
owning shares of another shareholder, may be treated as having received a
dividend, taxable at ordinary income rates, to the extent of our earnings and
profits (unless the transaction is considered a “partial
liquidation”).
The Stock
Purchase Agreement provides that, from the date of the Stock Purchase Agreement
until the earlier of the closing date of the transactions contemplated by the
Stock Purchase Agreement (which we refer to as, the “closing date”) or the
termination of the Stock Purchase Agreement by mutual agreement of the parties,
Hollywood Media and Theatre Direct may not, subject to certain exceptions,
engage or participate in any discussions or negotiations regarding an
acquisition proposal (as defined in “PROPOSAL #1: PROPOSAL TO SELL
THEATRE DIRECT—Terms of the Stock Purchase Agreement—Covenants—Restrictions on
Solicitation of Other Offers” beginning on page 75) by a party other than
Key Brand.
If,
however, Hollywood Media or Theatre Direct receives an unsolicited acquisition
proposal from a party other than Key Brand prior to Hollywood Media’s
shareholders approving the sale of Theatre Direct, Hollywood Media
may participate in discussions or negotiations and/or furnish information to
such third party (subject to certain conditions set forth in the Stock Purchase
Agreement), provided that the board of directors of Hollywood Media determines
in good faith, after consultation with its outside legal counsel and financial
advisors, that such acquisition proposal is, or could reasonably be expected to
result in or lead to, a superior proposal and that such action is advisable in
order for the board of directors of Hollywood Media to comply with its fiduciary
duties under applicable law.
The
consummation of the transactions contemplated by the Stock Purchase Agreement
are subject to, among other things, the satisfaction or waiver of the following
conditions on or prior to the closing date:
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the
approval of the shareholders of Hollywood
Media;
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the
absence of legal restraints from a governmental
authority;
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each
party’s respective representations and warranties in the Stock Purchase
Agreement being true and correct as of the closing date to the standards
described in the Stock Purchase Agreement (subject to certain exceptions);
and
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each
party’s performance in all material respects of its obligations required
to be performed under the Stock Purchase Agreement on or prior to the
closing date.
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In
addition, the obligations of Key Brand to consummate the transactions
contemplated by the Stock Purchase Agreement are also subject to, among other
things, the satisfaction or waiver of the following conditions on or prior to
the closing date:
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Key
Brand receiving a written consent from the requisite lenders under the
Credit Agreement for Key Brand to consummate the transactions contemplated
by the Stock Purchase Agreement and Key Brand being entitled to borrow up
to $15 million under the Credit Agreement towards the payment of the cash
consideration contemplated by the Stock Purchase Agreement;
and
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the
absence of a Material Adverse Effect (as defined in “PROPOSAL #1: PROPOSAL TO SELL
THEATRE DIRECT—Terms of the Stock Purchase
Agreement—Representations and Warranties—Definition of Knowledge and
Material Adverse Effect” beginning on page 70) on Theatre Direct
and its subsidiaries as of the closing
date.
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The Stock
Purchase Agreement provides that Hollywood Media and Key Brand will indemnify
each other for damages resulting from breaches of representations and
warranties, covenants, and for broker commissions incurred in connection with
the sale of Theatre Direct.
In the
event that Hollywood Media is required to indemnify Key Brand for breaches of
representations and warranties, (other than those with respect to organization
and good standing, authorization, capitalization, title to stock, absence of
convertible securities, absence of liens, and taxes or an Intentional Breach (as
defined in “PROPOSAL #1:
PROPOSAL TO SELL THEATRE DIRECT—Terms of the Stock Purchase Agreement—Survival
and Indemnification—Survival” beginning on page 80)), Hollywood Media’s
liability to Key Brand will be limited to $4 million prior to the first
anniversary of the closing date and after the first anniversary of the closing
date but prior to the second anniversary of the closing date to an amount equal
to (A) $2 million minus (B) the aggregate amount of any indemnifiable losses
that were claimed during the first year after the closing date and were
recovered or are still pending.
If
Hollywood Media breaches certain representations and warranties with respect to
its organization and good standing, authorization, capitalization, title to
stock, absence of convertible securities, absence of liens, and taxes or commits
an Intentional Breach, then Hollywood Media’s liability will be limited to the
cash proceeds
Hollywood
Media receives in the sale of Theatre Direct (and certain offset rights under
the Stock Purchase Agreement). In addition, Hollywood Media is
required to indemnify Key Brand for certain pre-closing tax liabilities, if
any.
The Stock
Purchase Agreement may be terminated and the transactions contemplated by the
Stock Purchase Agreement may be abandoned at any time prior to the closing
date:
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by
mutual written consent of Hollywood Media and Key
Brand;
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by
either Hollywood Media or Key Brand
if:
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the
closing of the Stock Purchase Agreement shall not have occurred by July
30, 2010 (this date may be extended until August 30, 2010 by either
Hollywood Media or Key Brand) (with certain exceptions set forth in the
Stock Purchase Agreement);
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there
is in effect a final nonappealable order of a governmental entity
restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated by the Stock Purchase Agreement (with certain
exceptions set forth in the Stock Purchase Agreement);
or
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the
shareholders of Hollywood Media do not approve the sale of Theatre Direct
by the requisite vote at the special meeting of shareholders or at any
adjournment or postponement
thereof;
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it
concurrently enters into a definitive acquisition agreement providing for
a superior proposal (as defined in “PROPOSAL #1: PROPOSAL TO SELL
THEATRE DIRECT—Terms of the Stock Purchase
Agreement—Covenants—Restrictions on Solicitation of Other Offers”
beginning on page 75) (provided that Hollywood Media satisfied the
conditions set forth in the Stock Purchase Agreement, including paying Key
Brand a termination fee of $1.2
million);
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Key
Brand materially breaches or fails to perform any of its representations,
warranties, covenants or agreements in the Stock Purchase Agreement
(subject to certain conditions set forth in the Stock Purchase Agreement);
or
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certain
conditions relating to Key Brand receiving a written consent from the
requisite lenders under the Credit Agreement and Key Brand being entitled
to borrow up to $15 million under the Credit Agreement are not satisfied
(subject to certain conditions set forth in the Stock Purchase
Agreement);
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the
board of directors of Hollywood Media withdraws or modifies its
recommendation that the Hollywood Media shareholders approve the sale of
Theatre Direct as contemplated by the Stock Purchase Agreement or the
board of directors of Hollywood Media publicly approves, endorses, or
recommends to the shareholders of Hollywood Media any other acquisition
proposal (as defined in “PROPOSAL #1: PROPOSAL TO SELL
THEATRE DIRECT—Terms of the Stock Purchase
Agreement—Covenants—Restrictions on Solicitation of Other Offers”
beginning on page 75);
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Hollywood
Media materially breaches or fails to perform any of its representations,
warranties, covenants or agreements in the Stock Purchase Agreement
(subject to certain conditions set forth in the Stock Purchase Agreement);
or
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a
Material Adverse Effect occurs which cannot be cured by Hollywood Media by
July 30, 2010 (subject to extension by either Hollywood Media or Key
Brand) (with certain exceptions set forth in the Stock Purchase
Agreement).
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If the
Stock Purchase Agreement is terminated under certain circumstances described in
this proxy statement and set forth in the Stock Purchase Agreement (including
Hollywood Media entering into an acquisition agreement for a superior proposal),
Hollywood Media may be required to pay Key Brand a termination fee of $1.2
million. Except in certain circumstances, Hollywood Media will not be
required to pay Key Brand a termination fee
if the
Stock Purchase Agreement is terminated because the Proposal to Sell Theatre
Direct is not approved by Hollywood Media’s shareholders.
If the
Proposal to Sell Theatre Direct is approved by our shareholders at the special
meeting and the sale of Theatre Direct is completed, we will no longer conduct
our Broadway Ticketing Business which currently constitutes approximately 95% of
our total revenues. Instead, we will focus on our remaining
businesses and interests, which are:
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our
Intellectual Properties Division;
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our
26.2% equity interest in MovieTickets.com,
Inc.;
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an
earnout from the sale of the Hollywood.com
business;
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the
right to exercise or put the Warrant issued pursuant to the Stock Purchase
Agreement; and
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the
right to receive payments under the Promissory Note and earnout in
connection with the sale of Theatre Direct pursuant to the Stock Purchase
Agreement.
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The
assets of Hollywood Media that are currently used in connection with these
businesses and interests will not be transferred to Key Brand as part of the
sale of Theatre Direct.
Our
reporting obligations as a U.S. public company will not be affected as a result
of completing the sale of Theatre Direct. However, following the sale
of Theatre Direct our business will be smaller, and therefore we may fail to
satisfy the continued listing standards of The NASDAQ Global
Market. In the event that we are unable to satisfy the continued
listing standards of The NASDAQ Global Market, our common stock may be delisted
from that market. If we are delisted from The NASDAQ Global Market, we may apply
to transfer our common stock listing to The NASDAQ Capital Market or the
American Stock Exchange, however our application may not be granted if we do not
satisfy the applicable listing requirements for those markets. If our
common stock were to be delisted from The NASDAQ Global Market and we could not
satisfy the listing standards of The NASDAQ Capital Market or the American Stock
Exchange, trading of our common stock most likely would be conducted in the
over-the-counter market on an electronic bulletin board established for unlisted
securities such as the Pink Sheets or the OTC Bulletin Board. See
“RISK FACTORS—Because our business will be smaller
following the sale of Theatre Direct, there is a possibility that our common
stock may be delisted from The NASDAQ Global Market if we fail to satisfy the
continued listing standards of that market” beginning on page
30.
If the
Proposal to Sell Theatre Direct is not approved by our shareholders and
therefore not completed, we will continue to conduct our Broadway Ticketing
Business, and we may consider and evaluate other strategic
opportunities. In such a circumstance, there can be no assurances
that our continued operation of our Broadway Ticketing Business or any
alternative strategic opportunities will result in the same or greater value to
our shareholders as the Proposal to Sell Theatre Direct.
In
evaluating the Proposal to Sell Theatre Direct, you should carefully read this
proxy statement and especially consider the factors discussed in the section
entitled “RISK FACTORS”
beginning on page 27 of this proxy statement.
In
connection with the transactions contemplated by the Stock Purchase
Agreement:
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Hollywood
Media will execute a release in favor of Theatre
Direct;
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Key
Brand and Hollywood Media will enter into a transition services agreement
providing for the provision of certain services by Hollywood Media to
Theatre Direct;
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Hollywood
Media, Key Brand and The Bank of New York Mellon entered into the Escrow
Agreement (see “SUMMARY TERM SHEET—The Escrow
Agreement and Deposit and Expense Reimbursement beginning on page
4); and
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Mitchell
Rubenstein, the Chairman and Chief Executive Officer of Hollywood Media,
and Laurie S. Silvers, the Vice-Chairman, President and Secretary of
Hollywood Media, will each execute non-competition agreements with Key
Brand.
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In
connection with the transactions contemplated by the Stock Purchase Agreement,
Hollywood Media expects to incur approximately:
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an
aggregate amount of $4.14 million in total change of control payments to
Mitchell Rubenstein, the Chairman and Chief Executive Officer of Hollywood
Media, and Laurie S. Silvers, the Vice-Chairman, President and Secretary
of Hollywood Media, an aggregate amount of $3.0 million of which will be
paid upon the consummation of the sale of Theatre Direct pursuant to the
Stock Purchase Agreement and approximately $1.14 million of which will be
paid (if Mr. Rubenstein and Ms. Silvers continue to be employed by
Hollywood Media on the first anniversary following the consummation of the
sale of Theatre Direct pursuant to the Stock Purchase Agreement (or if
such employment is terminated on or before such date by Hollywood Media
without “cause” or by Mr. Rubenstein or Ms. Silvers for “good reason”))
pursuant to the employment agreements of Mr. Rubenstein and Ms. Silvers as
Hollywood Media receives payments under the Promissory Note and the
earnout pursuant to the Stock Purchase Agreement (provided that any such
amounts that would be payable during the first year following the
consummation of the sale of Theatre Direct pursuant to the Stock Purchase
Agreement will be set aside in a “rabbi trust”) (see “PROPOSAL #1: PROPOSAL TO SELL
THEATRE DIRECT—Interests of Certain Persons in the Sale of Theatre
Direct—Amendments to Employment Agreements of Mr. Rubenstein and Ms.
Silvers” beginning on page
58);
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an
aggregate amount of $400,000 in change of control payments to two
executives in Hollywood Media’s legal department, each of whom will
receive these payments in accordance with their retention agreements, with
such amounts payable at closing (provided that Hollywood Media may defer
one-half of these payments by up to one year if it elects to require the
continued employment of one or both of these executives during a
transition period of up to one
year);
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$250,000
in fees, plus additional out−of−pocket expenses, to Peter J. Solomon
Company for providing the fairness opinion to Hollywood Media’s board of
directors in connection with evaluating and approving the Stock Purchase
Agreement and the transactions contemplated
thereby;
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$750,000
in legal fees, plus additional out−of−pocket expenses, in connection with
preparing and negotiating the Stock Purchase Agreement and the related
documents and preparing and filing this proxy statement relating to the
transactions contemplated by the Stock Purchase Agreement;
and
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$15,000
in fees ($7,500 of which has been paid as an initial retainer), plus
additional out−of−pocket expenses, to a proxy solicitation firm, Innisfree
M&A Incorporated, to assist in the distribution and solicitation of
proxies for the special
meeting.
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The
Special Meeting (page 16 and page 23)
See
“Questions and Answers about
the Special Meeting” beginning on page 16 and “The Special Meeting”
beginning on page 23.
The
following questions and answers address briefly some questions you may have
regarding the special meeting. These questions and answers may not
address all questions that may be important to you as a shareholder of Hollywood
Media. Please also refer to the more detailed information contained
elsewhere in this proxy statement, the annexes to this proxy statement and the
documents referred to or incorporated by reference in this proxy
statement.
Why
am I receiving this proxy statement?
You are
receiving this proxy statement and proxy card because you owned shares of our
common stock as of the record date of [___], 2010. This proxy
statement and proxy card relate to our special meeting (and any adjournment or
postponement thereof) and describe the matters on which we would like you, as a
shareholder, to vote.
We
believe that we are required to obtain the approval of our shareholders in
connection with the sale of Theatre Direct and are therefore holding a special
meeting of our shareholders in order to obtain such approval. This
proxy statement summarizes certain information you need to know to vote at the
special meeting. All shareholders are cordially invited to attend the
special meeting in person. However, you do not need to attend the
special meeting to vote your shares. Instead, you may simply
complete, sign, date and return the enclosed proxy card.
When
and where will the special meeting be held?
The
special meeting will be held at our offices, located at 2255 Glades Road,
Conference Room 123A, Boca Raton, Florida 33431, on [___], 2010, at 10:00 a.m.,
local time.
At the
special meeting, you will be asked to vote upon the following:
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to
approve the Proposal to Sell Theatre Direct;
and
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to
approve the Proposal to Adjourn or Postpone the Special Meeting, if
necessary or appropriate, to solicit additional proxies if there are
insufficient votes at the time of the special meeting to approve the
Proposal to Sell Theatre
Direct.
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What
is the Proposal to Sell Theatre Direct?
The
Proposal to Sell Theatre Direct is a proposal to sell our Broadway Ticketing
Division, through the sale of all of the outstanding capital stock of Theatre
Direct, our wholly-owned subsidiary, pursuant to the Stock Purchase Agreement,
dated as of December 22, 2009, as amended, between Hollywood Media and Key
Brand.
What
will happen if the Proposal to Sell Theatre Direct is approved by our
shareholders?
Under the
terms of the Stock Purchase Agreement, if the sale of Theatre Direct is approved
by Hollywood Media’s shareholders and the other closing conditions under the
Stock Purchase Agreement have been satisfied or waived, we will sell all of the
outstanding capital stock of Theatre Direct to Key Brand.
What
is the Proposal to Adjourn or Postpone the Special Meeting?
The
Proposal to Adjourn or Postpone the Special Meeting is a proposal to permit us
to adjourn or postpone the special meeting for the purpose of soliciting
additional proxies in the event that, at the special meeting, the affirmative
vote in favor of the Proposal to Sell Theatre Direct is less than a majority of
the issued and outstanding shares of Hollywood Media common stock entitled to
vote at the special meeting.
What
will happen if the Proposal to Adjourn or Postpone the Special Meeting is
approved by our shareholders?
If there
are insufficient votes at the time of the special meeting to approve the
Proposal to Sell Theatre Direct and the Proposal to Adjourn or Postpone the
Special Meeting is approved at the special meeting, we will be able to adjourn
or postpone the special meeting for the purpose of soliciting additional proxies
to approve the Proposal to Sell Theatre Direct. If you have
previously submitted a proxy on the proposals discussed in this proxy statement
and wish to revoke it upon adjournment or postponement of the special meeting,
you may do so.
Am
I entitled to appraisal or dissenters’ rights in connection with the Proposal to
Sell Theatre Direct or the Proposal to Adjourn or Postpone the Special
Meeting?
No
appraisal or dissenters’ rights are available to our shareholders under the
Florida Business Corporation Act or our articles of incorporation or bylaws in
connection with the types of actions contemplated under the Proposal to Sell
Theatre Direct or the Proposal to Adjourn or Postpone the Special
Meeting.
Only
holders of record of shares of our common stock at the close of business on
[___], 2010, which we refer to as the “record date,” are entitled to notice of
and to vote at the special meeting. On the record date, [___] shares
of our common stock were issued and outstanding and held by approximately [___]
holders of record. Holders of record of shares of our common stock on
the record date are entitled to one vote per share at the special meeting on (i)
the Proposal to Sell Theatre Direct and (ii) the Proposal to Adjourn or Postpone
the Special Meeting.
A quorum
is necessary to hold a valid special meeting. A quorum will be
present at the special meeting if the holders of a majority of the shares of our
common stock issued and outstanding and entitled to vote on the record date are
present, either in person or by proxy. Shares of common stock
represented at the special meeting but not voted, including shares of common
stock for which we have received proxies indicating that the submitting
shareholders have abstained, will be treated as present at the special meeting
for purposes of determining the presence or absence of a quorum for the
transaction of all business.
The
approval of the Proposal to Sell Theatre Direct requires the affirmative vote of
holders of at least a majority of Hollywood Media’s issued and outstanding
shares of common stock that are entitled to vote at the special
meeting. If you abstain from voting, either in person or by proxy, or
do not instruct your broker or other nominee how to vote your shares, it will
effectively count as a vote “AGAINST” the approval of the Proposal to Sell
Theatre Direct.
The
approval of the Proposal to Adjourn or Postpone the Special Meeting, if
necessary or appropriate, requires (i) if a quorum exists at the special
meeting, that the number of shares voted in favor of the Proposal to Adjourn or
Postpone the Special Meeting are greater than those voted against, or (ii) in
the absence of a quorum at the special meeting, the affirmative vote of the
holders of a majority of the shares of our common stock represented at the
special meeting. If you abstain from voting, either in person or by
proxy, or do not instruct your broker or other nominee how to vote your shares,
it will not affect the Proposal to Adjourn or Postpone the Special Meeting if a
quorum is present. If a quorum is not present, then abstaining or
failing to instruct your broker or other nominee how to vote your shares will
have the same effect as a vote “AGAINST” the Proposal to Adjourn or Postpone the
Special Meeting.
As of the
record date, the directors and executive officers of Hollywood Media
beneficially owned approximately [___]% of the Hollywood Media issued and
outstanding common stock on that date. None of Hollywood Media’s
directors or executive officers have entered into agreements relating to how
such directors and executive officers will vote shares of Hollywood Media’s
common stock owned by such persons with respect to the Proposal to Sell Theatre
Direct or the Proposal to Adjourn or Postpone the Special Meeting.
How
do I vote or change my vote?
You may
vote by proxy or in person at the special meeting.
Voting in Person—If you hold
shares in your name as a shareholder of record and plan to attend the special
meeting and wish to vote in person, you will be given a ballot at the special
meeting or you may give us a signed proxy card before voting is
closed. If you would like to vote in person, please bring proof of
identification with you to the special meeting. Even if you plan to
attend the special meeting, we strongly encourage you to submit a proxy for your
shares in advance as described below, so your vote will be counted if you later
decide not to attend. If your shares are held in “street name,” which
means your shares are held of record by a broker, bank or other nominee, and you
wish to vote at the special meeting, you must bring to the special meeting a
proxy from the record holder of the shares (your broker, bank or nominee)
authorizing you to vote at the special meeting. To do this, you should contact
your broker, bank or nominee.
Voting by Proxy—If you hold
shares in your name as a shareholder of record, then you received this proxy
statement and a proxy card from us. You may submit a proxy for your
shares by mail without attending the special meeting by completing, signing,
dating and returning the proxy card in the postage-paid envelope
provided. If you hold shares in “street name” through a broker, bank
or other nominee, then you received this proxy statement from the broker, bank
or nominee, along with the broker, bank or nominee’s voting
instructions. You should instruct your broker, bank or other nominee
on how to vote your shares of common stock using the voting instructions
provided. All shares represented by properly executed proxies
received in time for the special meeting will be voted in the manner specified
by the shareholders giving those proxies. Properly executed proxies
that do not contain specific voting instructions will be voted “FOR” the
Proposal to Sell Theatre Direct, and “FOR” the Proposal to Adjourn or Postpone
the Special Meeting.
Revocation of
Proxy—Submitting a proxy on the enclosed form does not preclude a
shareholder from voting in person at the special meeting. If you hold
your shares in your name as shareholder of record, you may revoke a proxy at any
time before it is voted by filing with our Corporate Secretary a duly executed
revocation of proxy, by submitting a duly executed proxy with a later date or by
attending the special meeting and voting in person. A shareholder of
record may revoke a proxy by any of these methods, regardless of the method used
to deliver the shareholder’s previous proxy. Attendance at the
special meeting without voting will not by itself revoke a proxy. If
your shares are held in street name through a broker, bank or other nominee, you
must contact your broker, bank or nominee to revoke your proxy.
If
my shares are held in “street name” by my broker, will my broker vote my shares
for me?
If your
shares of Hollywood Media common stock are held in a stock brokerage account or
by a bank or other nominee, then you are considered the beneficial owner of
shares of Hollywood Media common stock held in your “street name” and these
proxy materials are being forwarded to you by your broker, bank or other
nominee, who is considered the shareholder of record with respect to those
shares. As the beneficial owner, you have the right to direct your
broker, bank or other nominee on how to vote and are also invited to attend the
special meeting. However, since you are not the shareholder of
record, you may not vote these shares in person at the special meeting, unless
you request a proxy from your broker, bank or other nominee. Your
broker, bank or other nominee has enclosed a voting instruction card for you to
use in directing the broker, bank or other nominee regarding how to vote your
shares.
Brokers
who hold shares in street name for customers have the authority to vote on
“routine” proposals when they have not received instructions from beneficial
owners. However, brokers are precluded from exercising their voting
discretion with respect to approval of non-routine matters, such as the approval
of the Proposal to Sell Theatre Direct and, as a result, absent specific
instructions from the beneficial owner of such shares, brokers will not votes
those shares. This is referred to as a “broker
non-vote.” Broker non-votes will be considered as “present” for
purposes of determining a quorum, but are not considered as voting power present
with respect to the proposals. Broker non-votes will have the effect
of a vote “AGAINST” the Proposal to Sell Theatre Direct. If a quorum
is present, then broker non-votes will have no effect on the Proposal to Adjourn
or Postpone the Special Meeting. If a quorum is not present, then
broker non-votes will have the same effect as a vote “AGAINST” the Proposal to
Adjourn or Postpone the Special Meeting.
Your
broker, bank or other nominee will send you information to instruct such broker,
bank or other nominee on how to vote on your behalf. If you do not
receive a voting instruction card from your broker, bank or other nominee,
please contact your broker, bank or other nominee promptly to get the voting
instruction card. Your vote is important to the success of the
proposals. Hollywood Media encourages all of its shareholders whose
shares are held in street name to provide their brokers, banks and other
nominees with instructions on how to vote.
How
are proxies solicited and what is the cost of soliciting proxies?
This
proxy solicitation is being made and paid for by Hollywood Media on behalf of
its board of directors. Hollywood Media will bear the costs of
printing, filing and mailing this proxy statement. Hollywood Media
will also bear the costs of holding the special meeting and the cost of
soliciting proxies. Our directors, officers and employees may solicit
proxies by mail, email, telephone, facsimile or other means of
communication. These directors, officers and employees will not be
paid additional remuneration for their efforts, but may be reimbursed for
out-of-pocket expenses incurred in connection therewith. We will also
request brokers and other fiduciaries to forward proxy solicitation material to
the beneficial owners of shares of common stock of Hollywood Media that the
brokers and fiduciaries hold of record. Upon request, we will
reimburse the brokers and other fiduciaries for their reasonable out-of-pocket
expenses. In addition, Hollywood Media has engaged a proxy
solicitation firm, Innisfree M&A Incorporated, to assist in the distribution
and solicitation of proxies for the special meeting for an estimated cost of
$15,000 ($7,500 of which has been paid as an initial retainer), plus additional
out-of-pocket expenses. The extent to which these proxy soliciting
services will be necessary depends entirely upon how promptly proxies are
received.
What
does it mean if I get more than one proxy card?
If your
shares are registered differently and are in more than one account, you may
receive more than one proxy card. Please complete, sign, date, and
return all of the proxy cards you receive regarding the special meeting to
ensure that all of your shares are voted.
How
are proxies counted?
For the
Proposal to Sell Theatre Direct, you may vote “FOR,” “AGAINST” or
“ABSTAIN.” Both abstentions and broker non-votes have the same effect
as a vote cast “AGAINST” the Proposal to Sell Theatre Direct.
For the
Proposal to Adjourn or Postpone the Special Meeting, you may vote “FOR,”
“AGAINST” or “ABSTAIN.” If a quorum is present, neither abstentions
nor broker non-votes will have an effect on this proposal. If a
quorum is not present, then an abstention or a broker non-vote will have the
same effect as a vote “AGAINST” this proposal.
If you
sign and return your proxy and do not indicate how you want to vote, your proxy
will be voted “FOR” the Proposal to Sell Theatre Direct and “FOR” the Proposal
to Adjourn or Postpone the Special Meeting.
Can
I vote via the Internet or by telephone?
If your
shares are registered in the name of a bank or brokerage firm, you may be
eligible to vote your shares electronically over the Internet or by
telephone. A large number of banks and brokerage firms offer Internet
and telephone voting. If your bank or brokerage firm does not offer
Internet or telephone voting information, please vote your shares pursuant to
the specific voting instructions provided by your bank or brokerage
firm.
Who
can help answer my other questions?
If you
have more questions about the Proposal to Sell Theatre Direct or the Proposal to
Adjourn or Postpone the Special Meeting, need assistance in submitting your
proxy or voting your shares, or need additional copies of the proxy statement or
the enclosed proxy card, you should contact our Investor Relations Department
in
writing
at Hollywood Media Corp., at 2255 Glades Road, Suite 221-A, Boca Raton, Florida
33431, Attention: Investor Relations, or call our Investor Relations Department
at (561) 322-3450.
“Safe
Harbor” Statement under the Private Securities Litigation Reform Act of
1995: Those statements in this proxy statement that are not
historical facts (such as those related to the closing of the transactions
contemplated by the Stock Purchase Agreement, our intended operations after the
closing, and our use of proceeds from the sale of Theatre Direct) are
“forward-looking statements” that are made pursuant to the safe harbor
provisions of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, or the “Exchange
Act.” These forward-looking statements which may be identified by
their use of words, such as “plan,” “may,” “believe,” “expect,” “intend,”
“could,” “would,” “should” and other words and terms of similar meaning, in
connection with any discussion of our prospects, financial statements, business,
dividends, self-tender offers, financial condition, revenues, results of
operations or liquidity, involve risks and uncertainties that could cause actual
results to differ materially from those described in the forward-looking
statements. In addition to other factors and matters contained or
incorporated in this document, important factors that could cause actual results
or events to differ materially from those indicated by such forward-looking
statements include, among other things:
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changes
in global or domestic economic
conditions;
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the
ability of Hollywood Media and Theatre Direct to compete with other online
ticketing services and other
competitors;
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the
unpredictability of future revenues, expenses and cash flows of Hollywood
Media and Theatre Direct;
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the
unpredictability of the stock price of Hollywood
Media;
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the
timing and amount of any special cash dividend or self-tender
offer;
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the
ability of Hollywood Media and Theatre Direct to protect their
intellectual property;
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the
enactment of ticketing regulations limiting the price at which tickets may
be re-sold or otherwise adversely affecting the business of Theatre Direct
or Hollywood Media;
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the
occurrence of any event, change or other circumstance that could give rise
to the termination of the Stock Purchase
Agreement;
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the
inability to complete the transactions contemplated by the Stock Purchase
Agreement due to the failure to satisfy the conditions to the completion
of the transactions contemplated by the Stock Purchase Agreement,
including the receipt of shareholder approval and the absence of legal
restraints from governmental
entities;
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the
failure of the transactions contemplated by the Stock Purchase Agreement
to close for any other reason;
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the
ability of Hollywood Media, Theatre Direct and/or Key Brand to meet
expectations regarding the timing for completion of the transactions
contemplated by the Stock Purchase
Agreement;
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the
retention of certain key employees at Hollywood Media and Theatre Direct
as a result of the transactions contemplated by the Stock Purchase
Agreement;
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business
uncertainty and contractual restrictions during the pendency of the
transactions contemplated by the Stock Purchase
Agreement;
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the
possibility of not receiving payments pursuant to the Promissory Note and
the potential earnout under the Stock Purchase
Agreement;
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the
timing and amount of the payments received by Hollywood Media pursuant to
the Promissory Note and the potential earnout under the Stock Purchase
Agreement;
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the
ability of Hollywood Media to exercise or put the
Warrant;
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the
possibility of our common stock being delisted from The NASDAQ Global
Market and not qualifying for trading on another exchange or market (such
as The NASDAQ Capital Market, the American Stock Exchange or the
over-the-counter market);
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the
possible effect of the announcement of the Stock Purchase Agreement and
the transactions contemplated thereby on our customer and supplier
relationships, operating results, and business generally;
and
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the
outcome of any legal proceedings that may be instituted against Hollywood
Media and others related to the Stock Purchase Agreement or the
transactions contemplated thereby or as a result
thereof.
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In
addition, we are subject to risks and uncertainties and other factors detailed
in the section entitled “RISK
FACTORS” beginning on page 27 of this proxy statement and in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2009, filed with the
SEC on March 19, 2010, which should be read in conjunction with this proxy
statement. See “Where You Can Find More
Information” beginning on page 98. Many of the factors that
will impact the completion of the proposed transactions are beyond our ability
to control or predict. In light of the significant uncertainties
inherent in the forward-looking statements contained in this proxy statement,
readers should not place undue reliance on forward-looking
statements. We cannot guarantee any future results, levels of
activity, performance, or achievements. The statements made in this
proxy statement represent our views as of the date of this proxy statement, and
it should not be assumed that the statements made in this proxy statement remain
accurate as of any future date. Moreover, we assume no obligation to
update forward-looking statements, except as may be required by
law.
This
proxy statement is being furnished to our shareholders as part of the
solicitation of proxies by our board of directors for use at the special meeting
to be held at our offices, located at 2255 Glades Road, Conference Room 123A,
Boca Raton, Florida 33431, on [___], 2010, at 10:00 a.m., local time, or at any
postponement or adjournment thereof.
The
purpose of the special meeting is for our shareholders to consider and vote upon
(i) the Proposal to Sell Theatre Direct and (ii) the Proposal to Adjourn or
Postpone the Special Meeting, if necessary or appropriate, to solicit additional
proxies if there are insufficient votes at the time of the special meeting to
approve the Proposal to Sell Theatre Direct.
The
approval of the Proposal to Sell Theatre Direct requires the affirmative vote of
holders of at least a majority of Hollywood Media’s issued and outstanding
shares of common stock that are entitled to vote at the special
meeting. The approval of the Proposal to Adjourn or Postpone the
Special Meeting, if necessary or appropriate, requires (i) if a quorum exists at
the special meeting, that the number of shares voted in favor of the Proposal to
Adjourn or Postpone the Special Meeting are greater than those voted against, or
(ii) in the absence of a quorum at the special meeting, the affirmative vote of
the holders of a majority of the shares of our common stock represented at the
special meeting.
Hollywood
Media’s board of directors, after careful consideration and following the
receipt of a fairness opinion from Hollywood Media’s financial advisor, Peter J.
Solomon Company, and the separate unanimous approval by the independent members
of Hollywood Media’s board of directors (i.e., non-employee directors) meeting
without the non-independent members of Hollywood Media’s board of directors, has
unanimously approved the Stock Purchase Agreement and determined that the sale
of Theatre Direct pursuant to the Stock Purchase Agreement is advisable, fair to
and in the best interests of Hollywood Media and its shareholders.
Hollywood
Media’s board of directors unanimously recommends that Hollywood Media’s
shareholders vote “FOR” approval of the Proposal to Sell Theatre Direct and
“FOR” approval of the Proposal to Adjourn or Postpone the Special Meeting, if
necessary or appropriate, to solicit additional proxies if there are
insufficient votes at the time of the special meeting to approve the Proposal to
Sell Theatre Direct. For a discussion of the material factors
considered by our board of directors in reaching its conclusions, see “PROPOSAL #1: PROPOSAL TO SELL
THEATRE DIRECT—Reasons for the Sale of Theatre Direct” beginning on page
46.
In
considering the recommendation of our board of directors with respect to the
Proposal to Sell Theatre Direct and the Proposal to Adjourn or Postpone the
Special Meeting, our shareholders should be aware that two of our six directors,
Mitchell Rubenstein, our Chairman and Chief Executive Officer, and Laurie S.
Silvers, our Vice-Chairman, President and Secretary, will directly benefit from
the sale of Theatre Direct and therefore have interests in the Proposal to Sell
Theatre Direct and the Proposal to Adjourn or Postpone the Special Meeting that
are different from, or in addition to, the interests of our shareholders
generally. See “SUMMARY TERM SHEET—Interests of
Certain Persons in the Sale of Theatre Direct” beginning on page 7 and
“PROPOSAL #1: PROPOSAL TO SELL
THEATRE DIRECT—Interests of Certain Persons in the Sale of Theatre
Direct” beginning on page 57.
We have
fixed the close of business on [___], 2010 as the record date for the special
meeting, and only holders of record of our common stock on the record date are
entitled to vote at the special meeting. On the record date, [___]
shares of our common stock were issued and outstanding and held by approximately
[___] holders of record. Holders of record of shares of our common
stock on the record date are entitled to one vote per share at the special
meeting on (i) the Proposal to Sell Theatre Direct and (ii) the Proposal to
Adjourn or Postpone the Special Meeting.
A quorum
is necessary to hold a valid special meeting. A quorum will be
present at the special meeting if the holders of a majority of the shares of our
common stock issued and outstanding and entitled to vote on the record date are
present, either in person or by proxy. Shares of common stock
represented at the special meeting but not voted, including shares of common
stock for which we have received proxies indicating that the submitting
shareholders have abstained, will be treated as present at the special meeting
for purposes of determining the presence or absence of a quorum for the
transaction of all business.
The
approval of the Proposal to Sell Theatre Direct requires the affirmative vote of
holders of at least a majority of Hollywood Media’s issued and outstanding
shares of common stock that are entitled to vote at the special
meeting. If you abstain from voting, either in person or by proxy, or
do not instruct your broker or other nominee how to vote your shares, it will
effectively count as a vote “AGAINST” the approval of the Proposal to Sell
Theatre Direct.
The
approval of the Proposal to Adjourn or Postpone the Special Meeting, if
necessary or appropriate, requires (i) if a quorum exists at the special
meeting, that the number of shares voted in favor of the Proposal to Adjourn or
Postpone the Special Meeting are greater than those voted against, or (ii) in
the absence of a quorum at the special meeting, the affirmative vote of the
holders of a majority of the shares of our common stock represented at the
special meeting. If you abstain from voting, either in person or by
proxy, or do not instruct your broker or other nominee how to vote your shares,
it will not affect the Proposal to Adjourn or Postpone the Special Meeting if a
quorum is present. If a quorum is not present, then abstaining or
failing to instruct your broker or other nominee how to vote your shares will
have the same effect as a vote “AGAINST” the Proposal to Adjourn or Postpone the
Special Meeting.
As of the
record date, the directors and executive officers of Hollywood Media
beneficially owned approximately [___]% of the Hollywood Media issued and
outstanding common stock on that date. None of Hollywood Media’s
directors or executive officers have entered into agreements relating to how
such directors and executive officers will vote shares of Hollywood Media’s
common stock owned by such persons with respect to the Proposal to Sell Theatre
Direct or the Proposal to Adjourn or Postpone the Special Meeting.
Shares
Held in “Street Name” by a Broker, Bank or Other Nominee
If your
shares of Hollywood Media common stock are held in a stock brokerage account or
by a bank or other nominee, then you are considered the beneficial owner of
shares of Hollywood Media common stock held in your “street name” and these
proxy materials are being forwarded to you by your broker, bank or other
nominee, who is considered the shareholder of record with respect to those
shares. As the beneficial owner, you have the right to direct your
broker, bank or other nominee on how to vote and are also invited to attend the
special meeting. However, since you are not the shareholder of
record, you may not vote these shares in person at the special meeting, unless
you request a proxy from your broker, bank or other nominee. Your
broker, bank or other nominee has enclosed a voting instruction card for you to
use in directing the broker, bank or other nominee regarding how to vote your
shares.
Brokers
who hold shares in street name for customers have the authority to vote on
“routine” proposals when they have not received instructions from beneficial
owners. However, brokers are precluded from exercising their voting
discretion with respect to approval of non-routine matters, such as the approval
of the Proposal to Sell Theatre Direct and, as a result, absent specific
instructions from the beneficial owner of such shares, brokers will not votes
those shares. This is referred to as a “broker
non-vote.” Broker non-votes will be considered as “present” for
purposes of determining a quorum, but are not considered as voting power present
with respect to the proposals. Broker non-votes will have the effect
of a vote “AGAINST” the Proposal to Sell Theatre Direct. If a quorum
is present, then broker non-votes will have no effect on the Proposal to Adjourn
or Postpone the Special Meeting. If a quorum is not present, then
broker non-votes will have the same effect as a vote “AGAINST” the Proposal to
Adjourn or Postpone the Special Meeting.
Your
broker, bank or other nominee will send you information to instruct such broker,
bank or other nominee on how to vote on your behalf. If you do not
receive a voting instruction card from your broker, bank or
other
nominee, please contact your broker, bank or other nominee promptly to get the
voting instruction card. Your vote is important to the success of the
proposals. Hollywood Media encourages all of its shareholders whose
shares are held in street name to provide their brokers, banks and other
nominees with instructions on how to vote.
If you
hold shares in your name as a shareholder of record and plan to attend the
special meeting and wish to vote in person, you will be given a ballot at the
special meeting or you may give us a signed proxy card before voting is
closed. If you would like to vote in person, please bring proof of
identification with you to the special meeting. Even if you plan to
attend the special meeting, we strongly encourage you to submit a proxy for your
shares in advance, as described below, so your vote will be counted if you later
decide not to attend. If your shares are held in “street name,” which
means your shares are held of record by a broker, bank or other nominee, and you
wish to vote at the special meeting, you must bring to the special meeting a
proxy from the record holder of the shares (your broker, bank or other nominee)
authorizing you to vote at the special meeting. To do this, you
should contact your broker, bank or other nominee.
If you
hold shares in your name as a shareholder of record, then you received this
proxy statement and a proxy card from us. You may submit a proxy for
your shares by mail without attending the special meeting by completing,
signing, dating and returning the proxy card in the postage-paid envelope
provided. If you hold shares in “street name” through a broker, bank
or other nominee, then you received this proxy statement from your broker, bank
or other nominee, along with the broker’s, bank’s or other nominee’s voting
instructions. You should instruct your broker, bank or other nominee
on how to vote your shares of common stock using the voting instructions
provided.
If you
submit a proxy, your shares will be voted at the special meeting as you indicate
on your proxy card. If you sign your proxy card without indicating
your vote, your shares will be voted “FOR” the Proposal to Sell Theatre Direct,
and “FOR” the Proposal to Adjourn or Postpone the Special Meeting, if necessary
or appropriate, to solicit additional proxies if there are insufficient votes at
the time of the special meeting to approve the Proposal to Sell Theatre
Direct.
Submitting
a proxy on the enclosed form does not preclude a shareholder from voting in
person at the special meeting. If you hold your shares in your name
as shareholder of record, you may revoke a proxy at any time before it is voted
by filing with our Corporate Secretary a duly executed revocation of proxy, by
submitting a duly executed proxy with a later date or by appearing at the
special meeting and voting in person. A shareholder of record may
revoke a proxy by any of these methods, regardless of the method used to deliver
the shareholder’s previous proxy. Attendance at the special meeting
without voting will not by itself revoke a proxy. If your shares are
held in street name through a broker, bank or other nominee, you must contact
your broker, bank or nominee to revoke your proxy.
If there
are insufficient votes at the time of the special meeting to approve the
Proposal to Sell Theatre Direct and the Proposal to Adjourn or Postpone the
Special Meeting is approved at the special meeting, we will be able to adjourn
or postpone the special meeting for the purpose of soliciting additional proxies
to approve the Proposal to Sell Theatre Direct. If the special
meeting is adjourned or postponed to another time or place, and if an
announcement of the adjourned or postponed time or place is made at the special
meeting, Hollywood Media does not need to give notice of the adjourned or
postponed meeting unless the board of directors, after adjournment or
postponement, fixes a new record date for the adjourned or postponed
meeting. Approval of the Proposal to Adjourn or Postpone the Special
Meeting, if necessary or appropriate, for the purpose of soliciting additional
proxies to approve the Proposal to Sell Theatre Direct requires, (i) if a quorum
exists at the special meeting, that the number of shares voted in favor of the
Proposal to Adjourn or Postpone the Special Meeting are greater than those voted
against, or (ii) in the absence of a quorum at the special meeting, the
affirmative vote of the holders of a majority of the shares of our common stock
represented at the special meeting. Any signed proxies received by us
in which no voting instructions are provided on this matter will be voted “FOR”
the Proposal to Adjourn or Postpone the Special Meeting, if necessary or
appropriate, to solicit additional proxies if there are insufficient votes at
the time of the special meeting to approve the Proposal to Sell Theatre
Direct. Any adjournment or postponement of the special
meeting
for the purpose of soliciting additional proxies will allow our shareholders who
have already sent in their proxies to revoke them at any time prior to their use
at the special meeting as adjourned or postponed.
No
appraisal or dissenters’ rights are available to our shareholders under the
Florida Business Corporation Act or our articles of incorporation or bylaws in
connection with the types of actions contemplated under the Proposal to Sell
Theatre Direct or the Proposal to Adjourn or Postpone the Special
Meeting.
This
proxy solicitation is being made and paid for by Hollywood Media on behalf of
its board of directors. Hollywood Media will bear the costs of printing,
filing and mailing this proxy statement. Hollywood Media will also bear
the costs of holding the special meeting and the cost of soliciting
proxies. Our directors, officers and employees may solicit proxies by
mail, email, telephone, facsimile or other means of
communication. These directors, officers and employees will not be
paid additional remuneration for their efforts, but may be reimbursed for
out-of-pocket expenses incurred in connection therewith. We will also
request brokers and other fiduciaries to forward proxy solicitation material to
the beneficial owners of shares of common stock of Hollywood Media that the
brokers and fiduciaries hold of record. Upon request, we will
reimburse the brokers and other fiduciaries for their reasonable out-of-pocket
expenses. In addition, Hollywood Media has engaged a proxy
solicitation firm, Innisfree M&A Incorporated, to assist in the distribution
and solicitation of proxies for the special meeting for an estimated cost of
$15,000 ($7,500 of which has been paid as an initial retainer), plus additional
out−of−pocket expenses. The extent to which these proxy soliciting
services will be necessary depends entirely upon how promptly proxies are
received.
These
proxy solicitation materials were first mailed on or about [___], 2010 to all
shareholders entitled to vote at the Hollywood Media special
meeting. The SEC’s proxy rules permit us to provide both paper copies
and electronic versions of the proxy materials. We are providing this
notice to inform you of the Internet availability of the proxy materials related
to our special meeting. At your election, you may utilize the proxy
statement and proxy that were mailed to you or visit the “Investor Relations”
section of Hollywood Media’s corporate website at
www.hollywoodmedia.com.
If
you have more questions about the sale of Theatre Direct, need assistance in
submitting your proxy or voting your shares, or need additional copies of the
proxy statement or the enclosed proxy card, you should contact our Investor
Relations Department in writing at Hollywood Media Corp., 2255 Glades Road,
Suite 221-A, Boca Raton, Florida 33431, Attention: Investor Relations, or call
our Investor Relations Department at (561) 322-3450.
In
addition to the other information contained in this proxy statement, you should
carefully consider the following risk factors relating to the sale of our
Broadway Ticketing Business through the sale of all of the outstanding capital
stock of our wholly-owned subsidiary, Theatre Direct, before you decide whether
to vote for the proposals. You should also consider the other
information in the proxy statement and our other reports on file with the
SEC. See “Where You
Can Find More Information” beginning on page 98.
The
amount of cash we receive pursuant to the Stock Purchase Agreement will vary,
depending on the result of certain working capital adjustments, so that we may
(i) receive less than $20 million in cash at the closing of the sale of Theatre
Direct or (ii) not retain all of the cash paid to us at the closing of the sale
of Theatre Direct.
Pursuant
to the terms of the Stock Purchase Agreement, the cash consideration of $20
million may be increased or decreased through a working capital
adjustment. See “PROPOSAL #1: PROPOSAL TO SELL
THEATRE DIRECT—Terms of the Stock Purchase Agreement– Purchase Price – Purchase
Price Adjustment” beginning on page 63. While Hollywood Media
does not currently expect that any material reduction in the cash consideration
will be required as a result of these adjustments, there can be no assurance
that Hollywood Media will (i) receive $20 million in cash consideration at the
closing of the sale of Theatre Direct or (ii) not have to return a portion of
the cash consideration to Key Brand as a result of these
adjustments.
We
may not receive the payments due under the Promissory Note issued by Key Brand
to Hollywood Media in connection with the sale of Theatre Direct.
The
obligations under the Promissory Note issued by Key Brand to Hollywood Media in
connection with the Stock Purchase Agreement will be subordinated to up to $15
million in the aggregate of Key Brand’s senior indebtedness (plus all interest
accrued thereon from and after the closing date) and will be secured on a second
priority basis by (i) a perfected pledge of the capital stock of Theatre Direct
and each direct or indirect subsidiary of Theatre Direct (subject, in the case
of any foreign direct subsidiary, to a pledge of 65% of the capital stock of
such foreign subsidiary), and (ii) a perfected security interest in
substantially all tangible and intangible assets of Theatre Direct and each
direct or indirect US domestic subsidiary of Theatre Direct (including
equipment, investment property, intellectual property, other general
intangibles, real property and proceeds of the foregoing). There can
be no assurance that Hollywood Media will receive all of the principal and
interest payments due under the Promissory Note. See “PROPOSAL #1: PROPOSAL TO SELL
THEATRE DIRECT—Terms of the Stock Purchase Agreement – Purchase Price –
Promissory Note and Related Agreements” beginning on page
63.
Payments
that we receive under the Promissory Note issued by Key Brand to Hollywood Media
in connection with the sale of Theatre Direct may be reduced if
certain adverse ticketing regulations are enacted.
From time
to time, state and federal governments consider enacting restrictions or
limitations on the amount of service fees that may be charged on the resale of
tickets for events. For example, before 2007, the State of New York
capped the amount of the service fees that could be charged on the resale of
tickets at 20% to 45% of the face value of the ticket, depending on the size of
the venue. In 2007, the State of New York repealed the cap on service
fees for the resale of tickets. The State of New York is currently
conducting a study on the secondary ticket market and may consider enacting
regulations on the resale of tickets. At this time it is unclear
what, if any, future ticketing regulations may be enacted by states or the
federal government.
Pursuant
to the terms of the Promissory Note issued by Key Brand to Hollywood Media in
connection with the Stock Purchase Agreement, upon any adverse change in state
or federal ticketing regulations that takes effect within two years of the
closing of the transactions contemplated by the Stock Purchase Agreement that
restricts or limits the amount of service fees that may be charged on the resale
of tickets, the principal amount of the Promissory Note will be reduced by the
amount of any such reduction in value up to a maximum of $5 million, and such
amount shall be added pro-rata to the remaining earnout amounts payable to
Hollywood Media pursuant to the Stock Purchase Agreement, provided that, there
will be no reduction in the Promissory Note if the entire earnout has already
been earned at the time of any such adverse change. See “PROPOSAL #1: PROPOSAL TO SELL
THEATRE DIRECT—Terms of the Stock Purchase Agreement – Purchase Price –
Promissory Note and Related Agreements” beginning on page
63.
We
will not receive the earnout payments if Theatre Direct and its subsidiaries do
not attain certain revenue performance levels.
Pursuant
to the terms of the Stock Purchase Agreement, we are entitled to earnout
payments of up to $14 million (subject to an increase as further described in
this proxy statement), if Theatre Direct and its subsidiaries attain certain
revenue performance levels during the period from the closing date until the end
of the tenth full fiscal year of Theatre Direct which occurs after the closing
date. If Theatre Direct and its subsidiaries do not attain such
revenue performance levels during this period, we will not receive the earnout
payments. There can be no assurance that Theatre Direct and its
subsidiaries will attain the revenue performance levels required to trigger the
earnout payments or that Hollywood Media will receive any of the earnout
payments under the Stock Purchase Agreement. See “PROPOSAL #1: PROPOSAL TO SELL
THEATRE DIRECT—Terms of the Stock Purchase Agreement – Purchase Price –
Earnout” beginning on page 66.
The
failure to complete the sale of Theatre Direct may result in a decrease in the
market value of our common stock and limit our ability to grow and implement our
business strategies.
The sale
of Theatre Direct is subject to a number of contingencies, including approval by
our shareholders and other closing conditions set forth in the Stock Purchase
Agreement. We cannot predict whether we will succeed in obtaining the
approval of our shareholders, or that the other conditions to closing the sale
of Theatre Direct pursuant to the Stock Purchase Agreement will be
satisfied. As a result, we cannot assure you that the sale of Theatre
Direct will be completed. In the event that the sale of Theatre
Direct is not completed, this may have a material adverse effect on our business
prospects, operating results and financial condition and the market value of our
common stock may decline.
If
our shareholders do not approve the sale of Theatre Direct, there may not be any
other offers from potential acquirors.
If our
shareholders do not approve the sale of Theatre Direct, we may seek another
purchaser for Theatre Direct. Although we had discussions with
various parties concerning such a purchase, none of these parties may now have
an interest in purchasing Theatre Direct or be willing to offer a reasonable
purchase price for Theatre Direct.
The
Stock Purchase Agreement may expose us to contingent liabilities.
Under the
Stock Purchase Agreement, we have agreed to indemnify Key Brand for a breach or
violation of any representation, warranty or covenant made by us in the Stock
Purchase Agreement, for certain broker commissions due in connection with the
sale of Theatre Direct, and for certain tax matters, subject to certain
limitations. Significant indemnification claims by Key Brand could
have a material adverse effect on our financial condition. See “PROPOSAL #1: PROPOSAL TO SELL
THEATRE DIRECT—Terms of the Stock Purchase Agreement – Indemnification”
beginning on page 80.
We
will be unable to compete with Theatre Direct for 7 years from the date of
closing.
We have
agreed that Hollywood Media will not, and will cause its affiliates (as defined
in the Stock Purchase Agreement) not to, directly or indirectly, own, manage,
engage in, operate, control, work for or participate in the ownership,
management, operation or control of, any business, whether in corporate,
proprietorship or partnership form or otherwise, engaged in the sales of tickets
to live musical, live theatrical or other live entertainment performances in the
City of New York, New York or that otherwise competes with the business of
Theatre Direct and its subsidiaries as it exists as of the closing date, subject
to certain exceptions, including that there are no restrictions on the sale of
advertisements (including online advertising). See “PROPOSAL #1: PROPOSAL TO SELL
THEATRE DIRECT—Terms of the Stock Purchase Agreement—Covenants—Non-Competition
Agreements” beginning on page 74. Accordingly, subject to
these exceptions, the non-competition agreement will restrict our ability to
engage in any business which competes with Theatre Direct for 7 years from the
date of closing.
Although
our Board of Directors may, subject to compliance with the terms of the Stock
Purchase Agreement, terminate the Stock Purchase Agreement in order to accept an
unsolicited superior proposal, the requirement that Hollywood Media pay a
termination fee in order to accept such a proposal may discourage the making of
any such proposal.
Our board
of directors may, subject to compliance with the terms of the Stock Purchase
Agreement, including the payment to Key Brand of a termination fee equal to $1.2
million, terminate the Stock Purchase Agreement in order to accept an
unsolicited superior proposal. The requirement that Hollywood Media
pay Key Brand such a termination fee in order to accept an unsolicited superior
proposal may operate to discourage third-parties from making any such
proposal.
Because
Theatre Direct represented approximately 95% of our total revenues last year,
our business following the sale of Theatre Direct will be substantially
different.
Theatre
Direct represented approximately 95% of our total revenues in 2007 through
2009. Following the sale of Theatre Direct, we will retain the
following businesses and interests: (i) our Ad Sales Division (including the
U.K.-based CinemasOnline), (ii) our Intellectual Properties Division (consisting
of our 51% interest in Tekno Books and a 50% interest in NetCo Partners), (iii)
our 26.2% equity interest in MovieTickets.com, Inc., (iv) an earnout from the
sale of the Hollywood.com business, (v) the right to exercise or put the warrant
issued by Theatre Direct pursuant to the Stock Purchase Agreement, and (vi) the
right to receive payments under the promissory note and the earnout in
connection with the sale of Theatre Direct pursuant to the Stock Purchase
Agreement.
Our
results of operation and financial condition may be materially adversely
effected if (i) we fail to effectively reduce our overhead costs to reflect the
reduced scale of our operations, (ii) our ability to receive the earnout
payments from the sale of the Hollywood.com business is inhibited in any way,
(iii) our ability to receive the dividends and distributions from
MovieTickets.com, Inc. is inhibited in any way, (iv) our ability to receive the
payments under the Promissory Note and the earnout in connection with the sale
of Theatre Direct is inhibited in any way, (v) our ability to exercise or put
the Warrant issued pursuant to the Stock Purchase Agreement is inhibited in any
way, or (vi) our Ad Sales Division and/or our Intellectual Properties Division
were to operate at a loss.
For
as long as we remain a public company, we will continue to incur the expenses of
complying with public company reporting requirements.
Our
reporting obligations as a U.S. public company will not be affected as a result
of completing the sale of Theatre Direct. For as long as we remain a
public company, we have an obligation to continue to comply with the applicable
reporting requirements of the Exchange Act, which includes the filing with the
SEC of periodic reports, proxy statements and other documents relating to our
business, financial conditions and other matters, even though compliance with
such reporting requirements is economically burdensome.
Following
the Sale of Theatre Direct, Hollywood Media may be deemed an Investment Company
and subjected to related restrictions under the Investment Company Act of
1940.
The
regulatory scope of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), which was enacted principally for the purpose of
regulating vehicles for pooled investments in securities, extends generally to
companies engaged primarily in the business of investing, reinvesting, owning,
holding or trading in securities. The Investment Company Act may,
however, also be deemed to be applicable to a company that does not intend to be
characterized as an investment company but that, nevertheless, engages in
activities that may be deemed to be within the definitional scope of certain
provisions of the Investment Company Act. Hollywood Media believes
that its anticipated principal activities following the sale of Theatre Direct,
which include operating the Ad Sales Division and the Intellectual Properties
Division, will not subject Hollywood Media to regulation under the Investment
Company Act. Nevertheless, there can be no assurance that Hollywood
Media will not be deemed to be an investment company. If Hollywood
Media is deemed to be an investment company, Hollywood Media may become subject
to certain restrictions relating to Hollywood Media’s activities, including
restrictions on the nature of its investments and the issuance of
securities. In addition, the Investment Company Act imposes certain
requirements on companies deemed to be within its regulatory scope, including
registration as an investment company, adoption of a specific form of corporate
structure and compliance with certain reporting,
record
keeping, voting, proxy, disclosure and other rules and
regulations. In the event of the characterization of Hollywood Media
as an investment company, the inability of Hollywood Media to satisfy such
regulatory requirements, whether on a timely basis or at all, would, under
certain circumstances, have a material adverse effect on Hollywood
Media.
Even
though we currently satisfy the continued listing standards for The NASDAQ
Global Market, following the sale of Theatre Direct our business will be
smaller, and therefore we may fail to satisfy the continued listing standards of
The NASDAQ Global Market. In the event that we are unable to satisfy
the continued listing standards of The NASDAQ Global Market, our common stock
may be delisted from that market.
If we are
delisted from The NASDAQ Global Market, we may apply to transfer our common
stock listing to The NASDAQ Capital Market. However, our application
may not be granted if we do not satisfy the applicable listing requirements for
The NASDAQ Capital Market at the time of the application. The
continued listing standards of The NASDAQ Global Market and The NASDAQ Capital
Market contain a $1.00 minimum bid price per share requirement. On
January 22, 2010, the closing sales price of our common stock was $1.37 per
share. Even if we successfully transfer our common stock listing to
The NASDAQ Capital Market, but are unable to satisfy the minimum bid price
requirement or any of the other continued listing standards of The NASDAQ
Capital Market, our common stock could be delisted from The NASDAQ Capital
Market. If our common stock were delisted from The NASDAQ Stock
Market, we may apply to transfer our common stock listing to the American Stock
Exchange. However, our application may not be granted if we do not
satisfy the applicable listing requirements for the American Stock Exchange at
the time of the application. If our common stock were to be delisted
from The NASDAQ Global Market and we could not satisfy the listing standards of
The NASDAQ Capital Market or the American Stock Exchange, trading of our common
stock most likely would be conducted in the over-the-counter market on an
electronic bulletin board established for unlisted securities such as the Pink
Sheets or the OTC Bulletin Board. Such trading could reduce the
market liquidity of our common stock. As a result, an investor would
find it more difficult to dispose of, or obtain accurate quotations for the
price of, our common stock.
If our
common stock is delisted from The NASDAQ Global Market and we could not satisfy
the listing standards of The NASDAQ Capital Market or the American Stock
Exchange and the trading price remains below $5.00 per share, trading in our
common stock might also become subject to the requirements of certain rules
promulgated under the Exchange Act, which require additional disclosure by
broker-dealers in connection with any trade involving a stock defined as a
“penny stock” (generally, any equity security not listed on a national
securities exchange or quoted on The NASDAQ Stock Market that has a market price
of less than $5.00 per share, subject to certain exceptions). Many
brokerage firms are reluctant to recommend low-priced stocks to their clients.
Moreover, various regulations and policies restrict the ability of shareholders
to borrow against or “margin” low-priced stocks, and declines in the stock price
below certain levels may trigger unexpected margin
calls. Additionally, because brokers’ commissions on low-priced
stocks generally represent a higher percentage of the stock price than
commissions on higher priced stocks, the current price of the common stock can
result in an individual shareholder paying transaction costs that represent a
higher percentage of total share value than would be the case if our share price
were higher. This factor may also limit the willingness of
institutions to purchase our common stock. Finally, the additional
burdens imposed upon broker-dealers by these requirements could discourage
broker-dealers from facilitating trades in our common stock, which could
severely limit the market liquidity of the stock and the ability of investors to
trade our common stock.
Increasing
the profitability of Hollywood Media is dependent in part on our ability to
reduce corporate overhead costs.
Upon
consummation of the sale of Theatre Direct, we will concentrate on deploying our
resources to maximize our profitability through further reducing corporate
overhead costs. Because our business will be smaller following the
sale of Theatre Direct, we believe that there will be many ways in which
corporate overhead costs can be significantly reduced. However, if we
are not successful in fully implementing such cost reductions, our ability to
increase the profitability of Hollywood Media may be impaired.
Hollywood
Media is not required to pay a one-time special cash dividend or engage in a
self-tender offer. If Hollywood Media elects to pay a one-time special
cash dividend or engage in a self-tender offer, the amount and timing of such
one-time special cash dividend or self-tender offer may vary depending on a
number of factors.
In the
event Hollywood Media receives shareholder approval of and consummates the sale
of Theatre Direct pursuant to the Stock Purchase Agreement, and subject to
compliance with Florida law and federal laws and regulations, Hollywood Media
expects to either (i) pay a one-time special cash dividend to its shareholders
of approximately $0.60 per share of Hollywood Media common stock, totaling
approximately $18 million, or (ii) engage in a self-tender offer to purchase
shares of Hollywood Media common stock at a per-share price to be determined in
the future, totaling approximately $18 million. However, (i) Hollywood
Media is not required to pay a one-time special cash dividend or engage in a
self-tender offer, (ii) Hollywood Media’s board of directors has made no final
decision whether to pay a one-time special cash dividend or engage in a
self-tender offer, and such decision will be based on what Hollywood Media’s
board of directors determines is in Hollywood Media’s best interest and the best
interest of Hollywood Media’s shareholders (subject to compliance with Florida
law and federal laws and regulations), (iii) the actual amount of a one-time
special cash dividend or self-tender offer may be lower or higher than this
amount depending on the amount of Hollywood Media’s liabilities following the
sale of Theatre Direct and other factors and (iv) the timing of the payment of a
one-time special cash dividend or offer period for a self-tender offer may vary
depending on a number of factors, including any contingent liabilities or other
unforeseen matters. If Hollywood Media elects to pay a one-time special
cash dividend, prior to making such one-time special cash dividend, Hollywood
Media will announce, at least ten days in advance, the record date for such
distribution. Only holders of Hollywood Media’s common stock on the record
date for a one-time special cash dividend will be entitled to receive a one-time
special cash dividend. Please note that if Hollywood Media elects to pay a
one-time special cash dividend, the record date for such one-time special cash
dividend will be after the closing date of the sale of Theatre Direct and is
different from the record date for determining which holders of Hollywood
Media’s common stock are entitled to vote on the matters described in this proxy
statement. If Hollywood Media elects to engage in a self-tender offer,
Hollywood Media will announce the offer period and the per-share purchase price
on or prior to the commencement date of such self-tender offer. You should
not otherwise anticipate receiving regular dividends with respect to shares of
Hollywood Media common stock that you own. Any determination to pay
dividends in the future will be at the discretion of our board of directors and
will depend upon our results of operations, financial condition, contractual
restrictions, restrictions imposed by applicable law and other factors our board
of directors deems relevant.
PROPOSAL
#1: PROPOSAL TO SELL THEATRE DIRECT
This
section of the proxy statement describes certain aspects of the proposed sale of
Theatre Direct to Key Brand, including the material terms of the Stock Purchase
Agreement. Please note that the summary below and elsewhere in this proxy
statement regarding the proposed sale of Theatre Direct and the Stock Purchase
Agreement may not contain all of the information that is important to you.
The summary below and elsewhere in this proxy statement of the Stock Purchase
Agreement does not purport to be complete and is subject to, and qualified in
its entirety by, reference to the full text of the Stock Purchase Agreement, a
copy of which is attached to this proxy statement as Annex A. We encourage you to read the Stock
Purchase Agreement carefully in its entirety for a more complete understanding
of the sale of Theatre Direct, the terms of the Stock Purchase Agreement, and
other information that may be important to you.
Parties
to the Stock Purchase Agreement
Hollywood
Media Corp.
Hollywood
Media is a leading provider of online ticketing services, and is comprised of
various businesses focusing primarily on online ticket sales, deriving revenue
primarily from Broadway, Off-Broadway and London’s West End ticket sales to
individuals and groups, as well as advertising and book development license fees
and royalties. Hollywood Media has three main divisions, which are the
Broadway Ticketing Division, the Ad Sales Division, and the Intellectual
Properties Division. In addition, Hollywood Media is entitled to earnout
payments from the sale of the Hollywood.com business.
Our
Broadway Ticketing Division is comprised of Broadway.com, 1-800-BROADWAY,
Theatre Direct International and Theatre.com. Broadway tickets are sold
online through our Broadway.com website and by telephone through our
1-800-BROADWAY number. Broadway Ticketing is a live theater ticketing
seller that provides groups and individuals with access to theater tickets and
knowledgeable service, covering shows on Broadway, Off-Broadway and, through a
partnership arrangement between Theatre.com and a London-based ticket agency, in
London’s West End theatre district. Broadway.com features include shows’
opening night video and photo coverage, show reviews, celebrity interviews and
theater columns, as well as show information pages, including casting, synopses
and venue information.
Our Ad
Sales Division includes CinemasOnline (which is comprised of the U.K. based
CinemasOnline Limited, UK Theatres Online Limited, WWW.CO.UK Limited and Spring
Leisure Limited) and holds Hollywood Media’s investment in MovieTickets.com,
Inc. CinemasOnline maintains websites for cinemas and theaters in the U.K.
in exchange for the right to sell advertising on such websites.
CinemasOnline also provides other marketing services, including advertising
sales on plasma TV screens placed in various venues throughout the U.K. and
Ireland, such as cinemas, hotels and car dealerships. MovieTickets.com,
Inc. is one of the two leading destinations for the purchase of movie tickets
through the Internet. MovieTickets.com, Inc. is an online ticketing
service owned by a joint venture formed by Hollywood Media and several major
movie exhibitor chains. Hollywood Media currently owns 26.2% of the equity
of MovieTickets.com, Inc.
Our
Intellectual Properties Division includes a book development and book licensing
business owned and operated by our 51% owned subsidiary, Tekno Books, which
develops and executes book projects, frequently with best-selling authors.
Tekno Books has worked with over 60 New York Times best-selling authors,
including Isaac Asimov, Tom Clancy, Tony Hillerman, John Jakes, Jonathan
Kellerman, Dean Koontz, Robert Ludlum, Nora Roberts and Scott Turow.
Hollywood Media is also a 50% partner in NetCo Partners, a partnership that owns
NetForce. Hollywood Media also owns directly additional intellectual
property created for it by various best-selling authors such as Mickey Spillane,
Anne McCaffrey, and others.
Our
principal executive offices are located at 2255 Glades Road, Boca Raton, Florida
33431, and the telephone number at our principal executive offices is (561)
322-3450.
Key
Brand Entertainment, Inc.
Key Brand
is a leading developer, producer, and distributor of live theatre in North
America and is focused on building a platform dedicated to all types of
theatrical business including stage show licensing, production, and
acquisition. Key Brand continues to build on its significant expertise and
geographic reach to broaden its production platform while simultaneously
presenting Broadway and the West End’s biggest hits to North America, Japan, the
United Kingdom, as well as emerging theatre markets.
Key Brand
was incorporated in 2004. Key Brand’s activities in North America grew
substantially when in January 2008 Key Brand acquired the North American live
theatrical operations of Live Nation, Inc. Since the acquisition, Key
Brand sold two theaters in Toronto which were part of the
acquisition.
The
primary business of Key Brand is "Broadway Across America" and “Broadway Across
Canada" which are the trade names used to describe the business of presenting
Broadway musical tours in 42 markets across the United States and Canada.
The presenting business involves Key Brand being a middle-man between the
theatrical venues and the producers. Key Brand contracts with venues to
book shows in these venues and then negotiates with producers of the musicals to
tour their musicals through these venues. Key Brand takes responsibility
for marketing and selling tickets for each performance. As part of this
responsibility, Key Brand operates a “subscription series” under which the
patron buys a series of 5 to 8 shows for a “season” in advance. Key Brand
may also serve as a producer of the touring musical and may own or manage the
venue where a musical will perform.
Key Brand
owns or manages seven first class theaters in Baltimore, Boston, and Minneapolis
and controls all bookings in these theaters. Key Brand has a subscription
series for these theaters. Key Brand also has an ownership interest in a
production and touring company which operates in the United States and an
ownership interest in a booking agency for touring musicals and plays. Key
Brand produces theatrical musicals, including the current Broadway productions
of “Hair”, “West Side Story”, “Million Dollar Quartet”, “La Cage Au Folles” and
“Promises, Promises”, as well as family targeted plays.
The
principal executive offices of Key Brand are located at 1619 Broadway, 9th Floor
New York, NY 10019, and the telephone number at its principal executive offices
is (917) 421-5400.
Background
of the Sale of Theatre Direct
From time
to time, our board of directors has evaluated various strategic alternatives
available to Hollywood Media.
In June
2008, an employee of Key Brand, Rebecca Dunkle (who was a former employee of
Theatre Direct), contacted Matt Kupchin, the President of Theatre Direct, to see
if Theatre Direct had an interest in discussing potential ways to work together
with Key Brand. Following this initial contact, the management of Key
Brand and the management of Theatre Direct (led by Mr. Kupchin) had a series of
meetings that focused on the possibility of (i) Theatre Direct handling
ticketing for Key Brand theaters and Key Brand’s Broadway Across America
business, and (ii) Theatre Direct working with one of Key Brand’s partners to
market Broadway tickets to the Japanese market. None of these meetings led
to any agreement or partnership between Key Brand and Theatre
Direct.
In
December 2008, Key Brand’s Chief Financial Officer, Liam Lynch, asked Mr.
Kupchin if Hollywood Media would have an interest in exploring a sale of the
Theatre Direct business to Key Brand. Mr. Kupchin informed Mitchell
Rubenstein, the Chairman and Chief Executive Officer of Hollywood Media, about
Key Brand’s inquiry. Mr. Rubenstein then informed Hollywood Media’s board
of directors about Key Brand’s inquiry. After discussing the matter,
Hollywood Media’s board of directors determined that it made sense to pursue
discussions with Key Brand and determine the terms upon which Key Brand would be
willing to purchase Theatre Direct, especially given the poor state of the
economy at the time and in particular the impact of the Lehman Brothers
bankruptcy and the disruption of the financial markets which were affecting
tourism into New York City where the business of Theatre Direct is
centered. Following these discussions, Hollywood Media’s board of
directors authorized Hollywood Media’s management to pursue discussions with Key
Brand regarding a possible sale of Theatre Direct, as well as contact other
prospective buyers regarding a possible sale of Theatre Direct.
Mr.
Rubenstein met with Key Brand in December 2008 as a follow up to the initial
inquiry Key Brand made to Mr. Kupchin. Mr. Rubenstein had previous
unrelated dealings with the Chairman of the Board of Key Brand, Thomas B.
McGrath, when he was an executive at Viacom, which helped facilitate these
discussions. Also, beginning in December 2008, Hollywood Media’s
management (led by Mr. Rubenstein) contacted eight other prospective buyers
regarding a potential sale of Theatre Direct, including two private equity firms
and six strategic parties. From this group, three parties submitted
indications of interest, one of which was Key Brand, who initially offered total
consideration of approximately $45 million, consisting of $20 million in cash,
$10 million in the form of a five-year promissory note issued by Key Brand to
Hollywood Media with an interest rate of 8.5% per annum, and $15 million in the
form of an earnout, one-half of which would be based on Theatre Direct achieving
certain EBITDA targets at the end of the second full fiscal year following the
closing and the other half of which would be based on Theatre Direct achieving
certain EBITDA targets at the end of the third full fiscal year following the
closing. One of the other two parties offered approximately $23 million in
cash, and the other party (who we refer to as “Party A”) offered total
consideration of approximately $40 million, consisting of $15 million in cash,
$10 million in the form of a five-year seller promissory note with a cash coupon
of LIBOR plus 5% per annum (which Party A would covenant to replace with third
party debt when commercially reasonable on terms no less favorable than the
seller promissory note), and $15 million in the form of an earnout based on
Theatre Direct achieving certain gross profit targets in 2009 and
2010.
On March
5, 2009, our board of directors convened a meeting at which our board of
directors discussed the indications of interest for Theatre Direct that had been
received. After full discussion, our board of directors determined that
the indication of interest from Key Brand was superior to the other indications
of interest received because, among other reasons:
|
•
|
Key
Brand’s indication of interest contained more favorable overall terms,
including the amount and form of
consideration;
|
|
•
|
Key
Brand was a better strategic fit for Theatre Direct because of Key Brand’s
existing Broadway Across America theatre business and Key Brand’s Japanese
ticketing shareholder;
|
|
•
|
Hollywood
Media was more likely to receive the earnout portion of the consideration
under Key Brand’s indication of interest because of Key Brand’s strategic
fit with Theatre Direct; and
|
|
•
|
Key
Brand’s indication of interest contained fewer conditions to closing and
therefore made it more likely that the proposed transaction would be
completed.
|
Nevertheless,
our board of directors determined to continue discussions with Key Brand and
Party A. In the same meeting, our board of directors constituted a special
committee of directors, consisting of Mitchell Rubenstein, Robert E. McAllan and
Spencer Waxman, to assist Hollywood Media’s management in negotiations with
prospective buyers regarding a potential sale of Theatre Direct. The
special committee did not have the authority to approve any transaction
involving Hollywood Media or Theatre Direct. Our board of directors also
empowered Mr. Rubenstein to continue discussions with Key Brand and Party A and
to negotiate an engagement letter with Peter J. Solomon Company to provide
certain financial advisory services to Hollywood Media, including soliciting
interest from other potential buyers with respect to a sale of Theatre Direct
and issuing an opinion regarding the fairness of the consideration received by
Hollywood Media in the event of a proposed sale of Theatre Direct.
On March
17, 2009, the special committee of our board of directors convened a meeting at
which they determined that Hollywood Media would circulate a form purchase
agreement to Party A and to Key Brand and would give each party a deadline to
submit their comments to such purchase agreement.
On March
18, 2009, Key Brand revised its proposal to purchase Theatre Direct for total
consideration of approximately $45 million, consisting of $25 million in cash
(rather than $20 million in cash), $10 million in the form of a five-year
promissory note issued by Key Brand to Hollywood Media with an interest rate of
8.5% per annum for the first three years and 10% per annum thereafter, and $10
million in the form of an earnout (rather than $15 million in the form of an
earnout) based on Theatre Direct achieving certain EBITDA targets in
2011.
On March
23, 2009, Party A submitted a revised proposal to Hollywood Media to purchase
Theatre Direct for total consideration of between approximately $40 and $45
million, consisting of $22 million in cash, $5 million in the form of a
five-year seller promissory note with a cash coupon of LIBOR plus 5% per annum
(which Party A would covenant to replace with third party debt when commercially
reasonable on terms no less favorable than the seller promissory note), and
either $15 million in the form of an earnout (based on Theatre Direct achieving
certain gross profit targets in 2009 and 2010) or a 10% equity interest in the
buying entity.
On March
24, 2009, Peter J. Solomon Company and Hollywood Media entered into an
engagement letter whereby Peter J. Solomon Company agreed to provide certain
financial advisory services to Hollywood Media, including soliciting interest
from potential buyers with respect to a merger or other business combination
transaction involving Theatre Direct and issuing an opinion regarding the
fairness of the consideration to be received by Hollywood Media in a sale of
Theatre Direct. In exchange for such services, Hollywood Media agreed to
pay Peter J. Solomon Company retainer fees of $5,000 per month and a fee of
$250,000 (less the amount of all monthly retainer fees paid by Hollywood Media
to Peter J. Solomon Company). Hollywood Media also agreed to reimburse
Peter J. Solomon Company for its reasonable and documented out-of-pocket
expenses incurred in connection with the provision of services to Hollywood
Media. Further, in the event Hollywood Media consummated a transaction
with any party other than Key Brand and Party A and five other prospective
buyers contacted initially by Hollywood Media, then Hollywood Media agreed to
pay Peter J. Solomon Company a transaction fee equal to 2% of the aggregate
consideration paid or payable to Hollywood Media in connection with such
transaction (less the amount of all monthly retainer fees and any portion of the
$250,000 fee paid by Hollywood Media to Peter J. Solomon Company). In
addition, Hollywood Media agreed to indemnify Peter J. Solomon Company and its
affiliates, counsel and other professional advisors (and their respective
directors, officers, controlling persons, agents, and employees) against certain
liabilities and expenses related to or arising out of Peter J. Solomon Company’s
engagement.
At
various times between March 2009 and November 2009 (other than from May 22, 2009
to July 6, 2009 and from July 16, 2009 to July 30, 2009, during which periods
Hollywood Media agreed to exclusively negotiate with Key Brand), Peter J.
Solomon Company contacted 18 additional private equity firms and five additional
strategic parties regarding a potential sale of Theatre Direct. Of the 23
potential buyers contacted by Peter J. Solomon Company, eight parties signed
non-disclosure agreements and received financial information on Theatre Direct,
three parties were granted access to a data room containing additional
information about Theatre Direct, and two parties, Party C and Party D, received
presentations from Hollywood Media’s management. Party C submitted a
written indication of interest to purchase Theatre Direct for approximately $30
million, consisting of $24 million in cash and a $6 million promissory note
issued by Party C to Hollywood Media. Party D submitted a verbal
indication of interest to purchase Theatre Direct without specific financial
terms. After consulting with Peter J. Solomon Company, our board of
directors determined that the proposal from Key Brand to purchase Theatre Direct
was superior to the proposal from Party C and was superior to the interest
expressed by Party D.
On April
3, 2009, the special committee of our board of directors convened a meeting at
which they discussed the various proposals and indications of interest regarding
Theatre Direct that Hollywood Media had received. The special committee of
our board of directors decided to continue negotiations with both Key Brand and
Party A.
In April
2009, representatives of Hollywood Media and representatives of Key Brand had
further discussions regarding the earnout. Based on projections prepared
by Hollywood Media’s management, representatives of Hollywood Media proposed
that the earnout be payable in two tranches, with the first $5 million tranche
payable if Theatre Direct and its subsidiaries achieve revenues greater than or
equal to $125 million in any full fiscal year following the closing, and the
second $5 million tranche payable if Theatre Direct and its subsidiaries achieve
revenues equal to or greater than $150 million during any full fiscal year
following the closing.
On April
18, 2009, Key Brand modified its proposal to purchase Theatre Direct to total
consideration of approximately $44 million, consisting of $24 million in cash
(subject to a working capital adjustment), $10 million in the form of a
five-year subordinated promissory note issued by Key Brand to Hollywood Media
with an interest rate of 8.5% per annum for the first three years and 10% per
annum thereafter, and $10 million in the form of an earnout with two $5 million
tranches based on Theatre Direct and its subsidiaries achieving certain revenue
targets (with the first $5 million tranche payable if Theatre Direct and its
subsidiaries achieve revenues greater than or equal
to $125
million in any full fiscal year during the seven-year period commencing on
January 1 of the first full calendar year following the closing, and the second
$5 million tranche payable if Theatre Direct and its subsidiaries achieve
revenues equal to or greater than $150 million during any full fiscal year
ending during the seven-year period commencing on January 1 of the first full
calendar year following the closing).
On April
28, 2009, the special committee of our board of directors convened a meeting at
which they discussed the latest proposals received from Key Brand and Party A to
purchase Theatre Direct and continued to discuss the strategic review process
for the sale of Theatre Direct. Representatives from Peter J. Solomon
Company (i) updated members of the special committee of our board of directors
on responses Peter J. Solomon Company was receiving from prospective strategic
and financial buyers for Theatre Direct, (ii) noted that, as of the date of the
special committee meeting, Peter J. Solomon Company had contacted eight
mid-market financial sponsors regarding a potential sale of Theatre Direct, of
which one requested a presentation from Hollywood Media’s management and three
entered into non-disclosure agreements, and (iii) expressed their opinion that
the financial sponsors that Peter J. Solomon Company had spoken to probably
would not pay the multiples of EBITDA that Key Brand and Party A would pay as
strategic buyers. Mr. Rubenstein also updated the special committee on the
status of discussions with other prospective buyers that had been contacted by
Hollywood Media’s management, and noted that the proposals from Key Brand and
Party A were superior to any other indications of interest that Hollywood Media
had received. The special committee of our board of directors further
discussed the diligence inquiries that were being made by Key Brand and Party A
and the strategy on how to handle such inquiries. The special committee of
our board of directors authorized Mr. Rubenstein to (i) continue negotiations
with Key Brand and Party A, (ii) clarify what additional diligence materials Key
Brand and Party A would like to review, (iii) ask Key Brand for proof of
financing, and (iv) discuss the possibility of entering into exclusive
negotiations with one of the parties.
In May
2009, Mr. Rubenstein contacted a representative of JPMorgan Chase Bank, N.A.,
Key Brand’s lead lender, and discussed Key Brand’s ability to finance the
proposed sale of Theatre Direct. JPMorgan Chase Bank, N.A. expressed to
Mr. Rubenstein its support for Key Brand’s proposal to acquire Theatre
Direct.
In May
2009, Hollywood Media’s management requested that Party A improve its proposal
to purchase Theatre Direct. Party A declined to do so and withdrew from
the process.
On May
21, 2009, the independent members of our board of directors convened a meeting
(without the non-independent members of our board of directors) to discuss,
among other things, (i) an update of the proposed sale of Theatre Direct to Key
Brand, including an overview of the purchase price, which would consist of $24
million in cash paid at closing (subject to a working capital adjustment), a
five-year $10 million subordinated promissory note issued by Key Brand to
Hollywood Media with an interest rate of 8.5% per annum for the first three
years and 10% per annum thereafter, and a $10 million earnout with two $5
million tranches based on Theatre Direct and its subsidiaries achieving certain
revenue targets, (ii) the status of potential ticketing regulation, and (iii) a
review of Hollywood Media’s business following a sale of Theatre
Direct.
On May
22, 2009, Hollywood Media and Key Brand executed a non-binding term sheet
providing for the sale of Theatre Direct for approximately $44 million,
consisting of $24 million in cash (subject to a working capital adjustment), $10
million in the form of a five-year subordinated promissory note issued by Key
Brand to Hollywood Media with an interest rate of 8.5% per annum for the first
three years and 10% per annum thereafter, and up to $10 million in the form of
an earnout with two $5 million tranches based on Theatre Direct and its
subsidiaries achieving certain revenue targets (with the first $5 million
tranche payable if Theatre Direct and its subsidiaries achieve revenues greater
than or equal to $125 million in any full fiscal year during the seven-year
period commencing on January 1 of the first full calendar year following the
closing, and the second $5 million tranche payable if Theatre Direct and its
subsidiaries achieve revenues equal to or greater than $150 million during any
full fiscal year ending during the seven-year period commencing on January 1 of
the first full calendar year following the closing). In addition, Key
Brand agreed to deposit $1.2 million with an escrow agent upon executing the
stock purchase agreement (with such amount being credited against the cash
purchase price and paid to Hollywood Media at closing). Pursuant to the
term sheet, Hollywood Media agreed to negotiate exclusively with Key Brand
regarding a potential sale of Theatre Direct until July 6, 2009, provided that
at any time on or after June 5, 2009, Hollywood Media could terminate the
exclusivity period if Key Brand had not submitted a full markup of the stock
purchase agreement to Hollywood Media.
On June
5, 2009, our board of directors met to discuss the sale of Theatre Direct and
the strategic review process for Theatre Direct. Our board of directors
also discussed the status of potential ticketing regulations in the State of New
York concerning a cap on the amount of service fees that may be charged for the
resale of tickets for events in New York. Our board of directors noted
that the New York State Legislature passed a bill on June 1, 2009 that would
extend the current suspension of New York’s ticketing restrictions and thus
allow the continued sale of tickets for events at any price. Our board of
directors also (i) discussed the terms of the proposed sale of Theatre Direct to
Key Brand as set forth in the May 22, 2009 term sheet and the process conducted
by our board of directors in connection with the proposed sale of Theatre
Direct, (ii) reviewed a sales analysis for Theatre Direct, which included (1)
the terms of the transaction, (2) the cash closing proceeds expected to be
received from the sale of Theatre Direct, (3) the projected amount of the
dividend to be paid to shareholders, (4) the projected cash flow after the sale
of Theatre Direct, and (5) the estimated closing costs for the sale of Theatre
Direct, and (iii) discussed Hollywood Media’s 2010 budget assuming a sale of
Theatre Direct does not occur.
On July
7, 2009, Key Brand notified Mr. Rubenstein that Key Brand was lowering its
proposal for Theatre Direct pursuant to the following terms, which Mr.
Rubenstein immediately relayed to our full board of directors:
|
•
|
Key
Brand would pay to Hollywood Media $15.2 million cash (subject to a
working capital adjustment);
|
|
•
|
Key
Brand would issue to Hollywood Media a subordinated promissory note in the
initial principal amount of $6.5 million (the term and interest rate for
the subordinated promissory note were not specified);
and
|
|
•
|
Hollywood
Media would receive an earnout from Key Brand of up to $10 million, with
two $5 million tranches based on Theatre Direct and its subsidiaries
achieving certain revenue targets (the benchmarks and the time period for
the earnout were not specified).
|
On July
13, 2009, the special committee of our board of directors convened a meeting at
which Mr. Rubenstein updated the special committee regarding the revised
proposal from Key Brand and the negotiations with Key Brand. Mr.
Rubenstein indicated to the special committee of our board of directors his view
that Key Brand’s revised proposal did not fairly value Theatre Direct and that
he would not recommend that our board of directors accept such proposal.
The special committee of our board of directors considered Key Brand’s revised
proposal inadequate.
On July
16, 2009, Mr. Rubenstein and Ms. Silvers, on behalf of Hollywood Media, met with
representatives of Key Brand to discuss Key Brand’s lower revised proposal and
to advise Key Brand that it was unacceptable to Hollywood Media. Among
other things, representatives of Key Brand and Mr. Rubenstein and Ms. Silvers
discussed (i) adding an EBITDA component to the first tranche of the earnout (in
addition to the revenue targets that had previously been discussed) in order to
increase the likelihood that Hollywood Media would receive the first tranche of
the earnout, and (ii) adding a warrant issued by Theatre Direct to Hollywood
Media at the closing of the sale of Theatre Direct that would allow Hollywood
Media to purchase outstanding shares of common stock of Theatre Direct.
Based on projections prepared by Hollywood Media’s management, representatives
of Key Brand and Mr. Rubenstein and Ms. Silvers discussed that the first tranche
of the earnout should be paid to Hollywood Media if (i) Theatre Direct and its
subsidiaries achieve revenues greater than or equal to $125 million in any full
fiscal year during the seven-year period commencing on January 1 of the first
full calendar year following the closing (as had previously been agreed), or
(ii) Theatre Direct and its subsidiaries achieve EBITDA greater than or equal to
$14 million in the aggregate during the period from the closing date until the
end of the fiscal year in which the third anniversary of the closing date
occurs. In addition, representatives of Key Brand and Mr. Rubenstein and
Ms. Silvers discussed that (i) the warrant issued by Theatre Direct to Hollywood
Media should allow Hollywood Media to purchase 10% of the outstanding shares of
common stock of Theatre Direct as of the closing date on a fully diluted basis
at an exercise price of $.01 per share, (ii) Theatre Direct should have the
option to redeem the warrant from Hollywood Media at any time after the first
anniversary of the issue date of the warrant for an amount equal to the greater
of (x) 10% of the market value of the shares of common stock of Theatre Direct
issuable upon exercise of the warrant and (y) $2 million, and (iii) Hollywood
Media should have the option to put the warrant to Theatre Direct upon a change
of control of Theatre Direct for 10% of the market value of the shares of common
stock of Theatre Direct issuable upon exercise of the warrant or at any time
after the seventh anniversary of the issue date of the warrant for an amount
equal to the greater of (x) 10% of the fair market value of Theatre Direct and
(y) $2 million).
After
extensive discussions and negotiations between representatives of Key Brand and
Mr. Rubenstein and Ms. Silvers during this meeting, Key Brand and Hollywood
Media executed a revised non-binding term sheet (which was subject to approval
by our board of directors) pursuant to which (i) Hollywood Media agreed to
negotiate exclusively with Key Brand regarding a potential sale of Theatre
Direct until July 30, 2009 and (ii) Key Brand increase its revised proposal to
purchase Theatre Direct as follows:
|
•
|
Key
Brand would pay to Hollywood Media $20 million cash (subject to a working
capital adjustment) and Key Brand would assume $1.6 million of liabilities
associated with employment agreements with certain employees of Theatre
Direct (which essentially is a cash equivalent for Hollywood
Media);
|
|
•
|
Key
Brand would issue to Hollywood Media a 7 year subordinated promissory note
in the initial principal amount of $5 million at an interest rate of 15%
per annum;
|
|
•
|
Hollywood
Media would receive an earnout from Key Brand of up to $15 million, with
two $7.5 million tranches based on Theatre Direct and its subsidiaries
achieving certain revenue and EBITDA targets (with the first $7.5 million
tranche payable if Theatre Direct and its subsidiaries achieve revenues
greater than or equal to $125 million in any full fiscal year during the
seven-year period commencing on January 1 of the first full calendar year
following the closing or if Theatre Direct and its subsidiaries achieve
EBITDA greater than or equal to $14 million in the aggregate during the
period from the closing date until the end of the fiscal year in which the
third anniversary of the closing date occurs, and the second $7.5 million
tranche payable if Theatre Direct and its subsidiaries achieve revenues
equal to or greater than $150 million during any full fiscal year ending
during the seven-year period commencing on January 1 of the first full
calendar year following the closing);
and
|
|
•
|
Theatre
Direct would issue Hollywood Media a warrant to purchase 10% of the
outstanding shares of common stock of Theatre Direct as of the closing
date on a fully diluted basis at an exercise price of $.01 per share (with
(i) Theatre Direct having the option to redeem the warrant from Hollywood
Media at any time after the first anniversary of the issue date of the
warrant for an amount equal to the greater of (x) 10% of the market value
of the shares of common stock of Theatre Direct issuable upon exercise of
the warrant and (y) $2 million, and (ii) Hollywood Media having the option
to put the warrant to Theatre Direct upon a change of control of Theatre
Direct for 10% of the market value of the shares of common stock of
Theatre Direct issuable upon exercise of the warrant or at any time after
the seventh anniversary of the issue date of the warrant for an amount
equal to the greater of (x) 10% of the fair market value of Theatre Direct
and (y) $2 million).
|
On July
21, 2009, our board of directors convened a meeting to discuss the advantages
and disadvantages of the most recent proposal received from Key Brand. Our
board of directors noted the following differences between Key Brand’s most
recent proposal and Key Brand’s proposal in the May 22, 2009 non-binding term
sheet and the revised proposal received from Key Brand on July 7,
2009:
Consideration (in millions)
|
|
May 22, 2009
Term Sheet
|
|
|
July 16, 2009
Proposal
|
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
|
Closing
Cash
|
|
$ |
24.0 |
|
|
$ |
20.0 |
|
|
$ |
(4.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Key
Brand’s assumption of $1.6 million of liabilities associated with
employment agreements with certain employees of Theatre Direct (which
essentially is a cash equivalent for Hollywood Media)
|
|
$ |
0.0 |
|
|
$ |
1.6 |
|
|
$ |
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Promissory
Note (1)
|
|
$ |
10.0 |
|
|
$ |
5.0 |
|
|
$ |
(5.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnout
(2)
|
|
$ |
10.0 |
|
|
$ |
15.0 |
|
|
$ |
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
(3)
|
|
$ |
0.0 |
|
|
$ |
4.0 |
|
|
$ |
4.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
44.0 |
|
|
$ |
45.6 |
|
|
$ |
1.6 |
|
Consideration (in millions)
|
|
July 7, 2009
Proposal
|
|
|
July 16, 2009
Proposal
|
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
|
Closing
Cash
|
|
$ |
15.2 |
|
|
$ |
20.0 |
|
|
$ |
4.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key
Brand’s assumption of $1.6 million of liabilities associated with
employment agreements with certain employees of Theatre Direct (which
essentially is a cash equivalent for Hollywood Media)
|
|
$ |
0.0 |
|
|
$ |
1.6 |
|
|
$ |
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
(3)
|
|
$ |
0.0 |
|
|
$ |
4.0 |
|
|
$ |
4.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Promissory
Note (4)
|
|
$ |
6.5 |
|
|
$ |
5.0 |
|
|
$ |
(1.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnout
(5)
|
|
$ |
10.0 |
|
|
$ |
15.0 |
|
|
$ |
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
31.7 |
|
|
$ |
45.6 |
|
|
$ |
13.9 |
|
|
(1)
|
The
term of the subordinated promissory note issued by Key Brand to Hollywood
Media was increased by 2 years (from 5 years to 7 years) and the interest
rate on the subordinated promissory note had been increased to 15% per
annum (from 8.5% per annum for the first three years and 10% per annum
thereafter).
|
|
(2)
|
In
addition to the revenue targets that were included in the May 22, 2009
non-binding term sheet, the July 16, 2009 proposal provided that the first
tranche of the earnout would also be paid if Theatre Direct and its
subsidiaries achieve EBITDA greater than or equal to $14 million in the
aggregate during the period from the closing date until the end of the
fiscal year in which the third anniversary of the closing date
occurs.
|
|
(3)
|
Theatre
Direct would issue Hollywood Media a warrant to purchase 10% of the
outstanding shares of common stock of Theatre Direct as of the closing
date on a fully diluted basis at an exercise price of $.01 per share
(whereas the May 22, 2009 non-binding term sheet and the July 7, 2009
proposal had no warrant). The $4.0 million nominal value of the warrant is
based on 10% of the sum of the $20.0 million cash payment, the $5 million
promissory note and the $15 million earnout in Key Brand’s
proposal.
|
|
(4)
|
The
July 7, 2009 proposal did not specify the term or the interest rate on the
promissory note to be issued by Key Brand to Hollywood
Media.
|
|
(5)
|
The
July 7, 2009 proposal did not specify the benchmarks or time period for
the earnout.
|
During
the July 21, 2009 board meeting, our board of directors decided to counter Key
Brand’s July 16, 2009 proposal with the following:
|
•
|
increasing
the principal amount of the subordinated promissory note Key Brand would
issue Hollywood Media by $2.5 million (from $5 million to $7.5 million)
and decreasing the interest rate on the subordinated promissory note by 5%
per annum in the first two years of the term of the subordinated
promissory note (from 15% per annum to 10% per annum) while maintaining
the interest rate on the subordinated promissory note at 15% per annum for
the remaining term of the subordinated promissory
note;
|
|
•
|
decreasing
the amount of the potential earnout Hollywood Media would receive from Key
Brand by $2.5 million (from $15 million to $12.5 million);
and
|
|
•
|
shifting
a portion of the principal amount of the subordinated promissory note to
the amount of the potential earnout if adverse ticketing regulations are
enacted.
|
Following
the meeting of our board of directors on July 21, 2009, Mr. Rubenstein presented
this counter-proposal to Key Brand. Key Brand’s initial response to the
counter-proposal was to accept the increase of $2.5 million in the principal
amount of the subordinated promissory note issued by Key Brand to Hollywood
Media (from $5 million to $7.5 million) with the interest rate on the
subordinated promissory note being changed to 12% per annum for the entire term
of the subordinated promissory note (rather than 10% per annum for the first two
years of the subordinated promissory note and 15% thereafter), the warrant
issued by Theatre Direct to Hollywood Media being changed to purchase 3.4% of
the outstanding shares of common stock of Theatre Direct (from 10% of
the
outstanding
shares of common stock of Theatre Direct) and the put and call option floors on
the warrant being reduced to $750,000 (from $2 million).
After
further discussion between representatives of Key Brand and Mr. Rubenstein and
Ms. Silvers on behalf of Hollywood Media, Key Brand further improved its
proposal for Theatre Direct as follows:
|
•
|
Key
Brand would pay Hollywood Media $20 million cash (subject to a working
capital adjustment) and up to a maximum amount of $1.6 million of
liabilities with respect to any payment associated with change of control
obligations under the employment agreements with certain employees of
Theatre Direct would be or remain the liabilities of Theatre Direct from
and after the closing date of the sale of Theatre Direct and Hollywood
Media would have no obligation with respect to such liabilities up to a
maximum of $1.6 million (which essentially is a cash equivalent for
Hollywood Media);
|
|
•
|
Key
Brand would issue Hollywood Media a five-year subordinated promissory note
in the initial principal amount of $7.5 million at an interest rate of 12%
per annum, with the subordinated promissory note accelerating upon a
change of control of Key Brand or Theatre
Direct;
|
|
•
|
Hollywood
Media would receive an earnout from Key Brand of up to $15 million, with
two $7.5 million tranches based on Theatre Direct and its subsidiaries
achieving certain revenue and EBITDA targets (with the first $7.5 million
tranche payable if Theatre Direct and its subsidiaries achieve revenues
greater than or equal to $125 million in any full fiscal year during the
seven-year period commencing on January 1 of the first full calendar year
following the closing or if Theatre Direct and its subsidiaries achieve
EBITDA greater than or equal to $14 million in the aggregate during the
period from the closing date until the end of the fiscal year in which the
third anniversary of the closing date occurs, and the second $7.5 million
tranche payable if Theatre Direct and its subsidiaries achieve revenues
equal to or greater than $150 million during any full fiscal year ending
during the seven-year period commencing on January 1 of the first full
calendar year following the closing);
and
|
|
•
|
Theatre
Direct would issue Hollywood Media a warrant to purchase 5% of the
outstanding shares of common stock of Theatre Direct as of the closing
date on a fully diluted basis at an exercise price of $.01 per share (with
(i) Theatre Direct having the option to redeem the warrant from Hollywood
Media at any time after the first anniversary of the issue date of the
warrant for an amount equal to the greater of (x) 5% of the market value
of the shares of common stock of Theatre Direct issuable upon exercise of
the warrant and (y) $1 million, and (ii) Hollywood Media having the option
to put the warrant to Theatre Direct upon a change of control of Key Brand
or at any time after the seventh anniversary of the issue date of the
warrant for an amount equal to the greater of (x) 5% of the market value
of the shares of common stock of Theatre Direct issuable upon exercise of
the warrant and (y) $1 million).
|
On July
28, 2009, our board of directors convened a meeting to discuss the most recent
proposal received from Key Brand. Mr. Rubenstein presented the terms of
Key Brand’s latest proposal to our board of directors and our directors
discussed the overall value of the proposal, including factoring in a discount
rate to account for the present value of the future projected stream of payments
under the promissory note and the earnout. Mr. Rubenstein noted that, in
comparison to Key Brand’s proposal in the original non-binding term sheet dated
May 22, 2009:
|
•
|
the
cash portion of the proposal had been decreased by $2.4 million (from $24
million in cash to $20 million in cash plus the release of Hollywood Media
from $1.6 million of liabilities associated with employment agreements
with certain employees of Theatre Direct (the original non-binding term
sheet had no release from these
liabilities));
|
|
•
|
the
principal amount of the subordinated promissory note issued by Key Brand
to Hollywood Media had been reduced by $2.5 million (from $10 million to
$7.5 million) and the interest rate on the subordinated promissory note
had been increased to 12% per annum (from 8.5% per annum for the first
three years and 10% per annum
thereafter);
|
|
•
|
the
amount of the potential earnout Hollywood Media would receive from Key
Brand had been increased by $5 million (from $10 million to $15 million);
and
|
|
•
|
the
warrant to purchase 5% of the outstanding shares of common stock of
Theatre Direct as of the closing date on a fully diluted basis at an
exercise price of $.01 per share had been
added.
|
Our board
of directors also discussed the thresholds for attaining both tranches of the
earnout, the upside of the warrant to purchase shares of common stock of Theatre
Direct in the event the business of Theatre Direct performs well, and the $1.2
million break-up fee, which our board of directors considered would likely not
be a significant obstacle to a third party making a superior topping
offer. Our board of directors further discussed strategic alternatives in
the event that the sale of Theatre Direct to Key Brand did not occur and the
financial condition of Theatre Direct.
Commencing
in August 2009, members of our board of directors, management and our legal
counsel, and principals of Key Brand and its legal counsel extensively
negotiated the Stock Purchase Agreement and the ancillary documents related to
the Stock Purchase Agreement and exchanged multiple drafts of such
documents. Also during this time, Mr. Rubenstein and Ms. Silvers, on
behalf of Hollywood Media, had additional meetings (both in person and
telephonically) with a representative of Key Brand to discuss the status of the
sale of Theatre Direct to Key Brand. Mr. Rubenstein and Ms. Silvers
proposed that either Hollywood Media would need to consent to any subsequent
sale by Key Brand of the Broadway Ticketing Business in order to protect
Hollywood Media’s interest in the subordinated promissory note, the warrant and
the earnout pursuant to the proposed stock purchase agreement, or, the
subordinated promissory note issued by Key Brand to Hollywood Media in
connection with the purchase of Theatre Direct would accelerate and 50% of each
tranche of the earnout to be paid by Key Brand to Hollywood Media would
accelerate.
On
September 11, 2009, our board of directors convened a meeting at which it
discussed the status of the potential sale of Theatre Direct to Key Brand.
Mr. Rubenstein informed our board of directors that there were a number of items
remaining open and updated our board of directors on the latest discussions that
had taken place between Key Brand and Mr. Rubenstein and Ms. Silvers on behalf
of Hollywood Media.
In
October 2009, after extensive negotiations, Hollywood Media and Key Brand
resolved substantially all of the issues regarding the sale of Theatre Direct to
Key Brand, other than issues relating to the earnout. Hollywood Media and
Key Brand had extensive negotiations regarding the determination of expenses in
calculating the EBITDA benchmark of the earnout. Hollywood Media also
proposed that the calculation of revenue for purposes of the earnout take into
account and adjust to remove any adverse effect from any fundamental change in
Theatre Direct. Additionally, Hollywood Media initially proposed approval
of any buyer of Key Brand while the earnout remained unpaid. Key Brand
rejected this position because it would essentially require the full payment of
the earnout in the event of a sale of Key Brand. Hollywood Media then
requested a 50% acceleration of both tranches of the earnout in the event of a
sale of Key Brand.
On
October 21, 2009, our board of directors convened a meeting to further discuss
the potential sale of Theatre Direct to Key Brand. Mr. Rubenstein
summarized for our board of directors the recent negotiations with Key Brand and
noted that the parties had resolved substantially all issues relating to the
sale of Theatre Direct to Key Brand, other than issues which principally related
to the earnout and protecting Hollywood Media from Theatre Direct not achieving
the revenue benchmarks under the earnout in the event of a significant change in
Theatre Direct’s business following the closing of the sale of Theatre Direct to
Key Brand. After a discussion, our board of directors determined to (i)
continue to propose that all expenses associated with handling Key Brand’s
business should be excluded when calculating the EBITDA benchmark of the earnout
and that the revenue benchmarks of the earnout should adjust equitably to take
into account any fundamental change in Theatre Direct, and (ii) propose that
either 50% of the earnout would accelerate in the event of a sale of Key Brand
or $2.5 million of the amount of the earnout would be shifted to the principal
amount of the subordinated promissory note in lieu of any such earnout
acceleration.
On
October 22, 2009, Mr. Rubenstein conveyed Hollywood Media’s position regarding
the earnout to Key Brand, and after a discussion, Key Brand countered to
Hollywood Media that Key Brand would (i) accept moving $1 million from the
earnout to the subordinated promissory note (in response to Hollywood Media’s
proposal that $2.5 million be moved from the earnout to the promissory note),
thereby increasing the principal amount of the promissory note by $1 million
(from $7.5 million to $8.5 million) and decreasing the amount of the potential
earnout by $1 million (from $15 million to $14 million), (ii) not give Hollywood
Media credit for the $1.2 million certificate of deposit (“CD”) which
collateralizes the letter of credit that secures the bonds that secure Theatre
Direct’s
ticketing
purchases, and (iii) agree to the other earnout protection language that
Hollywood Media requested in order to protect Hollywood Media in the event of a
significant change in Theatre Direct’s business.
On
October 26, 2009, our board of directors convened a meeting to continue the
discussion of the potential sale of Theatre Direct to Key Brand. Mr.
Rubenstein noted that Hollywood Media proposed that either 50% of the earnout
would accelerate in the event of a sale of Key Brand or $2.5 million of the
amount of the earnout would be shifted to the principal amount of the
subordinated promissory note in lieu of any such earnout acceleration. Mr.
Rubenstein reported that Key Brand’s counter-proposal was to shift $1 million of
the consideration to the principal amount of the promissory note from the
potential earnout (thereby increasing the principal amount of the promissory
note to $8.5 million and decreasing the amount of the potential earnout to $14
million). Mr. Rubenstein then summarized the current proposal as it stood
from Key Brand for Theatre Direct as follows:
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Key
Brand would pay Hollywood Media $20 million cash (subject to a working
capital adjustment) and up to a maximum amount of $1.6 million of
liabilities with respect to any payment associated with change of control
obligations under the employment agreements with certain employees of
Theatre Direct would be or remain the liabilities of Theatre Direct from
and after the closing date of the sale of Theatre Direct and Hollywood
Media would have no obligation with respect to such liabilities up to a
maximum of $1.6 million (which essentially is a cash equivalent for
Hollywood Media);
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Key
Brand would issue Hollywood Media a five-year subordinated promissory note
in the initial principal amount of $8.5 million at an interest rate of 12%
per annum, with the subordinated promissory note accelerating upon a
change of control of Key Brand or Theatre
Direct;
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Hollywood
Media would receive an earnout from Key Brand of up to $14 million, with
two $7 million tranches based on Theatre Direct and its subsidiaries
achieving certain revenue and EBITDA targets (with the first $7 million
tranche payable if Theatre Direct and its subsidiaries achieve revenues
greater than or equal to $125 million in any full fiscal year during the
seven-year period commencing on January 1 of the first full calendar year
following the closing or if Theatre Direct and its subsidiaries achieve
EBITDA greater than or equal to $14 million in the aggregate during the
period from the closing date until the end of the fiscal year in which the
third anniversary of the closing date occurs, and the second $7 million
tranche payable if Theatre Direct and its subsidiaries achieve revenues
equal to or greater than $150 million during any full fiscal year ending
during the seven-year period commencing on January 1 of the first full
calendar year following the
closing);
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Theatre
Direct would issue Hollywood Media a warrant to purchase 5% of the
outstanding shares of common stock of Theatre Direct as of the closing
date on a fully diluted basis at an exercise price of $.01 per share (with
(i) Theatre Direct having the option to redeem the warrant from Hollywood
Media at any time after the first anniversary of the issue date of the
warrant for an amount equal to the greater of (x) 5% of the appraised
value of the shares of common stock of Theatre Direct issuable upon
exercise of the warrant and (y) $1 million, and (ii) Hollywood Media
having the option to put the warrant to Theatre Direct upon a change of
control of Key Brand or at any time after the seventh anniversary of the
issue date of the warrant for an amount equal to the greater of (x) 5% of
the appraised value of the shares of common stock of Theatre Direct
issuable upon exercise of the warrant and (y) $1 million);
and
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Key
Brand would not pay Hollywood Media for the Hollywood Media CD that
secures the bonds that secure Theatre Direct’s ticketing
purchases.
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Following
a discussion, our board of directors approved and authorized Mr. Rubenstein to
accept Key Brand’s proposals that $1 million of the earnout be moved to the
subordinated promissory note (so that the principal amount of the subordinated
promissory note would be changed to $8.5 million and the amount of the earnout
would be changed to $14 million) and that the earnout would not accelerate in
the event of a change of control of Key Brand or Theatre Direct, provided that
Key Brand paid Hollywood Media $1.2 million in cash at closing for the CD that
secures the bonds that secure Theatre Direct’s ticketing purchases.
Subsequently,
Mr. Rubenstein, in consultation with our board of directors, had additional
negotiations with Key Brand, which resulted in Hollywood Media and Key Brand (i)
removing the EBITDA benchmark for the earnout in exchange for extending from
seven years to ten years the revenue benchmarks of the earnout in order to
increase the likelihood of receiving the full earnout amount, such that the
first $7 million tranche of the earnout
would be
payable if Theatre Direct and its subsidiaries achieve revenues greater than or
equal to $125 million in any full fiscal year during the ten-year period
commencing on January 1 of the first full calendar year following the closing
and the second $7 million tranche of the earnout would be payable if Theatre
Direct and its subsidiaries achieve revenues equal to or greater than $150
million during any full fiscal year ending during the ten-year period commencing
on January 1 of the first full calendar year following the closing and (ii)
including the amount of the $1.2 million CD that secures the bonds that secure
Theatre Direct’s ticketing purchases in the calculation of Theatre Direct’s
working capital for purposes of calculating the working capital adjustment under
the proposed stock purchase agreement in order that Hollywood Media receive
credit for such CD.
On
December 18, 2009, our board of directors met to consider the proposed sale of
Theatre Direct to Key Brand and the terms of the Stock Purchase Agreement for
the sale of Theatre Direct. Also, during this meeting, Peter J. Solomon
Company stated its oral opinion, later confirmed in writing, regarding the
fairness, from a financial point of view to Hollywood Media, of the
consideration proposed to be received by Hollywood Media in the transaction, and
discussed the analysis performed by Peter J. Solomon Company to arrive at its
opinion. During the course of Peter J. Solomon Company's presentation and
rendering of its opinion, representatives of Peter J. Solomon Company responded
to questions from members of Hollywood Media’s board of directors. The
questions and responses were not independently material in nature as they served
to confirm or clarify the analyses performed by Peter J. Solomon Company and the
opinion rendered by Peter J. Solomon Company, as described in more detail under
"Opinion of Hollywood Media's
Financial Advisor" beginning on page 48. Our board of directors
discussed the fairness opinion of Peter J. Solomon Company and noted that
although such fairness opinion was based on a pre-tax valuation, the amount of
Hollywood Media’s net operating loss carryovers should offset any federal income
taxes in connection with the sale of Theatre Direct other than the Alternative
Minimum Tax of 2% on the gain. Our board of directors also noted that the
fairness opinion of Peter J. Solomon Company was only one of the factors that
was being considered in deciding whether to approve the sale of Theatre
Direct. Our board of directors noted that (i) despite Peter J. Solomon
Company’s incentive to find an alternative buyer for Theatre Direct (in order to
receive an additional 2% transaction fee), Peter J. Solomon Company was unable
to locate a buyer who was willing to offer more than Key Brand for Theatre
Direct, and (ii) of all of the potential buyers contacted by Hollywood Media and
Peter J. Solomon Company, the proposal from Key Brand was the best proposal that
Hollywood Media had received for the sale of Theatre Direct.
Our board
of directors also noted the following points regarding the sale of Theatre
Direct pursuant to the Stock Purchase Agreement:
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the
protections that were built into the Stock Purchase Agreement to help
ensure that Hollywood Media receives the earnout, including the
restrictions on Key Brand competing with Theatre Direct during the earnout
period;
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that
Key Brand would deposit $1.2 million of the purchase price with the Escrow
Agent upon the Stock Purchase Agreement being
signed;
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that
Hollywood Media could receive up to $2.4 million if Key Brand failed to
close the sale of Theatre Direct;
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that
the termination fee of $1.2 million that Hollywood Media would pay to Key
Brand if the Stock Purchase Agreement was terminated under certain
circumstances would not prevent other potential buyers from making topping
offers;
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the
limitations and caps on Key Brand’s right to seek indemnification from
Hollywood Media;
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that
the Promissory Note to be issued by Key Brand to Hollywood Media would
accelerate upon a change of control of Key Brand or Theatre Direct and the
interest rate under the Promissory Note had been increased to 12% per
annum (from 8.5% per annum as originally offered by Key
Brand);
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that
the earnout period under the Stock Purchase Agreement was extended to ten
years, which increased the likelihood that Hollywood Media would receive
the entire $14 million of the potential
earnout;
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that
the $500,000 working capital target under the Stock Purchase Agreement was
reasonable;
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the
value of the Warrant to be issued by Theatre Direct to Hollywood Media
pursuant to the Stock Purchase Agreement was worth at least $1 million
(due to the put/call floors Hollywood Media negotiated);
and
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that
up to a maximum amount of $1.6 million of liabilities with respect to any
payment associated with change of control obligations under the employment
agreements with certain employees of Theatre Direct would be or remain the
liabilities of Theatre Direct from and after the closing date of the sale
of Theatre Direct and Hollywood Media would have no obligation with
respect to such liabilities up to a maximum of $1.6 million (which
essentially is a cash equivalent for Hollywood
Media).
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After
careful evaluation of the potential benefits, negative factors and other
material considerations relating to the sale of Theatre Direct and the Stock
Purchase Agreement, and following the receipt of the fairness opinion from
Hollywood Media’s financial advisor, Peter J. Solomon Company, and the separate
unanimous approval by the independent members of our board of directors (meeting
without the non-independent members of our board of directors), our board of
directors unanimously approved the Stock Purchase Agreement and determined that
the sale of Theatre Direct pursuant to the Stock Purchase Agreement is
advisable, fair to and in the best interests of Hollywood Media and our
shareholders.
In
considering the recommendation of our board of directors with respect to the
Proposal to Sell Theatre Direct and the Proposal to Adjourn or Postpone the
Special Meeting, our shareholders should be aware that two of our six directors,
Mitchell Rubenstein, our Chairman and Chief Executive Officer, and Laurie S.
Silvers, our Vice-Chairman, President and Secretary, will directly benefit from
the sale of Theatre Direct and therefore have interests in the Proposal to Sell
Theatre Direct and the Proposal to Adjourn or Postpone the Special Meeting that
are different from, or in addition to, the interests of our shareholders
generally. See “PROPOSAL
#1: PROPOSAL TO SELL THEATRE DIRECT—Interests of Certain Persons in the Sale of
Theatre Direct” beginning on page 57.
On
December 21, 2009 our board of directors met to discuss, among other things, the
timing of the execution of the Stock Purchase Agreement, the filing of the Form
8-K in connection with the execution of the Stock Purchase Agreement, and
Hollywood Media issuing a press release to announce the transactions
contemplated by the Stock Purchase Agreement.
Following
finalization of the Stock Purchase Agreement and the related documents,
Hollywood Media and Key Brand executed the Stock Purchase Agreement on December
22, 2009.
On
January 13, 2010, Key Brand and Hollywood Media executed Amendment No. 1 to the
Stock Purchase Agreement in order to extend the deadline for filing the
preliminary draft of this proxy statement with the SEC. On January 21,
2010, Key Brand and Hollywood Media executed Amendment No. 2 to the Stock
Purchase Agreement in order to further extend the deadline for filing the
preliminary draft of this proxy statement with the SEC.
On March
4, 2010, Key Brand approached Hollywood Media regarding proposed changes to the
cash consideration and the Promissory Note to accommodate a potential additional
secured financing by Key Brand for the transactions contemplated by the Stock
Purchase Agreement. Such proposed changes would involve a modest increase
in the closing date cash consideration to be received by Hollywood Media and a
modest decrease to the amount of consideration represented by the Promissory
Note, which would in turn be unsecured. While the parties have reviewed
and discussed such proposed changes and potential financing, at this time there
can be no assurance that any amendments to the terms of the Stock Purchase
Agreement will be agreed upon or as to the terms of any additional financing
arrangements that may be obtained by Key Brand.
On April
9, 2010, Key Brand and Hollywood Media executed Amendment No. 3 to the Stock
Purchase Agreement in order to extend the “Termination Date” in Section 4.2(a)
of the Stock Purchase Agreement from June 22, 2010 to July 30,
2010.
Background
on the Amendments to Amended and Restated Employment Agreements of Mr.
Rubenstein and Ms. Silvers
In
December 2008, in connection with Hollywood Media considering a sale of Theatre
Direct, several independent members of Hollywood Media’s board of directors
asked Mr. Rubenstein, Hollywood Media’s Chairman and Chief Executive Officer,
and Ms. Silvers, Hollywood Media’s Vice-Chairman, President and
Secretary,
to consider a voluntary restructuring of their employment agreements in order to
defer part of the change of control payments that would be due to each them upon
a sale of Theatre Direct.
In
addition, the independent members of Hollywood Media’s board of directors and
the compensation committee of Hollywood Media’s board of directors also
discussed potentially restructuring the compensation of Mr. Rubenstein and Ms.
Silvers to be effective after a sale of Theatre Direct to reflect the reduced
size of Hollywood Media’s business following a sale of Theatre Direct while at
the same time (i) retaining the services of Mr. Rubenstein and Ms. Silvers, each
of whom the independent members of Hollywood Media’s board of directors felt
were key to Hollywood Media’s future success, and (ii) providing an ongoing
incentive to Mr. Rubenstein and Ms. Silvers that aligns their interests with the
shareholders of Hollywood Media.
Thereafter,
the compensation committee of Hollywood Media’s board of directors (working
closely with the independent members of Hollywood Media’s board of directors)
negotiated amendments to the employment agreements of Mr. Rubenstein and Ms.
Silvers. After ongoing negotiations, the independent members of Hollywood
Media’s board of directors (meeting without the non-independent members of
Hollywood Media’s board of directors) unanimously recommended to the
compensation committee of our board of directors to approve restructuring the
employment agreements of Mr. Rubenstein and Ms. Silvers on the following
terms:
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for
a period of ninety days after the closing of the sale of Theatre Direct,
the salaries under Mr. Rubenstein’s and Ms. Silvers’ employment agreements
would continue in place on their current terms (rather than such salaries
being paid at their current rates through December 31, 2010 per their
current employment agreements);
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after
this ninety-day period, the salaries of Mr. Rubenstein and Ms. Silvers
would each be reduced to $1 per year and they would receive a total of 10%
(5% each) of all distributions received by Hollywood Media on account of
its minority ownership interest in MovieTickets.com, Inc. in exchange for
Mr. Rubenstein and Ms. Silvers continuing to manage Hollywood Media and
Hollywood Media’s interest in MovieTickets.com, Inc.;
and
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the
amount of the payments due upon a sale of Theatre Direct (which would
constitute a “change of control” under each of their employment
agreements) would be reduced from approximately $4.14 million in the
aggregate to $3 million in the aggregate with the balance of approximately
$1.14 million being deferred and paid as follows: (i) 50% of the balance
paid on a pro rata basis as Hollywood Media receives payments on account
of the promissory note that is part of the consideration in the proposed
sale of Theatre Direct; and (ii) 50% of the balance paid on a pro rata
basis as Hollywood Media receives payments on account of the first tranche
of the earnout that is part of the consideration in the proposed sale of
Theatre Direct.
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On
December 18, 2009, the compensation committee of our board of directors met to
discuss the recommendations from the independent members of our board of
directors regarding restructuring the employment agreements of Mr. Rubenstein
and Ms. Silvers as described in the paragraph above. In order to help
ensure that Mr. Rubenstein and Ms. Silvers continued to provide services to
Hollywood Media following the closing of the sale of Theatre Direct, the
compensation committee of our board of directors discussed adding a requirement
that the change of control payments that Mr. Rubenstein and Ms. Silvers were
deferring would only be paid if Mr. Rubenstein and Ms. Silvers continue to be
employed by Hollywood Media on the first anniversary following the consummation
of the sale of Theatre Direct pursuant to the Stock Purchase Agreement (or if
such employment is terminated on or before such date by Hollywood Media without
“cause” or by Mr. Rubenstein or Ms. Silvers for “good reason”). After
ongoing negotiations, the compensation committee of our board of directors
unanimously approved restructuring the employment agreements of Mr. Rubenstein
and Ms. Silvers on the following terms:
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for
a period of ninety days after the closing of the sale of Theatre Direct,
the salaries under Mr. Rubenstein’s and Ms. Silvers’ employment agreements
would continue in place on their current terms (rather than such salaries
being paid at their current rates through December 31, 2010 per their
current employment agreements);
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after
this ninety-day period, the salaries of Mr. Rubenstein and Ms. Silvers
would each be reduced to $1 per year and they would receive a total of 10%
(5% each) of all distributions received by Hollywood
Media
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on
account of its minority ownership interest in MovieTickets.com, Inc. in exchange
for Mr. Rubenstein and Ms. Silvers continuing to manage Hollywood Media and
Hollywood Media’s interest in MovieTickets.com, Inc.; and
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the
amount of the payments due upon a sale of Theatre Direct (which would
constitute a “change of control” under each of their employment
agreements) would be reduced from approximately $4.14 million in the
aggregate to $3 million in the aggregate with the balance of approximately
$1.14 million being deferred and paid if Mr. Rubenstein and Ms. Silvers
continue to be employed by Hollywood Media on the first anniversary
following the consummation of the sale of Theatre Direct pursuant to the
Stock Purchase Agreement (or if such employment is terminated on or before
such date by Hollywood Media without “cause” or by Mr. Rubenstein or Ms.
Silvers for “good reason”) as follows: (i) 50% of the balance paid on a
pro rata basis as Hollywood Media receives payments on account of the
promissory note that is part of the consideration in the proposed sale of
Theatre Direct; and (ii) 50% of the balance paid on a pro rata basis as
Hollywood Media receives payments on account of the first tranche of the
earnout that is part of the consideration in the proposed sale of Theatre
Direct.
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On
December 23, 2009, Hollywood Media entered into (i) an Amendment to Amended and
Restated Employment Agreement with Mitchell Rubenstein and (ii) an Amendment to
Amended and Restated Employment Agreement with Laurie S. Silvers. See
“PROPOSAL #1: PROPOSAL TO SELL
THEATRE DIRECT—Interests of Certain Persons in the Sale of Theatre
Direct—Amendments to Amended and Restated Employment Agreements of Mr.
Rubenstein and Ms. Silvers” beginning on page 58.
In
addition, for no additional consideration, in connection with the closing of the
sale of Theatre Direct pursuant to the Stock Purchase Agreement, Mr. Rubenstein
and Ms. Silvers have each agreed, as a condition required by Key Brand, to enter
into non-competition agreements with Key Brand. See “PROPOSAL #1: PROPOSAL TO SELL THEATRE
DIRECT—Terms of the Stock Purchase Agreement – Ancillary Agreements –
Non-Competition Agreements of Mr. Rubenstein and Ms. Silvers” beginning
on page 86.
Past
Contacts, Transactions or Negotiations
Other
than as described in the “Background of the Sale of Theatre Direct,” we and Key
Brand have not had prior contacts, transactions, or negotiations.
Reasons
for the Sale of Theatre Direct
In
reaching its decision to approve the Stock Purchase Agreement and the
transactions contemplated thereby, and to recommend that Hollywood Media’s
shareholders vote to approve the sale of Theatre Direct as contemplated by the
Stock Purchase Agreement, our board of directors consulted with management and
financial and legal advisors. Our board of directors considered all of the
material factors relating to the Stock Purchase Agreement and the proposed sale
of Theatre Direct, many of which our board of directors believed supported its
decision, including:
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the
estimated consideration that would be paid to Hollywood Media in the
proposed transaction in comparison to the risks associated with
maintaining the operations of our Broadway Ticketing Division which
include those risk factors discussed in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2009, filed with the SEC on March 19,
2010. Specifically, our board of directors believes that the sale of our
Broadway Ticketing Division presents a better alternative than maintaining
it due to, among other things, the risks relating to the fact that the
Broadway Ticketing business is geographically-concentrated in New York
City (which exposes the business to the risk of being shut down in the
event of catastrophic events occurring in New York City), the increased
competition in the market of online tickets sales, and the potential for
union strikes at Broadway Theaters which could significantly disrupt the
business;
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the
potential uses for the consideration that would be paid to Hollywood Media
in the proposed transaction, including the ability to pay a one-time
special dividend to our shareholders or engage in a self-tender offer to
purchase shares of our common stock (although we are not required to pay a
one-time special cash dividend or engage in a self-tender offer, see
“PROPOSAL #1: PROPOSAL
TO SELL THEATRE
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DIRECT—Use of Proceeds from the Sale
of Theatre Direct beginning on page 56);
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the
extensive sale process conducted by Hollywood Media and Peter J. Solomon
Company with respect to the sale of Theatre Direct, which involved
discussions with multiple parties to determine their potential interest in
purchasing Theatre Direct and which did not lead to any proposals more
favorable to Hollywood Media and its shareholders than the proposal by Key
Brand;
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the
price proposed by Key Brand represented the highest definitive offer that
Hollywood Media received for the acquisition of Theatre
Direct;
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the
economies of scale and synergies that Key Brand expects to benefit from
following the acquisition of Theatre Direct allowed Key Brand to offer
Hollywood Media consideration that was greater than the value that
Hollywood Media’s board of directors expected to receive from continuing
to own Theatre Direct;
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the
opinion of Peter J. Solomon Company that, as of the date of the opinion
and based upon and subject to the factors and assumptions set forth in
such opinion, the aggregate consideration to be received by Hollywood
Media for all of the outstanding shares of Theatre Direct common stock
pursuant to the Stock Purchase Agreement was fair from a financial point
of view to Hollywood Media;
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shareholders
of Hollywood Media would continue to own stock in Hollywood Media and
participate in future earnings and potential growth of Hollywood Media’s
Ad Sales Division, Intellectual Properties Division and other remaining
businesses, including Hollywood Media’s minority equity interest in
MovieTickets.com, Inc., Hollywood Media’s right to earnout payments from
the sale of its former subsidiary, Hollywood Media’s right to exercise or
put the Warrant issued pursuant to the Stock Purchase Agreement, and
Hollywood Media’s right to payments under the Promissory Note and the
earnout in connection with the sale of Theatre Direct pursuant to the
Stock Purchase Agreement; and
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the
terms of the Stock Purchase Agreement,
including:
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the
$20 million in cash to be paid by Key Brand (subject to a working capital
adjustment) and Hollywood Media being released from $1.6 million of
liabilities associated with employment agreements with certain employees
of Theatre Direct, which provides certainty in
value;
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our
ability to terminate the Stock Purchase Agreement in order to accept a
superior proposal, subject to paying a termination fee of $1.2
million;
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the
view of our board of directors, after consulting with the Company’s legal
counsel and financial advisors, that the termination fee of $1.2 million
to be paid by Hollywood Media if the Stock Purchase Agreement is
terminated under certain circumstances was within the range reflected in
similar transactions and not likely to prevent Hollywood Media from
terminating the Stock Purchase Agreement or accepting superior offers to
purchase Theatre Direct;
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our
ability, under certain circumstances, to furnish information to and
conduct negotiations with third parties regarding other unsolicited
acquisition proposals; and
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the
ability of our board of directors, under certain circumstances, to change
its recommendation that our shareholders vote in favor of the Proposal to
Sell Theatre Direct.
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Our board
of directors also considered and balanced against the potential benefits of the
proposed sale of Theatre Direct a number of potentially adverse and other
factors concerning the proposed sale of Theatre Direct, including the
following:
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the
risk that not all of the conditions to the parties’ obligations to
complete the proposed sale of Theatre Direct will be satisfied or waived
in a timely manner or at all, and, as a result, it is possible that the
proposed sale of Theatre Direct may not be completed even if approved by
our shareholders;
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the
requirement that we pay Key Brand a termination fee of $1.2 million if the
Stock Purchase Agreement is terminated under certain
circumstances;
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the
restrictions on the conduct of our business prior to the completion of the
sale of Theatre Direct, requiring us to conduct the Theatre Direct
business only in the ordinary course, subject to specific limitations and
exceptions, which may delay or prevent us from undertaking business
opportunities that may arise pending the completion of the sale of Theatre
Direct;
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the
risk of disruption to Hollywood Media’s Ad Sales Division, Intellectual
Properties Division, and our
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other
businesses and interests as a result of the proposed sale of Theatre Direct and
market reaction to the proposed sale of Theatre Direct;
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the
risk that we may not receive the payments due under the Promissory Note
issued by Key Brand to Hollywood Media in connection with the sale of
Theatre Direct;
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the
risk that the payments we receive under the Promissory Note issued by Key
Brand to Hollywood Media in connection with the sale of Theatre Direct may
be reduced if certain adverse ticketing regulations are
enacted;
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the
risk that we will not receive the earnout payments if Theatre Direct and
its subsidiaries do not attain certain revenue performance levels;
and
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the
other risks set forth in the “RISK FACTORS” section
of this proxy statement beginning on page
27.
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After
taking into account all of the material factors relating to the Stock Purchase
Agreement and the proposed sale of Theatre Direct, including those factors set
forth above, our board of directors agreed that the benefits of the Stock
Purchase Agreement and the proposed sale of Theatre Direct outweigh the risks
and that the Stock Purchase Agreement and the proposed sale of Theatre Direct
are advisable, fair to and in the best interests of Hollywood Media and its
shareholders. Our board of directors did not assign relative weights to
the material factors it considered. In addition, our board of directors
did not reach any specific conclusion on each of the material factor considered,
but conducted an overall analysis of all of the material factors.
Individual members of our board of directors may have given different weights to
different factors.
In
considering the recommendation of our board of directors with respect to the
Proposal to Sell Theatre Direct and the Proposal to Adjourn or Postpone the
Special Meeting, our shareholders should be aware that two of our six directors,
Mitchell Rubenstein, our Chairman and Chief Executive Officer, and Laurie S.
Silvers, our Vice-Chairman, President and Secretary, will directly benefit from
the sale of Theatre Direct and therefore have interests in the Proposal to Sell
Theatre Direct and the Proposal to Adjourn or Postpone the Special Meeting
that are different from, or in addition to, the interests of our shareholders
generally. See “PROPOSAL
#1: PROPOSAL TO SELL THEATRE DIRECT—Interests of Certain Persons in the Sale of
Theatre Direct” beginning on page 57.
Opinion
of Hollywood Media’s Financial Advisor
Pursuant
to an engagement letter dated March 24, 2009 between Peter J. Solomon Company
and Hollywood Media, Hollywood Media engaged Peter J. Solomon Company to act as
its financial and strategic advisor with respect to a possible transaction or
series or combination of transactions regarding Hollywood Media’s Broadway
Ticketing Division and, if requested by Hollywood Media, to render an opinion as
to the fairness, from a financial point of view, to Hollywood Media, of the
aggregate consideration to be received by Hollywood Media pursuant to any such
transaction. Hollywood Media retained Peter J. Solomon Company based upon
Peter J. Solomon Company’s experience and expertise. Peter J. Solomon
Company, as part of its investment banking business, is continually engaged in
the valuation of businesses and securities in connection with business
combinations and acquisitions and for other purposes.
At the
December 18, 2009 meeting of Hollywood Media’s board of directors, Peter J.
Solomon Company rendered its oral opinion to Hollywood Media’s board of
directors, which opinion was subsequently confirmed by delivery of a written
opinion, to the effect that, as of December 18, 2009 and based upon and subject
to various assumptions made, matters considered and limitations set forth in
such opinion, the aggregate consideration proposed to be received by Hollywood
Media in connection with the proposed sale of Theatre Direct to Key Brand
pursuant to the transactions contemplated by the Stock Purchase Agreement was
fair, from a financial point of view, to Hollywood Media.
In
reaching the conclusions presented in its opinion, Peter J. Solomon Company did
not receive any instructions from Hollywood Media in terms of what conclusions
it should reach, and Hollywood Media did not impose any limitation on Peter J.
Solomon Company on the scope of its investigation in preparation of its
opinion.
The full
text of Peter J. Solomon Company’s opinion, dated December 18, 2009, which sets
forth assumptions made, procedures followed, matters considered, limitations on
and scope of the review undertaken by
Peter J.
Solomon Company in rendering Peter J. Solomon Company’s opinion, is attached to
this proxy statement as Annex
E. Peter J.
Solomon Company’s opinion was directed only to the fairness, from a financial
point of view, as of December 18, 2009, to Hollywood Media, of the aggregate
consideration proposed to be received by Hollywood Media in connection with the
proposed sale of Theatre Direct to Key Brand pursuant to the Stock Purchase
Agreement, was provided to Hollywood Media’s board of directors in connection
with its evaluation of the sale of Theatre Direct to Key Brand pursuant to the
Stock Purchase Agreement, did not address any other aspect of such transaction
and did not, and does not, constitute a recommendation to any shareholder of
Hollywood Media as to how such shareholder or any other person should vote or
act on any matter relating to such sale. The summary of Peter J. Solomon
Company’s opinion set forth in this proxy statement is qualified in its entirety
by reference to the full text of such opinion, which is incorporated herein by
reference. The shareholders of Hollywood Media common stock are encouraged
to read Peter J. Solomon Company’s opinion carefully and in its entirety.
Peter J. Solomon Company consented to the use of its opinion in this proxy
statement.
In
connection with Peter J. Solomon Company’s opinion, Peter J. Solomon
Company:
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•
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reviewed
certain publicly available financial statements and/or other information
of Hollywood Media, Theatre Direct and Key
Brand;
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•
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reviewed
certain internal financial statements and other financial and operating
data concerning Hollywood Media, Theatre Direct and Key Brand prepared by
the management of Hollywood Media, Theatre Direct and Key Brand,
respectively;
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•
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reviewed
certain financial projections for Theatre Direct and Key Brand prepared by
the management of Theatre Direct and Key Brand,
respectively;
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•
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discussed
the past and current operations, financial condition and prospects of
Hollywood Media, Theatre Direct and Key Brand with management of Hollywood
Media, Theatre Direct and Key Brand,
respectively;
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•
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compared
the financial performance and condition of Theatre Direct with that of
certain other comparable publicly traded
companies;
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•
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reviewed
publicly available information regarding the financial terms of certain
transactions Peter J. Solomon Company considered comparable, in whole or
in part, to the sale of Theatre Direct pursuant to the Stock Purchase
Agreement;
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•
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participated
in certain discussions among representatives of each of Hollywood Media,
Theatre Direct and Key Brand;
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•
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reviewed
the Stock Purchase Agreement, substantially in the form of the draft dated
December 12, 2009;
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•
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reviewed
the terms of the Promissory Note, the form of the Warrant, the form of
selling stockholder release to be delivered by Hollywood Media to Key
Brand pursuant to the Stock Purchase Agreement, the form of transition
services agreement to be entered into by Hollywood Media and Theatre
Direct pursuant to the Stock Purchase Agreement, and the form of
non-competition agreements to be entered into by Key Brand and each of
Mitchell Rubenstein, Hollywood Media’s Chairman and Chief Executive
Officer, and Laurie S. Silvers, Hollywood Media’s Vice-Chairman, President
and Secretary, pursuant to the Stock Purchase Agreement, each
substantially in the form of the drafts dated December 12, 2009 (the
“Ancillary Agreements”), and certain related documents;
and
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•
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performed
such other analyses as it deemed
appropriate.
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Peter J.
Solomon Company assumed and relied upon the accuracy and completeness of the
information reviewed by Peter J. Solomon Company for the purposes of this
opinion and Peter J. Solomon Company did not assume any responsibility for
independent verification of such information and relied on such information
being complete and correct. With respect to the financial projections of
Theatre Direct and Key Brand, Peter J. Solomon Company assumed that the
financial projections were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the future financial performance
of Theatre Direct and Key Brand, respectively. Peter J. Solomon Company
did not conduct a physical inspection of the facilities or property of Theatre
Direct, Hollywood Media or Key Brand. Peter J. Solomon Company did not
assume any responsibility for any independent valuation or appraisal of the
assets or liabilities of Theatre Direct, Hollywood Media or Key
Brand,
nor was
Peter J. Solomon Company furnished with any such valuation or appraisal.
Peter J. Solomon Company did not make any independent valuation or appraisal of
Hollywood Media, and Peter J. Solomon Company does not express any opinion as to
the consideration proposed to be received by Hollywood Media pursuant to the
Stock Purchase Agreement relative to the price of Hollywood Media’s common
stock. Furthermore, Peter J. Solomon Company did not consider any tax,
accounting or legal effects of the sale of Theatre Direct pursuant to the Stock
Purchase Agreement or the transaction structure on any person or
entity.
Peter J.
Solomon Company assumed that the final form of the Stock Purchase Agreement and
each Ancillary Agreement would be substantially the same as the last draft of
each document reviewed by Peter J. Solomon Company. Peter J. Solomon
Company also assumed that the Transaction would be consummated in accordance
with the terms of the Stock Purchase Agreement and the Ancillary Agreements,
without waiver, modification or amendment of any material term, condition or
agreement (including, without limitation, the consideration proposed to be
received by Hollywood Media in connection with the Transaction), and that, in
the course of obtaining the necessary regulatory or third party approvals,
consents and releases for the Transaction, no delay, limitation, restriction or
condition would be imposed that would have a material adverse effect on Theatre
Direct or Hollywood Media or the contemplated benefits of the Transaction.
Peter J. Solomon Company further assumed that all representations and warranties
set forth in the Stock Purchase Agreement and Ancillary Agreements were and
would be true and correct as of all the dates made or deemed made and that all
parties to the Stock Purchase Agreement and Ancillary Agreements would comply
with all covenants of such party thereunder.
Peter J.
Solomon Company’s opinion was necessarily based on economic, market and other
conditions as in effect on, and the information made available to Peter J.
Solomon Company as of, December 18, 2009. Peter J. Solomon Company did not
express any opinion as to what the value of common stock of Theatre Direct Stock
would be at any future time, which may vary depending upon, among other things,
market conditions, general economic conditions and other factors that generally
influence the price of securities. Peter J. Solomon Company did not
express any opinion as to whether the Warrant issued by Theatre Direct to
Hollywood Media pursuant to the Stock Purchase Agreement would be exercised,
redeemed or put at any future time in accordance with the terms thereof or what
the redemption or put price would be at any future time or what the value of the
shares of Theatre Direct stock issuable upon exercise of the Warrant would be
when (and if) issued. Events occurring after December 18, 2009 may affect
Peter J. Solomon Company’s opinion and the assumptions used in preparing such
opinion, and Peter J. Solomon Company did not assume any obligation to update,
revise or reaffirm its opinion. However, since December 18, 2009,
Hollywood Media is not aware of any material facts that are required to be
disclosed under federal securities laws relating to changes in Hollywood Media’s
operations or performance or the projections or assumptions upon which Peter J.
Solomon Company based its opinion. In addition, Hollywood Media does not
currently anticipate that any material changes in Hollywood Media’s operations
or performance or the projections or assumptions upon which Peter J. Solomon
Company based its opinion will occur before the special meeting of Hollywood
Media’s shareholders is held to approve the sale of Theatre Direct pursuant to
the Stock Purchase Agreement. Hollywood Media will provide additional
disclosure in its public reports to the extent that it is aware of the existence
of any material facts that are required to be disclosed under federal securities
laws and that change Hollywood Media’s operations or performance or the
projections or assumptions upon which Peter J. Solomon Company based its opinion
and will update such disclosure when and if required by the federal securities
laws. Peter J. Solomon Company’s opinion did not address the fairness of
the terms of the Warrant issued by Theatre Direct to Hollywood Media pursuant to
the Stock Purchase Agreement or the Promissory Note. Peter J. Solomon
Company did not express any opinion as to the likelihood that Theatre Direct
would achieve any of the milestones upon which the earnouts contemplated by the
Stock Purchase Agreement are conditioned nor did Peter J. Solomon Company
conduct any analysis as to Key Brand’s ability to fulfill its future obligations
to Hollywood Media, including the payment of the Warrant issued by Theatre
Direct to Hollywood Media pursuant to the Stock Purchase Agreement and the
Promissory Note. Furthermore, Peter J. Solomon Company’s opinion did not
address Hollywood Media’s underlying business decision to undertake the
Transaction, and Peter J. Solomon Company’s opinion did not address the relative
merits of the Transaction as compared to any alternative transactions that might
be available to Hollywood Media.
Peter
J. Solomon Company’s Financial Analyses
The
following summarizes the material financial analyses performed by Peter J.
Solomon Company and reviewed with Hollywood Media’s board of directors on
December 18, 2009 in connection with the delivery of Peter
J.
Solomon Company’s opinion. The order of the financial analyses does
not represent relative importance or weight given to those analyses by Peter J.
Solomon Company. The financial analyses summarized below include
information presented in tabular format. In order to fully understand
Peter J. Solomon Company’s financial analyses, the tables must be read together
with the text of each summary. The tables alone do not constitute a
complete description of the financial analyses. Considering the data in
the tables below without considering the full narrative description of the
financial analyses, including the methodologies and assumptions underlying the
analyses, could create a misleading or incomplete view of Peter J. Solomon
Company’s financial analyses.
Analysis
of Transaction Consideration
In
preparing its opinion, Peter J. Solomon Company reviewed the consideration
proposed to be received by Hollywood Media in connection with the sale of
Theatre Direct pursuant to the Stock Purchase Agreement. As set forth
in the Stock Purchase Agreement and Ancillary Agreements, Hollywood Media would
receive (i) an amount in cash equal to $20 million, subject to adjustments
pursuant to the Stock Purchase Agreement, plus (ii) the Promissory Note, in the
initial principal amount of $8.5 million, subject to downward adjustments (as to
which adjustments Peter J. Solomon Company expressed no opinion), plus (iii) the
Warrant to purchase shares representing 5% of outstanding shares of common stock
of Theatre Direct as of the closing date on a fully diluted basis, plus (iv)
earnout payment amounts, if any, representing up to $14 million in the
aggregate, subject to upward adjustments (as to which adjustments Peter J.
Solomon Company expressed no opinion) (the “Earnout Payments”), plus (v) the
assumption by Key Brand of certain liabilities of Theatre Direct payable upon
consummation of the sale of the Theatre Direct (clauses (i) through (v) in the
aggregate, the “Aggregate Consideration”). The terms and conditions
of the sale of Theatre Direct are more fully set forth in the Stock Purchase
Agreement and Ancillary Agreements.
Peter J.
Solomon Company noted that at the closing of the sale of Theatre Direct pursuant
to the Stock Purchase Agreement (i) Hollywood Media would receive $20 million in
cash, (ii) Hollywood Media would be released from $1.6 million of liabilities
associated with employment agreements with certain employees of Theatre Direct,
and (iii) Hollywood Media would receive $1.9 million in cash as a working
capital adjustment from Key Brand based on estimates provided by Hollywood
Media’s management (collectively, the “Closing Consideration”). Based
on certain assumptions and valuations as described below, Peter J. Solomon
Company further evaluated the present value of contingent or deferred payments,
including interest earned on the Promissory Note, combined with the Closing
Consideration, to determine a range for the total transaction consideration
(“Total Consideration”).
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Present
Value of Consideration
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Consideration
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Nominal
Amount
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Low
Estimate
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High
Estimate
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Cash
Consideration (paid by Key Brand to Hollywood Media at
closing)
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$ |
20.0 |
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$ |
20.0 |
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$ |
20.0 |
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Working
Capital Adjustment
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$ |
1.9 |
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$ |
1.9 |
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$ |
1.9 |
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Release
at closing from liabilities associated with employment agreements with
certain employees of Theatre Direct
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$ |
1.6 |
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$ |
1.6 |
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$ |
1.6 |
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Promissory
Note (issued by Key Brand to Hollywood Media at closing)
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$ |
13.6 |
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$ |
7.1 |
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$ |
8.7 |
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Warrant
(issued by Theatre Direct to Hollywood Media at closing)
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$ |
1.0
(minimum)
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$ |
0.4 |
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$ |
1.8 |
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Earnout
(paid by Key Brand to Hollywood Media pursuant to the Stock Purchase
Agreement)
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$ |
14.0 |
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$ |
3.8 |
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$ |
7.3 |
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Total
Consideration
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$ |
52.1 |
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$ |
34.8 |
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$ |
41.2 |
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In
analyzing the terms of the Promissory Note, Peter J. Solomon Company analyzed
Key Brand’s financial performance and current leverage ratios and reviewed
current credit indices to determine an appropriate range of discount rates to
calculate the present value of the principal and interest to be paid pursuant to
the Promissory Note. In preparing the low estimate of the present
value of the Promissory Note, Peter J. Solomon Company (i) assumed the
Promissory Note would be held until maturity (5 years) and (ii) applied an 18%
discount rate. In preparing the high estimate of the present value of
the Promissory Note, Peter J. Solomon Company (i) assumed the Promissory Note
would be held until maturity (5 years) and (ii) applied a 12% discount
rate.
Peter J.
Solomon Company used various discount rates and basic assumptions to derive a
range of present values for the contingent or deferred components of Total
Consideration, specifically the Promissory Note, including interest earned, the
Warrant and the Earnout Payments.
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(i)
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Promissory
Note and interest earned: Peter J. Solomon Company assumed the Promissory
Note would be held until maturity, Hollywood Media would receive interest
thereon at a rate of 12% per annum, paid quarterly in cash, and applied
discount rates between 12%-18% to determine the present value
thereof.
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(ii)
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Warrant:
Peter J. Solomon Company considered the present value of (i) the minimum
value of the Warrant pursuant to its terms, assuming exercise of the put
option by Hollywood Media on the seventh anniversary of the issue date and
(ii) an assumed maximum value of the Warrant equal to 5% of a potential
future implied enterprise value of Theatre Direct calculated based on
projections of EBITDA and excess cash accumulation provided by the
management of Hollywood Media, in the case of each of (i) and (ii)
applying a 12% discount rate.
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(iii)
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Earnout
Payments: In its analysis of the value of the Earnout Payments,
Peter J. Solomon Company reviewed both historical and future revenue
growth rates for Theatre Direct. Future revenue growth rates
were based on the revenue Theatre Direct is expected to receive during
fiscal years 2009 through 2013 ("Projection Period") based on projections
prepared by Hollywood Media management and furnished to, and used by,
Peter J. Solomon Company for purposes of its analysis. Theatre
Direct revenue was projected to grow at an annual rate of 5.2% during the
Projection Period. To determine when the Earnout Payments could
be received, Peter J. Solomon Company’s illustrative analysis considered
that either (a) this annual growth rate would remain consistent throughout
the Earnout Period or that (b) Theatre Direct revenue growth would slow
and the Earnout Payments would be received in the final year of the
Earnout Period. Peter J. Solomon Company applied discount rates
between 10%-14% to the Earnout Payments based on the illustrative analysis
whereby the Earnout Payment milestones were achieved in various years
during the Earnout Period to determine a range of present values of the
Earnout Payments.
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Accordingly,
Peter J. Solomon Company determined the present value of Total Consideration
would be a minimum of the Closing Consideration ($23.5 million) and that the
present value of Total Consideration could potentially reach up to $41.2 million
depending on the amount of contingent or deferred consideration received, if
any. In analyzing the valuation ranges discussed herein, Peter J.
Solomon Company considered each of these values.
Analysis
of Selected Publicly Traded Comparable Companies
Peter J.
Solomon Company performed a comparable public company analysis, which is
intended to provide an implied value of Theatre Direct by comparing certain
financial information of Theatre Direct with corresponding financial information
of similar public companies. Given the limited nature of Theatre
Direct’s business operations, its limited market size and historical financial
performance, Peter J. Solomon Company determined, based on its experience, there
was one comparable company appropriate to be included in this comparison
analysis, Ticketmaster Entertainment, Inc. . Peter J. Solomon Company
reviewed and compared selected financial data of Theatre Direct with similar
publicly available information and estimates for Ticketmaster Entertainment,
Inc.
For this
analysis, Peter J. Solomon Company calculated and compared various financial
multiples and ratios, including, among others enterprise value (which represents
total equity value plus book values of total debt, preferred stock and minority
interests less cash) as a multiple of earnings before interest, taxes,
depreciation and amortization (EBITDA), for Ticketmaster Entertainment, Inc. for
the last twelve months (LTM) based on the most recent publicly filed data, and
for projected calendar year 2009 (FY 2009E).
For
purposes of this analysis, Peter J. Solomon Company obtained the projected
EBITDA estimates for the public comparable company by using the mean of Wall
Street analysts’ estimates as reported by Thomson One Analytics on December 10,
2009 for the selected company.
Based on
this data, as of December 18, 2009, Peter J. Solomon Company developed a summary
valuation analysis based on the LTM and FY 2009E trading valuation multiples for
the selected comparable company. This analysis resulted in the
following implied multiples and ratios:
Enterprise Value as a Ratio
of:
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Implied Trading
Multiples
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LTM
EBITDA
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4.1x
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FY
2009E EBITDA
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4.1x
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Peter J.
Solomon Company then calculated a range of implied enterprise values of Theatre
Direct using the multiples from the selected company and applying them to the
historical financial information of Theatre Direct and the financial projections
provided to Peter J. Solomon Company by Hollywood Media’s
management. The range of implied enterprise values were based on
Company LTM EBITDA as of October 31, 2009 and FY 2009E EBITDA.
Based on
this analysis, Peter J. Solomon Company derived a reference range of implied
enterprise values for Theatre Direct of $17.7 million to $23.3
million. Peter J. Solomon Company noted that the present value of the
Total Consideration to be received by Hollywood Media pursuant to the Stock
Purchase Agreement ranges from a minimum of $23.5 million in Closing
Consideration to $41.2 million comprised of the Closing Consideration plus
potential additional value from the contingent or deferred components of the
Total Consideration.
Analysis
of Selected Precedent Transactions
To
analyze the proposed consideration to be received pursuant to the Stock Purchase
Agreement relative to the consideration received in selected other similar
precedent transactions. Peter J. Solomon Company determined, based on
its experience, there was one precedent transaction appropriate to be included
in this analysis, the proposed transaction between Live Nation Inc. and
Ticketmaster Entertainment, Inc.
Peter J.
Solomon Company calculated the multiple of LTM EBITDA paid in this comparable
transaction, resulting in the following multiple:
Enterprise Value as a Ratio
of:
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Implied Multiple
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LTM
EBITDA
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3.8x
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Based on
this analysis, Peter J. Solomon Company derived a reference range of implied
enterprise values using Company LTM EBITDA and FY 2009E EBITDA of $16.4 million
to $21.6 million. Peter J. Solomon Company noted that the present
value of the Total Consideration to be received by Hollywood Media pursuant to
the Stock Purchase Agreement ranges from a minimum of $23.5 million in Closing
Consideration to $41.2 million comprised of the Closing Consideration plus
potential additional value from the contingent or deferred components of the
Total Consideration.
Discounted
Cash Flow Analysis
Peter J.
Solomon Company performed a discounted cash flow analysis to calculate the
theoretical enterprise value of Theatre Direct based on the value of the
forecasted future free cash flows of Theatre Direct from March 31, 2010 through
December 31, 2013, as provided and estimated by Hollywood Media
management. Based on the projections, Theatre Direct revenue was
projected to grow at an annual rate of 5.2% during the Projection Period;
adjusted EBITDA margins were projected to increase from 6.2% to 8.1%; and
capital expenditures were expected to remain flat over the Projection
Period.
In
performing its discounted cash flow analysis, Peter J. Solomon Company
considered various assumptions that it deemed appropriate based on a review with
Hollywood Media’s and Theatre Direct’s management of Theatre Direct’s prospects
and risks. Peter J. Solomon Company believed it appropriate to
utilized discount rates ranging from 10% to 14%, and EBITDA terminal value
multiples ranging from 4.0x to 4.5x.
Based on
this analysis, Peter J. Solomon Company derived a reference range of implied
enterprise values of $34.7 million to $42.2 million. Peter J. Solomon
Company noted that the present value of the Total Consideration to be received
by Hollywood Media pursuant to the Stock Purchase Agreement ranges from a
minimum of $23.5 million in Closing Consideration to $41.2 million comprised of
the Closing Consideration plus potential additional value from the contingent or
deferred components of the Total Consideration.
Miscellaneous
In
arriving at its opinion, Peter J. Solomon Company performed a variety of
financial analyses, the material portions of which are summarized
above. The preparation of a fairness opinion is a complex process
involving various determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to the particular
circumstances and, therefore, such an opinion is not necessarily susceptible to
a partial analysis or summary description. In arriving at its
opinion, Peter J. Solomon Company did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as to
significance and relevance of each analysis and factor. Accordingly,
Peter J. Solomon Company believes that its analyses must be considered as a
whole and that selecting portions of its analyses or of the summary set forth
above, without considering all such analyses, could create an incomplete view of
the process underlying Peter J. Solomon Company’s opinion.
In
performing its analyses, Peter J. Solomon Company relied on numerous assumptions
made by the management of Hollywood Media and made numerous judgments of its own
with regard to current and future industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of Hollywood Media and Theatre Direct. Actual
values will depend upon several factors, including changes in interest rates,
dividend rates, market conditions, general economic conditions, Theatre Direct’s
ability to meet its contingent payment targets and other factors. The
analyses performed by Peter J. Solomon Company are not necessarily indicative of
actual values or future results. Such analyses were prepared solely
as a part of Peter J. Solomon Company’s analysis of the fairness, from a
financial point of view, to Hollywood Media of the consideration proposed to be
received by Hollywood Media in connection with the sale of Theatre Direct
pursuant to the Stock Purchase Agreement, and were provided to Hollywood Media’s
board of directors solely in connection with the delivery of Peter J. Solomon
Company’s opinion. The analyses do not purport to be appraisals or
necessarily reflect the values at which businesses or securities might actually
be sold, which may be higher or lower than the consideration proposed to be
received by Hollywood Media in connection with the sale of Theatre Direct
pursuant to the Stock Purchase Agreement, and which are inherently subject to
uncertainty.
With
regard to the comparable public company analysis and the precedent transactions
analysis summarized above, Peter J. Solomon Company selected such public company
on the basis of various factors for reference purposes only; however, no public
company or transaction utilized as a comparison is identical to Theatre Direct
or the sale of Theatre Direct pursuant to the Stock Purchase
Agreement. Accordingly, an analysis of the foregoing was not
mathematical; rather, it involved complex considerations and judgments
concerning differences in financial and operating characteristics of the
selected companies and other factors that could affect the acquisition or public
trading values of the selected companies and transactions to which Theatre
Direct and the sale of Theatre
Direct
pursuant to the Stock Purchase Agreement were being compared. The
consideration proposed to be received by Hollywood Media in connection with the
sale of Theatre Direct pursuant to the Stock Purchase Agreement was determined
through negotiations between Hollywood Media and Key Brand, and was approved by
Hollywood Media’s board of directors. Peter J. Solomon Company did
not recommend any specific consideration to Hollywood Media’s board of directors
or that any given consideration constituted the only appropriate consideration
for the sale of Theatre Direct. In addition, as described elsewhere
in this proxy statement, Peter J. Solomon Company’s opinion was one of many
factors taken into consideration by Hollywood Media’s board of directors in
evaluating the sale of Theatre Direct. Consequently, the Peter J.
Solomon Company analyses described above should not be viewed as determinative
of the opinion of Hollywood Media’s board of directors with respect to the sale
of Theatre Direct.
The
financial advisory services Peter J. Solomon Company provided to Hollywood Media
in connection with the sale of Theatre Direct were not limited to the delivery
of its opinion. Peter J. Solomon Company acted as financial and
strategic advisor to Hollywood Media in connection with the sale of Theatre
Direct and received a fee of $250,000 for its services payable upon delivery of
its opinion. No fees payable to Peter J. Solomon Company are
contingent on the successful completion of the sale of Theatre Direct pursuant
to the Stock Purchase Agreement. In addition, Hollywood Media also
agreed to reimburse Peter J. Solomon Company for its out-of-pocket expenses,
including fees and disbursements of its counsel, incurred in connection with its
engagement and to indemnify Peter J. Solomon Company and certain related persons
against liabilities and expenses, including liabilities under the federal
securities laws, relating to or arising out of its engagement. In
performing its work as financial advisor to Hollywood Media, Peter J. Solomon
Company solicited interest from other parties with respect to a merger or other
business combination transaction involving Theatre Direct. In
February 2010, Hollywood Media separately engaged Peter J. Solomon Company to
provide Hollywood Media with general financial advisory services following the
sale of Theatre Direct. Except in its role as financial advisor to
Hollywood Media in connection with the sale of Theatre Direct and its role as
financial advisor to Hollywood Media following the sale of Theatre Direct,
during the past two years, Peter J. Solomon Company has not provided financial
advisory services to Hollywood Media, Theatre Direct, Key Brand or any of their
affiliates.
We are
not aware of any federal or state regulatory requirements that must be complied
with or approvals that must be obtained to complete the sale of Theatre Direct,
other than the filing of this proxy statement with the SEC. If any
additional approvals or filings are required, we will use our commercially
reasonable efforts to obtain those approvals and make any required filings
before completing the transactions contemplated by the Stock Purchase
Agreement.
If the
Proposal to Sell Theatre Direct is approved by our shareholders at the special
meeting, we expect to complete the sale of Theatre Direct as soon as practicable
after all of the conditions in the Stock Purchase Agreement have been satisfied
or waived. We and Key Brand are working toward satisfying the
conditions to closing and completing the sale of Theatre Direct as soon as
reasonably practicable. However, there can be no assurance that the
sale of Theatre Direct will be completed at all or, if completed, when it will
be completed.
If the
Proposal to Sell Theatre Direct is approved by our shareholders and the sale of
Theatre Direct is completed, we will no longer conduct our Broadway Ticketing
Business. Instead, we will focus on our remaining businesses and
interests, which are: (i) our Ad Sales Division, (ii) our Intellectual
Properties Division, (iii) our 26.2% equity interest in MovieTickets.com, Inc.,
(iv) an earnout from the sale of the Hollywood.com business, (v) the right to
exercise or put the Warrant issued pursuant to the Stock Purchase Agreement, and
(vi) the right to receive payments under the Promissory Note and earnout in
connection with the sale of Theatre Direct pursuant to the Stock Purchase
Agreement. The assets of Hollywood Media that are currently used in
connection with these businesses and interests will not be transferred to Key
Brand as part of the sale of Theatre Direct.
Following
the closing of the sale of Theatre Direct to Key Brand, we expect (i) our Ad
Sales Division to continue to operate out of our headquarters in Boca Raton,
Florida and our offices in England and (ii) our Intellectual Properties Division
to continue to operate out of our offices in Green Bay, Wisconsin.
Our
reporting obligations as a U.S. public company will not be affected as a result
of completing the sale of Theatre Direct. However, following the sale
of Theatre Direct our business will be smaller, and therefore we may fail to
satisfy the continued listing standards of The NASDAQ Global
Market. In the event that we are unable to satisfy the continued
listing standards of The NASDAQ Global Market, our common stock may be delisted
from that market. If we are delisted from The NASDAQ Global Market, we may apply
to transfer our common stock listing to The NASDAQ Capital Market or the
American Stock Exchange, however our application may not be granted if we do not
satisfy the applicable listing requirements for those markets. If our
common stock were to be delisted from The NASDAQ Global Market and we could not
satisfy the listing standards of The NASDAQ Capital Market or the American Stock
Exchange, trading of our common stock most likely would be conducted in the
over-the-counter market on an electronic bulletin board established for unlisted
securities such as the Pink Sheets or the OTC Bulletin Board. See
“RISK FACTORS—Because our business will be smaller
following the sale of Theatre Direct, there is a possibility that our common
stock may be delisted from The NASDAQ Global Market if we fail to satisfy the
continued listing standards of that market” beginning on page
30.
We also
intend to continue to evaluate and potentially explore other available strategic
options. We will continue to work to maximize shareholder interests
with a goal of returning value to our shareholders. The sale of
Theatre Direct will not alter the rights, privileges or nature of the issued and
outstanding shares of our common stock. A shareholder who owns shares
of our common stock immediately prior to the closing of the sale of Theatre
Direct will continue to hold the same number of shares immediately following the
closing. Our reporting obligations as a U.S. public company will not be affected
as a result of completing the sale of Theatre Direct.
If the
Proposal to Sell Theatre Direct is not approved by our shareholders, and
therefore not completed, we will continue to conduct our Broadway Ticketing
Business, and we may consider and evaluate other strategic
opportunities. In such a circumstance, there can be no assurances
that our continued operation of our Broadway Ticketing Business or any
alternative strategic opportunities will result in the same or greater value to
our shareholders as the Proposal to Sell Theatre Direct. If the sale
of Theatre Direct does not occur, we will not be able to use the proceeds in
connection with our Ad Sales Division, Intellectual Properties Division, and
other remaining businesses and interests, and we will not be able to use the net
proceeds to fund a special cash dividend to our shareholders or engage in a
self-tender offer to purchase shares of Hollywood Media’s common
stock.
If the
Stock Purchase Agreement is terminated under certain circumstances described in
this proxy statement and set forth in the Stock Purchase Agreement (including
Hollywood Media entering into an acquisition agreement for a superior proposal),
Hollywood Media may be required to pay Key Brand a termination fee of $1.2
million. Except in certain circumstances, Hollywood Media will not be
required to pay Key Brand a termination fee if the Stock Purchase Agreement is
terminated because the Proposal to Sell Theatre Direct is not approved by
Hollywood Media’s shareholders.
If the
Stock Purchase Agreement is validly terminated by Hollywood Media under certain
conditions set forth in the Stock Purchase Agreement and the Escrow Agreement,
Hollywood Media may be entitled to receive up to approximately $2.4 million,
consisting of the $1.2 million deposit (including any earnings thereon) from the
Escrow Agent, plus reimbursement for all of Hollywood Media’s costs and expenses
incurred in connection with the transactions contemplated by the Stock Purchase
Agreement not to exceed $1.2 million.
Net
proceeds from the sale of Theatre Direct will be used in connection with our Ad
Sales Division, Intellectual Properties Division, and other remaining businesses
and interests. In addition, following the sale of Theatre Direct
pursuant to the Stock Purchase Agreement and subject to compliance with Florida
law and federal laws and regulations, Hollywood Media expects to either (i) pay
a one-time special cash dividend to its shareholders of approximately $0.60 per
share of Hollywood Media common stock, totaling approximately $18 million, or
(ii)
engage in
a self-tender offer to purchase shares of Hollywood Media common stock at a
per-share price to be determined in the future, totaling approximately $18
million. However, (i) Hollywood Media is not required to pay a
one-time special cash dividend or engage in a self-tender offer, (ii) Hollywood
Media’s board of directors has made no final decision whether to pay a one-time
special cash dividend or engage in a self-tender offer, and such decision will
be based on what Hollywood Media’s board of directors determines is in Hollywood
Media’s best interest and the best interest of Hollywood Media’s shareholders
(subject to compliance with Florida law and federal laws and regulations), (iii)
the actual amount of a one-time special cash dividend or self-tender offer may
be lower or higher than this amount depending on the amount of Hollywood Media’s
liabilities following the sale of Theatre Direct and other factors and (iv) the
timing of the payment of a one-time special cash dividend or offer period for a
self-tender offer may vary depending on a number of factors, including any
contingent liabilities or other unforeseen matters. If Hollywood
Media elects to pay a one-time special cash dividend, prior to making such
one-time special cash dividend, Hollywood Media will announce, at least ten days
in advance, the record date for such distribution. Only holders of
Hollywood Media’s common stock on the record date for a one-time special cash
dividend will be entitled to receive a one-time special cash
dividend. Please note that if Hollywood Media elects to pay a
one-time special cash dividend, the record date for such one-time special cash
dividend will be after the closing date of the sale of Theatre Direct and is
different from the record date for determining which holders of Hollywood
Media’s common stock are entitled to vote on the matters described in this proxy
statement. If Hollywood Media elects to engage in a self-tender
offer, Hollywood Media will announce the offer period and the per-share purchase
price on or prior to the commencement date of such self-tender
offer. In the event that we do not pay a one-time special cash
dividend or engage in a self-tender offer, then we will hold the portion of the
net proceeds from the sale of Theatre Direct that are not used in connection
with our Ad Sales Division, Intellectual Properties Division and other remaining
businesses and interests for future possible strategic opportunities, including
possibly purchasing additional equity in MovieTickets.com, Inc. (in which we
currently own a 26.2% equity interest).
No
appraisal or dissenters’ rights are available to our shareholders under the
Florida Business Corporation Act or our articles of incorporation or bylaws in
connection with the sale of Theatre Direct pursuant to the Stock Purchase
Agreement.
In
considering the recommendation of our board of directors with respect to the
Proposal to Sell Theatre Direct and the Proposal to Adjourn or Postpone the
Special Meeting, our shareholders should be aware that two of our six directors,
Mitchell Rubenstein, our Chairman and Chief Executive Officer, and Laurie S.
Silvers, our Vice-Chairman, President and Secretary, will directly benefit from
the sale of Theatre Direct and therefore have interests in the Proposal to Sell
Theatre Direct and the Proposal to Adjourn or Postpone the Special Meeting that
are different from, or in addition to, the interests of our shareholders
generally. In addition, two executives in our legal department and
two executive officers of Theatre Direct, Matt Kupchin, the President of Theatre
Direct, and Jerome Kane, the Vice-President of Theatre Direct, will directly
benefit from the sale of Theatre Direct and therefore have interests in the
Proposal to Sell Theatre Direct and the Proposal to Adjourn or Postpone the
Special Meeting that are different from, or in addition to, the interests of our
shareholders generally. As described below, such interests include
the accelerated vesting of certain restricted shares of Hollywood Media’s common
stock held by Mr. Rubenstein and Ms. Silvers and change of control payments to
Mr. Rubenstein, Ms. Silvers, Mr. Kupchin, Mr. Kane and two executives in our
legal department.
Hollywood
Media’s board of directors was aware of these interests and considered them in
adopting and approving the Stock Purchase Agreement and the sale of Theatre
Direct and recommending that the shareholders of Hollywood Media approve the
sale of Theatre Direct pursuant to the Stock Purchase Agreement. In
addition, the independent members of Hollywood Media’s board of directors
(meeting without the non-independent members of Hollywood Media’s board of
directors) unanimously approved the Stock Purchase Agreement and the sale of
Theatre Direct and recommended that the shareholders of Hollywood Media approve
the sale of Theatre Direct pursuant to the Stock Purchase
Agreement.
Accelerated
Vesting of Restricted Shares of Hollywood Media Common Stock
Upon the
consummation of the sale of Theatre Direct pursuant to the Stock Purchase
Agreement, all of the unvested restricted shares of Hollywood Media common stock
granted to Mitchell Rubenstein, our Chairman and Chief Executive Officer, and
Laurie S. Silvers, our Vice-Chairman, President and Secretary, pursuant to
Hollywood Media’s 2004 Stock Incentive Plan will immediately vest and no longer
be restricted shares. As of April 27, 2010, Mr. Rubenstein held
145,833 unvested restricted shares of Hollywood Media common stock, having a
value of approximately $172,083 based on the closing sales price of our common
stock on such date (which was $1.18), and Ms. Silvers held 87,500 unvested
restricted shares of Hollywood Media common stock, having a value of $103,250
based on the closing sales price of our common stock on such date (which was
$1.18).
On
December 23, 2009, (i) Hollywood Media and Mitchell Rubenstein, our Chairman and
Chief Executive Officer, entered into an amendment to the amended and restated
employment agreement of Mr. Rubenstein (the “Rubenstein Amendment”), and (ii)
Hollywood Media and Laurie S. Silvers, our Vice-Chairman, President and
Secretary, entered into an amendment to the amended and restated employment
agreement of Ms. Silvers (the “Silvers Amendment,” and together with the
Rubenstein Amendment, the “Amendments”). The Amendments amend the
respective amended and restated employment agreements, dated as of December 22,
2008, between Hollywood Media and each of Mr. Rubenstein and Ms. Silvers (the
“Previous Agreements,” as amended by the Amendments, the “Amended
Agreements”). The following summarizes certain material provisions of
the Amended Agreements. This summary does not purport to be complete,
and the rights and obligations of the parties are governed by the express terms
of the Amended Agreements and not by this summary or any other information
contained in this proxy statement. The summary below and elsewhere in
this proxy statement regarding the Amended Agreements is subject to, and
qualified in its entirety by, reference to the full text of the Rubenstein
Amendment and the Silvers Amendment, each of which were respectively filed as
Exhibits 10.1 and 10.2 to the Current Report on Form 8-K filed by Hollywood
Media with the SEC on December 29, 2009.
Pursuant
to the Amendments, the executives shall continue to be employed by Hollywood
Media for the same salary and benefits as set forth in the Previous Agreements
for a period of 90 days following the consummation of the sale of Theatre Direct
pursuant to the Stock Purchase Agreement. After such 90-day period,
the executives shall be employed by Hollywood Media until such employment is
terminated by either Hollywood Media or the executives (such period, the
“Extension Term”).
During
the Extension Term, Mr. Rubenstein and Ms. Silvers will no longer receive fixed
salaries from Hollywood Media (other than a nominal payment of $1 per year), and
will each instead receive compensation for his or her services to Hollywood
Media in amounts equal to five percent (5%) of the sum of (i) any future
distributions and other proceeds Hollywood Media receives in respect of its
ownership interest in MovieTickets.com, Inc. and (ii) certain other amounts that
may be received by Hollywood Media from MovieTickets.com, Inc. (collectively,
the “5% Distribution”). Any right of the executives to compensation
under the Amended Agreements shall be an unfunded and unsecured promise to pay,
and shall not be subject to assignment, pledge, or other transfer to any other
person, except by will or by the laws of descent and distribution.
In the
event that during the Extension Term Hollywood Media enters into any additional
businesses other than its existing businesses, then Hollywood Media will
consider in good faith increasing each of the executive’s compensation during
the Extension Term to reflect the additional service to be provided by the
executive to Hollywood Media in connection with such additional
businesses.
A
consummation of the sale of Theatre Direct will constitute a “change of control”
under the Amended Agreements (and would have constituted a “change of control”
under the Previous Agreements). Mr. Rubenstein and Ms. Silvers have
agreed pursuant to the Amended Agreements that if the sale of Theatre Direct is
consummated pursuant to the Stock Purchase Agreement, then $812,501 of the
amount Mr. Rubenstein was entitled to receive and $332,189 of the amount Ms.
Silvers was entitled to receive upon a change of control under the Previous
Agreements will be deferred and paid in accordance with the Amended
Agreements. As a result, Mr. Rubenstein and Ms. Silvers will each
receive a reduced change of control payment equal to $1.5 million upon the
consummation of the sale of Theatre Direct pursuant to the Stock Purchase
Agreement.
If Mr.
Rubenstein and/or Ms. Silvers, as applicable, continue to be employed by
Hollywood Media on the first anniversary of the consummation of the sale of
Theatre Direct pursuant to the Stock Purchase Agreement (or if such employment
is terminated on or before such date by Hollywood Media without “cause” or by
Mr. Rubenstein and/or Ms. Silvers, as applicable, for “good reason”), then,
regardless of whether Mr. Rubenstein or Ms. Silvers continues to provide
services to Hollywood Media after the first anniversary of the consummation of
the sale of Theatre Direct pursuant to the Stock Purchase Agreement, one-half of
the deferred change of control payments will be paid to Mr. Rubenstein and/or
Ms. Silvers, as applicable, upon the receipt by Hollywood Media of payments on
the Promissory Note, on a pro rata basis, and one-half of such payments will be
paid to Mr. Rubenstein and/or Ms. Silvers, as applicable, upon the receipt by
Hollywood Media of payments under the first $7 million tranche of the earnout
pursuant to the Stock Purchase Agreement, on a pro rata basis, according to the
following schedule:
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Mr.
Rubenstein will receive:
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4.76%
of all payments of principal and interest received by Hollywood Media on
account of the Promissory Note, with each such payment to be made to Mr.
Rubenstein within five business days of the date Hollywood Media receives
payments of principal and interest on account of the Promissory Note
(provided that any such amounts that would be payable during the first
year following the consummation of the sale of Theatre Direct pursuant to
the Stock Purchase Agreement will be set aside in a “rabbi trust”),
and
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5.79%
of the first $7 million of earnout payments received by Hollywood Media
pursuant to the Stock Purchase Agreement, with each such payment to be
made to Mr. Rubenstein within five business days of the date Hollywood
Media receives the first $7 million of earnout payments pursuant to the
Stock Purchase Agreement (provided that any such amounts that would be
payable during the first year following the consummation of the sale of
Theatre Direct pursuant to the Stock Purchase Agreement will be set aside
in a “rabbi trust”).
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Ms.
Silvers will receive:
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1.94%
of all payments of principal and interest received by Hollywood Media on
account of the Promissory Note, with each such payment to be made to Ms.
Silvers within five business days of the date Hollywood Media receives
payments of principal and interest on account of the Promissory Note
(provided that any such amounts that would be payable during the first
year following the consummation of the sale of Theatre Direct pursuant to
the Stock Purchase Agreement will be set aside in a “rabbi trust”),
and
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2.36%
of the first $7 million of earnout payments received by Hollywood Media
pursuant to the Stock Purchase Agreement, with each such payment to be
made to Ms. Silvers within five business days of the date Hollywood Media
receives the first $7 million of earnout payments pursuant to the Stock
Purchase Agreement (provided that any such amounts that would be payable
during the first year following the consummation of the sale of Theatre
Direct pursuant to the Stock Purchase Agreement will be set aside in a
“rabbi trust”).
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The
portion of any amount that is received by Hollywood Media in respect of the
Promissory Note or the earnout pursuant to the Stock Purchase Agreement before
the first anniversary of the consummation of the sale of Theatre Direct pursuant
to the Stock Purchase Agreement that is payable to Mr. Rubenstein or Ms. Silvers
shall be set aside in a “rabbi trust” until the first anniversary of the
consummation of the sale of Theatre Direct pursuant to the Stock Purchase
Agreement, at which time such amount (plus an amount equal to the interest
earned on obligations held by the rabbi trust in respect of such amount) shall
be paid to Mr. Rubenstein or Ms. Silvers, as applicable.
If
Hollywood Media does not pay any amount of the deferred change of control
payments that becomes due to Mr. Rubenstein and/or Ms. Silvers, as applicable,
pursuant to the schedule set forth above by the latest date on which such amount
is permitted to be paid to such executive, then Mr. Rubenstein and/or Ms.
Silvers, as applicable, shall provide written notice to Hollywood Media of such
failure to pay, and if such payment is not made by the 30th day
following the date that such written notice is provided to Hollywood Media, then
the obligations of Hollywood Media to pay such executive the amount of the
deferred change of control payments according to the schedule set forth above
shall accelerate and become immediately due and payable in full as if Hollywood
Media had received
total
principal payments of $8,500,000 on account of the Promissory Note and the first
$7,000,000 of earnout payments pursuant to the Stock Purchase
Agreement.
If
Hollywood Media surrenders or otherwise transfers or modifies the Promissory
Note or the earnout to be received by Hollywood Media pursuant to the Stock
Purchase Agreement for any modified obligation or any other consideration, the
payments from Hollywood Media to Mr. Rubenstein and Ms. Silvers for the deferred
change of control payments shall be made with respect to such modified
obligation or the fair market value of such other consideration.
If,
during the Extension Term, the employment of either Mr. Rubenstein or Ms.
Silvers is terminated by Hollywood Media other than for “cause”, death, or
disability, then such executive will receive the amount payable to such
executive following a “change of control” in a lump sum payment within five (5)
business days after such termination of employment (to the extent not previously
paid), without regard to whether all of the payments on account of the
Promissory Note and the earnout under the Stock Purchase Agreement have been
received by Hollywood Media. Additionally, if the employment of
either executive is terminated (i) by reason of the death of the executive, (ii)
by Hollywood Media during the Extension Term for any reason other than for
“cause,” or (iii) by the executive for “good reason,” the right of such
executive to payments of the 5% Distribution will fully vest and the 5%
Distribution will continue to be paid to the executive and the executive’s
heirs.
If
Hollywood Media fails to pay any amount that becomes due to either executive
under the Amended Agreements by the latest date on which such amount is
permitted under the Amended Agreements to be paid, interest will be charged with
respect to the past due amount at the rate of 1.5% per month, compounded
monthly, from the latest date on which such amount was permitted under the
Amended Agreements to be paid, and such interest shall be paid by Hollywood
Media to such executive at or before the time that the amount past due is
paid.
Except
for certain limited exceptions, the Amendments shall be of no force or effect,
and the Previous Agreements will continue in place and remain in full force and
effect (in which case, the full change of control obligations under the Previous
Agreements will remain in place, as described in the following paragraph), in
the event that (i) the sale of Theatre Direct is not consummated pursuant to the
terms and conditions of the Stock Purchase Agreement within 12 months after the
date of the Amendments, (ii) the Stock Purchase Agreement is terminated at any
time for any reason before the consummation of the sale of Theatre Direct, (iii)
the employment of the executive is terminated by Hollywood Media other than for
“cause,” or by the executive for “good reason,” before the consummation of the
sale of Theatre Direct and before the Stock Purchase Agreement has been
terminated, or (iv) at the election of the executive, if any amendment is made
to the Stock Purchase Agreement affecting the purchase price or other principal
terms of the sale of Theatre Direct.
If the
sale of Theatre Direct is consummated pursuant to the Stock Purchase Agreement
after the termination of the executive’s employment by Hollywood Media without
“cause” or by the executive for “good reason,” then the executive will be
entitled to receive the entire amount payable to the executive pursuant to the
Previous Agreements following a “change of control,” which is $2,312,501 under
Mr. Rubenstein’s Previous Agreement and $1,832,189 under Ms. Silvers’ Previous
Agreement. If Hollywood Media’s Broadway Ticketing Division is sold
or transferred, (i) to Key Brand (or its affiliates) under terms different in
any material respect from those set forth in the Stock Purchase Agreement, or
(ii) to a different purchaser in a transaction similar to the transaction
described in the Stock Purchase Agreement, the executives will receive the
entire amount of the “change of control” payments pursuant to the Previous
Agreements.
Except as
otherwise specifically set forth in the Amendments, all provisions of the
Previous Agreements that are not amended by the Amendments remain in full force
and effect.
Change
of Control Payments to Other Executives of Hollywood Media
In
connection with the sale of Theatre Direct pursuant to the Stock Purchase
Agreement, Hollywood Media will pay an aggregate amount of approximately
$400,000 in change of control payments to two executives in Hollywood Media’s
legal department, each of whom will receive these payments in accordance with
their retention agreements, with such amounts payable at the closing of sale of
Theatre Direct pursuant to the Stock Purchase
Agreement
(provided that Hollywood Media may defer one-half of these payments by up to one
year if it elects to require the continued employment of one or both of these
executives during a transition period of up to one year).
Change
of Control Payments to Certain Executives of Theatre Direct
In
connection with the sale of Theatre Direct pursuant to the Stock Purchase
Agreement, Theatre Direct is obligated to pay an aggregate amount of
approximately $1.6 million in change of control payments to Matt Kupchin, the
President of Theatre Direct, and Jerome Kane, the Vice-President of Theatre
Direct. Pursuant to the Stock Purchase Agreement, up to a maximum
amount of $1.6 million of these change of control obligations will be or remain
the liabilities of Theatre Direct from and after the closing of the sale of
Theatre Direct and Hollywood Media will have no obligation with respect to such
liabilities up to a maximum of $1.6 million.
In
connection with the transactions contemplated by the Stock Purchase Agreement,
Hollywood Media expects to incur approximately:
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an
aggregate amount of $4.14 million in total change of control payments to
Mitchell Rubenstein, the Chairman and Chief Executive Officer of Hollywood
Media, and Laurie S. Silvers, the Vice-Chairman, President and Secretary
of Hollywood Media, an aggregate amount of $3.0 million of which will be
paid upon the consummation of the sale of Theatre Direct pursuant to the
Stock Purchase Agreement and approximately $1.14 million of which will be
paid (if Mr. Rubenstein and Ms. Silvers continue to be employed by
Hollywood Media on the first anniversary following the consummation of the
sale of Theatre Direct pursuant to the Stock Purchase Agreement (or if
such employment is terminated on or before such date by Hollywood Media
without “cause” or by Mr. Rubenstein or Ms. Silvers for “good reason”))
pursuant to the Amended Agreements as Hollywood Media receives payments
under the Promissory Note and the earnout pursuant to the Stock Purchase
Agreement (provided that any such amounts that would be payable during the
first year following the consummation of the sale of Theatre Direct
pursuant to the Stock Purchase Agreement will be set aside in a “rabbi
trust”) (see “PROPOSAL
#1: PROPOSAL TO SELL THEATRE DIRECT—Interests of Certain Persons in the
Sale of Theatre Direct—Amendments to Employment Agreements of Mr.
Rubenstein and Ms. Silvers” beginning on page
58);
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an
aggregate amount of $400,000 in change of control payments to two
executives in Hollywood Media’s legal department, each of whom will
receive these payments in accordance with their retention agreements, with
such amounts payable at closing (provided that Hollywood Media may defer
one-half of these payments by up to one year if it elects to require the
continued employment of one or both of these executives during a
transition period of up to one
year);
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$250,000
in fees, plus additional out−of−pocket expenses, to Peter J. Solomon
Company for providing the fairness opinion to Hollywood Media’s board of
directors in connection with evaluating and approving the Stock Purchase
Agreement and the transactions contemplated
thereby;
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$750,000
in legal fees, plus additional out−of−pocket expenses, in connection with
preparing and negotiating the Stock Purchase Agreement and the related
documents and preparing and filing this proxy statement relating to the
transactions contemplated by the Stock Purchase Agreement;
and
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$15,000
in fees ($7,500 of which has been paid as an initial retainer), plus
additional out−of−pocket expenses, to a proxy solicitation firm, Innisfree
M&A Incorporated, to assist in the distribution and solicitation of
proxies for the special meeting.
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The fees
for the fairness opinion, the legal fees and the fees for the solicitation of
proxies will be paid regardless of whether the transactions contemplated by the
Stock Purchase Agreement are consummated. At this time, Hollywood
Media cannot provide an estimate of the other amounts or range of amounts
expected to be incurred in connection with the transactions contemplated by the
Stock Purchase Agreement.
Terms
of the Stock Purchase Agreement
The
following summarizes certain material provisions of the Stock Purchase
Agreement. This summary does not purport to be complete, and the
rights and obligations of the parties are governed by the express terms of the
Stock Purchase Agreement and not by this summary or any other information
contained in this proxy statement. The summary of the Stock Purchase
Agreement below and elsewhere in this proxy statement is subject to, and
qualified in its entirety by, reference to the full text of the Stock Purchase
Agreement, a copy of which is attached to this proxy statement as Annex A and which we
incorporate herein by reference.
The Stock
Purchase Agreement is described in, and included as an annex to, this proxy
statement only to provide you with information regarding its terms and
conditions and not to provide any factual information regarding Hollywood Media,
Theatre Direct, Key Brand or their respective businesses. The
representations and warranties in the Stock Purchase Agreement and the
description of them in this proxy statement (i) may not describe the actual
state of affairs as of the date they were made or at any other time and (ii)
should not be read alone but instead should be read in conjunction with the
other information contained in the reports, statements and documents Hollywood
Media publicly files with the SEC. Hollywood Media will provide
additional disclosure in its public reports to the extent that it is aware of
the existence of any material facts that are required to be disclosed under
federal securities laws and that contradict the representations and warranties
contained in the Stock Purchase Agreement and will update such disclosure when
and if required by the federal securities laws. Additional
information about Hollywood Media may be found elsewhere in this proxy statement
and Hollywood Media’s other public files, which are available without charge
through the SEC’s website at http://www.sec.gov.
Upon the
terms and subject to the conditions set forth in the Stock Purchase Agreement,
the sale contemplated by the Stock Purchase Agreement will consist of Hollywood
Media selling its Broadway Ticketing Division, through the sale of all of the
outstanding capital stock of Hollywood Media’s wholly-owned subsidiary, Theatre
Direct, to Key Brand.
Hollywood
Media or Key Brand may terminate the Stock Purchase Agreement prior to the
consummation of the sale in certain specified circumstances, whether before or
after the approval of the sale of Theatre Direct by Hollywood Media’s
shareholders. Additional details on termination of the Stock Purchase
Agreement are described below in the section labeled “Termination” beginning on
page 82.
If the
sale of Theatre Direct is completed pursuant to the Stock Purchase Agreement
Hollywood Media will receive the following consideration:
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$20
million in cash (subject to working capital adjustments described in the
Stock Purchase Agreement) (see “PROPOSAL #1: PROPOSAL TO SELL
THEATRE DIRECT—Terms of the Stock Purchase Agreement—Purchase
Price—Purchase Price Adjustment” beginning on page
63);
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a
five-year second lien secured Promissory Note issued by Key Brand in the
initial principal amount of $8.5 million at an interest rate of 12% per
annum;
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a
Warrant to purchase 5% of the outstanding shares of common stock of
Theatre Direct on a fully diluted basis as of the closing date of the sale
of Theatre Direct at an exercise price of $.01 per
share;
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earnout
payments of up to $14 million contingent upon Theatre Direct and its
subsidiaries achieving certain revenue targets during the Earnout Period;
and
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up
to a maximum amount of $1.6 million of liabilities with respect to any
payment associated with change of control obligations under the employment
agreements with certain employees of Theatre Direct will be or remain the
liabilities of Theatre Direct from and after the closing date of the sale
of Theatre Direct.
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We
estimate that the total amount of the consideration that Hollywood Media will
receive if the sale of Theatre Direct pursuant to the Stock Purchase Agreement
is completed will be approximately $45.1 million,
ignoring
the time value of money and assuming that (i) there is no working capital
adjustment to the purchase price pursuant to the Stock Purchase Agreement (see
“PROPOSAL #1: PROPOSAL TO SELL
THEATRE DIRECT—Terms of the Stock Purchase Agreement—Purchase Price—Purchase
Price Adjustment” beginning on page 63), (ii) the Promissory Note issued
by Key Brand to Hollywood Media is valued at $8.5 million (which is the
principal amount of the Promissory Note, ignoring any interest Hollywood Media
may receive pursuant to the Promissory Note), (iii) the Warrant issued by
Theatre Direct to Hollywood Media is valued at $1 million (which is the minimum
amount of the put or call option on the Warrant (see “PROPOSAL #1: PROPOSAL TO SELL
THEATRE DIRECT—Terms of the Stock Purchase Agreement—Purchase
Price—Warrant” beginning on page 64)), (iv) the entire $14 million of the
earnout is paid by Key Brand to Hollywood Media pursuant to the Stock Purchase
Agreement, and (v) the $1.6 million of liabilities with respect to any payment
associated with change of control obligations under the employment agreements
with certain employees of Theatre Direct that will be or remain the liabilities
of Theatre Direct from and after the closing date of the sale of Theatre Direct
is included in the calculation of the consideration that Hollywood Media will
receive.
Prior to
the closing of the sale of Theatre Direct pursuant to the Stock Purchase
Agreement, Hollywood Media will deliver to Key Brand its good faith estimate of
Theatre Direct’s working capital as of the closing date determined in the manner
described in the Stock Purchase Agreement. If the working capital as
reflected on this estimated statement exceeds $500,000, then the cash
consideration of $20 million to be delivered at closing will be adjusted upward
by such difference. If the working capital as reflected on this
estimated statement is less than $500,000, then the cash consideration of $20
million will be adjusted downward by such difference.
After the
closing date of the sale of Theatre Direct pursuant to the Stock Purchase
Agreement, Hollywood Media will deliver to Key Brand a closing statement setting
forth Hollywood Media’s calculation of Theatre Direct’s working capital as of
the closing date determined in the manner described in the Stock Purchase
Agreement. Key Brand has the right to challenge Hollywood Media’s
determination of Theatre Direct’s working capital and any disputes between Key
Brand and Hollywood Media as to Theatre Direct’s working capital that cannot be
settled by the parties within 15 days will be settled by an independent
accounting firm. If Theatre Direct’s working capital set forth on the
closing statement is greater than the working capital set forth on the estimated
statement described above, then Key Brand shall pay Hollywood Media the amount
of the difference plus accrued interest at the prime rate on such
difference. If Theatre Direct’s working capital set forth on the
closing statement is less than the working capital set forth on the estimated
statement described above, then Hollywood Media shall pay Key Brand the amount
of the difference plus accrued interest at the prime rate on such
difference.
On the
closing date of the sale of Theatre Direct pursuant to the Stock Purchase
Agreement, Key Brand will deliver to Hollywood Media the Promissory Note in the
initial principal amount of $8.5 million. The Promissory Note will
(i) accrue interest at the rate of 12% per annum with interest payable quarterly
in cash, and (ii) be payable in full on the fifth anniversary of the closing
date of the transactions contemplated by the Stock Purchase
Agreement.
The
obligations under the Promissory Note will be secured on a second priority basis
by (i) a perfected pledge of the capital stock of Theatre Direct and each direct
or indirect subsidiary of Theatre Direct (subject, in the case of any foreign
direct subsidiary, to a pledge of 65% of the capital stock of such foreign
subsidiary), and (ii) a perfected security interest in substantially all
tangible and intangible assets of Theatre Direct and each direct or indirect US
domestic subsidiary of Theatre Direct (including equipment, investment property,
intellectual property, other general intangibles, real property and proceeds of
the foregoing). The obligations under the Promissory Note and the
security interest of Hollywood Media securing the obligations of Key Brand under
the Promissory Note will be subordinated to senior indebtedness of Key Brand
(plus all interest accrued thereon from and after the closing of the
transactions contemplated by the Stock Purchase Agreement), including amounts
outstanding under the Credit Agreement, up to an amount of $15
million.
Upon any
adverse change in state or federal ticketing regulations that takes effect
within two years of the closing of the transactions contemplated by the Stock
Purchase Agreement that restricts or limits the amount of
services
fees that may be charged on the resale of tickets, the principal amount of the
Promissory Note will be reduced by the amount of any such reduction in value up
to a maximum of $5 million, and such amount shall be added pro-rata to the
remaining earnout amounts payable to Hollywood Media pursuant to the Purchase
Agreement (such amounts are referred to as, the “Note Adjustment Amounts”),
provided that, there will be no reduction in the Promissory Note if the entire
earnout has already been earned at the time of any such adverse
change. The obligations of Key Brand under the Promissory Note will
accelerate and become immediately due and payable upon any event of default
under the Promissory Note or a “change of control” of Key Brand or Theatre
Direct.
The debt
facilities evidenced by the Promissory Note will also be documented pursuant to
a loan agreement, security documents and other ancillary documents containing
terms and conditions (including representations, warranties, affirmative
covenants, negative covenants and events of default) which are substantially the
same as those set forth for the Credit Agreement (with certain
exceptions). In addition, an intercreditor agreement will be executed
between Hollywood Media, Key Brand, and JPMorgan Chase Bank, N.A., which shall
contain market standard provisions as between first lien and second lien
facilities and any other conditions agreed to by JPMorgan Chase Bank, N.A. and
Hollywood Media.
The
foregoing summary of certain material provisions of the Promissory Note and the
debt facilities evidenced by the Promissory Note does not purport to be
complete, and the rights and obligations of the parties are governed by the
express terms of the Promissory Note, the loan agreement, the security
documents, the intercreditor agreement and the other ancillary documents, and
not by this summary or any other information contained in this proxy
statement. The summary of the Promissory Note and the debt facilities
evidenced by the Promissory Note set forth above and elsewhere in this proxy
statement is subject to, and qualified in its entirety by, reference to (i) the
full text of the Stock Purchase Agreement, a copy of which is attached to this
proxy statement as Annex
A and which we incorporate herein by reference and (ii) the full text of
the terms of the Promissory Note, a copy of which is attached to this proxy
statement as Annex B
and which we incorporate herein by reference.
On the
closing date, Key Brand will deliver to Hollywood Media the Warrant to purchase
5% of the outstanding shares of common stock of Theatre Direct as of the closing
date on a fully diluted basis at an exercise price of $.01 per
share. At any time after the first (1st) anniversary of the issue
date of the Warrant, Theatre Direct may elect to redeem the Warrant (or the
shares of common stock of Theatre Direct issued upon exercise of the Warrant),
in whole and not in part, by paying to Hollywood Media an amount in cash equal
to the greater of (x) the aggregate fair market value (as defined below) of the
shares of common stock of Theatre Direct issuable upon exercise of the Warrant
and (y) $1 million. At any time after the seventh (7th) anniversary
of the issue date of the Warrant, Hollywood Media may elect to put the Warrant,
in whole and not in part, to Theatre Direct in exchange for a cash payment by
Theatre Direct to Hollywood Media equal to the greater of (x) the aggregate fair
market value of the shares of common stock of Theatre Direct issuable upon
exercise of the Warrant, and (y) $1 million.
The
Warrant may be exercised by Hollywood Media, in whole and not in part, upon the
consummation or occurrence of (A) any direct or indirect, whether occurring in
any transaction or a series of related transactions, (i) sale, lease, license,
exchange or other disposition of all or substantially all of the assets of
Theatre Direct and its subsidiaries taken as a whole (including securities of
Theatre Direct’s directly or indirectly owned subsidiaries), (ii) merger,
consolidation, share purchase, share exchange, business combination or
recapitalization, tender or exchange offer or other similar transaction
involving Theatre Direct or any of its subsidiaries (other than solely among or
between Theatre Direct and any of its subsidiaries), in which Theatre Direct is
not the continuing or surviving entity, in which the stockholders of Theatre
Direct immediately prior to such transaction or transactions do not hold at
least 50% of the voting power of the continuing or surviving entity immediately
after such transaction or transactions, or pursuant to which the common stock of
Theatre Direct and/or securities of Theatre Direct that are convertible into or
exercisable for the common stock of Theatre Direct would be converted to cash,
securities or other property, (B) any public offering of the common stock of
Theatre Direct or any other equity securities of Theatre Direct or any of its
successors, (C) any transaction or series of related transactions, whether or
not Theatre Direct is a party thereto, in which, after giving effect to such
transaction or transactions, the outstanding common stock of Theatre Direct
and/or securities of Theatre Direct that are convertible into or exercisable for
the common stock of Theatre Direct (on an as-converted or as-exercised basis)
then representing in excess of fifty percent (50%) of the voting power or
economic rights of Theatre Direct are owned directly by any person or group of
persons, other than Key Brand
and/or
its affiliates, including any wholly-owned subsidiary of Key Brand, or (D) any
liquidation, dissolution or winding up of Theatre Direct.
The
exercise price and the number of shares of common stock of Theatre Direct
issuable upon exercise of the Warrant will be adjusted upon the occurrence of
certain events, including stock splits, subdivisions, reclassifications or
combinations, and certain issuances of Theatre Direct securities.
If
Theatre Direct shall (i) declare and pay a dividend or make a distribution on
its common stock in shares of its common stock, (ii) subdivide or reclassify the
outstanding shares of its common stock into a greater number of shares, or (iii)
combine or reclassify the outstanding shares of its common stock into a smaller
number of shares, the number of shares of common stock of Theatre Direct
issuable upon exercise of the Warrant at the time of the record date for such
dividend or distribution or the effective date of such subdivision, combination
or reclassification shall be proportionately adjusted so that Hollywood Media
after such date shall be entitled to purchase the number of shares of common
stock of Theatre Direct which Hollywood Media would have owned or been entitled
to receive in respect of the shares of common stock subject to the Warrant after
such date had the Warrant been exercised immediately prior to such
date. In such event, the exercise price in effect at the time of the
record date for such dividend or distribution or the effective date of such
subdivision, combination or reclassification shall be adjusted to the number
obtained by dividing (x) the product of (1) the number of shares of common stock
of Theatre Direct issuable upon the exercise of the Warrant before such
adjustment and (2) the exercise price in effect immediately prior to the record
or effective date, as the case may be, for the dividend, distribution,
subdivision, combination or reclassification giving rise to this adjustment by
(y) the new number of shares of common stock of Theatre Direct issuable upon
exercise of the Warrant determined pursuant to the immediately preceding
sentence.
If
Theatre Direct shall issue any of its common stock or any security of Theatre
Direct that is convertible into, exercisable or exchangeable for, or options,
warrants or other rights to acquire, directly or indirectly, common stock of
Theatre Direct (other than in certain specified transactions) without
consideration or at a consideration per share of common stock of Theatre Direct
(or having a conversion or exercise price per share of common stock of Theatre
Direct) that is less than the current fair market value of the common stock of
Theatre Direct, in such event:(i) the number of shares of common stock of
Theatre Direct issuable upon the exercise of the Warrant immediately prior to
such issuance (the “Initial Number”) shall be increased to the number obtained
by multiplying the Initial Number by a fraction (A) the numerator of which shall
be the sum of (x) the number of shares of common stock of Theatre Direct
outstanding on such date and (y) the number of additional shares of common stock
of Theatre Direct issued (or into which any security of Theatre Direct that is
convertible into, exercisable or exchangeable for, or options, warrants or other
rights to acquire, directly or indirectly, common stock of Theatre Direct may be
exercised or converted) and (B) the denominator of which shall be the sum of (x)
the number of shares of common stock of Theatre Direct outstanding on such date
and (y) the number of shares of common stock of Theatre Direct which the
aggregate consideration receivable by Theatre Direct for the total number of
shares of common stock so issued (or into which any security of Theatre Direct
that is convertible into, exercisable or exchangeable for, or options, warrants
or other rights to acquire, directly or indirectly, common stock of Theatre
Direct may be exercised or converted) would purchase at the fair market value on
the date of such issuance; and (ii) the exercise price payable upon exercise of
the Warrant shall be adjusted by multiplying such exercise price in effect
immediately prior to the date of such issuance by a fraction, the numerator of
which shall be the number of shares of common stock of Theatre Direct issuable
upon exercise of the Warrant prior to such date and the denominator of which
shall be the number of shares of common stock of Theatre Direct issuable upon
exercise of the Warrant immediately after the adjustment described in clause (i)
of this sentence.
For
purposes of the Warrant, “fair market value” means fair market value as mutually
agreed by Theatre Direct and Hollywood Media; provided, however, that if Theatre
Direct and Hollywood Media are unable to reach such agreement within a fifteen
business day period after one party delivers written notice to the other party
that the notifying party desires to determine the fair market value of the
shares of common stock of Theatre Direct issuable upon exercise of the Warrant,
they shall promptly thereafter submit the matter to a mutually agreeable (acting
reasonably and in good faith) nationally recognized appraisal firm with
experience in such matters for a binding determination. Upon
selection of the appraiser, Theatre Direct and Hollywood Media shall submit to
the appraiser each of their proposed determinations of fair market value and
agree to execute a reasonable engagement letter with the appraiser in connection
therewith. Theatre Direct and Hollywood Media shall cooperate with
the appraiser and promptly provide all documents and information requested by
the appraiser. The appraiser’s determination of fair
market
value shall not be less than Theatre Direct’s submitted determination of fair
market value or more than Hollywood Media’s submitted determination of fair
market value. The appraiser shall deliver to Theatre Direct and
Hollywood Media, as promptly as practicable (but in any case no later than 30
days from the date of engagement of the appraiser), a report setting forth its
calculation of fair market value, including the basis and explanation
therefor. Such report shall be final and binding upon Theatre Direct
and Hollywood Media, shall be deemed a final arbitration award that is binding
on Theatre Direct and Hollywood Media, and neither Theatre Direct nor Hollywood
Media shall seek further recourse to courts or other tribunals, other than to
enforce such report. Judgment may be entered to enforce such report
in any court of competent jurisdiction. The appraiser will determine
the allocation of the cost of its review and report based on the inverse of the
percentage its determination (before such allocation) bears to the total amount
of the differential between the fair market values as originally submitted by
Theatre Direct and Hollywood Media to the Appraiser (for example, should the
differential in the fair market values submitted by the parties amount to $1,000
and the Appraiser awards $600 more than Theatre Direct’s original determination
of fair market value, then 60% of the costs of its review would be borne by
Theatre Direct and 40% of the costs would be borne by Hollywood
Media). The fair market value determined under the Warrant shall be
the fair market value for a redemption provided that notice of such redemption
is given within 60 days after such determination is made. In the
event that, between the date the Warrant is issued and the date of any
determination of the fair market value under the Warrant (whether by mutual
agreement of by the Appraiser), Theatre Direct shall make any payment, dividend
or distribution in the form of indebtedness, assets, cash, rights or other
property (with certain exceptions set forth in the Warrant) on or with respect
to any equity securities (or securities exercisable for or convertible into any
equity securities) of Theatre Direct owned of record or beneficially by (i) Key
Brand, (ii) any of its direct or indirect stockholders, (iii) any person of
which Key Brand and/or any stockholder of Key Brand owns or is the beneficiary
of, directly or indirectly through one or more intermediaries, 50% or more of
the economic interests, income, profits, distributions or other similar rights
or payments, whether through ownership of equity interests, by contract or
otherwise or (iv) any person which owes to Key Brand and/or any stockholder of
Key Brand, directly or indirectly through one or more intermediaries,
indebtedness in an amount (including any interest, premium or other payments)
that represents more than 50% of the total enterprise value of such person, the
fair market value of the Warrant shall include or take into account the value of
any and all such payments, dividends and distributions.
The
foregoing summary of certain material provisions of the Warrant does not purport
to be complete, and the rights and obligations of the parties are governed by
the express terms of the Warrant and not by this summary or any other
information contained in this proxy statement. The summary of the
Warrant set forth above and elsewhere in this proxy statement is subject to, and
qualified in its entirety by, reference to (i) the full text of the Stock
Purchase Agreement, a copy of which is attached to this proxy statement as Annex A and which we
incorporate herein by reference and (ii) the full text of the form of Warrant, a
copy of which is attached to this proxy statement as Annex C and which we
incorporate herein by reference.
Following
the end of each full fiscal year of Theatre Direct during the period from the
closing date of the sale of Theatre Direct pursuant to the Stock Purchase
Agreement until the end of the tenth full fiscal year of Theatre Direct which
occurs after the closing date of the sale of Theatre Direct pursuant to the
Stock Purchase Agreement (which we refer to as, the “Earnout Period”), Key Brand
will prepare and deliver, or cause to be prepared and delivered, to Hollywood
Media financial statements of Theatre Direct and its subsidiaries for the
applicable fiscal year, along with a statement setting forth Key Brand’s
calculation of revenues (as defined below). Additionally, as soon as
reasonably practicable after the end of each fiscal quarter during the Earnout
Period, Key Brand shall prepare and deliver, or cause to be prepared and
delivered, to Hollywood Media unaudited quarterly financial statements of
Theatre Direct and its subsidiaries. Hollywood Media has the right to
challenge Key Brand’s calculations set forth on such earnout statements and any
disputes between Key Brand and Hollywood Media as to Key Brand’s calculations
set forth on such earnout statements that cannot be settled by the parties
within 15 days will be settled by an independent accounting firm.
If
Theatre Direct and its subsidiaries achieve revenues greater than or equal to
$125 million in any full fiscal year ending during the Earnout Period, then Key
Brand will pay to Hollywood Media an amount equal to $7 million, plus the
applicable portion of any reduction to the principal amount of the Promissory
Note as a result of any adverse ticketing regulations. In addition,
if Theatre Direct and its subsidiaries achieve revenues greater than or equal to
$150 million during any full fiscal year ending during the Earnout Period, then
Key Brand will pay to
Hollywood
Media an additional amount equal to $7 million, plus the applicable portion of
any reduction to the principal amount of the Promissory Note as a result of any
adverse ticketing regulations in accordance with the Stock Purchase
Agreement.
During the Earnout Period, neither Key Brand or any of
its affiliates (or any acquirer of Key Brand) shall (i) liquidate, dissolve or
wind up Theatre Direct and its subsidiaries, (ii) compete with Theatre Direct
and its subsidiaries with respect to the sale of tickets to live musical, live
theatrical or live entertainment performances in New York City, New York or
divert any business or opportunities away from Theatre Direct and its
subsidiaries with respect to the sale of tickets to live musical, live
theatrical or live entertainment performances in New York City, New York (except
as contemplated in the definition of “Revenues” set forth in the Stock Purchase
Agreement), or (iii) take any other actions, not in the ordinary course of
business, with the actual knowledge and intent that such actions are for the
primary purpose of avoiding or delaying payment of an earnout
amount.
In
addition, during the Earnout Period, Theatre Direct and its subsidiaries shall
not enter into any transaction, agreement or arrangements under which Theatre
Direct and its subsidiaries engage or otherwise use a third party to conduct
more than an incidental portion of the sale of tickets business conducted by
Theatre Direct and its subsidiaries prior to that time in exchange for a
royalty, charge, fee or any other payment, which royalty, charge, fee or other
payment is less than the price which would be paid to Theatre Direct and its
subsidiaries if Theatre Direct and its subsidiaries sold the tickets in
question, in lieu of Theatre Direct and its subsidiaries conducting such sale of
tickets business itself.
If Key
Brand or any of its affiliates sell, transfer or dispose (through merger,
consolidation, reorganization, sale of assets, sale of stock or otherwise) of
Theatre Direct or its subsidiaries or any material part of Theatre Direct or its
subsidiaries’ businesses or assets, such successor, assignee, purchaser or other
acquiror of Theatre Direct or its subsidiaries shall assume the applicable
obligations of Key Brand under the Stock Purchase Agreement relating to the
earnout; provided that no such sale, transfer or disposal shall relieve Key
Brand of its obligations under the Stock Purchase Agreement unless agreed to in
writing by Hollywood Media.
For
purposes of the Stock Purchase Agreement, “revenues” means, for any full fiscal
year of Theatre Direct during the Earnout Period, the aggregate gross revenues
of Theatre Direct and its subsidiaries and their respective businesses for such
full fiscal year of Theatre Direct during the Earnout Period, determined in
accordance with United States generally accepted accounting principles as in
effect (i) with respect to financial information prepared on or after the
closing date, as of December 22, 2009, and (ii) with respect to historical
financial information prepared prior to the closing date, as in effect as such
applicable time, consistently applied using the accounting principles, policies,
procedures, practices, applications and methodologies used in preparing the
unaudited consolidated balance sheet of Theatre Direct and its subsidiaries at
December 31, 2008 and 2007 and September 30, 2009 and the related unaudited
consolidated statement of income of Theatre Direct and its subsidiaries for the
years and nine month period then ended that were included as a schedule to the
Stock Purchase Agreement; provided, however, that, (i) with respect to any
tickets sold above face value, revenues shall be based on the gross ticket price
plus all service fees charged in connection with such sale (and shall in no
event be less than the total amounts paid by any customer) and (ii) with respect
to any tickets sold at a discount to face value, revenues shall be based on the
actual ticket sales price plus all service fees charged in connection with such
sale. Revenues shall expressly include (i) any and all revenues from
transactions between Theatre Direct and its subsidiaries, on the one hand, and
Key Brand or any of its affiliates (other than Theatre Direct and its
subsidiaries), on the other hand, (ii) any and all additional revenues of Key
Brand and its affiliates (other than Theatre Direct and its subsidiaries) from
the resale of tickets acquired from or through Theatre Direct and its
subsidiaries, (iii) any and all revenues derived or generated from all primary
and secondary ticketing sales, including those sold (a) from the license or use
of, or by otherwise transacting or operating under, through or with, the domain
names www.Broadway.com, www.Theater.com or www.Theatre.com or any similar or
derivative internet domain names, or any other internet domain names owned by
Theatre Direct and its subsidiaries as of the closing date, (b) over the phone
via 1-800-Broadway, or (c) by, through or under any related trade or business
names or intellectual property (as defined in the Stock Purchase Agreement) of
Theatre Direct and its subsidiaries, (iv) any and all revenues derived or
generated from any social networking website and/or mobile platform established,
owned or operated by Theatre Direct and its subsidiaries, Key Brand and/or any
of its affiliates as described in that certain Theater Community Segment Draft
of Business Plan, dated July 10, 2009 which was previously provided to Key
Brand, or any similar website, (v) any and all revenues associated with the sale
by Key Brand or any of its affiliates (including Theatre Direct and its
subsidiaries) of tickets
to live
musical, live theatrical or other live entertainment performances in New York
City, New York, (vi) group ticket sales through Theatre Direct or ShowTix to
venues that they service as of the closing date and any other venues that they
service thereafter other than the group ticket sales for shows (A) presented by
Broadway Across America, Key Brand or any of its affiliates outside of New York
City, New York or (B) at venues located outside of New York City, New York which
are owned by Key Brand or any of its affiliates, (vii) any and all sales derived
from sponsorships and/or sales of advertisements to shows and/or theaters, to
the extent not otherwise included in revenues and (viii) the aggregate amount of
any business interruption insurance proceeds received by or on behalf of Theatre
Direct and its subsidiaries in respect of any business interruption(s) net of
all costs of obtaining and maintaining such insurance
policies. Unless included above, revenues shall exclude any and all
revenues derived or generated from any business contributed to, or processed
through, Theatre Direct and its subsidiaries after the closing date by Key Brand
or any of its affiliates, including revenues derived from ticket sales for
performances presented outside of New York City, New York by Broadway Across
America, Key Brand or any affiliate of Key Brand.
In
connection with the Stock Purchase Agreement, on December 22, 2009, Hollywood
Media, Key Brand and the Escrow Agent entered into the Escrow
Agreement. On December 22, 2009, pursuant to the Stock Purchase
Agreement and the Escrow Agreement, Key Brand deposited $1.2 million with the
Escrow Agent. This amount (and any earnings thereon) will be credited
toward the cash consideration contemplated by the Stock Purchase Agreement and
paid to Hollywood Media at the closing of the sale of Theatre
Direct.
Hollywood
Media will be entitled to receive the $1.2 million deposit (including any
earnings thereon) from the Escrow Agent if the Stock Purchase Agreement is
validly terminated:
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after
the Termination Date (as defined in “PROPOSAL #1: PROPOSAL TO SELL
THEATRE DIRECT—Terms of the Stock Purchase
Agreement—Termination—Termination Rights” beginning on page 82) and
at the time of such termination (i) Key Brand has not received a written
consent from the requisite lenders under the debt facilities provided to
Key Brand pursuant to the Credit Agreement for Key Brand to consummate the
transactions contemplated by the Stock Purchase Agreement and Key Brand is
not entitled to borrow up to $15 million under the Credit Agreement
towards the payment of the cash consideration pursuant to the Stock
Purchase Agreement, and (ii) there has not been any breach by Key Brand of
its obligations under the Stock Purchase Agreement relating to using its
commercially reasonable efforts to satisfy conditions pursuant to the
Credit Agreement which is capable of being cured and which has not been
cured; or
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•
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when
all of the conditions to closing, other than the condition relating to Key
Brand receiving a written consent from the requisite lenders under the
Credit Agreement and Key Brand being entitled to borrow up to $15 million
under the Credit Agreement to pay the cash consideration contemplated by
the Stock Purchase Agreement, have been satisfied or waived or are capable
of being satisfied at closing, and the condition relating to Key Brand
receiving a written consent from the requisite lenders under the Credit
Agreement and Key Brand being entitled to borrow up to $15 million under
the Credit Agreement to pay the cash consideration contemplated by the
Stock Purchase Agreement is not satisfied within thirty (30) days
thereafter, and at the time of such termination, there has not been any
breach by Key Brand of its obligations under the Stock Purchase Agreement
relating to using its commercially reasonable efforts to satisfy
conditions pursuant to the Credit Agreement which is capable of being
cured and which has not been cured.
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Hollywood
Media will be entitled to receive up to approximately $2.4 million, consisting
of the $1.2 million deposit (including any earnings thereon) from the Escrow
Agent, plus reimbursement for all of Hollywood Media’s costs and expenses
incurred in connection with the transactions contemplated by the Stock Purchase
Agreement not to exceed $1.2 million, if the Stock Purchase Agreement is validly
terminated by Hollywood Media due to a material breach of the Stock Purchase
Agreement by Key Brand (and Key Brand has received a written consent from the
requisite lenders under the Credit Agreement for Key Brand to consummate the
transactions contemplated by the Stock Purchase Agreement and Key Brand is
entitled to borrow up to $15 million under the Credit Agreement towards the
payment of the cash consideration pursuant to the Stock Purchase
Agreement).
Notwithstanding
the foregoing, if Hollywood Media validly terminates the Stock Purchase
Agreement and is entitled to receive the $1.2 million deposit (including any
earnings thereon) from the Escrow Agent and, if applicable, reimbursement for
all of Hollywood Media’s costs and expenses not to exceed $1.2 million pursuant
to the Stock Purchase Agreement, and if, at the time of such termination, a
Material Adverse Effect (as defined in “PROPOSAL #1: PROPOSAL TO SELL
THEATRE DIRECT—Terms of
the Stock Purchase Agreement—Representations and Warranties—Definition of Knowledge and Material
Adverse Effect” beginning on page 70) exists which would permit Key Brand
to validly terminate the Stock Purchase Agreement if such Material Adverse
Effect could not be cured by the Termination Date and which has not been cured
by the time of such termination, then the $1.2 million deposit (including any
earnings thereon) shall be returned to Key Brand (and not paid to Hollywood
Media) and Hollywood Media shall not be entitled to reimbursement of any of
Hollywood Media’s costs and expenses incurred in connection with the
transactions contemplated by the Stock Purchase Agreement.
If Key
Brand does not receive a written consent from the requisite lenders under the
Credit Agreement for Key Brand to consummate the transactions contemplated by
the Stock Purchase Agreement or Key Brand is not entitled to borrow up to $15
million under the Credit Agreement towards the payment of the cash consideration
pursuant to the Stock Purchase Agreement because Hollywood Media fails to
execute any document or agreement required by any lender under the Credit
Agreement, other than any document or agreement that modifies or is inconsistent
with any Material Note Term (as defined in the Stock Purchase Agreement) in a
manner adverse to Hollywood Media (except such document or agreement may
restrict Hollywood Media’s remedies or actions upon the occurrence of any of the
events of default or change in control included as a Material Note Term), then
the $1.2 million deposit (including any earnings thereon) shall be returned by
the Escrow Agent to Key Brand. For the avoidance of doubt, if any
restriction on Hollywood Media’s remedies or actions upon the occurrence of any
of the events of default or change in control included as a Material Note Term
is not satisfactory to Hollywood Media and Hollywood Media does not execute the
agreement or document containing such restriction and the closing of the
transactions contemplated by the Stock Purchase Agreement does not occur, then
the $1.2 million deposit (including any earnings thereon) shall be returned by
the Escrow Agent to Key Brand.
Hollywood
Media’s right to receive the $1.2 million deposit (including any earnings
thereon) from the Escrow Agent (as described above) and reimbursement for all of
Hollywood Media’s costs and expenses incurred in connection with the
transactions contemplated by the Stock Purchase Agreement not to exceed an
additional $1.2 million as described above is Hollywood Media’s exclusive remedy
against Key Brand for a termination of the Stock Purchase
Agreement.
If the
Stock Purchase Agreement is validly terminated for any other reason, the Escrow
Agreement and the Stock Purchase Agreement provide for the return of the $1.2
million deposit (including any earnings thereon) to Key Brand.
The
foregoing summary of certain material provisions of the Escrow Agreement and the
transactions contemplated thereby does not purport to be complete, and the
rights and obligations of the parties are governed by the express terms of the
Escrow Agreement and the Stock Purchase Agreement and not by this summary or any
other information contained in this proxy statement. The summary of
the Escrow Agreement set forth above and elsewhere in this proxy statement is
subject to, and qualified in its entirety by, reference to (i) the full text of
the Stock Purchase Agreement, a copy of which is attached to this proxy
statement as Annex A
and which we incorporate herein by reference and (ii) the full text of the
Escrow Agreement, a copy of which is attached to this proxy statement as Annex D and which we
incorporate herein by reference.
The Stock
Purchase Agreement contains representations and warranties made by Hollywood
Media to Key Brand and representations and warranties made by Key Brand to
Hollywood Media as of specific dates. The assertions embodied in
those representations and warranties were made solely for the benefit of the
other parties to the Stock Purchase Agreement and are subject to qualifications
and limitations agreed to by the parties in connection with negotiating the
terms of the Stock Purchase Agreement and information contained in confidential
disclosure schedules exchanged by the parties in connection with negotiating the
terms of the Stock Purchase Agreement. Certain representations and
warranties made in the Stock Purchase Agreement as of a specified date also may
be subject to contractual standards of materiality different from those
generally applicable to shareholders, or may have
been used
for the purpose of allocating risk between the parties rather than establishing
matters as facts. In addition, information concerning the subject
matter of the representations and warranties contained in the Stock Purchase
Agreement may have changed since the date of the Stock Purchase
Agreement. Accordingly, the Stock Purchase Agreement is described in,
and included as an annex to, this proxy statement only to provide you with
information regarding its terms and conditions and not to provide any factual
information regarding Hollywood Media, Theatre Direct, Key Brand or their
respective businesses. The representations and warranties in the
Stock Purchase Agreement and the description of them in this proxy statement (i)
may not describe the actual state of affairs as of the date they were made or at
any other time and (ii) should not be read alone but instead should be read in
conjunction with the other information contained in the reports, statements and
documents Hollywood Media publicly files with the SEC. Hollywood
Media will provide additional disclosure in its public reports to the extent
that it is aware of the existence of any material facts that are required to be
disclosed under federal securities laws and that contradict the representations
and warranties contained in the Stock Purchase Agreement and will update such
disclosure when and if required by the federal securities
laws. Additional information about Hollywood Media may be found
elsewhere in this proxy statement and Hollywood Media’s other public files,
which are available without charge through the SEC’s website at
http://www.sec.gov.
Hollywood
Media makes various representations and warranties to Key Brand in the Stock
Purchase Agreement that are qualified, in many cases, by “materiality,”
“Knowledge,” or “Material Adverse Effect” standards.
As used
in the Stock Purchase Agreement, “Knowledge” means the actual knowledge of
certain individuals identified on a schedule to the Stock Purchase
Agreement.
As used
in the Stock Purchase Agreement, “Material Adverse Effect” means a material
adverse effect on (i) the business, results of operations or financial condition
of Theatre Direct and its subsidiaries (taken as a whole) or (ii) the ability of
Hollywood Media to consummate the transactions contemplated by the Stock
Purchase Agreement, in each case, other than an effect resulting from or related
to an Excluded Matter. “Excluded Matter” means any one or more of the
following: (i) the effect of any change in the United States or foreign
economies or securities or financial markets in general; (ii) the effect of any
change that generally affects any industry in which Theatre Direct and its
subsidiaries operate; (iii) the effect of any change arising in connection with
earthquakes, hostilities, acts of war, sabotage or terrorism or military actions
or any escalation or material worsening of any such hostilities, acts of war,
sabotage or terrorism or military actions, whether arising before, on or after
the date hereof; (iv) the effect of any action by or omission of Key Brand or
its affiliates with respect to the transactions contemplated by the Stock
Purchase Agreement or with respect to Theatre Direct and its subsidiaries; (v)
the effect of any changes in applicable laws or in generally accepted accounting
principles or any other applicable accounting standards, or changes in general
legal, regulatory or political conditions; (vi) the failure by Theatre Direct,
its subsidiaries or Hollywood Media to meet internal projections or forecasts
(including any projections or forecasts provided to Key Brand or its
affiliates), analyst expectations or publicly announced earnings or revenue
projections, or decreases in Hollywood Media’s stock price (including as a
result of failure to meet such projections, forecasts or analyst expectations);
(vii) any action taken by Hollywood Media, Theatre Direct or its subsidiaries as
contemplated or permitted by the Stock Purchase Agreement or with Key Brand’s
consent; and (viii) any effect pertaining to the negotiation, execution,
announcement, pendency or performance of the Stock Purchase Agreement or the
consummation of the transaction contemplated by the Stock Purchase Agreement),
including (1) the impact thereof on relationships, contractual or otherwise,
with customers, suppliers, theaters, distributors or partners, (2) any resulting
shortfalls or declines in revenue, margins or profitability, (3) the failure to
obtain the consent of a counterparty under any contract listed in a disclosure
schedule in connection with the Stock Purchase Agreement and (4) any claim or
litigation arising from allegations of breach of fiduciary duty with respect to
Hollywood Media, Theatre Direct or its subsidiaries relating to the Stock
Purchase Agreement or the transactions contemplated thereby, or disclosure
violations in securities filings made in connection with such
transactions.
Our
Representations and Warranties
Hollywood
Media’s representations and warranties in the Stock Purchase Agreement relate
to, among other things:
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organization,
valid existence, good standing, qualification and authorization to conduct
the business of Hollywood Media and Theatre
Direct;
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availability
of the organizational documents of Theatre Direct and its
subsidiaries;
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our
corporate power and authority to execute and deliver the Stock Purchase
Agreement;
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absence
of violations of, defaults under or conflicts with the organizational
documents of Hollywood Media, Theatre Direct or Theatre Direct’s
subsidiaries, certain contracts or permits of Hollywood Media, Theatre
Direct or Theatre Direct’s subsidiaries, any order of a governmental body,
or applicable law as a result of consummating the transactions
contemplated by the Stock Purchase
Agreement;
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consents
and approvals of governmental entities on the part of Hollywood Media,
Theatre Direct or Theatre Direct’s subsidiaries that are required in
connection with the execution and delivery of the Stock Purchase
Agreement;
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capitalization
of Theatre Direct and its subsidiaries, the ownership of the stock of
Theatre Direct and the stock of Theatre Direct’s subsidiaries, the absence
of securities convertible into shares of Theatre Direct or convertible
into shares of Theatre Direct’s subsidiaries, and the absence of liens on
the assets of Theatre Direct and on the shares of common stock of Theatre
Direct;
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Theatre
Direct’s financial statements and absence of undisclosed liabilities of
Theatre Direct or its subsidiaries;
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absence
of certain changes since September 30,
2009;
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tax
matters in respect of Theatre Direct and its
subsidiaries;
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real
and personal property owned or leased by Theatre Direct and its
subsidiaries;
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intellectual
property owned by Theatre Direct and its
subsidiaries;
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material
contracts related to the business of Theatre Direct and its
subsidiaries;
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labor
and employment matters in respect of Theatre Direct and its
subsidiaries;
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litigation
or legal proceedings in respect of Theatre Direct and its
subsidiaries;
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compliance
with laws and issuance of permits to Theatre Direct and its
subsidiaries;
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environmental
matters in respect of Theatre Direct and its
subsidiaries;
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brokers
or other advisors;
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insurance
matters in respect of Theatre Direct and its
subsidiaries;
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bank
accounts of Theatre Direct and its subsidiaries;
and
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net
operating losses (for tax purposes) of Theatre
Direct.
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Key
Brand’s Representations and Warranties
Key
Brand’s representations and warranties in the Stock Purchase Agreement relate
to, among other things:
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its
organization, valid existence, good standing and qualification to conduct
business;
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its
corporate power and authority and due authorization to enter into the
Stock Purchase Agreement and to consummate the transactions contemplated
by the Stock Purchase Agreement;
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absence
of violations of, defaults under or conflicts with its organizational
documents, certain contracts or permits of Key Brand, any order of a
governmental entity, or applicable law as a result of consummating the
transactions contemplated by the Stock Purchase
Agreement;
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consents
and approvals of governmental entities required in connection with the
execution and delivery of the Stock Purchase
Agreement;
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litigation
or legal proceedings seeking to prohibit or restrain the transactions
contemplated by the Stock Purchase
Agreement;
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investment
intention of Key Brand;
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brokers
or other advisors;
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financial
capability to fund the transactions contemplated by the Stock Purchase
Agreement;
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that
Key Brand has not disclosed the existence, or terms and conditions of, the
transactions contemplated by the Stock Purchase Agreement to third
parties; and
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that
Hollywood Media is not making any representations or warranties beyond
those expressly given by Hollywood Media pursuant to the Stock Purchase
Agreement.
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Covenants
Conduct
of Business Pending the Sale of Theatre Direct
Hollywood
Media has agreed that, subject to certain exceptions, prior to the closing of
the transactions contemplated by the Stock Purchase Agreement, it will cause
Theatre Direct and its subsidiaries to use commercially reasonable efforts to
(i) conduct the respective businesses of Theatre Direct and its subsidiaries in
the ordinary course of business or otherwise in a manner permissible under the
Stock Purchase Agreement, and (ii) preserve the business operations,
organization and goodwill of Theatre Direct and its subsidiaries, and their
relationships with customers and suppliers of Theatre Direct and its
subsidiaries.
Additionally,
Hollywood Media has agreed that, subject to certain exceptions, prior to the
closing of the transactions contemplated by the Stock Purchase Agreement, it
will not permit Theatre Direct or any of its subsidiaries to, among other
things:
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declare,
set aside, make or pay any dividend or other distribution in respect of
the capital stock of Theatre Direct (other than cash dividends or other
distributions paid to Hollywood Media consistent with past practice) or
repurchase, redeem or otherwise acquire any outstanding shares of the
capital stock or other securities of, or other ownership interests in,
Theatre Direct or its subsidiaries;
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transfer,
issue, sell or dispose of any shares of capital stock or other securities
of Theatre Direct or its subsidiaries or grant options, warrants, calls or
other rights to purchase or otherwise acquire shares of the capital stock
or other securities of Theatre Direct or its
subsidiaries;
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effect
any recapitalization, reclassification or like change in the
capitalization of Theatre Direct or its
subsidiaries;
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amend
the certificate of incorporation or by-laws or comparable organizational
documents of Theatre Direct or its
subsidiaries;
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hire
employees whose annual compensation equals or exceeds $100,000 per year,
except for any hiring to replace the loss or departure of any existing
employees if made on substantially similar
terms;
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enter
into any employee retention bonus plan which could have payments due after
the closing date;
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enter
into any agreement with employees, or agree to make any payment to
employees, which would be triggered by the consummation of the
transactions contemplated by the Stock Purchase Agreement and would be
payable after the closing date;
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other
than as required by law, a contract listed on a specific disclosure
schedule to the Stock Purchase Agreement or the terms of any benefit plan
sponsored by Hollywood Media, Theatre Direct or its subsidiaries (A)
increase the annual level of compensation payable or to become payable by
Theatre Direct or its subsidiaries to any of their respective directors or
employees by more than $5,000 per year, (B) grant any unusual or
extraordinary bonus, benefit or other direct or indirect compensation to
any director or executive officer of Theatre Direct or its subsidiaries
which is payable after the closing, (C) except as required by any existing
benefit plan sponsored by Theatre Direct or its subsidiaries, and other
than any incentive or bonus compensation paid prior to the closing,
increase the coverage or benefits available
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any
benefit plan sponsored by Theatre Direct or its subsidiaries which would apply
after the closing and which would increase the overall costs of such benefit
plan or create any bonus, incentive compensation, deferred compensation,
severance, profit sharing, stock option, stock purchase, pension, retirement or
other employee benefit plan or arrangement, or (D) enter into any employment,
deferred compensation, severance, consulting, non-competition or similar
agreement (or materially amend any such agreement) to which Theatre Direct or
its subsidiaries is a party or involving a director or executive officer of any
of Theatre Direct or its subsidiaries;
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subject
to any lien, any of the properties or assets (whether tangible or
intangible) of Theatre Direct or its subsidiaries, except for certain
permitted exceptions;
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acquire
any material properties or assets or sell, assign, license, transfer,
convey, lease or otherwise dispose of any of the properties or assets of
Theatre Direct or its subsidiaries (except acquisitions or dispositions of
properties or assets which are not material to Theatre Direct or its
subsidiaries, (A) pursuant to an existing contract for fair consideration
or (B) in the ordinary course of business or (C) for the purpose of
disposing of obsolete or worthless assets); provided that this restriction
does not prohibit intercompany transfers of cash among Theatre Direct, its
subsidiaries, Hollywood Media and its subsidiaries in the ordinary course
of business consistent with past
practice;
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other
than in the ordinary course of business, cancel or compromise any material
debt or claim or waive or release any material right of Theatre Direct or
its subsidiaries (the foregoing does not prohibit intercompany transfers
of cash among Theatre Direct, its subsidiaries, Hollywood Media and its
subsidiaries in the ordinary course of business consistent with past
practice, or the settlement of any intercompany accounts or debt prior to
closing);
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within
75 days after the date of the Stock Purchase Agreement enter into any
commitment for capital expenditures of Theatre Direct and its subsidiaries
in excess of $50,000 for all commitments in the aggregate or after 75 days
after the date of the Stock Purchase Agreement enter into any commitment
for capital expenditures of Theatre Direct or its subsidiaries in excess
of $100,000 for all commitments in the aggregate (including commitments
entered into prior to such 75th
day); provided, however, that Theatre Direct and its subsidiaries may
enter into any commitment for capital expenditures without the consent of
Key Brand (i) in order to make emergency repairs, or (ii) to replace
equipment and assets in the ordinary course of
business;
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enter
into, modify or terminate any labor or collective bargaining agreement of
Theatre Direct or its subsidiaries;
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permit
Theatre Direct or its subsidiaries to enter into or agree to enter into
any merger or consolidation with any person or to adopt or agree to adopt
a plan of complete or partial liquidation, dissolution, restructuring or
other material reorganization of Theatre Direct or its
subsidiaries;
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make
or rescind any election relating to taxes, settle or compromise any claim,
action, suit, litigation, proceeding, arbitration, investigation, audit
controversy relating to taxes, or except as required by applicable law or
GAAP, make any material change to any of its methods of accounting or
methods of reporting income or deductions for tax or accounting practice
or policy from those employed in the preparation of its most recent tax
return;
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except
for the replacement or substitution of existing insurance policies with
similar or comparable policies, permit any insurance policy naming Theatre
Direct or its subsidiaries as a beneficiary or a loss payable payee to be
cancelled or terminated or, except as required by any existing benefit
plan sponsored by Theatre Direct or its subsidiaries, create an employee
insurance benefit plan or
arrangement;
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within
75 days after the date of the Stock Purchase Agreement enter into any
contract relating to Theatre Direct or its subsidiaries’ purchase, lease
or maintenance of equipment, vehicles, inventory, materials, supplies,
machinery, equipment, parts or any other property or services which
involves expenditures of more than $50,000 annually, except for
expenditures made (i) in order to make emergency repairs, or (ii) to
replace equipment and assets in the ordinary course of
business;
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after
75 days after the date of the Stock Purchase Agreement enter into any
contract relating to Theatre Direct or its subsidiaries’ purchase, lease
or maintenance of equipment, vehicles, inventory, materials, supplies,
machinery, equipment, parts or any other property or services which
involves expenditures of more than $100,000 annually except for
expenditures made (i) in order to make emergency repairs, or
(ii)
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to replace equipment and
assets in the ordinary course of business;
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other
than in the ordinary course of business, (A) enter into any contract that
if existing on the date of the Stock Purchase Agreement would be a
“material contract” under the terms of the Stock Purchase Agreement (other
than contracts described in certain sections of the Stock Purchase
Agreement), (B) terminate, amend, supplement or modify in any respect any
material contract, (C) waive, release, cancel, allow to lapse, convey,
encumber or otherwise transfer any rights or claims under any material
contract, or (D) change incentive policies or payments under any material
contract existing on the date of the Stock Purchase Agreement or entered
into after the date of the Stock Purchase
Agreement;
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incur
any indebtedness for borrowed money, enter into any guarantees of
indebtedness of other persons (other than Theatre Direct or its
subsidiaries) or make any loans, advances or capital contributions to, or
investments in, any other person;
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enter
into any contract that obligates Theatre Direct or its subsidiaries not to
compete with any business;
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enter
into any contract that is a joint venture or partnership contract or a
limited liability company operating agreement;
or
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agree
to take any of the foregoing
actions.
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Reasonable
Best Efforts
Hollywood
Media and Key Brand agreed to use their reasonable best efforts to promptly (i)
take, or cause to be taken, all actions, and do, or cause to be done, all
things, necessary, proper or advisable to cause the conditions to closing to be
satisfied as promptly as practicable and to consummate and make effective, in
the most expeditious manner practicable, the transactions contemplated by the
Stock Purchase Agreement, including preparing and filing promptly and fully all
documentation to effect all necessary filings, notices, petitions, statements,
registrations, submissions of information, applications and other documents, and
(ii) obtain all approvals, consents, registrations, permits, authorizations and
other confirmations from any governmental agency or third party necessary,
proper or advisable to consummate the transactions contemplated by the Stock
Purchase Agreement, provided, however that Key Brand shall have no obligation to
cause the intercreditor agreement to contain any specific terms.
Hollywood
Media Guarantees
Key Brand
has agreed to use its commercially reasonable efforts to cause Key Brand or one
or more of its affiliates to be substituted in all respects for Hollywood Media,
effective as of the closing, in respect of all obligations of Hollywood Media
under certain scheduled guarantees, bonds, sureties, letters of credit, and
escrow deposits made by Hollywood Media and its affiliates for the benefit of
Theatre Direct and its subsidiaries. If Key Brand is unable to effect
such a substitution with respect to any of the scheduled agreements after using
its commercially reasonable efforts to do so, Key Brand has agreed to indemnify
Hollywood Media and its affiliates from and against any and all losses resulting
from or arising out of or relating to such agreements.
Shareholders’
Meeting
Hollywood
Media has agreed to call, convene and hold a shareholders’ meeting as promptly
as reasonably practicable following the date upon which the proxy statement is
cleared by the SEC for purposes of considering and voting upon the sale of 100%
of the issued and outstanding capital stock of Theatre
Direct. Additionally, Hollywood Media has agreed to use its
commercially reasonable efforts to solicit the shareholders’ approval for the
sale of Theatre Direct. However, Hollywood Media is not obligated to
call the shareholders’ meeting or solicit shareholders’ approval if the board of
directors of Hollywood Media has withdrawn or modified its recommendation of the
transactions contemplated by the Stock Purchase Agreement, or has publicly
approved or recommended an acquisition proposal.
For a
period of seven (7) years from and after the closing date, Hollywood Media has
agreed that it shall not, and shall cause its affiliates (as defined in the
Stock Purchase Agreement) not to, directly or indirectly, own,
manage,
engage in, operate, control, work for or participate in the ownership,
management, operation or control of, any business, whether in corporate,
proprietorship or partnership form or otherwise, engaged in a Restricted
Business; provided, however, that these restrictions (A) do not restrict (i) the
sale of advertisements, including online advertising, or (ii) the acquisition by
Hollywood Media, directly or indirectly, of less than 5% of the outstanding
capital stock of any publicly traded company engaged in a Restricted Business,
(B) cease upon any event of default under the Promissory Note, or the loan
agreement, security documents and other ancillary documents issued in connection
with second lien facility contemplated by the Stock Purchase Agreement, whereby
Theatre Direct and its subsidiaries or any of their assets are controlled by,
foreclosed upon or otherwise returned to Hollywood Media, and (C) do not
restrict the acquisition of Hollywood Media by any person which prior to such
transaction was already engaged in the Restricted Business.
Hollywood
Media and Theatre Direct have agreed that, from the date of the Stock Purchase
Agreement until the earlier of the closing date or the termination of the Stock
Purchase Agreement by mutual agreement of Key Brand and Hollywood Media, subject
to the exceptions described below, they will not authorize or knowingly permit
any of their respective officers, directors, controlled affiliates, or
employees, or any of their respective investment bankers, attorneys, or other
advisors or representatives to:
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solicit,
initiate, or take an action intended (or which may reasonably be expected)
to induce the making, submission or announcement of any acquisition
proposal;
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engage
or participate in any discussions or negotiations with any person (other
than any officer, director, controlled affiliate or employee of Key Brand
or any of its affiliates or any investment banker, attorney or other
advisor or representative of Key Brand or any of its affiliates)
regarding, or furnish to any person any information with respect to, or
take any other action intended (or which may reasonably be expected) to
induce any inquiries or the making of, any proposal that constitutes or
may reasonably be expected to lead to, any acquisition proposal;
or
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enter
into any letter of intent or similar document or any contract, agreement
or commitment contemplating or otherwise relating to any acquisition
proposal.
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If prior
to receipt of the shareholders’ approval of the sale of Theatre Direct, the
board of directors of Hollywood Media receives an unsolicited acquisition
proposal, the board of directors may engage or participate in discussions or
negotiations with and/or furnish information to the party making such
acquisition proposal if:
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Hollywood
Media’s board of directors determines in good faith, (i) after
consultation with its financial advisors, that the offer constitutes or
could reasonably be expected to result in or lead to a superior proposal
(as defined below) and (ii) after consultation with its outside legal
counsel, that such action is advisable in order for the board of directors
of Hollywood Media to comply with its fiduciary obligations to the
shareholders of Hollywood Media under applicable
law;
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concurrently
with furnishing any such information to, or entering into discussions or
negotiations with, such party, Hollywood Media gives Key Brand written
notice of the identity of such person or group and of Hollywood Media’s
intention to furnish information to, or enter into discussions or
negotiations with, such party;
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Hollywood
Media enters into a confidentiality agreement with such person on the
terms provided in the Stock Purchase Agreement;
and
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prior
to or contemporaneously with furnishing any such information to such
party, Hollywood Media furnishes such non-public information to Key
Brand.
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The board
of directors of Hollywood Media may not (i) withdraw or modify, in a manner
adverse to Key Brand, its recommendation that the shareholders vote in favor of
the sale of Theatre Direct, (ii) publicly approve, endorse or recommend to the
shareholders of Hollywood Media an acquisition proposal, or (iii) authorize
Hollywood Media or any of its subsidiaries to enter into any merger, acquisition
or similar agreement with respect to any acquisition
proposal. Notwithstanding the foregoing restrictions (but subject to
Key Brand’s right to terminate
the Stock
Purchase Agreement), prior to the receipt of shareholders’ approval of the sale
of Theatre Direct, the board of directors of Hollywood Media may make an adverse
recommendation change if the board of directors determines for any reason that
such action is advisable in order for the board of directors to comply with its
fiduciary duties under applicable law. Hollywood Media may then enter
into an acquisition agreement with respect to a superior proposal if (i)
Hollywood Media concurrently terminates the Stock Purchase Agreement, (ii)
Hollywood Media pays to Key Brand a termination fee of $1.2 million, (iii) the
board of directors of Hollywood Media has determined that such acquisition
agreement is a superior proposal, (iv) prior to entering into such acquisition
agreement, Hollywood Media gives Key Brand at least three business days prior
written notice of its intent to terminate the Stock Purchase Agreement, which
notice shall include copies of the documents relating to such superior proposal,
and (v) during the three business day period following the date on which such
notice is given to Key Brand, (A) Hollywood Media gives Key Brand the
opportunity to meet with Hollywood Media to suggest such modifications to the
transactions contemplated by the Stock Purchase Agreement that Key Brand may
deem advisable, and (B) after taking such proposed modifications into account
the board of directors of Hollywood Media determines that such acquisition
agreement continues to be a superior proposal.
An
“acquisition proposal” is defined in the Stock Purchase Agreement as any
inquiry, proposal or offer from any person or group of persons (other than Key
Brand and its affiliates) to acquire, directly or indirectly (whether by way of
merger, consolidation, share exchange, business combination, recapitalization,
tender or exchange offer, asset sale, lease or otherwise), for consideration
consisting of cash and/or securities:
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the
assets of Hollywood Media and its subsidiaries (including securities of
subsidiaries, but excluding sales of assets in the ordinary course of
business) constituting all or substantially all of Hollywood Media’s
consolidated assets;
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50%
or more of the outstanding voting securities of Hollywood Media (including
any merger, tender offer, exchange offer, consolidation, business
combination, arrangement or similar transaction involving Hollywood Media
pursuant to which the shareholders of Hollywood Media immediately
preceding such transaction hold less than 50% of the equity interests in
the surviving or resulting entity of such
transaction);
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acquisition
of assets of Theatre Direct or its subsidiaries (including securities of
subsidiaries, but excluding sales of inventory or obsolete assets in the
ordinary course of business); or
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acquisition
of any of the equity securities of Theatre Direct, in each case, other
than the transactions contemplated by the Stock Purchase
Agreement.
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A
“superior proposal” is defined in the Stock Purchase Agreement as any bona fide,
unsolicited written acquisition proposal to acquire (i) at least 75% of the
outstanding common stock of Hollywood Media or all or substantially all of the
assets of Hollywood Media and its subsidiaries on a consolidated basis or (ii)
all of the equity securities of Theatre Direct or all or substantially all of
the assets of Theatre Direct and its subsidiaries, in either case, other than
the transactions contemplated by the Stock Purchase Agreement:
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with
respect to which the board of directors of Hollywood Media shall have in
good faith determined (taking into account the advice of Hollywood Media’s
financial advisors) that the acquiring party is capable of consummating
such proposed acquisition proposal on the terms
proposed;
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the
board of directors of Hollywood Media shall have in good faith determined
(taking into account the advice of Hollywood Media’s financial advisors)
that the proposed acquisition proposal, taking into account all the terms
and conditions of such acquisition proposal including the reasonably
expected time for the consummation of such acquisition proposal, is more
favorable to the shareholders of Hollywood Media, from a financial point
of view, than the transactions contemplated by the Stock Purchase
Agreement (taking into account any proposed modifications by Key Brand in
response thereto); and
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the
board of directors of Hollywood Media shall have in good faith determined
(taking into account the advice of Key Brand’s outside legal counsel) that
accepting such acquisition proposal is advisable under applicable law for
the discharge of its fiduciary
duties.
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Key Brand
intends to pay the $20 million cash payment at the closing of the transactions
contemplated by the Stock Purchase Agreement from borrowings under a secured
credit facility, which may be Key Brand’s existing secured credit facility with
JPMorgan Chase Bank, N.A. and/or any additional secured facilities, or cash on
hand (including cash made available through investments made in Key Brand) or a
combination of cash and borrowings. At this time, Key Brand has not
secured a binding consent or commitment with respect to the financing of the
transactions contemplated by the Stock Purchase Agreement.
Neither
JPMorgan Chase Bank, N.A. nor J.P. Morgan Securities Inc. is acting as an
investment banker with respect to the sale of Theatre Direct pursuant to the
Stock Purchase Agreement. J.P. Morgan Securities, Inc. acted as the
sole bookrunner and the sole lead arranger for Key Brand’s existing secured
credit facility with JPMorgan Chase Bank, N.A.
In
addition to other closing conditions set forth in this proxy statement and the
Stock Purchase Agreement, the obligations of Key Brand to complete the
transactions contemplated by the Stock Purchase Agreement are subject to the
satisfaction or waiver prior to the closing date of Key Brand receiving a
written consent from the requisite lenders under the Credit Agreement for Key
Brand to consummate the transactions contemplated by the Stock Purchase
Agreement and Key Brand being entitled to borrow up to $15 million under the
Credit Agreement towards the payment of the cash consideration contemplated by
the Stock Purchase Agreement (see “PROPOSAL #1: PROPOSAL TO SELL
THEATRE DIRECT—Terms of the Stock Purchase Agreement–Conditions to Closing–
Conditions to Key Brand’s Obligation” beginning on page 79).
Key Brand
has agreed to use its commercially reasonable efforts to satisfy, as promptly as
practicable (and in any event prior to the Termination Date), all conditions and
obtain all consents necessary as set forth in or required under the Credit
Agreement for a borrowing thereunder to make the cash payment at closing
contemplated by the Stock Purchase Agreement and to deliver the Promissory Note
and the Warrant at closing, and to consummate the transactions contemplated by
the Stock Purchase Agreement, in each case which are within the control of Key
Brand or any of its wholly-owned subsidiaries (including those party to the
Credit Agreement). For the avoidance of doubt, (i) any conditions
relating to the results of operations or EBITDA (as defined in the Credit
Agreement) of Key Brand or any of its affiliates (including those party to the
Credit Agreement), or value of collateral or assets or no change in management
(if not a result of any termination of employment without cause by Key Brand or
any of its affiliates), and (ii) any actions taken against Key Brand or any of
its affiliates by a third party which restricts the ability of Key Brand to
borrow under the Credit Agreement shall not be deemed to be within the control
of Key Brand or any of its affiliates. In addition, Key Brand shall
not amend or alter, or agree to amend or alter, the Credit Agreement in any
manner or borrow funds under the Credit Agreement with the actual knowledge and
intent at the time of such amendment, alteration or agreement or such borrowing
that such amendment, alteration or agreement or such borrowing would prevent a
borrowing under the Credit Agreement to make the payment at closing contemplated
by the Stock Purchase Agreement or not allow Key Brand to deliver the Promissory
Note and the Warrant at closing, and to consummate the transactions contemplated
by the Stock Purchase Agreement. Further, if available, Key Brand
shall draw funds under the Credit Agreement necessary to make the cash payment
at closing contemplated by the Stock Purchase Agreement.
Key Brand
has agreed to notify Hollywood Media promptly, and in any event within two
business days, if at any time prior to the closing date (i) the Credit Agreement
shall expire or be terminated for any reason, or (ii) J.P. Morgan Securities
Inc. or any party to or lender under the Credit Agreement notifies Key Brand
that Key Brand will not be entitled to borrow funds under the Credit Agreement
to make the cash payment at closing contemplated by the Stock Purchase Agreement
or will not be entitled to deliver the Promissory Note and the Warrant at
closing, or to consummate the transactions contemplated by the Stock Purchase
Agreement.
Hollywood
Media may be entitled to receive the $1.2 million deposit (including any
earnings thereon) from the Escrow Agent if the Stock Purchase Agreement is
validly terminated by Hollywood Media under certain conditions (including
conditions involving (i) Key Brand’s inability to receive written consent from
the requisite lenders under the Credit Agreement for Key Brand to consummate the
transactions contemplated by the Stock Purchase Agreement or (ii) Key Brand not
being entitled to borrow up to $15 million under the Credit Agreement towards
the payment of the cash consideration contemplated by the Stock Purchase
Agreement). See “PROPOSAL
#1: PROPOSAL TO SELL THEATRE
DIRECT—Terms of the Stock Purchase Agreement— The Escrow Agreement and Deposit
and Expenses Reimbursement” beginning on page 68.
Employee
Benefits
Key Brand
has agreed:
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to
recognize the service of each employee of Theatre Direct and its
subsidiaries as service with Key Brand under any employee benefit plans
covering or otherwise benefiting such employee after the closing for
purposes of eligibility and vesting but not benefit
accrual;
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to
waive, or cause its insurance carriers to waive, all limitations as to
pre-existing and at-work conditions, if any, with respect to participation
and coverage requirements applicable to employees of Theatre Direct and
its subsidiaries under any welfare benefit plan that is made available to
such employees after the closing;
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to
permit each employee of Theatre Direct and its subsidiaries who
participated in a 401(k) plan sponsored by Hollywood Media to elect to
make direct rollovers of their account balances into a 401(k) plan
maintained by Key Brand or its affiliates as of
closing;
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to
assume certain flexible spending accounts for medical care reimbursements
and dependent care reimbursements maintained by Hollywood Media for
employees of Theatre Direct and its
subsidiaries;
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to
be responsible for, and indemnify and hold Hollywood Media and its
affiliates harmless from and against, all liabilities under the WARN Act
arising due to a termination of employees of Theatre Direct and its
subsidiaries after the closing; provided, however, that at the closing
Hollywood Media shall provide Key Brand with a list of employees of
Theatre Direct and its subsidiaries who have experienced an “employment
loss” within 90 days prior to the Closing Date;
and
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that
the liabilities with respect to any payments associated with a change of
control under the employment agreements with certain employees of Theatre
Direct, up to a maximum amount of $1.6 million in the aggregate, shall be
or remain the liabilities of Theatre Direct from and after the closing
date and Hollywood Media shall have no obligation with respect to such
liabilities up to a maximum of $1.6
million.
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Other
Covenants
The Stock
Purchase Agreement contains certain other covenants, including covenants
relating to, among other things:
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Key
Brand’s access to the properties, business, operations, books and records
of Theatre Direct and its subsidiaries between the date of the Stock
Purchase Agreement and the closing;
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Key
Brand’s contact of customers and suppliers of Hollywood Media, Theatre
Direct or their subsidiaries between the date of the Stock Purchase
Agreement and the closing;
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the
filing of this proxy statement with the SEC and cooperation in response to
any comments from the SEC with respect to such proxy
statement;
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coordination
of press releases and other public announcements relating to the
transactions contemplated by the Stock Purchase
Agreement;
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obtaining
certain consents and approvals to consummate the transactions contemplated
by the Stock Purchase Agreement;
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preservation
of records and access to such records after the closing in connection with
any insurance claims, legal proceedings, tax audits, or governmental
investigations of Hollywood Media or Key Brand or any of their affiliates;
and
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use
of the “Hollywood Media Corp.” name and use of other trademarks and trade
names by Hollywood Media following the
closing.
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Mutual
Closing Conditions
The
obligations of the parties to consummate the transactions contemplated by the
Stock Purchase Agreement are subject to the satisfaction or waiver of the
following closing conditions on or prior to the closing date:
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the
approval of the shareholders of Hollywood Media for the sale of Theatre
Direct; and
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no
law, injunction, judgment or ruling enacted, promulgated, issued, entered,
amended or enforced by any court or governmental authority enjoining,
restraining, preventing or prohibiting consummation of the transactions
contemplated by the Stock Purchase Agreement or making the consummation of
such transactions illegal.
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Conditions
to Hollywood Media’s Obligation
The
obligations of Hollywood Media to complete the transactions contemplated by the
Stock Purchase Agreement are further subject to the satisfaction or waiver of
each of the following conditions on or prior to the closing date:
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the
representations and warranties of Key Brand set forth in the Stock
Purchase Agreement qualified as to materiality shall be true and correct,
and those not so qualified shall be true and correct in all material
respects, at and as of the closing date as though made on the closing
date, except to the extent such representations and warranties relate to
an earlier date (in which case such representations and warranties
qualified as to materiality shall be true and correct, and those not so
qualified shall be true and correct in all material respects, on and as of
such earlier date), and Hollywood Media shall have received a certificate
signed by an authorized officer of Key Brand, dated the closing date, to
the foregoing effect;
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Key
Brand shall have performed and complied in all material respects with all
obligations and agreements required by the Stock Purchase Agreement to be
performed or complied with by Key Brand on or prior to the closing date,
and Hollywood Media shall have received a certificate signed by an
authorized officer of Key Brand, dated the closing date, to the foregoing
effect;
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at
the closing, all documents required to be executed and delivered by Key
Brand (or Theatre Direct) pursuant to the Stock Purchase Agreement have
been delivered to Hollywood Media;
and
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at
the closing, (i) Key Brand has delivered to Hollywood Media a copy of the
written consent from the requisite lenders under the Credit Agreement for
Key Brand to consummate the transactions contemplated by the Stock
Purchase Agreement, and (ii) J.P. Morgan Securities Inc. and any other
lenders under the Credit Agreement have delivered to Hollywood Media any
and all documents and agreements required to be delivered by J.P. Morgan
Securities Inc. or such other lenders pursuant to the Stock Purchase
Agreement in form and substance reasonably acceptable to Hollywood
Media.
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The
obligations of Key Brand to complete the transactions contemplated by the Stock
Purchase Agreement are further subject to the satisfaction or waiver of each of
the following conditions on or prior to the closing date:
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the
representations and warranties of Hollywood Media set forth in the Stock
Purchase Agreement shall be true and correct as of the closing, except to
the extent such representations and warranties relate to an earlier date
(in which case such representations and warranties shall be true and
correct as of such earlier date); provided, however, for purposes of the
condition set forth in this provision any materiality or Material Adverse
Effect qualifications in such representations and warranties shall be
disregarded, and in the event of a breach of a representation or warranty
(after taking into effect disregarding materiality or Material Adverse
Effect qualifications), the condition set forth in this provision shall be
deemed satisfied
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unless
the effect of all such breaches of representations and warranties taken together
have had or are reasonably expect to have a Material Adverse Effect, and Key
Brand shall have received a certificate signed by an authorized officer of
Hollywood Media, dated the closing date, to the foregoing effect;
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Hollywood
Media shall have performed and complied in all material respects with all
obligations and agreements required by the Stock Purchase Agreement to be
performed or complied with by it on or prior to the closing date, and Key
Brand shall have received a certificate signed by an authorized officer of
Hollywood Media, dated the closing date, to the foregoing
effect;
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no
Material Adverse Effect shall have occurred; provided, however, that for
the purpose of this provision, a large-scale terrorism event in New York
City, New York that (i) results or that could reasonably be expected to
result in a long term and adverse impact on the business of Theatre Direct
and its subsidiaries or (ii) which causes the lenders under the Credit
Agreement to suspend loans to businesses in New York City, New York for a
period of thirty (30) consecutive days or more shall not be deemed to be
an Excluded Matter (as defined above in the definition of “Material
Adverse Effect”);
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Key
Brand shall have received a written consent from the requisite lenders
under the Credit Agreement for Key Brand to consummate the transactions
contemplated by the Stock Purchase Agreement and Key Brand shall be
entitled to borrow up to $15 million under the Credit Agreement towards
the payment of the cash consideration contemplated by the Stock Purchase
Agreement; and
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at
the closing, all documents required to be executed and delivered by
Hollywood Media (or other persons) pursuant to the Stock Purchase
Agreement, and certificates representing the shares of common stock of
Theatre Direct, have been delivered to Key
Brand.
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The
closing of the transactions contemplated by the Stock Purchase Agreement is to
be held at 10:00 a.m. (New York City time) not more than three business days
after each of the conditions to closing described above have been satisfied or
waived by the party entitled to the benefit thereof or at such other time as the
parties may mutually agree. The closing will be held at the New York
offices of Weil, Gotshal & Manges LLP, counsel to Hollywood
Media.
All of
the representations and warranties of Hollywood Media will survive until twenty
four (24) months after the closing of the transactions contemplated by the Stock
Purchase Agreement, except that Hollywood Media’s representations and warranties
relating to organization and good standing, authorization, capitalization, title
to stock, absence of convertible securities, absence of liens, and taxes, which
will survive until the applicable statute of limitations for such claims has
expired. In addition, claims for indemnification related to a breach
of a representation and warranty that is a reasonably foreseeable consequence of
an act undertaken (or failure to disclose an exception to a representation and
warranty) by Hollywood Media with the actual knowledge and intent that the
taking of such act (or failure to make such disclosure) would lead to or cause
such breach (“Intentional Breach”) shall survive until the applicable statute of
limitations for such claims has expired.
All of
the representations and warranties of Key Brand will survive until twenty four
(24) months after the closing of the transactions contemplated by the Stock
Purchase Agreement, except for Key Brand’s representations and warranties
relating to organization, good standing, and authorization, which will survive
until the applicable statute of limitations for such claims has
expired.
From and
after the closing date of the transactions contemplated by the Stock Purchase
Agreement, Hollywood Media has agreed to indemnify and hold harmless Key Brand
and its officers, directors, employees,
agents,
successors and assigns (collectively, the “Key Brand Indemnitees”) from and
against all damages resulting from or incurred by the Key Brand Indemnitees by
reason of:
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any
breach of any representation or warranty made by Hollywood Media contained
in the Stock Purchase Agreement or any document delivered in connection
therewith;
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any
breach of or failure to perform, carry out, satisfy or discharge any
covenant or agreement of Hollywood Media contained in the Stock Purchase
Agreement or any document delivered in connection therewith;
and
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any
fees, commissions, or like payments by any person having acted or claiming
to have acted, directly or indirectly, as a broker for Hollywood Media,
Theatre Direct, or its subsidiaries in connection with the transactions
contemplated by the Stock Purchase
Agreement.
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Similarly,
from and after the closing date, Key Brand has agreed to indemnify and hold
harmless Hollywood Media and its officers, directors, employees, agents,
successors and assigns (collectively, the “Hollywood Media Indemnitees”) from
and against all damages resulting from or incurred by the Hollywood Media
Indemnitees by reason of:
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any
breach of any representation or warranty made by Key Brand contained in
the Stock Purchase Agreement or any document delivered in connection
therewith;
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any
breach of or failure to perform, carry out, satisfy or discharge any
covenant or agreement of Key Brand contained in the Stock Purchase
Agreement or any document delivered in connection therewith;
and
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any
fees, commissions, or like payments by any person having acted or claiming
to have acted, directly or indirectly, as a broker for Key Brand in
connection with the transactions contemplated by the Stock Purchase
Agreement.
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Indemnification
Limitations
The
parties have agreed that the maximum aggregate amount of indemnifiable losses
that may be recovered from Hollywood Media for breaches of representations and
warranties (other than those with respect to organization and good standing,
authorization, capitalization, title to stock, absence of convertible
securities, absence of liens, and taxes or an Intentional Breach) prior to the
first anniversary of the closing date is an amount equal to $4
million. The parties have further agreed that the maximum aggregate
amount of indemnifiable losses that may be recovered from Hollywood Media by the
Key Brand Indemnitees for breaches of such representations and warranties (other
than those with respect to organization and good standing, authorization,
capitalization, title to stock, absence of convertible securities, absence of
liens, and taxes or an Intentional Breach) after the first anniversary of the
closing date but prior to the second anniversary of the closing date is an
amount equal to (A) $2 million minus (B) the aggregate amount of any
indemnifiable losses that were claimed during the first year after closing date
and were recovered or are still pending (which shall be zero if such calculation
results in a negative number), provided, however, that if any pending claims
from the first year after the closing date are resolved in favor of Hollywood
Media prior to the second anniversary of the closing date, then the amount(s) of
such claims resolved in favor of Hollywood Media shall no longer be included in
this provision, and provided, further, that even if the Key Brand Indemnitees
may not be able to recover losses under this provision due to a pending claim,
the Key Brand Indemnitees may continue to make claims for losses for any breach
by Hollywood Media of any representation or warranty contained in the Stock
Purchase Agreement after the first anniversary of the closing date but prior to
the second anniversary of the closing date until the Key Brand Indemnitees have
recovered $2 million of indemnifiable losses from Hollywood Media for any breach
by Hollywood Media of any representation or warranty contained in the Stock
Purchase Agreement (other than those with respect to organization and good
standing, authorization, capitalization, title to stock, absence of convertible
securities, absence of liens, and taxes or an Intentional Breach).
In
addition to certain offset rights under the Stock Purchase Agreement (which
offset rights are triggered in the event that Key Brand has obtained the written
consent of Hollywood Media or a final and nonappealable order of a court of
competent jurisdiction that Hollywood Media owes the Key Brand Indemnitees for
any indemnifiable losses pursuant to the Stock Purchase Agreement), the parties
have agreed that the maximum aggregate amount of indemnifiable losses that are
recoverable from Hollywood Media by the Key Brand Indemnitees for breaches of
the
representations
and warranties of Hollywood Media with respect to organization and good
standing, authorization, capitalization, title to stock, absence of convertible
securities, absence of liens, and taxes or an Intentional Breach, is an amount
equal to the sum of all cash amounts actually received by Hollywood Media
pursuant to the Stock Purchase Agreement, the Promissory Note, or the
Warrant.
Hollywood
Media will not be liable to any of the Key Brand Indemnitees for any claim for
indemnification based on breaches of the representations and warranties of
Hollywood Media (other than for breaches of representations and
warranties of Hollywood Media with respect to organization and good standing,
authorization, capitalization, title to stock, absence of convertible
securities, absence of liens and taxes or Intentional Breaches) unless and until
the aggregate amount of all indemnifiable losses that may be recovered from
Hollywood Media equals or exceeds $500,000, and thereafter the applicable party
shall be liable for all losses including losses up to and including the initial
$500,000 of losses.
No losses
shall be asserted by either party with respect to any matter which is covered by
insurance proceeds to the extent of such insurance proceeds. In
determining the amount of losses, all tax benefits resulting from such losses
shall be excluded. For purposes of determining the failure of any of
the representations or warranties contained in the Stock Purchase Agreement to
be true and correct, and calculating losses thereunder, any materiality or
Material Adverse Effect qualifications in such representations and warranties
will be disregarded.
Tax
Indemnification
Hollywood
Media has agreed to indemnify and hold harmless the Key Brand Indemnitees from
any damages resulting from any taxes:
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imposed
on or payable by Theatre Direct or any of its subsidiaries by reason of
Theatre Direct or any of its subsidiaries being included in any
consolidated, affiliated, combined, unitary or similar group at any time
on or before the closing date;
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imposed
on or payable by Theatre Direct or any of its subsidiaries with respect to
any tax period that ends on or before the closing date or includes the
closing date;
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imposed
as a result of or attributable to any Section 338(h)(10) election;
or
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attributable
to any breach of the tax representations made in the Stock Purchase
Agreement.
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The Stock
Purchase Agreement may be terminated and the transactions contemplated by the
Stock Purchase Agreement may be abandoned at any time prior to the closing
date:
(i) by
mutual written consent of Hollywood Media and Key Brand;
(ii) by
either Hollywood Media or Key Brand if:
(a) the
closing of the Stock Purchase Agreement shall not have occurred by July 30, 2010
(the “Termination Date”), provided that the terminating party is not in breach
in any material respect of any of its obligations under the Stock Purchase
Agreement and provided that Hollywood Media may not terminate the Stock Purchase
Agreement pursuant to this provision until the special meeting of shareholders
to vote on the approval of the sale of Theatre Direct has occurred, and provided
that either party may extend the Termination Date by an additional 30-day period
if the SEC reviews and provides written comments to this proxy statement, and
provided further that if (1) a Material Adverse Effect has occurred related to a
large-scale terrorism event in New York City, New York which causes the lenders
under the Credit Agreement to suspend loans to businesses in New York City, New
York (such event shall not be an Excluded Matter for purposes of this section),
and (2) such suspension of loans has been ongoing for less than thirty (30)
consecutive days and is continuing as of the Termination Date, then
the
Termination
Date shall be automatically extended through the earlier of (x) thirty (30) days
from the date that such suspension for loans first occurred or (y) the third
(3rd) business day after such suspension of loans is lifted or
removed;
(b) if
there is in effect a final nonappealable order of a governmental entity
restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated by the Stock Purchase Agreement, provided that the
right to terminate the Stock Purchase Agreement under this provision is not
available to a party if such order was primarily due to the failure of such
party to perform any of its obligations under the Stock Purchase Agreement;
or
(c) the
shareholders of Hollywood Media do not approve the sale of Theatre Direct by the
requisite vote at the special meeting of shareholders or at any adjournment or
postponement thereof;
(iii) by
Hollywood Media if:
(a) it
concurrently enters into a definitive acquisition agreement providing for a
superior proposal, provided that (1) Hollywood Media pays a termination fee of
$1.2 million to Key Brand, (2) the board of directors of Hollywood Media
determines that such acquisition agreement represents a superior proposal, (3)
Hollywood Media sends to Key Brand a written notice of its intent to terminate,
along with copies of the documents relating to the superior proposal, at least
three business days prior to terminating the Stock Purchase Agreement, (4)
during such three business day period, (A) Hollywood Media gives Key Brand the
opportunity to meet with Hollywood Media to suggest modifications to the sale of
Theatre Direct as contemplated by the Stock Purchase Agreement that Key Brand
may deem advisable, and (B) after taking such proposed modifications into
account Hollywood Media’s board of directors determines that such acquisition
agreement continues to be a superior proposal;
(b) Key
Brand materially breaches or fails to perform any of its representations,
warranties, covenants or agreements in the Stock Purchase Agreement, and such
breach (1) would give rise to a failure of Hollywood Media’s closing conditions
relating to the accuracy or performance of Key Brand’s representations or
covenants and agreements, and (2) cannot be cured by Key Brand by the
Termination Date; or
(c) all
of the conditions to closing, other than the condition relating to Key Brand
receiving a written consent from the requisite lenders under the Credit
Agreement and Key Brand being entitled to borrow up to $15 million under the
Credit Agreement to pay the cash consideration contemplated by the Stock
Purchase Agreement, have been satisfied or waived or are capable of being
satisfied at closing, and the condition relating to Key Brand receiving a
written consent from the requisite lenders under the Credit Agreement and Key
Brand being entitled to borrow up to $15 million under the Credit Agreement to
pay the cash consideration contemplated by the Stock Purchase Agreement is not
satisfied within thirty (30) days thereafter (the “Termination Waiting Period”),
provided, however, that if (1) a Material Adverse Effect has occurred related to
a large-scale terrorism event in New York City, New York which causes the
lenders under the Credit Agreement to suspend loans to businesses in New York
City, New York (for purposes of this provision such event shall not be an
Excluded Matter), and (2) such suspension of loans has been ongoing for less
than thirty (30) consecutive days and is continuing as of the end of the
Termination Waiting Period, then the Termination Waiting Period shall be
automatically extended through the earlier of (x) thirty (30) days from the date
that such suspension for loans first occurred or (y) the third (3rd) business
day after such suspension of loans is lifted or removed.
(iv) by
Key Brand if:
(a) the
board of directors of Hollywood Media withdraws or modifies its recommendation
that the Hollywood Media shareholders approve the sale of Theatre Direct as
contemplated by the Stock Purchase Agreement or the board of directors of
Hollywood Media publicly approves, endorses, or recommends to the shareholders
of Hollywood Media any other acquisition proposal;
(b) Hollywood
Media materially breaches or fails to perform any of its representations,
warranties, covenants or agreements in the Stock Purchase Agreement, and such
breach (1) would give rise to a failure of Key Brand’s closing conditions
relating to the accuracy or performance of Hollywood Media’s representations or
covenants, and (2) cannot be cured by the Termination Date; or
(c) a
Material Adverse Effect occurs which cannot be cured by Hollywood Media by the
Termination Date; provided, however, that for purposes of this provision, a
large-scale terrorism event in New York City, New York that (1) results or that
could reasonably be expected to result in a long term and adverse impact on the
business of the Theatre Direct and its subsidiaries or (2) which causes the
lenders under the Credit Agreement to suspend loans to businesses in New York
City, New York for a period of at least thirty (30) consecutive days shall not
be deemed to be an Excluded Matter.
Hollywood
Media must pay Key Brand a termination fee of $1.2 million in the event
that:
(i) (A)
an acquisition proposal is made to Hollywood Media or any person publicly
announces an intention (whether or not conditional or withdrawn) to make an
acquisition proposal, in each case after the date of the Stock Purchase
Agreement and prior to any termination of the Stock Purchase Agreement, and
thereafter, (B) the Stock Purchase Agreement is terminated by Hollywood Media or
Key Brand because the closing has not occurred before the Termination Date or
because the shareholders of Hollywood Media have not approved the sale of
Theatre Direct, and (C) within fifteen (15) months of the date the Stock
Purchase Agreement is terminated, Hollywood Media consummates a transaction
contemplated by any inquiry, proposal or offer from any person or group of
persons (other than Key Brand and its affiliates) to acquire, directly or
indirectly (whether by way of merger, consolidation, share exchange, business
combination, recapitalization, tender or exchange offer, asset sale, lease or
otherwise), for consideration consisting of cash and/or securities (1) the
assets of Hollywood Media and its subsidiaries (including securities of
subsidiaries, but excluding sales of assets in the ordinary course of business)
constituting all or substantially all of Hollywood Media’s consolidated assets,
(2) 50% or more of the outstanding voting securities of Hollywood Media
(including any merger, tender offer, exchange offer, consolidation, business
combination, arrangement or similar transaction involving Hollywood Media
pursuant to which the shareholders of Hollywood Media immediately preceding such
transaction hold less than 50% of the equity interests in the surviving or
resulting entity of such transaction), (3) acquisition of assets of Theatre
Direct and its subsidiaries (including securities of subsidiaries, but excluding
sales of assets in the ordinary course of business) equal to 50% or more of
Theatre Direct and its subsidiaries’ consolidated assets, as applicable, or to
which 50% or more of Theatre Direct and its subsidiaries’ revenues or earnings,
as applicable, on a consolidated basis are attributable, or (4) acquisition of
50% or more of the equity securities of Theatre Direct;
(ii) the
Stock Purchase Agreement is terminated by Key Brand because the board of
directors of Hollywood Media has withdrawn or modified its recommendation that
the Hollywood Media shareholders approve the sale of Theatre Direct as
contemplated by the Stock Purchase Agreement or the board of directors of
Hollywood Media has publicly approved, endorsed, or recommended to the
shareholders of Hollywood Media any other acquisition proposal; or
(iii) the
Stock Purchase Agreement is terminated by Hollywood Media because it has
concurrently entered into a definitive acquisition agreement with respect to a
superior proposal.
Key
Brand’s right to receive a termination fee in the circumstances provided in the
Stock Purchase Agreement is the exclusive remedy available to Key Brand for any
failure of the transactions contemplated by the Stock Purchase Agreement to be
consummated in those circumstances, and Hollywood Media shall have no further
liability with respect to the Stock Purchase Agreement or the transactions
contemplated thereby, except liability for an act undertaken (or failure to take
an act) by Hollywood Media with the actual knowledge and intent that the taking
of such act (or failure to take such act) would directly cause a breach of the
Stock Purchase Agreement.
Miscellaneous
Section
338(h)(10) Election
Upon the
request of Key Brand, Hollywood Media has agreed to join with Key Brand in
making an election under Section 338(h)(10) of the Internal Revenue Code and any
corresponding or similar elections under state, local or foreign tax law with
respect to Theatre Direct and its subsidiaries. Except as
specifically provided in the Stock Purchase Agreement, Key Brand has agreed to
be responsible for preparing and filing all documents and forms required to
effectuate such election.
Expenses
Except as
specifically set forth in the Stock Purchase Agreement and discussed above,
Hollywood Media and Key Brand will bear their own respective expenses incurred
in connection with the Stock Purchase Agreement.
The Stock
Purchase Agreement may be modified or amended only by written instrument signed
by the party against whom enforcement is sought, except that following receipt
of approval of the Stock Purchase Agreement by Hollywood Media’s shareholders,
no such amendment that requires shareholder approval under the Florida Business
Corporation Act may be made by Hollywood Media without first obtaining such
shareholder approval.
Attorneys’ Fees
In the
event that any suit or action is instituted prior to the closing date in
connection with any termination of the Stock Purchase Agreement, the prevailing
party in such dispute shall be entitled to recover from the losing party all
reasonable fees, costs and expenses of enforcing any right of such prevailing
party under or with respect to the Stock Purchase Agreement, including, such
reasonable fees and expenses of attorneys and accountants, which shall include
all fees, costs and expenses of appeals.
Governing Law
The Stock
Purchase Agreement is governed by and construed in accordance with the laws of
the State of New York, except for certain matters required to be determined with
respect to Hollywood Media by the Florida Business Corporation Act.
Hollywood
Media Release
The
following summarizes certain material provisions of the release to be delivered
by Hollywood Media to Key Brand in connection with the closing of the
transactions contemplated by the Stock Purchase Agreement. This
summary does not purport to be complete, and the rights and obligations of the
parties are governed by the express terms of the release and not by this summary
or any other information contained in this proxy statement.
On the
closing date, Hollywood Media will deliver a release to Key Brand that provides
that Hollywood Media releases and discharges Theatre Direct and its predecessors
and present and former subsidiaries and each of their respective present and
past employees, officers, directors, partners and managers and Key Brand, solely
in its capacity as a stockholder of Theatre Direct after the closing of the
transactions contemplated by the Stock Purchase Agreement (collectively, the
“Released Parties”), from any and all claims, losses, or obligations which
Hollywood Media as of the date of the release has or prior to the date of the
release ever had against Theatre Direct and its past and present subsidiaries;
provided, however, that the release does not include any and all matters based
on, arising out or in connection with any of the Released Parties’ obligations
under the Stock Purchase Agreement or any other agreement, document, instrument
or certificate contemplated by the Stock Purchase Agreement or entered
into,
executed
or delivered in connection with the Stock Purchase Agreement (including the
Promissory Note, the Warrant, and the earnout under the Stock Purchase
Agreement).
Transition
Services Agreement
On the
closing date, Hollywood Media and Theatre Direct will enter into a transition
services agreement pursuant to which Hollywood Media will provide, or cause to
be provided, certain transition services to Theatre Direct, including services
related to technology (including network connectivity, email, and phone
services) and human resources (including payroll and benefits
services). Hollywood Media will begin providing the services on the
closing date and will continue providing the services until the time specified
for each service in the transitions services agreement (for some services up to
six months after the closing date). As consideration for the
performance of the services under the transition services agreement, Theatre
Direct will pay Hollywood Media (i) the hourly rate for each employee of
Hollywood Media providing services multiplied by the number of hours of services
provided, (ii) for each third-party contract of Hollywood Media that is
necessary to provide the services, the portion of the fees payable by Hollywood
Media with respect to such contract that are allocated to the services; (iii)
any other reasonable charges and out-of-pocket costs and expenses incurred by
Hollywood Media as a result of providing the services.
The
following summarizes certain material provisions of the non-competition
agreements to be entered into by Key Brand and each of Mitchell Rubenstein, our
Chairman and Chief Executive Officer, and Laurie S. Silvers, our Vice-Chairman,
President and Secretary, in connection with the closing of transactions
contemplated by the Stock Purchase Agreement. This summary does not
purport to be complete, and the rights and obligations of the parties are
governed by the express terms of the non-competition agreements and not by this
summary or any other information contained in this proxy statement.
On the
closing date, Mitchell Rubenstein, our Chairman and Chief Executive Officer, and
Laurie S. Silvers, our Vice-Chairman, President and Secretary, will each enter
into non-competition agreements with Key Brand pursuant to which Mr. Rubenstein
and Ms. Silvers will agree for no additional consideration, for a period of
three (3) years from and after the closing date, that they will not own, manage,
engage in, operate, control, work for or participate in the ownership,
management, operation or control of, any business engaged in the sales of
tickets to live musical or live theatrical performances in the City of New York,
New York; provided, however, that these restrictions shall (A) not restrict (i)
the sale of advertisements, including online advertising, (ii) the acquisition
or the ownership by Mr. Rubenstein or Ms. Silvers of less than 5% of the
outstanding capital stock of any publicly traded company engaged in the sales of
tickets to live musical or live theatrical performances in the City of New York,
New York, (iii) the acquisition of any assets or business owned by Mr.
Rubenstein or Ms. Silvers (which asset or business is not engaged in the sales
of tickets to live musical or live theatrical performances in the City of New
York, New York) by any person which prior to such transaction was already
engaged in the sales of tickets to live musical or live theatrical performances
in the City of New York, New York (and subsequent ownership of such assets or
business by such person) and there shall be no prohibition on Mr. Rubenstein or
Ms. Silvers working for such person in connection with the business that was
sold, or (iv) any form or type of participation in non-profit organizations, and
(B) cease upon any event of default by Key Brand under the Promissory Note, the
loan agreement, the security agreement, or the intercreditor agreement issued in
connection with the Stock Purchase Agreement, whereby Theatre Direct and its
subsidiaries or any of their assets are controlled by, foreclosed upon or
otherwise returned to Hollywood Media.
As a
result of the sale of Theatre Direct, we will remove the Theatre Direct assets
and liabilities from our consolidated balance sheet and record a gain on the
sale of Theatre Direct equal to the difference between the book value of our
ownership interest in Theatre Direct and the fair value of the purchase price
received.
Material
U.S. Federal Income Tax Consequences
The
following is a general discussion of the anticipated material federal income tax
consequences of the sale of Theatre Direct, a potential special cash dividend to
holders of Hollywood Media common stock, and a potential self-tender offer for
the purchase of Hollywood Media common stock. This discussion is a
summary for general information only and applies solely to holders of Hollywood
Media common stock and to us. This discussion is not intended to be
used, and it cannot be used by any taxpayer, for the purpose of avoiding
penalties that may be imposed on the taxpayer. Each taxpayer should seek
advice based on the taxpayer’s particular circumstances from an independent tax
advisor.
This
discussion is based on the U.S. Internal Revenue Code of 1986, as amended, or
the Code, administrative pronouncements, judicial decisions and final, temporary
and proposed Treasury regulations, all as in effect on the date hereof and all
of which may be changed, perhaps retroactively, so as to result in U.S. federal
income tax consequences different from those described below. This
summary does not address all aspects of U.S. federal income taxes and does not
deal with other federal taxes, including, but not limited to, estate and gift
taxes, or with foreign, state, local, or other tax considerations that may be
relevant to holders of Hollywood Media common stock in light of their particular
circumstances. In addition, it does not address U.S. federal income
tax consequences applicable to persons or entities that are subject to special
treatment under the U.S. federal income tax laws (including U.S. expatriates,
“controlled foreign corporations,” “passive foreign investment companies,”
corporations that accumulate earnings to avoid U.S. federal income tax, dealers
in securities or currencies, financial institutions, tax-exempt entities,
persons who hold common stock as part of a risk reduction or integrated
investment transaction, or investors in pass-through
entities). Furthermore, this summary deals only with holders of
shares of Hollywood Media common stock that hold such shares as capital
assets.
For
purposes of this discussion, a “U.S. Holder” is a beneficial owner of Hollywood
Media common stock that is, for U.S. federal income tax purposes, an individual
citizen or resident of the U.S., a U.S. corporation, a trust if the trust (i) is
subject to the primary supervision of a U.S. court and one or more U.S. persons
are able to control all substantial decisions of the trust or (ii) has elected
to be treated as a U.S. person, or an estate the income of which is subject to
U.S. federal income tax regardless of its source. A “non-U.S. Holder”
is any holder of Hollywood Media common stock other than a U.S.
Holder.
Circular
230 Disclosure
Treasury
Regulations (Circular 230) require that certain types of written communication
include a disclaimer. Accordingly, this discussion (1) is not
intended or written to be used, and cannot be used by any taxpayer (including
any holder of Hollywood Media common stock), for the purpose of avoiding
penalties that may be imposed on the taxpayer and (2) was written to support the
promotion or marketing of the transactions addressed by this
discussion. The taxpayer (including any holder of Hollywood Media
common stock) should seek advice based on the taxpayer’s particular
circumstances from an independent tax advisor.
Material
U.S. Federal Tax Consequences to Hollywood Media of the sale of Theatre
Direct
The sale
of Theatre Direct will be a taxable transaction for us in the U.S. We
will realize gain with respect to our Theatre Direct stock equal to the
difference between the proceeds received by us on such sale and our tax basis in
the stock sold. For purposes of calculating the amount of our tax
gain, the proceeds received by us will include the cash received and the fair
market value of any other consideration we receive for our Theatre Direct
stock. It is our present intent to elect that our income from the
sale not be taken into account under the installment method. It is
anticipated that we will have sufficient losses (including net operating loss
carryovers) to offset the gain expected to be realized from the sale of Theatre
Direct for federal income tax purposes. However, only 90%
of
our
alternative minimum taxable income can be offset with net operating loss
carryovers, with the effect that we may, in effect, be subject to an Alternative
Minimum Tax equal to 2% on our gain.
Upon the
request of Key Brand, we are required to make a joint election with Key Brand
under Code Section 338(h)(10). If this election is made, we will be
deemed to have sold each asset of Theatre Direct (rather than stock of Theatre
Direct) to Key Brand for that asset’s allocable share of the purchase price,
grossed up for any liabilities of Theatre Direct. Our gain or loss
will be determined based upon the amount of the purchase price allocated to each
asset and Theatre Direct’s adjusted tax basis for each asset. It is
anticipated that we will have sufficient losses (including net operating loss
carryovers) to offset the gain expected to be realized from the deemed asset
sale of Theatre Direct for federal income tax purposes. However, only
90% of our alternative minimum taxable income can be offset with net operating
loss carryovers, with the effect that we may, in effect, be subject to an
Alternative Minimum Tax equal to 2% of our gain.
Material
U.S. Federal Income Tax Consequences to Hollywood Media and to Holders of
Hollywood Media Common Stock of a Cash Dividend
The
following is a discussion of material U.S. federal income tax consequences to us
and to holders of Hollywood Media common stock in connection with the potential
special cash dividend to our shareholders of the available proceeds from the
sale of Theatre Direct.
U.S. federal income tax treatment of
the special cash dividend. We presently intend to report any
special cash dividend as a taxable dividend to the extent of our current or
accumulated earnings and profits (computed using U.S. federal income tax
principles), with any amount in excess of such current or accumulated earnings
and profits treated as a non-taxable return of capital to the extent of the
holder’s adjusted tax basis in their Hollywood Media common stock and,
thereafter, as capital gain. Because our current earnings and profits
must take into account the results of operations for the entire year in which
the special cash dividend is made, we will not be able to determine the portion
of the special cash dividend that will be treated as a dividend until after the
close of the taxable year in which the special cash dividend is
made. If the portion of a U.S. Holder’s special cash dividend that is
treated as a dividend equals or exceeds 10% of the U.S. Holder’s tax basis in
the U.S. Holder’s shares of Hollywood Media common stock, the dividend may be
treated as an “extraordinary dividend.” See below for a description
of the U.S. federal income tax consequences of receiving an extraordinary
dividend.
Although
we presently intend to report (and, except as expressly stated to the contrary
below, the remainder of this discussion assumes that we will report) any special
cash dividend in the manner described in the preceding paragraph, it is arguable
that the special cash dividend made out of the proceeds of the sale of Theatre
Direct could also properly be viewed as a distribution in partial liquidation of
Hollywood Media governed by Code Section 302(b)(4), at least if a joint election
with Key Brand under Code Section 338(h)(10) is made. This view of
the transaction would have no effect on shareholders of Hollywood Media who are
corporations (or on corporations who hold stock in Hollywood Media through one
or more partnerships, estates, or trusts), except as expressly stated below with
respect to extraordinary dividends. However, in the case of a
noncorporate shareholder of Hollywood Media, this view would cause the
transaction to be treated as a distribution in full payment in exchange for a
portion of the shareholder’s stock. The amount of capital gain
recognized by the shareholder on such exchange would depend on a number of
factors, including the shareholder’s basis in the stock, and could be greater or
less than the amount of dividend income and capital gain that would be
reportable by the shareholder if the transaction were not treated as a partial
liquidation.
The
Internal Revenue Service has issued a Revenue Ruling that takes the position
that the distribution of the proceeds of the sale of the stock of a subsidiary
in connection with which a Section 338(h)(10) election is not made cannot
qualify as a partial liquidation. Although, as stated above, we do
not presently intend to report the transaction as a partial liquidation, we may
reconsider that determination if a Section 338(h)(10) election is ultimately
made.
U.S. federal income tax consequences
to U.S. Holders. Current U.S. federal income tax law applies
long-term capital gains tax rates (currently a maximum 15% rate) to the dividend
income of an individual U.S. Holder with respect to dividends paid by a domestic
corporation if certain minimum holding period requirements are
met. Dividends paid to a U.S. Holder that is a corporation will
generally be eligible for the dividends received deduction.
As noted
above, the portion of the special cash dividend received by a U.S. Holder that
exceeds the holder’s share of our earnings and profits and also exceeds the
holder’s tax basis in the holder’s shares of Hollywood Media common stock will
be treated as received pursuant to a taxable sale or exchange of the holder’s
shares of Hollywood Media common stock and the holder will recognize gain in an
amount equal to such excess. Any gain will be capital gain and will
be long-term capital gain if the U.S. Holder held its shares of Hollywood Media
common stock for more than one year.
Tax treatment of extraordinary
dividends. As noted above, the portion of the special cash
dividend that is a dividend for U.S. federal income tax purposes may be treated
as an extraordinary dividend if it equals or exceeds 10% of the holder’s basis
in the stock. If a dividend received by an individual U.S. Holder is
subject to U.S. federal income tax at the capital gains rates noted above, and
the dividend is an extraordinary dividend with respect to that holder, the
holder will be required to treat any loss on a sale of its shares of Hollywood
Media common stock as long-term capital loss to the extent of the extraordinary
dividend. With regard to corporate holders claiming a
dividends-received deduction, the dividend may be an extraordinary dividend if
the corporate holder has not held its shares of our common stock for more than 2
years prior to the “dividend announcement date” as determined by the tax
law. (If the special cash distribution is considered to have been
made in partial liquidation of Hollywood Media, the dividend may be an
extraordinary dividend even if the corporate shareholder has held the stock for
more than 2 years.) For this purpose, the “dividend announcement
date” is the date on which we declare, announce, or agree to the amount or
payment of such dividend, whichever is the earliest. If the dividend
is treated as an extraordinary dividend for a U.S. Holder that is a corporation,
the corporate holder will be required to reduce its tax basis, and may be
required to recognize current gain in respect of the shares of Hollywood Media
common stock that entitled the holder to the dividend. U.S. Holders
should consult their own tax advisors regarding the application of the
extraordinary dividend rules.
U.S. federal income tax consequences
to non-U.S. Holders. Dividends paid to a non-U.S. Holder of
Hollywood Media common stock generally will be subject to withholding of U.S.
federal income tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. However, dividends that are effectively
connected with the conduct of a trade or business by the non-U.S. Holder within
the U.S. are not subject to the withholding tax, provided certain certification
and disclosure requirements are satisfied. Instead, such dividends
are subject to U.S. federal income tax on a net income basis in the same manner
as if the non-U.S. Holder were a U.S. person as defined under the Code, unless
an applicable income tax treaty provides otherwise. Any such
effectively connected dividends received by a foreign corporation may be subject
to an additional “branch profits tax” at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.
A
non-U.S. Holder of Hollywood Media common stock who wishes to claim the benefit
of an applicable treaty rate for dividends will be required to (i) complete
Internal Revenue Service Form W-8BEN (or other applicable form) and certify
under penalty of perjury that such holder is not a U.S. person as defined under
the Code and is eligible for treaty benefits or (ii) if the holder’s shares of
Hollywood Media common stock are held through certain foreign intermediaries,
satisfy the relevant certification requirements of applicable U.S. Treasury
regulations. Special certification and other requirements apply to
certain non-U.S. Holders that are pass-through entities rather than corporations
or individuals.
As noted
above, for non-U.S. Holders, the portion of the special cash dividend received
by a non-U.S. Holder that exceeds the holder’s share of our earnings and profits
and also exceeds the holder’s tax basis in their shares of Hollywood Media
common stock will be treated as received pursuant to a taxable sale or exchange
of their shares of Hollywood Media common stock, and the holder will recognize
gain in an amount equal to such excess. Any gain realized on such a
disposition of Hollywood Media common stock generally will not be subject to
U.S. federal income tax unless:
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the
gain is effectively connected with a trade or business of the non-U.S.
Holder in the U.S. (and, if required by an applicable income tax treaty,
is attributable to a U.S. permanent establishment of the non-U.S.
Holder);
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the
non-U.S. Holder is an individual who is present in the U.S. for 183 days
or more in the taxable year of that disposition, and certain other
conditions are met; or
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we
are or have been a “U.S. real property holding corporation” for U.S.
federal income tax purposes and
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the non-U.S. Holder owns
(or has owned) more than 5% of the outstanding shares of our stock.
An
individual non-U.S. Holder described in the first bullet point immediately above
will be subject to tax on the net gain derived from the sale under regular
graduated U.S. federal income tax rates in the same manner as if the non-U.S.
Holder were a U.S. person as defined under the Code. If a non-U.S.
Holder that is a foreign corporation falls under the first bullet point
immediately above, it will be subject to tax on its net gain in the same manner
as if it were a U.S. person as defined under the Code and, in addition, may be
subject to the branch profits tax equal to 30% of its effectively connected
earnings and profits or at such lower rate as may be specified by an applicable
income tax treaty. An individual non-U.S. Holder described in the
second bullet point immediately above will be subject to a flat 30% tax on the
gain derived from the sale, which may be offset by U.S. source capital losses,
even though the individual is not considered a resident of the U.S.
Material
U.S. Federal Income Tax Consequences of a Tender Offer for Shares of Hollywood
Media Common Stock
The
following discussion is a summary of material U.S. federal income tax
consequences applicable to a U.S. Holder that sells Hollywood Media common stock
pursuant to our possible self-tender offer to purchase shares of common
stock. This discussion does not purport to be a complete analysis of
all the potential U.S. federal income tax effects of a tender offer and does not
address all of the tax consequences that may be relevant to a particular U.S.
Holder of our common stock in light of such holder’s individual
circumstances.
A sale of
common stock for cash pursuant to a tender offer will be a taxable transaction
to a U.S. Holder for U.S. federal income tax purposes. In general, a
U.S. Holder that participates in such a tender offer by exchanging shares for
cash will be treated, depending on such U.S. Holder’s particular circumstances,
as recognizing gain or loss from the disposition of the shares or as receiving a
dividend distribution from us.
Sale or Exchange
Treatment. A U.S. Holder’s exchange of shares of Hollywood
Media common stock for cash pursuant to a tender offer will generally be treated
as a sale or exchange of the shares for federal income tax purposes pursuant to
Section 302 of the Code if the sale meets one of the following
tests:
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results
in a “complete termination” of the holder’s stock interest in Hollywood
Media under Section 302(b)(3) of the
Code;
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is
a “substantially disproportionate” redemption with respect to the holder
under Section 302(b)(2) of the Code;
or
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is
“not essentially equivalent to a dividend” with respect to the holder
under Section 302(b)(1) of the
Code.
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In
determining whether any of these three tests have been met, a U.S. Holder must
take into account not only the shares that the holder actually owns, but also
the shares constructively owned within the meaning of Section 318 of the Code
(as modified by Section 302(c) of the Code). Under the constructive
ownership rules of Section 318 of the Code, a holder will generally be
considered to own those shares owned, directly or indirectly, by certain members
of the holder’s family and certain entities (such as corporations, partnerships,
trusts and estates) in which the holder has an equity interest, as well as
shares the holder has an option to purchase. Due to the factual
nature of these tests, holders should consult their own tax advisors to
determine whether the purchase of their shares in our contemplated tender offer
qualifies for sale or exchange treatment in their particular
circumstances. The likelihood that the sale by any particular
shareholder will meet one or more of the foregoing tests will depend, in part,
on the number of other shareholders selling shares pursuant to a tender
offer.
A
distribution to a U.S. Holder will result in a “complete termination” of the
holder’s equity interest in Hollywood Media if either (1) all of the shares
actually and constructively owned by the holder are sold pursuant to a tender
offer; or (2) all of the shares actually owned by the holder are sold pursuant
to the tender offer and the U.S. Holder is eligible to waive, and effectively
waives, the attribution of shares constructively owned by the U.S. Holder in
accordance with the procedures described in Section 302(c)(2) of the
Code.
Satisfaction
of the “substantially disproportionate” test above is dependent upon compliance
with the objective tests set forth in Section 302(b)(2) of the
Code. A distribution to a holder will be “substantially
A
distribution to a holder meets the “not essentially equivalent to a dividend”
test above if it results in a “meaningful reduction” in the holder’s stock
interest in Hollywood Media. Whether a holder meets this test depends
on the holder’s particular facts and circumstances. The IRS has
indicated that even a small reduction in the percentage interest of a holder
whose relative stock interest in a publicly held corporation is minimal and who
exercises no control over corporate affairs should constitute a “meaningful
reduction.” A U.S. Holder’s exchange of shares of Hollywood Media
common stock for cash pursuant to a tender offer will also be treated as a sale
or exchange of the shares for federal income tax purposes if the transaction is
treated as a “partial liquidation,” as described above.
If the
receipt of cash by a U.S. Holder in exchange for shares pursuant to a tender
offer is treated as a sale or exchange of such shares for U.S. federal income
tax purposes, the U.S. Holder will recognize capital gain or loss equal to the
difference between (1) the amount of cash received by the U.S. Holder for such
shares and (2) the U.S. Holder’s “adjusted tax basis” for such shares at the
time of the sale. Generally, a U.S. Holder’s adjusted tax basis for
the shares will be equal to the cost of the shares to the U.S.
Holder. This gain or loss will be characterized as long-term capital
gain or loss if the U.S. Holder’s holding period for the shares that were sold
exceeds one year as of the date Hollywood Media purchases the shares pursuant to
a tender offer. In the case of a U.S. Holder that is an individual,
trust, or estate, the maximum stated rate of U.S. federal income tax applicable
to net long-term capital gain on shares held for more than one year is generally
15%. A U.S. Holder’s ability to deduct capital losses may be
limited. A U.S. Holder must calculate gain or loss separately for
each block of shares (generally, shares that the holder acquired at the same
cost in a single transaction) Hollywood Media purchases from the U.S. Holder
pursuant to a tender offer.
Dividend
Treatment. If a U.S. Holder’s receipt of cash attributable to
an exchange of shares of common stock for cash pursuant to the tender offer does
not meet at least one of the tests of Section 302 of the Code described above,
then the full amount of cash received by the U.S. Holder with respect to
Hollywood Media’s purchase of shares under a tender offer will be treated as a
distribution to the U.S. Holder with respect to such shares and will be treated
as ordinary dividend income to the U.S. Holder to the extent of Hollywood
Media’s current or accumulated earnings and profits as determined under U.S.
federal income tax principles. Provided that a non-corporate U.S.
Holder has held the Hollywood Media stock for a period greater than 60 days
during the 121-day period beginning 60 days before the date of the tender offer
and ending 60 days after the date of the tender offer, and the tender offer is
completed before December 31, 2010 (unless legislation is enacted to extend the
“qualified dividend” tax rate), such holder generally will be subject to U.S.
federal income tax at a maximum stated rate of 15% on the amount treated as
ordinary dividend income (0% if the U.S. Holder is in the 10% or 15% tax
bracket). To the extent that the amount of the distribution exceeds
Hollywood Media’s current and accumulated earnings and profits, the excess first
will be treated as a return of capital that will reduce the U.S. Holder’s
adjusted tax basis in all of such holder’s shares. Any amount of the
distribution remaining after the U.S. Holder’s adjusted tax basis has been
reduced to zero will be taxable to the U.S. Holder as capital
gain. Any such gain will be long-term capital gain if the U.S. Holder
has held the shares for more than one year as of the date of the tender
offer. Net long-term capital gains recognized by a non-corporate U.S.
Holder are generally subject to tax at reduced rates.
Reporting by Hollywood
Media
Variations
in the level to which offerees participate in a tender offer may affect whether
the purchase of shares in the tender offer will be treated as a sale, rather
than a dividend, for U.S. federal income tax purposes pursuant to the rules
described above. Hollywood Media cannot predict whether or to the
extent to which a possible tender offer will be subscribed and therefore, no
assurance can be given to any particular U.S. Holder that such holder’s
participation in the tender offer will be treated as a sale rather than a
dividend. U.S. Holders should consult their own tax advisors
regarding the application of the rules described above in light of their
particular circumstances.
Information reporting and backup
withholding. Information reporting to the U.S. Internal
Revenue Service generally will be required with respect to a payment of cash to
U.S. Holders, other than corporations and other exempt recipients. A
28% “backup” withholding tax may apply to those payments if such a holder fails
to provide a taxpayer identification number to the paying agent and to certify
that no loss of exemption from backup withholding has
occurred. Non-U.S. Holders may be required to comply with applicable
certification procedures to establish that they are not U.S. Holders in order to
avoid the application of such information reporting requirements and backup
withholding. The amounts withheld under the backup withholding rules
are not an additional tax and may be refunded, or credited against the holder’s
U.S. federal income tax liability, if any, provided the required information is
furnished to the U.S. Internal Revenue Service.
THE TAX
DISCUSSION IN THIS PROXY STATEMENT (“TAX DISCUSSION”) IS GENERAL IN NATURE AND
IS NOT A TAX OPINION OR TAX ADVICE. THE TAX
DISCUSSION WAS WRITTEN EXCLUSIVELY TO SUPPORT THE PROPOSED TRANSACTIONS
DESCRIBED HEREIN. SPECIFIC TAX CONSEQUENCES MAY VARY WIDELY DEPENDING
ON A PARTICULAR INVESTOR’S INDIVIDUAL CIRCUMSTANCES. THE TAX
DISCUSSION MAY NOT BE RELIED UPON FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY
BE ASSERTED BY THE INTERNAL REVENUE SERVICE AGAINST A
SHAREHOLDER. EVERY SHAREHOLDER IS URGED TO CONSULT, AND MUST DEPEND
UPON, ITS OWN TAX ADVISER CONCERNING THE TAX CONSEQUENCES OF THE TRANSACTION
CONTEMPLATED HEREIN IN CONNECTION WITH SUCH PERSON’S OWN TAX SITUATION AND
POTENTIAL AND PROPOSED CHANGES IN APPLICABLE LAW, INCLUDING THE APPLICATION OF
STATE AND LOCAL, FOREIGN, AND OTHER TAX CONSIDERATIONS.
OUR
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT HOLLYWOOD MEDIA’S SHAREHOLDERS
VOTE “FOR” PROPOSAL #1, THE PROPOSAL TO SELL THEATRE DIRECT.
In
considering the recommendation of our board of directors with respect to the
Proposal to Sell Theatre Direct, our shareholders should be aware that two of
our six directors, Mitchell Rubenstein, our Chairman and Chief Executive
Officer, and Laurie S. Silvers, our Vice-Chairman, President and Secretary, will
directly benefit from the sale of Theatre Direct and therefore have interests in
the Proposal to Sell Theatre Direct that are different from, or in addition to,
the interests of our shareholders generally. See “PROPOSAL #1: PROPOSAL TO SELL
THEATRE DIRECT—Interests of Certain Persons in the Sale of Theatre
Direct” beginning on page 57.
The
Proposal to Adjourn or Postpone the Special Meeting would permit us to adjourn
or postpone the special meeting for the purpose of soliciting additional proxies
in the event that, at the special meeting, the affirmative vote in favor of the
Proposal to Sell Theatre Direct is less than a majority of the outstanding
shares of Hollywood Media common stock entitled to vote at the special
meeting. If the Proposal to Adjourn or Postpone the Special Meeting
is approved and the Proposal to Sell Theatre Direct is not approved at the
special meeting, we will be able to adjourn or postpone the special meeting for
the purpose of soliciting additional proxies to approve the Proposal to Sell
Theatre Direct. If you have previously submitted a proxy on the
proposals discussed in this proxy statement and wish to revoke it upon
adjournment or postponement of the special meeting, you may do so.
As of the
record date, the directors and executive officers of Hollywood Media
beneficially owned approximately [___]% of the Hollywood Media issued and
outstanding common stock on that date. None of Hollywood Media’s
directors or executive officers have entered into agreements relating to how
such directors and executive officers will vote shares of Hollywood Media’s
common stock owned by such persons with respect to the Proposal to Sell Theatre
Direct or the Proposal to Adjourn or Postpone the Special Meeting.
No
Appraisal or Dissenters’ Rights
No
appraisal or dissenters’ rights are available to our shareholders under the
Florida Business Corporation Act or our articles of incorporation or bylaws in
connection with the types of actions contemplated under the Proposal to Adjourn
or Postpone the Special Meeting.
Recommendation
of Our Board of Directors
OUR
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT HOLLYWOOD MEDIA’S SHAREHOLDERS
VOTE “FOR” PROPOSAL #2, THE PROPOSAL TO ADJOURN OR POSTPONE THE SPECIAL MEETING,
IF NECESSARY OR APPROPRIATE, TO SOLICIT ADDITIONAL PROXIES IF THERE ARE
INSUFFICIENT VOTES AT THE TIME OF THE SPECIAL MEETING TO APPROVE PROPOSAL #1,
THE PROPOSAL TO SELL THEATRE DIRECT.
In
considering the recommendation of our board of directors with respect to the
Proposal to Adjourn or Postpone the Special Meeting, our shareholders should be
aware that two of our six directors, Mitchell Rubenstein, our Chairman and Chief
Executive Officer, and Laurie S. Silvers, our Vice-Chairman, President and
Secretary, will directly benefit from the sale of Theatre Direct and therefore
have interests in the Proposal to Sell Theatre Direct and the Proposal to
Adjourn or Postpone the Special Meeting that are different from, or in addition
to, the interests of our shareholders generally. See “PROPOSAL #1: PROPOSAL TO SELL
THEATRE DIRECT—Interests of Certain Persons in the Sale of Theatre
Direct” beginning on page 57.
MANAGEMENT
The
following table sets forth certain information regarding the beneficial
ownership of the common stock of Hollywood Media as of April 27, 2010 (or other
date as indicated in the footnotes below) by:
|
•
|
each
person or group known by Hollywood Media to beneficially own more than 5%
of the outstanding shares of common stock of Hollywood
Media;
|
|
•
|
each
director and director nominee of Hollywood
Media;
|
|
•
|
each
executive officer of Hollywood Media;
and
|
|
•
|
all
of the current directors and executive officers of Hollywood Media as a
group.
|
Name and Address
of Beneficial Owner(1)
|
|
Number of Shares
Beneficially Owned(2)
|
|
|
Percent of Class(2)
|
|
Shannon
River Fund Management Co. LLC
|
|
|
3,123,860 |
(3) |
|
|
10.02 |
% |
Intana
Management, LLC
|
|
|
3,055,379 |
(4) |
|
|
9.80 |
% |
Morgan
Stanley
|
|
|
2,649,011 |
(5) |
|
|
8.49 |
% |
CCM
Master Qualified Fund, Ltd.
|
|
|
2,632,034 |
(6) |
|
|
8.44 |
% |
Mitchell
Rubenstein and Laurie S. Silvers
|
|
|
1,816,330 |
(7) |
|
|
5.82 |
% |
Potomac
Capital Management LLC
|
|
|
1,756,553 |
(8) |
|
|
5.63 |
% |
Dimensional
Fund Advisors, LP
|
|
|
1,578,227 |
(9) |
|
|
5.06 |
% |
Stephen
Gans
|
|
|
3,066,994 |
(10) |
|
|
9.84 |
% |
Harry
T. Hoffman
|
|
|
83,254 |
(11) |
|
|
* |
|
Scott
Gomez
|
|
|
54,986 |
(12) |
|
|
* |
|
Robert
D. Epstein
|
|
|
16,000 |
(13) |
|
|
* |
|
Spencer
Waxman
|
|
|
3,123,860 |
(14) |
|
|
10.02 |
% |
All
directors, director nominees and executive officers of Hollywood Media as
a group (7 persons)
|
|
|
8,243,267 |
(15) |
|
|
26.29 |
% |
(1)
|
Except
as otherwise noted in the footnotes below, the address of each beneficial
owner is in care of Hollywood Media Corp., 2255 Glades Road, Boca Raton,
Florida 33431.
|
(2)
|
For
purposes of this table, “beneficial ownership” is determined in accordance
with Rule 13d-3 under the Exchange Act, pursuant to which a person’s or
group’s ownership is deemed to include any shares of common stock that
such person has the right to acquire within 60 days. For
purposes of computing the percentage of outstanding shares of common stock
held by each person or group of persons named above, any shares which such
person or persons has the right to acquire within 60 days are deemed to be
outstanding, but such shares are not deemed to be outstanding for the
purpose of computing the percentage ownership of any other
person. This table has been prepared based on 31,179,066 shares
of Hollywood Media common stock outstanding as of April 27,
2010.
|
(3)
|
Based
on a Schedule 13D filed with the SEC on February 26, 2009, Shannon River
Fund Management Co. LLC, Shannon River Global Management LLC, Shannon
River Partners, LP, Shannon River Partners II, LP, Doonbeg Fund, LP and
Shannon River Partners LTD beneficially own, in the aggregate, such
shares. The reported business address for these holders is 800 Third
Avenue, 30th Floor, New York, New York
10022.
|
(4)
|
Based
on a Schedule 13G/A filed with the SEC on February 16, 2010, Intana
Management, LLC and Intana Capital Master Fund, Ltd. beneficially own such
shares. The reported business address for these holders is 505
Park Avenue, 3rd Floor, New York, New York
10022.
|
(5)
|
Based
on a Schedule 13G/A filed with the SEC on February 12, 2010, Morgan
Stanley and Morgan Stanley Capital Services Inc. beneficially own such
shares. The reported business address for these holders is 1585 Broadway,
New York, NY 10036.
|
(6)
|
Based
on a Schedule 13G/A filed with the SEC on February 16, 2010, CCM Master
Qualified Fund, Ltd., Coghill Capital Management, L.L.C. and Clint D.
Coghill have shared voting and shared dispositive power with respect to
such shares. The reported business address for these holders is One North
Wacker Drive, Suite 4350, Chicago, IL
60606.
|
(7)
|
Represents
1,122,790 outstanding shares of common stock which are owned by Mitchell
Rubenstein individually (including 13,560 shares held for his account in
Hollywood Media’s 401(k) plan) and 693,540 outstanding shares of common
stock which are owned individually by Laurie S. Silvers, his wife
(including 13,540 shares held for her account in Hollywood Media’s 401(k)
plan).
|
(8)
|
Based
on a Schedule 13G filed with the SEC on August 29, 2008, Potomac Capital
Management LLC, Potomac Capital Management Inc. and Paul J. Solit
beneficially own such shares, which include an aggregate of 150,000 shares
issuable pursuant to exercisable warrants. The reported business address
for these holders is 825 Third Avenue, 33rd Floor, New York, New York
10022.
|
(9)
|
Based
on a Schedule 13G/A filed with the SEC on February 8, 2010, Dimensional
Fund Advisors, LP beneficially owns such shares. The reported
business address for this holder is Palisades West, Building One, 6300 Bee
Cave Road, Austin, Texas, 78746.
|
(10)
|
Based
on a Schedule 13D filed with the SEC on March 3, 2010, Mr. Gans
beneficially owns such shares. The reported business address
for this holder is 1680 Michigan Avenue, Suite 1001, Miami Beach, Florida
33139.
|
(11)
|
Represents
13,000 outstanding shares of common stock, and 70,254 shares of common
stock issuable pursuant to exercisable options, beneficially owned by Mr.
Hoffman.
|
(12)
|
Represents
44,986 outstanding shares of common stock (including 4,986 shares held for
Mr. Gomez’s account in Hollywood Media’s 401(k) plan), and 10,000 shares
of common stock issuable pursuant to exercisable options, beneficially
owned by Mr. Gomez.
|
(13)
|
Represents
1,000 outstanding shares of common stock, and 15,000 shares of common
stock issuable pursuant to exercisable options, beneficially owned by Mr.
Epstein.
|
(14)
|
Represents
shares beneficially owned by Shannon River Fund Management Co. LLC and
affiliated entities as described in footnote 3 above. Mr.
Waxman is the Managing Partner of Shannon River Fund Management Co.
LLC.
|
(15)
|
Represents
an aggregate of 8,067,578 outstanding shares of common stock and 175,689
shares of common stock issuable pursuant to exercisable
options.
|
Shareholder
Proposals for Inclusion in the 2010 Annual Meeting of Shareholders under SEC
Rule 14a-8
Any
shareholder proposal sought to be included in Hollywood Media’s proxy materials
for the 2010 Annual Meeting of Shareholders pursuant to Rule 14a-8 under the
Exchange Act must be in writing and received by Hollywood Media no later than
July 21, 2010, provided, however, that if the 2010 Annual Meeting is called for
a date that is not within thirty days before or after December 21, 2010, then
notice by the shareholder in order to be timely must be received a “reasonable
time” before Hollywood Media begins to print and send its proxy materials for
the 2010 Annual Meeting. Such proposals must be received at Hollywood Media’s
principal executive offices at the following address: Hollywood Media Corp.,
2255 Glades Road, Suite 221A, Boca Raton, Florida 33431, Attention:
Secretary. Such proposals must also comply with the rules of the SEC
relating to Rule 14a-8 shareholder proposals and may be omitted if not in
compliance with applicable requirements.
Other
Shareholder Proposals for Presentation at the 2010 Annual Meeting of
Shareholders
Under
applicable requirements, including Hollywood Media’s Bylaws, any shareholder
proposal that is not intended for inclusion in Hollywood Media’s proxy materials
(i.e., a shareholder proposal submitted outside the processes of Rule 14a-8),
and all director nominations by shareholders, for Hollywood Media’s 2010 Annual
Meeting of Shareholders must be received by Hollywood Media no later than August
23, 2010 and no earlier than July 24, 2010, provided, however, that if the 2010
Annual Meeting is called for a date that is not within thirty days before or
after December 21, 2010, then notice by the shareholder in order to be timely
must be received not later than the close of business on the 10th day following
the day on which notice of the date of the 2010 Annual Meeting is mailed or
publicly announced by Hollywood Media, whichever first occurs. Such shareholder
proposals and director nominations must be written and delivered to or mailed
and received at Hollywood Media’s principal executive offices at the following
address: Hollywood Media Corp., 2255 Glades Road, Suite 221A, Boca Raton,
Florida 33431, Attention: Secretary. The written notice must also contain
specified information and conform to certain requirements as set forth in
Hollywood Media’s Bylaws referenced below. If the chairman of the 2010 Annual
Meeting determines that a shareholder proposal or director nomination was not
made in accordance with applicable requirements including Hollywood Media’s
Bylaws, then such proposal or nomination will not be presented for a vote of
shareholders at the 2010 Annual Meeting.
Advance
Notice Requirements for Proposals and Director Nominations by
Shareholders
Hollywood
Media’s Bylaws and SEC rules contain certain requirements for shareholders to
provide advance written notice of proposals of business or director nominations
by Hollywood Media’s shareholders. Certain material features of these
requirements are summarized below, however, the statements below concerning the
terms and provisions of these notice requirements are summaries only and do not
purport to be complete. The descriptions of such Bylaw requirements
below are qualified in their entirety by reference to the full text of Hollywood
Media’s Bylaws which are filed as an exhibit to Hollywood Media’s Form 8-K
report filed with the SEC on September 5, 2006.
Notice of Shareholder Business At
Annual Meeting. Hollywood Media’s Bylaws provide that business
to be transacted at an annual meeting of shareholders may not be proposed by a
shareholder unless the shareholder complies with the required notice procedures
described below. In addition to any other applicable requirements,
for business to be properly brought before an annual meeting by a shareholder,
such shareholder must have given timely notice thereof in proper written form to
the Secretary of Hollywood Media. To be timely, a shareholder’s
notice must be delivered to Hollywood Media not less than 120 days nor more than
150 days prior to the anniversary date of the immediately preceding annual
meeting of shareholders; provided, however, that in the event that the annual
meeting is called for a date that is not within 30 days before or after such
anniversary date, notice by the shareholder in order to be timely must be so
received not later than the close of business on the 10th day following the day
on which notice of the date of the annual meeting was mailed or public
announcement of the date of the annual meeting was made by Hollywood Media,
whichever first occurs. To be in proper written form, a shareholder’s
notice must set forth as to each matter such shareholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual
meeting,
(ii) the name and record address of such shareholder, (iii) the class or series
and number of shares of capital stock of Hollywood Media which are owned
beneficially or of record by such shareholder, (iv) a description of all
arrangements or understandings between such shareholder and any other person or
persons (including their names) in connection with the proposal of such business
by such shareholder and any material interest of such shareholder in such
business, (v) a representation by the notifying shareholder that such
shareholder intends to appear in person or by proxy at the annual meeting to
bring such business before the meeting, and (vi) any other information relating
to such shareholder and/or proposed business that would be required to be
disclosed in a proxy statement (or other filings required to be made) in
connection with solicitations of proxies for approval of such a proposal
pursuant to Section 14 of the Exchange Act and the rules thereunder (this clause
(vi) applies whether or not a proxy statement is filed).
Shareholder Nomination of
Directors. Hollywood Media’s Bylaws provide that a shareholder
may not nominate a candidate for election to Hollywood Media’s board of
directors at any annual meeting of shareholders, or at any special meeting of
shareholders called for the purpose of electing directors, unless the
shareholder complies with the required notice procedures described
below. In addition to any other applicable requirements, for a
nomination to be made by a shareholder, such shareholder must have given timely
notice thereof in proper written form to the Secretary of Hollywood
Media. To be timely, a shareholder’s notice must be delivered to
Hollywood Media: (i) in the case of an annual meeting, not less than 120 days
nor more than 150 days prior to the anniversary date of the immediately
preceding annual meeting of shareholders (provided, however, that in the event
that the annual meeting is called for a date that is not within 30 days before
or after such anniversary date, notice by the shareholder in order to be timely
must be so received not later than the close of business on the 10th day
following the day on which notice of the date of the annual meeting was mailed
or public announcement of the date of the annual meeting was made by Hollywood
Media, whichever first occurs); and (ii) in the case of a special meeting of
shareholders called for the purpose of electing directors, not later than the
close of business on the 10th day following the day on which notice of the date
of the special meeting was mailed or public announcement of the date of the
special meeting was made by Hollywood Media, whichever first
occurs. To be in proper written form, a shareholder’s notice must set
forth: (i) as to each person whom the shareholder proposes to nominate for
election as a director (A) the name, age, business address and residence address
of the person, (B) the principal occupation or employment of the person, (C) the
class or series and number of shares of capital stock of Hollywood Media which
are owned beneficially or of record by the person, and (D) any other information
relating to the person that would be required to be disclosed in a proxy
statement or other filings required to be made in connection with solicitations
of proxies for election of directors pursuant to Section 14 of the Exchange Act
and the rules thereunder; and (ii) as to the shareholder giving the notice (A)
the name and record address of such shareholder, (B) the class or series and
number of shares of capital stock of Hollywood Media which are owned
beneficially or of record by such shareholder, (C) a description of all
arrangements or understandings between such shareholder and each proposed
nominee and any other person or persons (including their names) in connection
with the nomination(s) or pursuant to which the nomination(s) are to be made by
such shareholder, (D) a representation by the notifying shareholder to Hollywood
Media that such shareholder intends to appear in person or by proxy at the
meeting to nominate the persons named in its notice, and (E) any other
information relating to such shareholder and/or such nominee(s) that would be
required to be disclosed in a proxy statement (or other filings required to be
made) in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Exchange Act and the rules thereunder (this clause
(E) applies whether or not a proxy statement is filed). Such notice
must be accompanied by a written consent of each proposed nominee to being named
as a nominee and to serve as a director if elected.
As
permitted by the Exchange Act and the rules thereunder, only one copy of this
proxy statement is being delivered to shareholders of Hollywood Media residing
at the same address, unless such shareholders have notified Hollywood Media of
their desire to receive multiple copies of Hollywood Media’s proxy
statements.
Hollywood
Media will promptly deliver, upon oral or written request, a separate copy of
the proxy statement to any shareholder residing at an address to which only one
copy was mailed. Requests for additional copies should be directed in
writing to our Investor Relations Department at Hollywood Media Corp., 2255
Glades Road, Suite 221-A, Boca Raton, Florida 33431, Attention: Investor
Relations, or by telephone to our Investor Relations Department at (561)
322-3450. Shareholders wishing to receive separate copies of
Hollywood Media’s proxy statements in the future, and shareholders sharing an
address that wish to receive a single copy of Hollywood Media’s proxy statements
if they are receiving multiple copies of Hollywood Media’s proxy statements,
should also direct requests as indicated in the preceding sentence.
IN
ORDER FOR YOU TO RECEIVE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE
SPECIAL MEETING, HOLLYWOOD MEDIA SHOULD RECEIVE YOUR REQUEST NO LATER THAN
[___], 2010.
WHERE
YOU CAN FIND MORE INFORMATION
Hollywood
Media files annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission, or the
SEC. You may read and copy these reports, statements or other
information filed by Hollywood Media at the SEC’s Public Reference Room at 100 F
Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC
at 1−800−SEC−0330 for further information on the public reference
room. The SEC filings of Hollywood Media are also available to the
public from commercial document retrieval services and at the website maintained
by the SEC at www.sec.gov. The reports and other information that we
file with the SEC are also available in the “Investor Relations” section of
Hollywood Media Corp.’s corporate website at
www.hollywoodmedia.com.
For
printed copies of any of our reports, including this proxy statement, our Annual
Report on Form 10-K for the fiscal year ended December 31, 2009, filed with the
SEC on March 19, 2010, please contact our Investor Relations Department in
writing at Hollywood Media Corp., 2255 Glades Road, Suite 221-A, Boca Raton,
Florida 33431, Attention: Investor Relations, or call our Investor Relations
Department at (561) 322-3450.
You
should rely only on the information contained in this proxy statement and the
other reports we file with the SEC. We have not authorized anyone to
provide you with information that is different from what is contained in this
proxy statement. This proxy statement is dated [___],
2010. You should not assume that the information contained in this
proxy statement is accurate as of any date other than such date, and the mailing
of this proxy statement to shareholders shall not create an implication to the
contrary.
PRO
FORMA CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS OF HOLLYWOOD MEDIA CORP. AND SUBSIDIARIES
The
following unaudited pro forma condensed consolidated financial statements give
effect to our sale of our Broadway Ticketing Division, through the sale of all
of the outstanding shares of capital stock of Theatre Direct. The
statements are derived from, and should be read in conjunction with, our
historical financial statements and notes thereto, as presented in our Annual
Report on Form 10-K for the year ended December 31, 2009, filed with the SEC on
March 19, 2010 (which financials are available in Annex F of this proxy
statement.
The
unaudited pro forma condensed consolidated balance sheet as of December 31, 2009
assumes the sale of Theatre Direct occurred on December 31, 2009. The
unaudited pro forma condensed consolidated statements of operations for the
years end December 31, 2009, 2008 and 2007 give effect to the sale of Theatre
Direct as if it had occurred as of the beginning of those periods.
The
unaudited pro forma condensed consolidated financial information is presented
for informational purposes only and is based upon estimates by Hollywood Media’s
management, which are based upon available information and certain assumptions
that Hollywood Media’s management believes are reasonable. The
unaudited pro forma condensed consolidated financial information is not intended
to be indicative of actual results of operations or financial position that
would have been achieved had the transaction been consummated as of the
beginning of each period indicated above, nor does it purport to indicate
results which may be attained in the future. Actual amounts could
differ materially from these estimates.
The pro
forma adjustments are based upon available information and certain assumptions
that management believes are reasonable in the circumstances. The
unaudited pro forma condensed consolidated financial statements of Hollywood
Media and subsidiaries should be read in conjunction with the notes
thereto.
HOLLYWOOD
MEDIA CORP. AND SUBSIDIARIES
PRO
FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
As
of December 31, 2009
(Unaudited)
|
|
Historical
|
|
|
Sale of
|
|
|
|
Pro Forma
|
|
|
|
Hollywood Media Corp.(5)
|
|
|
Broadway Ticketing
|
|
|
|
Hollywood Media Corp.
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
11,764,810 |
|
|
$ |
17,127,758 |
|
(1),(2)
|
|
$ |
28,892,568 |
|
Receivables,
net
|
|
|
897,503 |
|
|
|
(293,178 |
) |
(2)
|
|
|
604,325 |
|
Inventories
held for sale
|
|
|
3,735,691 |
|
|
|
(3,735,691 |
) |
(2)
|
|
|
- |
|
Deferred
ticket costs
|
|
|
10,985,160 |
|
|
|
(10,985,160 |
) |
(2)
|
|
|
- |
|
Prepaid
expenses
|
|
|
1,896,237 |
|
|
|
(88,588 |
) |
(2)
|
|
|
1,807,649 |
|
Other
receivables
|
|
|
1,125,263 |
|
|
|
(780,404 |
) |
(2)
|
|
|
344,859 |
|
Other
current assets
|
|
|
436,675 |
|
|
|
(436,675 |
) |
(2)
|
|
|
- |
|
Related
party receivable
|
|
|
335,245 |
|
|
|
- |
|
|
|
|
335,245 |
|
Restricted
cash
|
|
|
1,221,000 |
|
|
|
(1,221,000 |
) |
(2)
|
|
|
- |
|
Total
current assets
|
|
|
32,397,584 |
|
|
|
(412,938 |
) |
|
|
|
31,984,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, net
|
|
|
4,369,085 |
|
|
|
(3,595,403 |
) |
(2)
|
|
|
773,682 |
|
INVESTMENTS
IN AND ADVANCES TO UNCONSOLIDATED INVESTEES
|
|
|
230,097 |
|
|
|
- |
|
|
|
|
230,097 |
|
INTANGIBLE
ASSETS, net
|
|
|
390,818 |
|
|
|
(248,742 |
) |
(2)
|
|
|
142,076 |
|
PUT/CALL
OPTION
|
|
|
- |
|
|
|
400,000 |
|
(2),(4)
|
|
|
400,000 |
|
NOTE
RECEIVABLE
|
|
|
- |
|
|
|
7,100,000 |
|
(2),(4)
|
|
|
7,100,000 |
|
EARNOUT
RECEIVABLE
|
|
|
- |
|
|
|
2,900,000 |
|
(2),(4)
|
|
|
2,900,000 |
|
GOODWILL
|
|
|
20,197,513 |
|
|
|
(5,601,730 |
) |
(2)
|
|
|
14,595,783 |
|
OTHER
ASSETS
|
|
|
21,082 |
|
|
|
- |
|
|
|
|
21,082 |
|
TOTAL
ASSETS
|
|
$ |
57,606,179 |
|
|
$ |
541,187 |
|
|
|
$ |
58,147,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
1,632,351 |
|
|
$ |
(531,831 |
) |
(2)
|
|
$ |
1,100,520 |
|
Accrued
expenses and other
|
|
|
3,074,549 |
|
|
|
3,757,855 |
|
(2),(3)
|
|
|
6,832,404 |
|
Deferred
revenue
|
|
|
14,012,178 |
|
|
|
(12,835,542 |
) |
(2)
|
|
|
1,176,636 |
|
Gift
certificate liability
|
|
|
3,794,899 |
|
|
|
(3,794,899 |
) |
(2)
|
|
|
- |
|
Customer
deposits
|
|
|
948,273 |
|
|
|
(948,273 |
) |
(2)
|
|
|
- |
|
Current
portion of capital lease obligations
|
|
|
123,061 |
|
|
|
(18,807 |
) |
(2)
|
|
|
104,254 |
|
Current
portion of notes payable
|
|
|
37,454 |
|
|
|
- |
|
|
|
|
37,454 |
|
Total
current liabilities
|
|
|
23,622,765 |
|
|
|
(14,371,497 |
) |
|
|
|
9,251,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEFERRED
REVENUE
|
|
|
309,190 |
|
|
|
- |
|
|
|
|
309,190 |
|
CAPITAL
LEASE OBLIGATIONS, less current portion
|
|
|
75,830 |
|
|
|
(1,921 |
) |
(2)
|
|
|
73,909 |
|
OTHER
DEFERRED LIABILITY
|
|
|
1,105,553 |
|
|
|
(869,295 |
) |
(2)
|
|
|
236,258 |
|
NOTES
PAYABLE, less current portion
|
|
|
2,432 |
|
|
|
- |
|
|
|
|
2,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS'
EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock, $.01 par value, 1,000,000 shares authorized; none
outstanding
|
|
|
- |
|
|
|
- |
|
|
|
|
- |
|
Common
stock, $.01 par value, 100,000,000 shares authorized; 31,037,656 and
30,883,913 shares issued and outstanding at December 31, 2009
and December 31, 2008, respectively
|
|
|
310,377 |
|
|
|
- |
|
|
|
|
310,377 |
|
Additional
paid-in capital
|
|
|
309,480,331 |
|
|
|
- |
|
|
|
|
309,480,331 |
|
Accumulated
deficit
|
|
|
(277,315,848 |
) |
|
|
15,783,900 |
|
(4)
|
|
|
(261,531,948 |
) |
Total
Hollywood Media Corp shareholders' equity
|
|
|
32,474,860 |
|
|
|
15,783,900 |
|
|
|
|
48,258,760 |
|
Non-controlling
interest
|
|
|
15,549 |
|
|
|
- |
|
|
|
|
15,549 |
|
|
|
|
32,490,409 |
|
|
|
15,783,900 |
|
|
|
|
48,274,309 |
|
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
$ |
57,606,179 |
|
|
$ |
541,187 |
|
|
|
$ |
58,147,366 |
|
See
accompanying notes to unaudited pro forma condensed consolidated financial
statements.
HOLLYWOOD
MEDIA CORP. AND SUBSIDIARIES
PRO
FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For
the year ended December 31, 2009
(Unaudited)
|
|
Historical
|
|
|
Sale of
|
|
|
Pro Forma
|
|
|
|
Hollywood Media Corp.(6)
|
|
|
Broadway Ticketing (7)
|
|
|
Hollywood Media Corp.
|
|
|
|
|
|
|
|
|
|
|
|
NET
REVENUES
|
|
|
|
|
|
|
|
|
|
Ticketing
|
|
$ |
98,860,362 |
|
|
$ |
(98,860,362 |
) |
|
$ |
- |
|
Other
|
|
|
4,518,548 |
|
|
|
- |
|
|
|
4,518,548 |
|
|
|
|
103,378,910 |
|
|
|
(98,860,362 |
) |
|
|
4,518,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues - ticketing
|
|
|
81,014,536 |
|
|
|
(81,014,536 |
) |
|
|
- |
|
Editorial,
production, development and technology
|
|
|
2,569,354 |
|
|
|
- |
|
|
|
2,569,354 |
|
Selling,
general and administrative
|
|
|
10,827,719 |
|
|
|
(6,487,658 |
) |
|
|
4,340,061 |
|
Payroll
and benefits
|
|
|
10,574,375 |
|
|
|
(5,701,977 |
) |
|
|
4,872,398 |
|
Depreciation
and amortization
|
|
|
1,590,598 |
|
|
|
(846,603 |
) |
|
|
743,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating costs and expenses
|
|
|
106,576,582 |
|
|
|
(94,050,774 |
) |
|
|
12,525,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(3,197,672 |
) |
|
|
(4,809,588 |
) |
|
|
(8,007,260 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS
(LOSSES) OF UNCONSOLIDATED INVESTEES
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in earnings of unconsolidated investees
|
|
|
2,006,498 |
|
|
|
- |
|
|
|
2,006,498 |
|
Impairment
loss
|
|
|
(5,000,000 |
) |
|
|
- |
|
|
|
(5,000,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
equity in losses of unconsolidated investees
|
|
|
(2,993,502 |
) |
|
|
- |
|
|
|
(2,993,502 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest,
net
|
|
|
28,922 |
|
|
|
(12,761 |
) |
|
|
16,161 |
|
Other,
net
|
|
|
(75,146 |
) |
|
|
123,205 |
|
|
|
48,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(6,237,398 |
) |
|
|
(4,699,144 |
) |
|
|
(10,936,542 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations
|
|
|
614,572 |
|
|
|
- |
|
|
|
614,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(5,622,826 |
) |
|
|
(4,699,144 |
) |
|
|
(10,321,970 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST
|
|
|
2,409 |
|
|
|
- |
|
|
|
2,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to Hollywood Media Corp
|
|
$ |
(5,620,417 |
) |
|
$ |
(4,699,144 |
) |
|
$ |
(10,319,561 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted income (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
(0.20 |
) |
|
|
|
|
|
$ |
(0.36 |
) |
Discontinued
operations
|
|
|
0.02 |
|
|
|
|
|
|
|
0.02 |
|
Total
basic and diluted net loss per share
|
|
$ |
(0.18 |
) |
|
|
|
|
|
$ |
(0.34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common and common equivalent shares
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
- basic and diluted
|
|
|
30,584,902 |
|
|
|
|
|
|
|
30,584,902 |
|
See
accompanying notes to unaudited pro forma condensed consolidated financial
statements.
HOLLYWOOD
MEDIA CORP. AND SUBSIDIARIES
PRO
FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For
the Year ended December 31, 2008
(Unaudited)
|
|
Historical
|
|
|
Sale of
|
|
|
Pro Forma
|
|
|
|
Hollywood Media Corp.(6)
|
|
|
Broadway Ticketing (7)
|
|
|
Hollywood Media Corp.
|
|
|
|
|
|
|
|
|
|
|
|
NET
REVENUES
|
|
|
|
|
|
|
|
|
|
Ticketing
|
|
$ |
110,918,969 |
|
|
$ |
(110,918,969 |
) |
|
$ |
- |
|
Other
|
|
|
6,138,962 |
|
|
|
- |
|
|
|
6,138,962 |
|
|
|
|
117,057,931 |
|
|
|
(110,918,969 |
) |
|
|
6,138,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues - ticketing
|
|
|
92,882,066 |
|
|
|
(92,882,066 |
) |
|
|
- |
|
Editorial,
production, development and technology
|
|
|
3,323,546 |
|
|
|
- |
|
|
|
3,323,546 |
|
Selling,
general and administrative
|
|
|
13,932,852 |
|
|
|
(7,996,054 |
) |
|
|
5,936,798 |
|
Payroll
and benefits
|
|
|
13,284,857 |
|
|
|
(6,631,118 |
) |
|
|
6,653,739 |
|
Impairment
Loss
|
|
|
3,524,697 |
|
|
|
- |
|
|
|
3,524,697 |
|
Depreciation
and amortization
|
|
|
2,224,831 |
|
|
|
(876,049 |
) |
|
|
1,348,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating costs and expenses
|
|
|
129,172,849 |
|
|
|
(108,385,287 |
) |
|
|
20,787,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(12,114,918 |
) |
|
|
(2,533,682 |
) |
|
|
(14,648,600 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY
IN EARNINGS OF UNCONSOLIDATED INVESTEES
|
|
|
1,160,623 |
|
|
|
- |
|
|
|
1,160,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest,
net
|
|
|
425,251 |
|
|
|
(65,451 |
) |
|
|
359,800 |
|
Other,
net
|
|
|
44,958 |
|
|
|
(1,260 |
) |
|
|
43,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(10,484,086 |
) |
|
|
(2,600,393 |
) |
|
|
(13,084,479 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on sale of discontinued operations, net of income taxes
|
|
|
(4,655,122 |
) |
|
|
- |
|
|
|
(4,655,122 |
) |
Loss
from discontinued operations
|
|
|
(1,635,750 |
) |
|
|
- |
|
|
|
(1,635,750 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
|
(6,290,872 |
) |
|
|
- |
|
|
|
(6,290,872 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(16,774,958 |
) |
|
|
(2,600,393 |
) |
|
|
(19,375,351 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST
|
|
|
(81,365 |
) |
|
|
- |
|
|
|
(81,365 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to Hollywood Media Corp
|
|
$ |
(16,856,323 |
) |
|
$ |
(2,600,393 |
) |
|
$ |
(19,456,716 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
(0.33 |
) |
|
|
|
|
|
$ |
(0.41 |
) |
Discontinued
operations
|
|
|
(0.20 |
) |
|
|
|
|
|
|
(0.20 |
) |
Total
basic and diluted net loss per share
|
|
$ |
(0.53 |
) |
|
|
|
|
|
$ |
(0.61 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common and common equivalent shares
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
- basic and diluted
|
|
|
31,793,853 |
|
|
|
|
|
|
|
31,793,853 |
|
See
accompanying notes to unaudited pro forma condensed consolidated financial
statements.
HOLLYWOOD
MEDIA CORP. AND SUBSIDIARIES
PRO
FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For
the Year ended December 31, 2007
(Unaudited)
|
|
Historical
|
|
|
Sale of
|
|
|
Pro Forma
|
|
|
|
Hollywood Media Corp.(6)
|
|
|
Broadway Ticketing (7)
|
|
|
Hollywood Media Corp.
|
|
|
|
|
|
|
|
|
|
|
|
NET
REVENUES
|
|
|
|
|
|
|
|
|
|
Ticketing
|
|
$ |
111,792,068 |
|
|
$ |
(111,792,068 |
) |
|
$ |
- |
|
Other
|
|
|
6,369,156 |
|
|
|
- |
|
|
|
6,369,156 |
|
|
|
|
118,161,224 |
|
|
|
(111,792,068 |
) |
|
|
6,369,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues - ticketing
|
|
|
94,017,924 |
|
|
|
(94,017,924 |
) |
|
|
- |
|
Editorial,
production, development and technology
|
|
|
3,590,192 |
|
|
|
- |
|
|
|
3,590,192 |
|
Selling,
general and administrative
|
|
|
14,269,974 |
|
|
|
(8,063,461 |
) |
|
|
6,206,513 |
|
Payroll
and benefits
|
|
|
13,368,817 |
|
|
|
(6,707,021 |
) |
|
|
6,661,796 |
|
Depreciation
and amortization
|
|
|
1,378,492 |
|
|
|
(351,310 |
) |
|
|
1,027,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating costs and expenses
|
|
|
126,625,399 |
|
|
|
(109,139,716 |
) |
|
|
17,485,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(8,464,175 |
) |
|
|
(2,652,352 |
) |
|
|
(11,116,527 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY
IN EARNINGS OF UNCONSOLIDATED INVESTEES
|
|
|
4,747 |
|
|
|
- |
|
|
|
4,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest,
net
|
|
|
199,437 |
|
|
|
(74,468 |
) |
|
|
124,969 |
|
Other,
net
|
|
|
(50,935 |
) |
|
|
35,559 |
|
|
|
(15,376 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(8,310,926 |
) |
|
|
(2,691,261 |
) |
|
|
(11,002,187 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of discontinued operations, net of income taxes
|
|
|
10,254,287 |
|
|
|
- |
|
|
|
10,254,287 |
|
Loss
from discontinued operations
|
|
|
(211,993 |
) |
|
|
- |
|
|
|
(211,993 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations
|
|
|
10,042,294 |
|
|
|
- |
|
|
|
10,042,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
1,731,368 |
|
|
|
(2,691,261 |
) |
|
|
(959,893 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
ATTRIBUTABLE TO NON-CONTROLLING INTEREST
|
|
|
3,241 |
|
|
|
- |
|
|
|
3,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to Hollywood Media Corp
|
|
$ |
1,734,609 |
|
|
$ |
(2,691,261 |
) |
|
$ |
(956,652 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted income (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
(0.25 |
) |
|
|
|
|
|
$ |
(0.33 |
) |
Discontinued
operations
|
|
|
0.30 |
|
|
|
|
|
|
|
0.30 |
|
Total
basic and diluted net gain (loss) per share
|
|
$ |
0.05 |
|
|
|
|
|
|
$ |
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common and common equivalent shares
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
- basic and diluted
|
|
|
33,303,886 |
|
|
|
|
|
|
|
33,303,886 |
|
See
accompanying notes to unaudited pro forma condensed consolidated financial
statements.
HOLLYWOOD
MEDIA CORP. AND SUBSIDIARIES
Notes
to the Pro Forma Condensed Consolidated Financial Statements
(Unaudited)
(1)
|
To
record the cash proceeds of
$20,000,000.
|
(2)
|
Represents
adjustments to eliminate assets and liabilities of the Broadway Ticketing
businesses.
|
(3)
|
The
amount includes an accrual for estimated transaction expenses, costs and
fees associated with the sale of
$5,560,248.
|
(4)
|
To
record the gain on sale of the stock of the Broadway Ticketing
business. The note receivable, earnout receivable and put/call
option were recorded at fair value.
|
The
reconciliation of net gain is as follows:
|
|
|
|
Proceeds
received
|
|
$ |
20,000,000 |
|
Working
capital
|
|
|
527,344 |
|
Note
receivable
|
|
|
7,100,000 |
|
Earnout
receivable
|
|
|
2,900,000 |
|
Put/call
option
|
|
|
400,000 |
|
Net
assets sold
|
|
|
(9,583,196 |
) |
Accrued
transaction expense
|
|
|
(5,560,248 |
) |
|
|
|
|
|
Net
gain
|
|
$ |
15,783,900 |
|
(5)
|
Represents
the Consolidated Balance Sheet included in the Company's Annual Report on
Form 10-K for the period ended December 31,
2009.
|
(6)
|
Represents
the Consolidated Statements of Operations included in the Company's Annual
Report on Form 10-K for the years ended December 31, 2009, 2008
and 2007, as applicable.
|
(7)
|
Represents
adjustments to eliminate the results of operations of the Broadway
Ticketing business that the Company believes are directly attributable to
the sale and are factually supportable and will not continue after
sale.
|
FINANCIAL
STATEMENTS OF THEATRE DIRECT NY, INC.
(OUR
BROADWAY TICKETING DIVISION)
The
following sets forth the unaudited condensed consolidated balance sheet as of
December 31, 2009 and the unaudited condensed consolidated statement of
operations and the unaudited condensed consolidated statement of cash flows for
the twelve months ended December 31, 2009, 2008 and 2007 for Theatre Direct
(which is our Broadway Ticketing Division). The statements are
derived from, and should be read in conjunction with, our Consolidated Hollywood
Media Corp. historical financial statements and notes thereto, as presented in
our Annual Report on Form 10-K for the year ended December 31, 2009, filed with
the SEC on March 19, 2010 (which financials are available in Annex F of this proxy
statement.
BROADWAY
TICKETING
CONDENSED
CONSOLIDATED BALANCE SHEET
As
of December 31, 2009
(Unaudited)
ASSETS
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
Cash
and cash equivalents
|
|
$ |
3,399,586 |
|
Receivables,
net
|
|
|
293,178 |
|
Inventories
held for sale, net
|
|
|
3,735,691 |
|
Deferred
ticket costs
|
|
|
10,985,160 |
|
Prepaid
expenses
|
|
|
88,588 |
|
Other
receivables
|
|
|
780,404 |
|
Other
current assets
|
|
|
436,675 |
|
Restricted
cash
|
|
|
1,221,000 |
|
Total
current assets
|
|
|
20,940,282 |
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, net
|
|
|
3,595,403 |
|
INTANGIBLE
ASSETS, net
|
|
|
248,742 |
|
GOODWILL
|
|
|
5,601,730 |
|
TOTAL
ASSETS
|
|
$ |
30,386,157 |
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
Accounts
payable
|
|
$ |
531,831 |
|
Accrued
expenses and other
|
|
|
1,802,393 |
|
Deferred
revenue
|
|
|
12,835,542 |
|
Gift
certificate liability
|
|
|
3,794,899 |
|
Customer
deposits
|
|
|
948,273 |
|
Current
portion of capital lease obligations
|
|
|
18,807 |
|
Total
current liabilities
|
|
|
19,931,745 |
|
|
|
|
|
|
CAPITAL
LEASE OBLIGATIONS, less current portion
|
|
|
1,921 |
|
OTHER
DEFERRED LIABILITY
|
|
|
869,295 |
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS'
EQUITY:
|
|
|
|
|
Additional
paid-in capital
|
|
|
17,844,340 |
|
Prior
year retained earnings
|
|
|
(12,960,288 |
) |
Current
period income
|
|
|
4,699,144 |
|
Total
shareholder's equity
|
|
|
9,583,196 |
|
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
$ |
30,386,157 |
|
BROADWAY
TICKETING
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
NET
REVENUES
|
|
|
|
|
|
|
|
|
|
Ticketing
|
|
$ |
98,860,362 |
|
|
$ |
110,918,969 |
|
|
$ |
111,792,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues - ticketing
|
|
|
81,014,536 |
|
|
|
92,882,066 |
|
|
|
94,017,924 |
|
Selling,
general and administrative
|
|
|
6,487,658 |
|
|
|
7,996,054 |
|
|
|
8,063,461 |
|
Payroll
and benefits
|
|
|
5,701,977 |
|
|
|
6,631,118 |
|
|
|
6,707,021 |
|
Depreciation
and amortization
|
|
|
846,603 |
|
|
|
876,049 |
|
|
|
351,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating costs and expenses
|
|
|
94,050,774 |
|
|
|
108,385,287 |
|
|
|
109,139,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
4,809,588 |
|
|
|
2,533,682 |
|
|
|
2,652,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest,
net
|
|
|
12,761 |
|
|
|
65,451 |
|
|
|
74,468 |
|
Other,
net
|
|
|
(123,205 |
) |
|
|
1,260 |
|
|
|
(35,559 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
4,699,144 |
|
|
$ |
2,600,393 |
|
|
$ |
2,691,261 |
|
BROADWAY
TICKETING
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
Year ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
4,699,144 |
|
|
$ |
2,600,393 |
|
|
$ |
2,691,261 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
846,603 |
|
|
|
876,049 |
|
|
|
351,310 |
|
401
(k) stock match
|
|
|
80,597 |
|
|
|
90,124 |
|
|
|
86,238 |
|
Provision
for bad debts
|
|
|
(43,008 |
) |
|
|
(102,707 |
) |
|
|
17,407 |
|
Loss
on retirement of property
|
|
|
159,788 |
|
|
|
17,502 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
319,890 |
|
|
|
118,593 |
|
|
|
(227,865 |
) |
Inventories
held for sale
|
|
|
756,150 |
|
|
|
(541,263 |
) |
|
|
(576,451 |
) |
Deferred
ticket costs
|
|
|
1,100,077 |
|
|
|
4,396,623 |
|
|
|
(1,208,536 |
) |
Prepaid
expenses
|
|
|
52,065 |
|
|
|
164,289 |
|
|
|
(142,964 |
) |
Other
receivables
|
|
|
107,099 |
|
|
|
2,374,474 |
|
|
|
(1,376,580 |
) |
Other
current assets
|
|
|
(336,730 |
) |
|
|
529,353 |
|
|
|
(433,329 |
) |
Other
assets
|
|
|
41,979 |
|
|
|
9,734 |
|
|
|
51,017 |
|
Restricted
cash
|
|
|
(1,221,000 |
) |
|
|
- |
|
|
|
- |
|
Inter-company
|
|
|
(8,803,086 |
) |
|
|
(1,026,791 |
) |
|
|
3,665,245 |
|
Accounts
payable
|
|
|
(263,046 |
) |
|
|
(1,071,143 |
) |
|
|
1,248,852 |
|
Accrued
expenses and other
|
|
|
301,099 |
|
|
|
(420,606 |
) |
|
|
(1,058,907 |
) |
Deferred
revenue
|
|
|
(1,020,567 |
) |
|
|
(5,115,365 |
) |
|
|
1,438,175 |
|
Gift
certificate liability
|
|
|
360,540 |
|
|
|
633,059 |
|
|
|
(480,942 |
) |
Customer
deposits
|
|
|
116,435 |
|
|
|
(1,096,518 |
) |
|
|
152,643 |
|
Other
deferred liability
|
|
|
3,264 |
|
|
|
254,792 |
|
|
|
608,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
|
(2,742,707 |
) |
|
|
2,690,592 |
|
|
|
4,804,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(1,088,501 |
) |
|
|
(791,356 |
) |
|
|
(2,725,762 |
) |
Acquisition
of business, net of cash acquired
|
|
|
- |
|
|
|
(43,313 |
) |
|
|
(2,690,659 |
) |
Acquisition
of intangible asset
|
|
|
- |
|
|
|
(17,000 |
) |
|
|
(59,470 |
) |
Loss
on disposition of assets
|
|
|
- |
|
|
|
- |
|
|
|
(3,987 |
) |
Proceeds
from property and equipment sales
|
|
|
- |
|
|
|
- |
|
|
|
13,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(1,088,501 |
) |
|
|
(851,669 |
) |
|
|
(5,466,510 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
under capital lease obligations
|
|
|
(50,899 |
) |
|
|
(73,094 |
) |
|
|
(41,189 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in financing activities
|
|
|
(50,899 |
) |
|
|
(73,094 |
) |
|
|
(41,189 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(3,882,107 |
) |
|
|
1,765,829 |
|
|
|
(702,918 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, beginning of period
|
|
|
7,281,693 |
|
|
|
5,515,864 |
|
|
|
6,218,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, end of period
|
|
$ |
3,399,586 |
|
|
$ |
7,281,693 |
|
|
$ |
5,515,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
SCHEDULE OF CASH RELATED ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
7,042 |
|
|
$ |
21,341 |
|
|
$ |
29,586 |
|
Income
taxes paid
|
|
$ |
1,929 |
|
|
$ |
- |
|
|
$ |
- |
|
SELECTED
FINANCIAL DATA OF HOLLYWOOD MEDIA CORP.
The
selected financial data in the table below summarizes certain of our selected
financial data for the five years ended December 31, 2009.
The
summary historical financial data is only a summary, and should be read in
conjunction with “Management’s Discussion and Analysis of Financial Condition
and results of Operations,” the consolidated financial statements and the
related notes contained in our Annual Report on Form 10-K for the year ended
December
31, 2009, filed with the SEC on March 19, 2010 (which financials are available
in Annex F of this
proxy statement.
|
|
YEARS ENDED DECEMBER 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
STATEMENT
OF OPERATIONS DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ticketing
|
|
$ |
98,860,362 |
|
|
$ |
110,918,969 |
|
|
$ |
111,792,068 |
|
|
$ |
98,661,705 |
|
|
$ |
79,189,987 |
|
Other
|
|
|
4,518,548 |
|
|
|
6,138,962 |
|
|
|
6,369,156 |
|
|
|
5,862,715 |
|
|
|
2,025,776 |
|
Total
net revenues
|
|
|
103,378,910 |
|
|
|
117,057,931 |
|
|
|
118,161,224 |
|
|
|
104,524,420 |
|
|
|
81,215,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues - ticketing
|
|
|
81,014,536 |
|
|
|
92,882,066 |
|
|
|
94,017,924 |
|
|
|
82,496,590 |
|
|
|
68,179,732 |
|
Editorial,
production, development and technology
|
|
|
2,569,354 |
|
|
|
3,323,546 |
|
|
|
3,590,192 |
|
|
|
3,165,383 |
|
|
|
1,022,850 |
|
Selling,
general and administrative
|
|
|
10,827,719 |
|
|
|
13,932,852 |
|
|
|
14,269,974 |
|
|
|
13,354,795 |
|
|
|
9,472,084 |
|
Payroll
& benefits
|
|
|
10,574,375 |
|
|
|
13,284,857 |
|
|
|
13,368,817 |
|
|
|
12,100,816 |
|
|
|
11,425,999 |
|
Impairment
loss
|
|
|
- |
|
|
|
3,524,697 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Depreciation
and amortization
|
|
|
1,590,598 |
|
|
|
2,224,831 |
|
|
|
1,378,492 |
|
|
|
1,293,797 |
|
|
|
891,540 |
|
Total
operating costs and expenses
|
|
|
106,576,582 |
|
|
|
129,172,849 |
|
|
|
126,625,399 |
|
|
|
112,411,381 |
|
|
|
90,992,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(3,197,672 |
) |
|
|
(12,114,918 |
) |
|
|
(8,464,175 |
) |
|
|
(7,886,961 |
) |
|
|
(9,776,442 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSSES) OF
UNCONSOLIDATED INVESTEES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in earnings of unconsolidated investees
|
|
|
2,006,498 |
|
|
|
1,160,623 |
|
|
|
4,747 |
|
|
|
12,227 |
|
|
|
533,228 |
|
Impairment
loss
|
|
|
(5,000,000 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
equity in earnings (losses) of unconsolidated
investees
|
|
|
(2,993,502 |
) |
|
|
1,160,623 |
|
|
|
4,747 |
|
|
|
12,227 |
|
|
|
533,228 |
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest,
net
|
|
|
28,922 |
|
|
|
425,251 |
|
|
|
199,437 |
|
|
|
(1,787,735 |
) |
|
|
(542,935 |
) |
Change
in derivative liability
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
640,536 |
|
|
|
87,037 |
|
Other,
net
|
|
|
(75,146 |
) |
|
|
44,958 |
|
|
|
(50,935 |
) |
|
|
9,430 |
|
|
|
40,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(6,237,398 |
) |
|
|
(10,484,086 |
) |
|
|
(8,310,926 |
) |
|
|
(9,012,503 |
) |
|
|
(9,658,309 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss) on sale of discontinued operations, net of income
taxes
|
|
|
614,572 |
|
|
|
(4,655,122 |
) |
|
|
10,254,287 |
|
|
|
16,328,241 |
|
|
|
- |
|
Income
(loss) from discontinued operations
|
|
|
- |
|
|
|
(1,635,750 |
) |
|
|
(211,993 |
) |
|
|
2,201,865 |
|
|
|
913,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from discontinued operations
|
|
|
614,572 |
|
|
|
(6,290,872 |
) |
|
|
10,042,294 |
|
|
|
18,530,106 |
|
|
|
913,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
(5,622,826 |
) |
|
|
(16,774,958 |
) |
|
|
1,731,368 |
|
|
|
9,517,603 |
|
|
|
(8,745,075 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTEREST
|
|
|
2,409 |
|
|
|
(81,365 |
) |
|
|
3,241 |
|
|
|
4,910 |
|
|
|
(168,107 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to Hollywood Media Corp.
|
|
$ |
(5,620,417 |
) |
|
$ |
(
16,856,323 |
) |
|
$ |
1,734,609 |
|
|
$ |
9,522,513 |
|
|
$ |
(8,913,182 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted income (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
(0.20 |
) |
|
$ |
(0.33 |
) |
|
$ |
(0.25 |
) |
|
$ |
(0.28 |
) |
|
$ |
(0.31 |
) |
Discontinued
operations
|
|
|
0.02 |
|
|
|
(0.20 |
) |
|
|
0.30 |
|
|
|
0.57 |
|
|
|
0.03 |
|
Total
basic and diluted net income (loss) per share
|
|
$ |
(0.18 |
) |
|
$ |
(0.53 |
) |
|
$ |
0.05 |
|
|
$ |
0.29 |
|
|
$ |
(0.28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common and common equivalent shares outstanding – basic and
diluted
|
|
|
30,584,902 |
|
|
|
31,793,853 |
|
|
|
33,303,886 |
|
|
|
32,761,848 |
|
|
|
31,470,307 |
|
|
|
AS OF DECEMBER 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
CONSOLIDATED
BALANCE SHEET DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
11,764,810 |
|
|
$ |
12,685,946 |
|
|
$ |
26,758,550 |
|
|
$ |
27,448,649 |
|
|
$ |
6,926,313 |
|
Working
capital (deficit)
|
|
|
8,774,819 |
|
|
|
8,876,128 |
|
|
|
20,128,557 |
|
|
|
16,380,362 |
|
|
|
(3,396,040 |
) |
Total
assets
|
|
|
57,606,179 |
|
|
|
66,938,861 |
|
|
|
93,978,836 |
|
|
|
100,009,604 |
|
|
|
83,302,950 |
|
Capital
lease obligations, including current portion
|
|
|
198,891 |
|
|
|
407,480 |
|
|
|
397,780 |
|
|
|
77,588 |
|
|
|
106,993 |
|
Convertible
debentures - net
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
940,927 |
|
Senior
Unsecured Notes
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6,375,399 |
|
|
|
5,402,255 |
|
Total
shareholders’ equity
|
|
$ |
32,490,409 |
|
|
$ |
37,758,880 |
|
|
$ |
55,567,474 |
|
|
$ |
55,761,457 |
|
|
$ |
42,487,230 |
|
All
shareholders are urged to complete, sign and return the accompanying proxy card
in the enclosed postage-paid envelope.
|
By
Order of the Board of Directors,
|
|
|
|
Mitchell
Rubenstein
|
|
Chairman
of the Board and Chief Executive
Officer
|
|
|
|
Boca
Raton, FL
|
|
[___],
2010
|
Annex
A
STOCK
PURCHASE AGREEMENT
BY AND
BETWEEN
HOLLYWOOD
MEDIA CORP.
AND
KEY BRAND
ENTERTAINMENT INC.
Dated as
of December 22, 2009
TABLE
OF CONTENTS
ARTICLE
I
|
DEFINITIONS
|
1
|
|
|
|
1.1
|
Certain
Definitions
|
1
|
|
|
|
1.2
|
Terms
Defined Elsewhere in this Agreement
|
7
|
|
|
|
1.3
|
Other
Definitional and Interpretive Matters
|
9
|
|
|
|
ARTICLE
II
|
SALE
AND PURCHASE OF SHARES
|
11
|
|
|
|
2.1
|
Sale
and Purchase of Shares
|
11
|
|
|
|
ARTICLE
III
|
PURCHASE
PRICE
|
11
|
|
|
|
3.1
|
Purchase
Price
|
11
|
|
|
|
3.2
|
Deposit
Amount; Payment of Purchase Price
|
11
|
|
|
|
3.3
|
Purchase
Price Adjustment
|
12
|
|
|
|
3.4
|
Delivery
of Shares
|
14
|
|
|
|
3.5
|
Other
Closing Deliveries by the Selling Stockholder
|
14
|
|
|
|
3.6
|
Closing
Deliveries by Purchaser
|
14
|
|
|
|
3.7
|
Earnout
|
15
|
|
|
|
ARTICLE
IV
|
CLOSING
AND TERMINATION
|
18
|
|
|
|
4.1
|
Closing
Date
|
18
|
|
|
|
4.2
|
Termination
of Agreement
|
18
|
|
|
|
4.3
|
Procedure
Upon Termination
|
20
|
|
|
|
4.4
|
Effect
of Termination
|
20
|
|
|
|
4.5
|
Termination
Fee
|
22
|
|
|
|
ARTICLE
V
|
REPRESENTATIONS
AND WARRANTIES OF THE SELLING STOCKHOLDER
|
23
|
|
|
|
5.1
|
Organization
and Good Standing
|
23
|
|
|
|
5.2
|
Authorization
of Agreement
|
24
|
|
|
|
5.3
|
Conflicts;
Consents of Third Parties
|
24
|
|
|
|
5.4
|
Capitalization
|
25
|
|
|
|
5.5
|
Ownership
of Assets and Shares and Transfer of Shares
|
25
|
|
|
|
5.6
|
Subsidiary
|
25
|
|
|
|
5.7
|
Financial
Statements
|
26
|
|
|
|
5.8
|
No
Undisclosed Liabilities
|
26
|
|
|
|
5.9
|
Absence
of Certain Changes or Events
|
27
|
|
|
|
5.10
|
Taxes
|
27
|
5.11
|
Real
Property
|
28
|
|
|
|
5.12
|
Tangible
Personal Property
|
28
|
|
|
|
5.13
|
Intellectual
Property
|
28
|
|
|
|
5.14
|
Material
Contracts
|
29
|
|
|
|
5.15
|
Employee
Benefits Plans
|
31
|
|
|
|
5.16
|
Labor
|
32
|
|
|
|
5.17
|
Litigation
|
32
|
|
|
|
5.18
|
Compliance
with Laws; Permits
|
32
|
|
|
|
5.19
|
Environmental
Matters
|
33
|
|
|
|
5.20
|
Financial
Advisors
|
33
|
|
|
|
5.21
|
Insurance
|
34
|
|
|
|
5.22
|
Bank
Accounts
|
34
|
|
|
|
5.23
|
Net
Operating Losses
|
34
|
|
|
|
5.24
|
No
Other Representations or Warranties; Schedules
|
34
|
|
|
|
ARTICLE
VI
|
REPRESENTATIONS
AND WARRANTIES OF PURCHASER
|
34
|
|
|
|
6.1
|
Organization
and Good Standing
|
34
|
|
|
|
6.2
|
Authorization
of Agreement
|
35
|
|
|
|
6.3
|
Conflicts;
Consents of Third Parties
|
35
|
|
|
|
6.4
|
Litigation
|
35
|
|
|
|
6.5
|
Investment
Intention
|
35
|
|
|
|
6.6
|
Financial
Advisors
|
36
|
|
|
|
6.7
|
Financial
Capability
|
36
|
|
|
|
6.8
|
No
Discussions
|
36
|
|
|
|
6.9
|
No
Other Representations by Selling Stockholder
|
36
|
|
|
|
ARTICLE
VII
|
COVENANTS
|
37
|
|
|
|
7.1
|
Access
to Information
|
37
|
|
|
|
7.2
|
Preparation
of the Proxy Statement; Shareholders Meeting
|
38
|
|
|
|
7.3
|
Conduct
of the Business Pending the Closing
|
38
|
|
|
|
7.4
|
Non-Solicitation
|
42
|
|
|
|
7.5
|
Reasonable
Best Efforts
|
45
|
|
|
|
7.6
|
Selling
Stockholder Guarantees
|
45
|
|
|
|
7.7
|
Public
Announcements
|
46
|
7.8
|
Consents
|
46
|
|
|
|
7.9
|
Non-Competition
Agreements
|
46
|
|
|
|
7.10
|
Further
Assurances
|
47
|
|
|
|
7.11
|
Preservation
of Records
|
47
|
|
|
|
7.12
|
Use
of Name
|
48
|
|
|
|
7.13
|
Employment
and Employee Benefits.
|
48
|
|
|
|
7.14
|
Financing
|
49
|
|
|
|
7.15
|
Customer
Lists and Data Base
|
50
|
|
|
|
ARTICLE
VIII
|
|
50
|
|
|
|
8.1
|
Conditions
Precedent to Each Party’s Obligation to Effect the
Transactions
|
50
|
|
|
|
8.2
|
Conditions
Precedent to Obligations of Purchaser
|
50
|
|
|
|
8.3
|
Conditions
Precedent to Obligations of the Selling Stockholder
|
51
|
|
|
|
ARTICLE
IX
|
TERMINATION
OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION; SECTION 338(H)(10)
ELECTION
|
52
|
|
|
|
9.1
|
Termination
of Representations and Warranties
|
52
|
|
|
|
9.2
|
Indemnification
by the Selling Stockholder
|
53
|
|
|
|
9.3
|
Indemnification
by Purchaser
|
53
|
|
|
|
9.4
|
Procedures
|
54
|
|
|
|
9.5
|
Limits
on Indemnification
|
55
|
|
|
|
9.6
|
Section
338(h)(10) Election
|
57
|
|
|
|
9.7
|
Tax
Indemnification
|
58
|
|
|
|
ARTICLE
X
|
MISCELLANEOUS
|
58
|
|
|
|
10.1
|
Payment
of Sales, Use or Similar Taxes
|
58
|
|
|
|
10.2
|
Expenses
|
58
|
|
|
|
10.3
|
Submission
to Jurisdiction; Consent to Service of Process; Waiver of Jury
Trial
|
58
|
|
|
|
10.4
|
Entire
Agreement; Amendments and Waivers
|
59
|
|
|
|
10.5
|
Governing
Law
|
59
|
|
|
|
10.6
|
Notices
|
60
|
|
|
|
10.7
|
Severability
|
61
|
|
|
|
10.8
|
Binding
Effect; Assignment
|
61
|
|
|
|
10.9
|
Non-Recourse
|
61
|
10.10
|
Counterparts
|
61
|
|
|
|
10.11
|
Specific
Enforcement
|
61
|
|
|
|
10.12
|
Attorneys'
Fees
|
62
|
Exhibits
Exhibit
A:
|
Terms
of Note
|
Exhibit
B:
|
Form
of Warrant
|
Exhibit
C:
|
Form
of Selling Stockholder Release
|
Exhibit
D
|
Form
of Transition Services Agreement
|
Exhibit
E:
|
Form
of Non-Competition
Agreement
|
Schedules
Schedule
1.1(a)
|
Closing
Working Capital Sample Calculations
|
Schedule
1.1(b)
|
Knowledge
of the Purchaser
|
Schedule
1.1(c)
|
Knowledge
of the Selling Stockholder
|
Schedule
5.3(a)
|
Selling
Stockholder’s Conflicts
|
Schedule
5.3(b)
|
Selling
Stockholder’s Consents
|
Schedule
5.4(b)
|
Capitalization
|
Schedule
5.5(b)
|
Options/Warrants
|
Schedule
5.5(c)
|
Sufficiency
of Assets
|
Schedule
5.6(a)
|
Subsidiary
|
Schedule
5.6(b)
|
Ownership
of Subsidiary’ Shares
|
Schedule
5.7(a)
|
Financial
Statements
|
Schedule
5.7(b)
|
GAAP
Matters
|
Schedule
5.8
|
Undisclosed
Liabilities
|
Schedule
5.10
|
Taxes
|
Schedule
5.11
|
Real
Property Leases
|
Schedule
5.12
|
Personal
Property Leases
|
Schedule
5.13(a)
|
Intellectual
Property
|
Schedule
5.13(b)
|
Intellectual
Property Licensing
|
Schedule
5.13(c)
|
Intellectual
Property Infringement
|
Schedule
5.14(a)
|
Material
Contracts
|
Schedule
5.14(b)
|
Material
Contract Defaults
|
Schedule
5.15(a)
|
Employee
Benefit Plans
|
Schedule
5.16(a)
|
Labor
and Collective Bargaining Agreements
|
Schedule
5.16(b)
|
Labor
|
Schedule
5.16(c)
|
List
of Employees
|
Schedule
5.17
|
Litigation
|
Schedule
5.18(a)
|
Violation
of Laws
|
Schedule
5.19
|
Environmental
Matters
|
Schedule
5.20
|
Financial
Advisors
|
Schedule
5.21
|
Insurance
Policies
|
Schedule
5.22
|
Bank
Accounts
|
Schedule
5.23
|
Net
Operating Losses
|
Schedule
6.3(a)
|
Purchaser’s
Conflicts
|
Schedule
6.3(b)
|
Purchaser’s
Consents
|
Schedule
6.6
|
Financial
Advisors
|
Schedule
7.3(a)(iii)
|
Transactions
with Third Party
|
Schedule
7.3(b)
|
Conduct
of the Business
|
Schedule
7.6
|
Assurance
Agreements
|
Schedule
7.9
|
Purchaser
Competition Covenant
|
Schedule
7.12
|
Purchased
Marks
|
STOCK
PURCHASE AGREEMENT
This
STOCK PURCHASE AGREEMENT (this “Agreement”), dated as
of December 22, 2009, is by and between Key Brand Entertainment Inc. a Delaware
corporation (“Purchaser”), and
Hollywood Media Corp., a Florida corporation (the “Selling
Stockholder”).
WITNESSETH:
WHEREAS,
the Selling Stockholder owns an aggregate of 100 shares of common stock, $0.01
par value per share, of Theatre Direct NY, Inc., a Delaware corporation (“Theatre Direct”),
which constitutes all of the issued and outstanding shares of capital stock of
Theatre Direct (collectively, the “Shares”);
WHEREAS,
the Selling Stockholder desires to sell to Purchaser, and Purchaser desires to
purchase from the Selling Stockholder, the Shares for the purchase price and
upon the terms and conditions hereinafter set forth; and
WHEREAS,
certain terms used in this Agreement are defined in Section 1.1.
NOW,
THEREFORE, in consideration of the premises and the mutual covenants and
agreements hereinafter contained, the parties hereby agree as
follows:
ARTICLE
I
DEFINITIONS
1.1 Certain
Definitions.
(a) For
purposes of this Agreement, the following terms shall have the meanings
specified in this Section
1.1:
“Accounting
Principles” means GAAP consistently applied using the accounting
principles, policies, procedures, practices, applications and methodologies used
in preparing the Financial Statements.
“Affiliate” means,
with respect to any Person, any other Person that, directly or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, such Person, and the term “control” (including the terms
“controlled by” and “under common control with”) means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through ownership of voting securities, by
contract or otherwise. Notwithstanding the foregoing, Dancap Private Equity
Inc., Lawson Ticket, Inc. and Tokyo Broadcasting System, Inc. shall not be
deemed Affiliates of Purchaser, and the entity set forth on Schedule 7.9, shall
not be deemed an Affiliate of the Selling Stockholder or the
Companies.
“Business Day” means
any day of the year on which national banking institutions in New York are open
to the public for conducting business and are not required or authorized to
close.
“Closing Working
Capital” means the consolidated combined net current assets of the
Companies (including all cash and cash equivalents, restricted cash and
collateral for bonds), reduced by the consolidated combined current liabilities
of the Companies (including any gift cards and gift certificates issued and not
redeemed, but excluding any Indebtedness), in each case as of the close of
business on the day immediately preceding the Closing Date determined in
accordance with the Accounting Principles and disregarding any intercompany
balances between the Companies, consistent with the sample calculations set
forth on Schedule
1.1(a).
“Code” means the
Internal Revenue Code of 1986, as amended.
“Common Stock” means
the common stock, par value $0.01, of Selling Stockholder.
“Companies” means
Theatre Direct and its Subsidiaries.
“Confidentiality
Agreement” means the confidentiality agreement between Purchaser and
Theatre Direct, dated June 27, 2008.
“Contract” means any
written contract, agreement, indenture, note, bond, mortgage, loan, instrument,
lease or license.
“Earnout Amount” means
the Level 1 Earnout Amount plus the Level 2 Earnout Amount.
“Earnout Period” means
the period from the Closing Date until the end of the tenth full fiscal year of
Theatre Direct which occurs after the Closing Date; provided; however, that if
the fiscal year of Theatre Direct is changed to any year other than a calendar
year after the Closing Date, then the Earnout Period shall be automatically
extended to ensure that the Earnout Period includes at least ten full (i.e. 12
month) fiscal years after the Closing Date.
“Earnout Year” means
any and each full fiscal year of Theatre Direct during the Earnout
Period.
“Environmental Law”
means any applicable Law currently in effect relating to the protection of the
environment or natural resources, including the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. § 9601 et seq.), the Hazardous
Materials Transportation Act (49 U.S.C. App. § 1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. § 6901 et seq.), the Clean
Water Act (33 U.S.C. § 1251 et seq.), the Clean Air
Act (42 U.S.C. § 7401 et seq.) the Toxic
Substances Control Act (15 U.S.C. § 2601 et seq.), and the
Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. § 136 et seq.), as each has
been amended, and the regulations promulgated pursuant thereto.
“Escrow Agent” shall
mean The Bank of New York Mellon.
“Escrow Agreement”
means an escrow agreement among Escrow Agent, Purchaser and Selling Stockholder
dated as of the date hereof.
“GAAP” means United
States generally accepted accounting principles as in effect (i) with
respect to financial information prepared on or after the Closing Date, as of
the date of this Agreement, and (ii) with respect to historical financial
information prepared prior to the Closing Date, as in effect as such applicable
time.
“Governmental Body”
means any government or governmental or regulatory body thereof, or political
subdivision thereof, whether federal, state, local or foreign, or any agency,
instrumentality or authority thereof, or any court or arbitrator (public or
private).
“Hazardous Material”
means any substance, material or waste which is regulated by any Governmental
Body including petroleum and its by-products, asbestos, and any material or
substance which is defined as a “hazardous waste,” “hazardous substance,”
“hazardous material,” “restricted hazardous waste,” “industrial waste,” “solid
waste,” “contaminant,” “pollutant,” “toxic waste” or “toxic substance” under any
provision of Environmental Law.
“Indebtedness” of any
Person means, without duplication, (i) the principal of, and accreted value
and accrued and unpaid interest in respect of, (A) indebtedness of such
Person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable; (ii) all obligations of such Person issued
or assumed as the deferred purchase price of property, all conditional sale
obligations of such Person and all obligations of such Person under any title
retention agreement (but excluding trade accounts payable and other accrued
current liabilities); (iii) all obligations under capital leases (determined in
accordance with GAAP); (iv) all obligations of the type referred to in
clauses (i) through (iii) of any Persons the payment of which such Person
is responsible or liable, directly or indirectly, as obligor, guarantor, surety
or otherwise; and (v) all obligations of the type referred to in
clauses (i) through (iv) of other Persons secured by any Lien on any
property or asset of such Person (whether or not such obligation is assumed by
such Person).
“Intellectual
Property” means all of the following: (i) patents and applications
therefor (along with all patents issuing thereon), including continuations,
divisionals, continuations-in-part, reissues, reexaminations and extensions
thereof (ii) trademarks, service marks, trade names, service
names, brand names, trade dress rights, logos, corporate names and trademark
rights in internet domain names, together with the goodwill associated with any
of the foregoing, and all applications, registrations and renewals thereof,
(collectively, “Marks”),
(iii) copyrights and registrations and applications therefor, copyrightable
works of authorship and mask work rights, (iv) internet domain names and (v) all
trade secrets, inventions, formulae, data, improvements, know-how, confidential
information, material computer software (including any source code and object
code) documentation, engineering and technical drawings, processes,
methodologies, and all other proprietary technology utilized in the businesses
of the Companies, and all common law rights relating to the foregoing, excluding
in this clause (v) any rights in respect of any of the foregoing that comprise
or are protected by patents.
“IRS” means the United
States Internal Revenue Service and, to the extent relevant, the United States
Department of Treasury.
“Knowledge of the
Purchaser” means the actual knowledge of those Persons identified on
Schedule
1.1(b).
“Knowledge of the Selling
Stockholder” means the actual knowledge of those Persons identified on
Schedule
1.1(c).
“Law” means any
federal, state, local or foreign law, statute, code, ordinance, rule or
regulation.
“Legal Proceeding”
means any judicial, administrative or arbitral actions, suits or proceedings
(public or private) by or before a Governmental Body.
“Level 1 Earnout
Amount” means $7,000,000 plus the Level 1 Regulatory Earnout Amount, if
any.
“Level 1 Regulatory Earnout
Amount” means the applicable portion of any reduction to the principal
amount of the Note (in accordance with the terms of the Note) as a result of any
Adverse Ticketing Regulations (as defined in Exhibit
A).
“Level 2 Earnout
Amount” means $7,000,000 plus the Level 2 Regulatory Earnout Amount, if
any.
“Level 2 Regulatory Earnout
Amount” means the applicable portion of any reduction to the principal
amount of the Note (in accordance with the terms of the Note) as a result of any
Adverse Ticketing Regulations (as defined in Exhibit
A).
“Lien” means any lien,
encumbrance, pledge, mortgage, deed of trust, security interest, claim, lease,
charge, option, right of first refusal, easement, servitude or transfer
restriction.
“Material Adverse
Effect” means a material adverse effect on (i) the business, results of
operations or financial condition of the Companies (taken as a whole) or (ii)
the ability of the Selling Stockholder to consummate the Transactions, in each
case, other than an effect resulting from or related to an Excluded
Matter. “Excluded Matter”
means any one or more of the following: (i) the effect of any change in the
United States or foreign economies or securities or financial markets in
general; (ii) the effect of any change that generally affects any industry in
which the Companies operate; (iii) the effect of any change arising in
connection with earthquakes, hostilities, acts of war, sabotage or terrorism or
military actions or any escalation or material worsening of any such
hostilities, acts of war, sabotage or terrorism or military actions, whether
arising before, on or after the date hereof; (iv) the effect of any action by or
omission of Purchaser or its Affiliates with respect to the Transactions or with
respect to the Companies (including any breach of this Agreement or the
Confidentiality Agreement by Purchaser or its Affiliates); (v) the effect of any
changes in applicable Laws or in generally accepted accounting principles or any
other applicable accounting standards, or changes in general legal, regulatory
or political conditions; (vi) the failure by any of the Companies or the Selling
Stockholder to meet internal projections or forecasts (including any projections
or forecasts provided to the Purchaser or its Affiliates), analyst expectations
or publicly announced earnings or revenue projections, or decreases in Selling
Stockholder’s stock price (including as a result of failure to meet such
projections, forecasts or analyst expectations); (vii) any action taken by the
Selling Stockholder or any of the Companies as contemplated or permitted by this
Agreement or with Purchaser’s consent; and (viii) any effect pertaining to the
negotiation, execution, announcement, pendency or performance of this Agreement
or the consummation of the Transactions, including (1) the impact thereof on
relationships, contractual or otherwise, with customers, suppliers, theaters,
distributors or partners, (2) any resulting shortfalls or declines in revenue,
margins or profitability, (3) the failure to obtain the consent of a
counterparty under any Contract listed in Schedule 5.3(a) in
connection with the Transactions and (4) any claim or litigation arising from
allegations of breach of fiduciary duty with respect to the Selling Stockholder
or any of the Companies relating to this Agreement or the Transactions, or
disclosure violations in securities filings made in connection with the
Transactions.
“Order” means any
order, injunction, judgment, decree, ruling, writ, assessment or arbitration
award of a Governmental Body.
“Ordinary Course of
Business” means the ordinary and usual course of normal day-to-day
operations of the Companies.
“Permits” means any
approvals, authorizations, consents, licenses, permits or certificates of a
Governmental Body.
“Permitted Exceptions”
means (i) all defects, exceptions, restrictions, easements, rights of way and
encumbrances disclosed in policies of title insurance provided or made available
to Purchaser; (ii) statutory liens for current Taxes, assessments or other
governmental charges not yet delinquent or the amount or validity of which is
being contested in good faith by appropriate proceedings; (iii) mechanics’,
landlords’, carriers’, workers’, repairers’ and similar Liens arising or
incurred in the Ordinary Course of Business; (iv) zoning, entitlement and
other land use and environmental regulations by any Governmental Body; (v) title
of a lessor under a capital or operating lease; and (vi) such other
imperfections in title, charges, easements, restrictions and encumbrances which
do not interfere with the operation of the Companies.
“Person” means any
individual, corporation, partnership, limited liability company, firm, joint
venture, association, joint-stock company, trust, unincorporated organization,
Governmental Body or other entity.
“Revenues” means, for
any Earnout Year, the aggregate gross revenues of the Companies and their
respective businesses for such Earnout Year determined in accordance with the
Accounting Principles; provided, however, that, (i) with respect to any
tickets sold above face value, revenues shall be based on the gross ticket price
plus all service fees charged in connection with such sale (and shall in no
event be less than the total amounts paid by any customer) and (ii) with respect
to any tickets sold at a discount to face value, revenues shall be based on the
actual ticket sales price plus all service fees charged in connection with such
sale. Revenues shall expressly include (i) any and all revenues from
transactions between the Companies, on the one hand, and the Purchaser or any of
its Affiliates (other than the Companies), on the other hand, (ii) any and
all additional revenues of Purchaser and its Affiliates (other than the
Companies) from the resale of tickets acquired from or through the Companies,
(iii) any and all revenues derived or generated from all primary and
secondary ticketing sales, including those sold (a) from the license or use of,
or by otherwise transacting or operating under, through or with, the domain
names www.Broadway.com,
www.Theater.com
or www.Theatre.com or
any similar or derivative internet domain names, or any other internet domain
names owned by the Companies as of the Closing Date, (b) over the phone via
1-800-Broadway, or (c) by, through or under any related trade or business names
or Intellectual Property of the Companies, (iv) any and all revenues derived or
generated from any social networking website and/or mobile platform established,
owned or operated by the Companies, Purchaser and/or any of its Affiliates as
described in that certain Theater Community Segment Draft of Business Plan,
dated July 10, 2009 which was previously provided to the Purchaser, or any
similar website, (v) any and all revenues associated with the sale by Purchaser
or any of its Affiliates (including the Companies) of tickets to live musical,
live theatrical or other live entertainment performances in New York City, New
York, (vi) group ticket sales through Theatre Direct or ShowTix to venues that
they service as of the Closing Date and any other venues that they service
thereafter other than the group ticket sales for shows (A) presented by Broadway
Across America, Purchaser or any of its Affiliates outside of New York City, New
York or (B) at venues located outside of New York City, New York which are owned
by Purchaser or any of its Affiliates, (vii) any and all sales derived from
sponsorships and/or sales of advertisements to shows and/or theaters, to the
extent not otherwise included in Revenues and (viii) the aggregate amount of any
business interruption insurance proceeds received by or on behalf of the
Companies in respect of any business interruption(s) net of all costs of
obtaining and maintaining such insurance policies. Unless included
above, revenues shall exclude any and all revenues derived or generated from any
business contributed to, or processed through, the Companies after the Closing
Date by the Purchaser or any of its Affiliates, including revenues derived from
ticket sales for performances presented outside of New York City, New York by
Broadway Across America, Purchaser or any Affiliate of
Purchaser.
“Subsidiary” means any
Person of which a majority of the outstanding share capital, voting securities
or other voting equity interests are owned, directly or indirectly, by Theatre
Direct.
“Tax” or “Taxes” means (i) all
federal, state, local or foreign taxes, charges, fees, imposts, levies or other
assessments, including all net income, gross receipts, capital, sales, use, ad
valorem, value added, transfer, franchise, profits, inventory, capital stock,
license, withholding, payroll, employment, social security, unemployment,
excise, severance, stamp, occupation, property and estimated taxes, customs
duties, fees, assessments and other Tax Authority charges of any kind
whatsoever, and (ii) all interest, penalties, fines, additions to tax or
additional amounts imposed by any Taxing Authority in connection with any item
described in clause (i).
“Taxing Authority”
means the IRS and any other Governmental Body responsible for the administration
of any Tax.
“Tax Return” means any
return, report or statement required to be filed with respect to any Tax
(including any attachments thereto, and any amendment thereof), including any
information return, claim for refund, amended return or declaration of estimated
Tax, and including, where permitted or required, combined, consolidated or
unitary returns for any group of entities that includes the Selling Stockholder,
the Companies, or any of their Affiliates.
“Working Capital
Target” means $500,000.
1.2 Terms Defined Elsewhere in
this Agreement. For purposes of this Agreement, the following
terms have meanings set forth in the sections indicated:
Term
|
|
Section
|
|
|
|
Acquisition
Agreement
|
|
7.4(b)
|
Acquisition
Proposal
|
|
7.4(d)
|
Adverse
Recommendation Change
|
|
7.4(b)
|
Agreement
|
|
Preamble
|
Allocation
Statement
|
|
9.6(d)
|
Assurance
Agreements
|
|
7.6
|
Balance
Sheets
|
|
5.7(a)
|
Balance
Sheet Date
|
|
5.7(a)
|
Balance
Sheet Liabilities
|
|
5.8
|
Board
of Directors
|
|
7.2(b)
|
Board
Recommendation
|
|
7.2(b)
|
Cash
Consideration
|
|
3.1
|
Closing
|
|
4.1
|
Closing
Cash Consideration
|
|
3.3(a)
|
Closing
Date
|
|
4.1
|
Closing
Statement
|
|
3.3(b)
|
Closing
Working Capital
|
|
3.3(b)
|
Term
|
|
Section
|
|
|
|
Company
Benefit Plan
|
|
5.15(a)
|
Company
Employee
|
|
7.13(a)
|
Company
Pension Plan
|
|
5.15(b)
|
Company
Shareholder Approval
|
|
5.2
|
Deposit
Account
|
|
3.2(a)
|
Deposit
Amount
|
|
3.2(a)
|
Earnout
Payment Amount
|
|
3.7(c)
|
Environmental
Permits
|
|
5.19(a)
|
ERISA
|
|
5.15(a)
|
Estimated
Losses
|
|
9.5(f)
|
Estimated
Working Capital
|
|
3.3(a)
|
Excluded
Matter
|
|
1.1
(in definition of Material Adverse Effect)
|
Final
Working Capital
|
|
3.3(e)
|
Financial
Statements
|
|
5.7(a)
|
Financing
|
|
6.7
|
Fundamental
Representations
|
|
9.1
|
Indemnified
Party
|
|
9.4(a)
|
Indemnifying
Party
|
|
9.4(a)
|
Independent
Accountant
|
|
3.3(c)
|
Intentional
Breach
|
|
9.1
|
JPM
|
|
6.7
|
JPM
Consent
|
|
8.2(d)
|
JPM
Letter
|
|
6.7
|
Losses
|
|
9.2
|
Marks
|
|
1.1
(in Intellectual Property definition)
|
Material
Contracts
|
|
5.14(a)
|
Material
Note Term
|
|
4.4(d)
|
Multiemployer
Plan
|
|
5.15(f)
|
Note
|
|
3.1
|
Notice
of Disagreement
|
|
3.3(b)
|
Offerees
|
|
7.13(a)
|
Personal
Property Leases
|
|
5.12
|
Proxy
Statement
|
|
7.2(a)
|
Purchased
Marks
|
|
7.12
|
Purchase
Price
|
|
3.1
|
Purchaser
|
|
Preamble
|
Purchaser
401(k) Plan
|
|
7.13(c)
|
Purchaser
Documents
|
|
6.2
|
Purchaser
Indemnified Parties
|
|
9.2
|
Purchaser’s
125 Plan
|
|
7.13(d)
|
Real
Property Lease
|
|
5.11
|
Real
Property Leases
|
|
5.11
|
Reimbursement
Accounts
|
|
7.13(d)
|
Representatives
|
|
7.4(a)
|
Term
|
|
Section
|
|
|
|
Restraints
|
|
8.1(b)
|
Restricted
Business
|
|
7.9(a)
|
Retained
Marks
|
|
7.12
|
Section
338(h)(10) Election
|
|
9.6(a)
|
SEC
|
|
7.2(a)
|
Securities
Act
|
|
6.5
|
Seller
Benefit Plan
|
|
5.15(a)
|
Seller
Indemnified Parties
|
|
9.3
|
Selling
Stockholder
|
|
Preamble
|
Selling
Stockholder Documents
|
|
5.2
|
Selling
Stockholder’s 125 Plan
|
|
7.13(d)
|
Shares
|
|
Recitals
|
Shareholders
Meeting
|
|
7.2(b)
|
Superior
Proposal
|
|
7.4(d)
|
Termination
Date
|
|
4.2(a)
|
Termination
Fee
|
|
4.5
|
Termination
Waiting Period
|
|
4.2(h)
|
Theatre
Direct
|
|
Recitals
|
Theatre
Direct Common Stock
|
|
5.4(a)
|
Third
Party Claim
|
|
9.4(a)
|
Transactions
|
|
2.1
|
Warrant
|
|
3.1
|
WARN
Act
|
|
5.16(d)
|
1.3 Other Definitional and
Interpretive Matters.
(a) Unless
otherwise expressly provided, for purposes of this Agreement, the following
rules of interpretation shall apply:
Calculation of Time
Period. When calculating the period of time before which,
within which or following which any act is to be done or step taken pursuant to
this Agreement, the date that is the reference date in calculating such period
shall be excluded. If the last day of such period is a non-Business
Day, the period in question shall end on the next succeeding Business
Day.
Dollars. Any
reference in this Agreement to “$” shall mean U.S. dollars.
Exhibits/Schedules. The
Exhibits and Schedules to this Agreement are hereby incorporated and made a part
hereof and are an integral part of this Agreement. All Exhibits and
Schedules annexed hereto or referred to herein are hereby incorporated in and
made a part of this Agreement as if set forth in full herein. Any
matter or item disclosed on one Schedule shall be deemed to have been disclosed
on each other Schedule with respect to other representations and warranties
relating to such matter or item to the extent, based on the substance of the
disclosure on its face, its relevance to such other Schedule is reasonably
apparent. Disclosure of any item on any Schedule shall not constitute
an admission that such item or matter is material or would have a Material
Adverse Effect. No disclosure on a Schedule relating to a possible
breach or violation of any Contract, Law or Order shall be construed as an
admission that a breach or violation exists or has actually
occurred. Any capitalized terms used in any Schedule or Exhibit but
not otherwise defined therein shall be defined as set forth in this Agreement.
The Selling Stockholder may, at its option, include in the Schedules items that
are not material in order to avoid any misunderstanding, and such inclusion, or
any references to dollar amounts, shall not be deemed to be an acknowledgement
or representation that such items are material, to establish any standard of
materiality or to define further the meaning of such terms for purposes of this
Agreement.
Gender and
Number. Any reference in this Agreement to gender shall
include all genders, and words imparting the singular number only shall include
the plural and vice versa.
Headings. The
provision of a Table of Contents, the division of this Agreement into Articles,
Sections and other subdivisions and the insertion of headings are for
convenience of reference only and shall not affect or be utilized in construing
or interpreting this Agreement. All references in this Agreement to
any “Section” are to the corresponding Section of this Agreement unless
otherwise specified.
Herein. The
words such as “herein,” “hereinafter,” “hereof,” and “hereunder” refer to
this Agreement as a whole and not merely to a subdivision in which such words
appear unless the context otherwise requires.
Including. The
word “including” or any
variation thereof means (unless the context of its usage otherwise requires)
“including, without
limitation” and shall not be construed to limit any general statement
that it follows to the specific or similar items or matters immediately
following it.
Reflected On or Set Forth
In. An item arising with respect to a specific representation
or warranty shall be deemed to be “reflected on” or
“set forth in”
a balance sheet or financial statements, to the extent any such phrase appears
in such representation or warranty, if (a) there is a reserve, accrual or other
similar item underlying a number on such balance sheet or financial statements
that related to the subject matter of such representation, (b) such item is
otherwise specifically set forth on the balance sheet or financial statements or
(c) such item is reflected on the balance sheet or financial statements and is
specifically set forth in the notes thereto.
(b) The
parties hereto have participated jointly in the negotiation and drafting of this
Agreement and, in the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as jointly drafted by the parties
hereto and no presumption or burden of proof shall arise favoring or disfavoring
any party by virtue of the authorship of any provision of this
Agreement.
ARTICLE
II
SALE AND
PURCHASE OF SHARES
2.1 Sale and Purchase of
Shares. Upon the terms and subject to the conditions contained
herein, on the Closing Date, the Selling Stockholder agrees to sell to
Purchaser, and Purchaser agrees to purchase from the Selling Stockholder, the
Shares (together with all other transactions contemplated by this Agreement, the
“Transactions”).
ARTICLE
III
PURCHASE
PRICE
3.1 Purchase
Price. The aggregate consideration for the Shares shall be (i)
an amount in cash equal to $20,000,000 (the “Cash Consideration”),
subject to adjustments pursuant to Section 3.3, plus (ii) a second
lien secured promissory note, in the initial principal amount of $8,500,000
issued by the Purchaser to the Selling Stockholder with the terms set forth on
Exhibit A (the
“Note”), plus (iii) a Warrant,
in substantially the form attached as Exhibit B (the “Warrant”), plus (iv) the
payments, if any, under Section 3.7, minus (v) the
aggregate amount of all Indebtedness of the Companies immediately prior to
Closing (other than any such Indebtedness that is intercompany Indebtedness owed
by any of the Companies to each other) that is not being retired concurrently
with the Closing (clauses (i) through (v), in the aggregate shall be referred to
herein as, the “Purchase
Price”).
3.2 Deposit Amount; Payment of
Purchase Price. The Purchase Price shall be paid as
follows:
(a) On
the date hereof Purchaser shall deliver to the Escrow Agent the sum of
$1,200,000 (the “Deposit Amount”) by
wire transfer of immediately available funds into an account designated by the
Escrow Agent prior to the date hereof (the “Deposit Account”) to
be held in accordance with the Escrow Agreement. The Escrow Agent shall retain
the Deposit Amount (and all earnings thereon) in the Deposit Account until the
earlier of (i) the Closing or (ii) the release thereof in accordance with Section 4.4(d) and
the Escrow Agreement. No other funds shall be deposited into the Deposit Account
other than earnings on the Deposit Amount.
(b) On
the Closing Date, Purchaser shall pay to the Selling Stockholder an amount equal
to the Closing Cash Consideration minus the Deposit Amount (and any earnings
thereon) by wire transfer of immediately available funds into an account
designated by the Selling Stockholder prior to the Closing and the Escrow Agent
shall deliver the Deposit Amount and any earnings thereon to the Selling
Stockholder in accordance with the Escrow Agreement.
(c) On
the Closing Date, Purchaser shall deliver to Selling Stockholder the Note, in
form and substance reasonably acceptable to Purchaser and Selling Stockholder,
duly executed by Purchaser.
(d) On
the Closing Date, Purchaser shall deliver to Selling Stockholder the Warrant,
duly executed by Theatre Direct.
3.3 Cash Consideration
Adjustment.
(a) At
least three (3) Business Days prior to the Closing Date, the Selling Stockholder
shall deliver to Purchaser in writing its good faith estimate of Closing Working
Capital, which shall be derived from the applicable amounts contained in the
most recent completed financial statements for the calendar month ending prior
to the Closing Date (the “Estimated Working
Capital”). If the Estimated Working Capital exceeds the
Working Capital Target, then the amount of the Cash Consideration to be paid by
Purchaser to the Selling Stockholder at Closing (the “Closing Cash
Consideration”) shall equal the Cash Consideration plus the amount of
such excess, or if the Working Capital Target exceeds the Estimated Working
Capital then the Closing Cash Consideration shall equal the Cash Consideration
minus the amount of such excess. If the Estimated Working Capital
equals the Working Capital Target, then there shall be no adjustment to the Cash
Consideration under this Section
3.3(a).
(b) As
promptly as practicable, but no later than ninety (90) days after the Closing
Date, the Selling Stockholder shall cause to be prepared and delivered to
Purchaser a closing statement (the “Closing Statement”)
setting forth the Selling Stockholder’s calculation of Closing Working Capital.
If Purchaser disagrees with the Selling Stockholder’s calculation of Closing
Working Capital set forth in the Closing Statement, Purchaser may, within 30
days after delivery of the Closing Statement, deliver a notice to the Selling
Stockholder stating that Purchaser disagrees with such calculation and
specifying in reasonable detail those items or amounts as to which Purchaser
disagrees and the basis therefor (the “Notice of
Disagreement”) and reasonable documentation and evidence of such
basis. Purchaser shall be deemed to have agreed with all other items
and amounts contained in the Closing Statement and the calculation of Closing
Working Capital set forth therein.
(c) If
a Notice of Disagreement shall be duly delivered pursuant to Section 3.3(b), the
Selling Stockholder and Purchaser shall, during the fifteen (15) days following
such delivery, use their commercially reasonable efforts to reach agreement on
the disputed items or amounts in order to determine, as may be required, the
amount of Closing Working Capital. If during such period, the Selling
Stockholder and Purchaser are unable to reach such agreement, they shall
promptly thereafter submit the unresolved issues to Grant Thornton LLP or such
other independent accounting firm they mutually agree to select, as the case may
be, the “Independent
Accountant”) for a binding determination. Each of Purchaser
and the Selling Stockholder agree that it shall not engage, or agree to engage
the Independent Accountant to perform any services other than as the Independent
Accountant pursuant hereto until the Closing Statement and Final Working Capital
have been finally determined pursuant to this Section 3.3. Each
party agrees to execute, if requested by the Independent Accountant, a
reasonable engagement letter. Purchaser and the Selling Stockholder
shall cooperate with the Independent Accountant and promptly provide all
documents and information requested by the Independent Accountant. In
making its determination, the Independent Accountant shall consider only those
items or amounts set forth in the Notice of Disagreement (and not resolved by
the parties) and matters affected thereby, and its determination of the Closing
Working Capital shall not be less than the Closing Working Capital set forth in
the Notice of Disagreement or more than the Closing Working Capital set forth in
the Closing Statement. The Independent Accountant shall deliver to
the Selling Stockholder and Purchaser, as promptly as practicable (but in any
case no later than thirty (30) days from the date of engagement of the
Independent Accountant), a report setting forth its calculation of Closing
Working Capital, including the basis for and explanation of any difference from
the Closing Statement and the Notice of Disagreement. Such report
shall be final and binding upon the Selling Stockholder and Purchaser, shall be
deemed a final arbitration award that is binding on Purchaser and the Selling
Stockholder, and neither Purchaser nor the Selling Stockholder shall seek
further recourse to courts or other tribunals, other than to enforce such
report. Judgment may be entered to enforce such report in any court
of competent jurisdiction. The Independent Accountant will determine
the allocation of the cost of its review and report based on the inverse of the
percentage its determination (before such allocation) bears to the total amount
of the total items in dispute as originally submitted to the Independent
Accountant. For example, should the items in dispute total in amount
to $1,000 and the Independent Accountant awards $600 in favor of the Selling
Stockholder’s position, 60% of the costs of its review would be borne by
Purchaser and 40% of the costs would be borne by the Selling
Stockholder.
(d) The
Selling Stockholder, Purchaser and the Companies shall, and shall cause their
respective representatives to, cooperate and assist in the preparation of the
Closing Statement and the calculation of Closing Working Capital and in the
conduct of the review referred to in this Section 3.3,
including the making available to the extent necessary of books, records, work
papers and personnel.
(e) If
the Final Working Capital exceeds the Estimated Working Capital, the Purchaser
shall pay to the Selling Stockholder the amount of such excess as an adjustment
to the Cash Consideration, in the manner and with interest as provided in Section 3.3(f). If
the Estimated Working Capital exceeds the Final Working Capital, the Selling
Stockholder shall pay to the Purchaser the amount of such excess as an
adjustment to the Cash Consideration, in the manner and with interest as
provided in Section 3.3(f). “Final Working
Capital” means Closing Working Capital (i) as shown in the Closing
Statement delivered pursuant to Section 3.3(a) if no
Notice of Disagreement is duly delivered pursuant to Section 3.3(b); or
(ii) if a Notice of Disagreement is delivered, (A) as completely agreed to by
the Selling Stockholder and Purchaser pursuant to Section 3.3(c) or (B)
in the absence of such complete agreement, as shown in the Independent
Accountant’s calculation delivered pursuant to Section 3.3(c)
together with any disputes resolved by the parties prior to submission to the
Independent Accountant.
(f) Any
payment pursuant to Section 3.3(e) shall
be made at a mutually convenient time and place within five (5) Business Days
after Final Working Capital has been determined by wire transfer by Purchaser or
the Selling Stockholder, as the case may be, of immediately available funds to
the account of such other party as may be designated in writing by such other
party. The amount of any payment to be made pursuant to this Section 3.3 shall
bear interest from and including the Closing Date to but excluding the date of
payment at a rate per annum equal to the rate of interest published from time to
time by The Wall Street
Journal, Eastern Edition, as the “prime rate” during the period from the
Closing Date to the date of payment calculated daily on the basis of a year of
365 days and the actual number of days elapsed.
3.4 Delivery of
Shares. At the Closing, the Selling Stockholder shall transfer
or cause to be transferred to Purchaser, against payment of the Purchase Price
therefor as provided in Section 3.2, good and
valid title to the Shares, free and clear of any Liens (other than transfer
restrictions on subsequent transfers that may apply under applicable law or
organizational documents) by causing to be delivered to Purchaser one or more
stock certificates representing the Shares, duly endorsed in blank or
accompanied by a stock transfer powers.
3.5 Other Closing Deliveries by
the Selling Stockholder. At the Closing, the Selling
Stockholder shall deliver or cause to be delivered to Purchaser:
(a) a
certificate of a duly authorized officer of the Selling Stockholder certifying
as to the matters set forth in Section 8.2(a) and
(b);
(b) all
other books and records relating solely to the Companies, including minute
books, stock books, ledgers and registers, corporate seals, if any, and tax
records, if not already located on the premises of the Companies;
(c) all
documents required by the lenders under the Credit Agreement to be executed by
the Selling Stockholder in connection with the Transactions, in each case
consistent with the terms set forth in Exhibit A and in form
and substance reasonably acceptable to Selling Stockholder;
(d) signed
resignations of all directors of the Companies, effective immediately as of the
Closing;
(e)
an executed release in substantially
the form attached hereto as Exhibit
C;
(f)
an executed Transition Services Agreement in
substantially the form attached hereto as Exhibit
D;
(g) the
list of employees pursuant to Section 7.13(f);
and
(h) Non-Competition
Agreements executed and delivered by each of Mitchell Rubenstein and Laurie S.
Silvers in substantially the form attached hereto as Exhibit
E.
3.6 Closing Deliveries by
Purchaser. At the Closing, Purchaser shall deliver to the
Selling Stockholder:
(a) the
Closing Cash Consideration in the manner set forth in Section
3.2(b);
(b) the
Note, and all other documents required by the lenders under the Credit Agreement
to be executed by Purchaser and/or Theatre Direct in connection with the
Transactions and as set forth under Exhibit A, in each
case consistent with the terms set forth in Exhibit A and in form
and substance reasonably acceptable to Purchaser and Selling Stockholder, duly
executed by Purchaser and/or Theatre Direct;
(c) the
Warrant duly executed by Theatre Direct;
(d) a
certificate of a duly authorized officer of the Purchaser certifying as to the
matters set forth in Section 8.3(a) and
(b);
and
(e) an
executed Transition Services Agreement in substantially the form attached hereto
as Exhibit
D.
3.7 Earnout.
(a) Determination of Net
Revenue. Following each Earnout Year, as promptly as
practicable, but no later than five (5) Business Days after the earlier to occur
of (A) the completion of the annual audit of Purchaser and its subsidiaries for
the applicable Earnout Year and (B) ninety (90) days after the end of such
Earnout Year, Purchaser shall prepare and deliver, or cause to be prepared and
delivered, to the Selling Stockholder, a copy of the financial statements of the
Companies on a consolidated basis (derived from the audited financial statements
of Purchaser prepared by a nationally recognized accounting firm, or if such
audited financial statements have not been completed, the unaudited financial
statement of the Purchaser and its subsidiaries) for the applicable Earnout Year
(the “Post-Closing Financial
Statements”) along with a statement setting forth Purchaser’s calculation
of Revenues (the “Earnout Statement”),
along with reasonable supporting or underlying documentation used in the
preparation of such statements. Additionally, as soon as reasonably
practicable, but in no event later than sixty (60) days after the end of each
fiscal quarter during the Earnout Years, the Purchaser shall prepare and
deliver, or cause to be prepared and delivered, to the Selling Stockholder,
unaudited quarterly financial statements of the Companies (such statements to be
in a form reasonably detailed in order for the Selling Stockholder to review and
analyze the financial data related to the calculation of
Revenues). Purchaser shall deliver and furnish the Selling
Stockholder any other supporting or underlying documentation pertinent to the
Post-Closing Financial Statements and the Earnout Statement as may be reasonably
requested by the Selling Stockholder. With respect to Revenues, the
Post-Closing Financial Statements and Earnout Statement shall be prepared in
accordance with the Accounting Principles and this Agreement.
(b) Dispute
Procedures. If Selling Stockholder disagrees with the
Purchaser’s calculation of Revenues as set forth on an Earnout Statement,
Selling Stockholder may, within 30 days after delivery of the Earnout Statement,
deliver a notice to the Purchaser stating that Selling Stockholder disagrees
with such calculation and specifying in reasonable detail those items or amounts
as to which Selling Stockholder disagrees and the basis therefor (the “Earnout Notice of
Disagreement”) and reasonable documentation and evidence of such
basis. Selling Stockholder shall be deemed to have agreed with all
other items and amounts contained in the Earnout Statement. If an Earnout Notice
of Disagreement shall be duly delivered pursuant to this Section 3.7(b), the
Selling Stockholder and Purchaser shall, during the fifteen (15) days following
such delivery, use their commercially reasonable efforts to reach agreement on
the disputed items or amounts in order to determine, as may be required, the
Earnout Amount. If during such period, the Selling Stockholder and
Purchaser are unable to reach such agreement, they shall promptly thereafter
submit the unresolved issues to the Independent Accountant for a binding
determination. Each of Purchaser and the Selling Stockholder agree
that it shall not engage, or agree to engage the Independent Accountant to
perform any services other than as the Independent Accountant pursuant hereto
until the Earnout Statement has been finally determined pursuant to this Section 3.7. Each
party agrees to execute, if requested by the Independent Accountant, a
reasonable engagement letter. Purchaser and the Selling Stockholder
shall cooperate with the Independent Accountant and promptly provide all
documents and information requested by the Independent Accountant. In
making its determination, the Independent Accountant shall consider only those
items or amounts set forth in the Earnout Notice of Disagreement (and not
resolved by the parties) and matters affected thereby, and its determination of
the Revenues shall not be less than the Revenues set forth in the Earnout
Statement or more than the Revenues set forth in the Earnout Notice of
Disagreement. The Independent Accountant shall deliver to the Selling
Stockholder and Purchaser, as promptly as practicable (but in any case no later
than thirty (30) days from the date of engagement of the Independent
Accountant), a report setting forth its calculation of the Earnout Amount,
including the basis for and explanation of any difference from the Earnout
Statement and/or the Earnout Notice of Disagreement. Such report
shall be final and binding upon the Selling Stockholder and Purchaser, shall be
deemed a final arbitration award that is binding on Purchaser and the Selling
Stockholder, and neither Purchaser nor the Selling Stockholder shall seek
further recourse to courts or other tribunals, other than to enforce such
report. Judgment may be entered to enforce such report in any court
of competent jurisdiction. The Independent Accountant will determine
the allocation of the cost of its review and report based on the inverse of the
percentage its determination (before such allocation) bears to the total amount
of the total items in dispute as originally submitted to the Independent
Accountant. For example, should the items in dispute total in amount
to $1,000 and the Independent Accountant awards $600 in favor of the Selling
Stockholder’s position, 60% of the costs of its review would be borne by
Purchaser and 40% of the costs would be borne by the Selling
Stockholder.
(c) Earn-out
Payments. If the Companies achieve Revenues greater than or
equal to $125,000,000 in any Earnout Year, then Purchaser shall pay to the
Selling Stockholder an amount equal to the Level 1 Earnout Amount. In
addition, if the Companies achieve Revenues greater than or equal to
$150,000,000 during any Earnout Year (including any Earnout Year where the Level
1 Earnout Amount may be earned), then Purchaser shall pay to the Selling
Stockholder an additional amount equal to the Level 2 Earnout
Amount. Each payment amount referenced in this Section 3.7
shall be referred to herein as a “Earnout Payment
Amount” and collectively the “Earnout Payment
Amounts”. Any Earnout Payment Amounts shall be made within
five (5) Business Days after the final determination of Revenues for the
applicable Earnout Year(s) and shall be made in cash by wire transfer by
Purchaser of immediately available funds to an account designated by the Selling
Stockholder.
(d) Post-Closing
Covenants. During the Earnout Period, neither Purchaser or any
of its Affiliates shall (i) liquidate, dissolve or wind up the Companies, (ii)
compete with the Companies with respect to the sale of tickets to live musical,
live theatrical or live entertainment performances in New York City, New York or
divert any business or opportunities away from the Companies with respect to the
sale of tickets to live musical, live theatrical or live entertainment
performances in New York City, New York (except as contemplated in the
definition of Revenues), or (iii) take any other actions, not in the
Ordinary Course of Business, with the actual knowledge and intent that such
actions are for the primary purpose of reducing or deferring any Revenues in
order to avoid or delay payment of an Earnout Amount. In addition,
during the Earnout Period, the Companies shall not enter into any transaction,
agreement or arrangements under which the Companies engage or otherwise use a
third party to conduct more than an incidental portion of the sale of tickets
business conducted by the Companies prior to that time in exchange for a
royalty, charge, fee or any other payment, which royalty, charge, fee or other
payment is less than the price which would be paid to the Companies if the
Companies sold the tickets in question, in lieu of the Companies conducting such
sale of tickets business itself.
(e) Access. For
purposes of complying with the terms set forth in Sections 3.7,
Purchaser shall cooperate with and make available to the Selling Stockholder and
the Independent Accountant and their respective representatives all information,
records, data and working papers as may be reasonably required in connection
with the preparation and analysis of the Post-Closing Financial Statements and
the Earnout Statement, as the case may be, and the resolution of any disputes
thereunder.
(f) Sale, Transfer or
Assignment. If Purchaser or any of its Affiliates sell,
transfer or dispose (through merger, consolidation, reorganization, sale of
assets, sale of stock or otherwise) of the Companies or any material part of the
Companies' businesses or assets, the calculation of Revenues shall continue to
apply as to the Companies (or the successor in a merger, consolidation,
reorganization or purchaser in a sale of a material part of the Companies'
business or assets) and Purchaser shall require such successor, assignee,
purchaser or other acquiror of the Companies or such business or assets to
assume the applicable obligations of the Purchaser under this Section 3.7 and the
payment of the remaining Earnout Amount, if any, in accordance with its payment
terms, as a condition precedent to any such transaction; provided that no such
sale, transfer or disposal shall relieve Purchaser of its obligations under this
Agreement unless agreed to in writing by the Selling
Stockholder.
ARTICLE
IV
CLOSING
AND TERMINATION
4.1 Closing
Date. The closing of the sale and purchase of the Shares
provided for in Section 2.1 (the
“Closing”)
shall take place at the offices of Weil, Gotshal & Manges LLP located at 767
Fifth Avenue, New York, New York, 10153 (or at such other place as the parties
may designate in writing) at 10:00 a.m. (New York City time) on a date to be
specified by the parties (the “Closing Date”), which
date shall be no later than the third Business Day after the satisfaction or
waiver of the conditions set forth in Article VIII (other
than conditions that by their nature are to be satisfied at the Closing, but
subject to the satisfaction or waiver of those conditions at such time), unless
another time, date or place is agreed to in writing by the parties
hereto.
4.2 Termination of
Agreement. This Agreement may be terminated prior to the
Closing as follows:
(a) at
the election of the Selling Stockholder or Purchaser on or after June 22, 2010,
(the “Termination
Date”), if the Closing shall not have occurred by the close of business
on such date, provided that the
terminating party is not in breach in any material respect of any of its
obligations hereunder and provided, further, however,
that Selling Stockholder may not terminate this Agreement pursuant to this Section 4.2(a) until
the Shareholders Meeting has occurred, provided, further, however,
that either party may extend the Termination Date by an additional 30-day period
if the SEC reviews and provides written comments to the Proxy Statement and
provided, further, that if (i)
a Material Adverse Effect has occurred related to a large-scale terrorism event
in New York City, New York which causes the lenders under the Credit Agreement
to suspend loans to businesses in New York City, New York (for purposes of this
Section 4.2(a),
such event shall not be an Excluded Matter), and (ii) such suspension of loans
has been ongoing for less than thirty (30) consecutive days and is continuing as
of the Termination Date, then the Termination Date shall be automatically
extended through the earlier of (x) thirty (30) days from the date that
such suspension for loans first occurred or (y) the third (3rd) Business
Day after such suspension of loans is lifted or removed;
(b) by
mutual written consent of the Selling Stockholder and Purchaser;
(c) by
the Selling Stockholder or Purchaser if the Company Shareholder Approval shall
not have been obtained at the Shareholders Meeting duly convened therefor or at
any adjournment or postponement thereof;
(d) by
Purchaser, if (i) the Selling Stockholder shall have materially breached or
failed to perform any of its representations, warranties, covenants or
agreements set forth in this Agreement, which breach or failure to perform (A)
would give rise to the failure of a condition set forth in Section 8.2(a) or
(b) and (B)
cannot be cured by the Selling Stockholder by the Termination Date; or (ii) if
an Adverse Recommendation Change shall have occurred;
(e) by
the Selling Stockholder, if Purchaser shall have materially breached or failed
to perform any of its representations, warranties, covenants or agreements set
forth in this Agreement, which breach or failure to perform (i) would give rise
to the failure of a condition set forth in Section 8.3(a) or
(b) and (ii)
cannot be cured by Purchaser by the Termination Date; provided, however, that a
termination pursuant to this Section 4.2(e) does
not constitute an Adverse Recommendation Change;
(f) by
the Selling Stockholder or Purchaser if there shall be in effect a final
nonappealable Order of a Governmental Body of competent jurisdiction
restraining, enjoining or otherwise prohibiting the consummation of the
Transactions; it being agreed that the parties hereto shall promptly appeal any
adverse determination which is not nonappealable (and pursue such appeal with
reasonable diligence); provided, however, that the
right to terminate this Agreement under this Section 4.2(f) shall
not be available to a party if such Order was primarily due to the failure of
such party to perform any of its obligations under this Agreement;
(g) by
the Selling Stockholder, if concurrently it enters into a definitive Acquisition
Agreement providing for a Superior Proposal, but only so long as: (i) the
Selling Stockholder pays or causes to be paid to Purchaser the Termination Fee
in accordance with Section 4.5
simultaneously with such termination, (ii) the Board of Directors has determined
that such Acquisition Agreement is a Superior Proposal, (iii) the Selling
Stockholder shall have given the Purchaser at least three Business Days prior
written notice of its intent to terminate this Agreement pursuant to this Section 4.2(g), which
notice shall be accompanied by a correct and complete copy of such Superior
Proposal and all documents related thereto and (iv) during the three Business
Day period following the date on which such notice is given to Purchaser, (A)
the Selling Stockholder shall give Purchaser the opportunity to meet with the
Selling Stockholder to suggest such modifications to the Transactions that
Purchaser may deem advisable, and (B) after taking such proposed modifications
into account the Board of Directors has determined that such Acquisition
Agreement continues to be a Superior Proposal;
(h) by
the Selling Stockholder, if all of the conditions to Closing set forth in Sections 8.1, 8.2 and 8.3, other than the
condition set forth in Section 8.2(d), have
been satisfied or waived or are capable of being satisfied at Closing, and the
condition set forth in Section 8.2(d) is not
satisfied within thirty (30) days thereafter (the “Termination Waiting
Period”); provided, however, that if (i)
a Material Adverse Effect has occurred related to a large-scale terrorism event
in New York City, New York which causes the lenders under the Credit Agreement
to suspend loans to businesses in New York City, New York (for purposes of this
Section 4.2(h),
such event shall not be an Excluded Matter), and (ii) such suspension of loans
has been ongoing for less than thirty (30) consecutive days and is continuing as
of the end of the Termination Waiting Period, then the Termination Waiting
Period shall be automatically extended through the earlier of (x) thirty
(30) days from the date that such suspension for loans first occurred or
(y) the third (3rd) Business Day after such suspension of loans is lifted
or removed; or
(i) by
Purchaser if a Material Adverse Effect occurs which cannot be cured by Selling
Stockholder by the Termination Date; provided, however, that for the purpose of
this Section 4.2(i), a large-scale terrorism event in New York City, New York
that (A) results or that could reasonably be expected to result in a long term
and adverse impact on the business of the Companies or (B) which causes the
lenders under the Credit Agreement to suspend loans to businesses in New York
City, New York for a period of at least thirty (30) consecutive days shall not
be deemed to be an Excluded Matter.
4.3 Procedure Upon
Termination. In the event of termination and abandonment by
Purchaser or the Selling Stockholder, or both, pursuant to Section 4.2, written
notice thereof shall forthwith be given to the other party or parties,
specifying the basis for such termination, and this Agreement shall terminate,
and the purchase of the Shares hereunder shall be abandoned, without further
action by Purchaser or the Selling Stockholder.
4.4 Effect of
Termination.
(a) In
the event that this Agreement is validly terminated in accordance with Sections 4.2 and
4.3, then each
of the parties shall be relieved of their duties and obligations arising under
this Agreement after the date of such termination and such termination shall be
without liability to Purchaser, the Companies or the Selling Stockholder, except
as provided in Section
4.5; provided, however, that no such
termination shall relieve Selling Stockholder from liability for a reasonably
foreseeable consequence of an act undertaken (or failure to take an act) by the
Selling Stockholder with the actual knowledge and intent that the taking of such
act (or failure to take such act) would cause a breach of this Agreement and,
provided, further, that this
Section 4.4 and
Section 4.5 and
the obligations of the parties set forth in Article X shall
survive any such termination and shall be enforceable hereunder.
(b) Notwithstanding
any provision to the contrary in the Confidentiality Agreement, during the
period from the date hereof through the earlier of (i) the Closing and (ii) the
date that is one (1) year following the termination of this Agreement pursuant
to Section 4.2,
Purchaser shall not directly or indirectly, through any Affiliate, officer,
director, agent or otherwise, solicit the employment of any employee of the
Selling Stockholder or any of its Affiliates, including the Companies, who is a
management or key employee of the Selling Stockholder or any of its Affiliates
as of the date hereof or at any time during such period. Furthermore,
if this Agreement is validly terminated pursuant to Section 4.2,
Purchaser shall not oppose or seek to prevent or frustrate any transaction or
agreement that the Selling Stockholder or any of its Affiliates, including the
Companies, may propose or enter into relating to the sale of all or any portion
of the Companies or the assets of either to any third party.
(c) The
Confidentiality Agreement shall survive any termination of this Agreement in
accordance with its terms and nothing in this Section 4.4 shall
relieve Theatre Direct or Purchaser of their obligations under the
Confidentiality Agreement.
(d) In
the event that this Agreement is validly terminated in accordance with Sections 4.2 and
4.3, the
Deposit Amount and earnings thereon, shall be returned to the Purchaser;
provided, however, that (i) if such termination was made pursuant to Section 4.2(a) and at
the time of such termination (A) the condition set forth in Section 8.2(d) is not
satisfied, and (B) there has not been any breach by Purchaser of Section 7.14(a) which
is capable of being cured and which has not been cured, then the Selling
Stockholder shall be entitled to receive the Deposit Amount, including any
earnings thereon, from the Escrow Agent; (ii) if such termination was made
pursuant to Section
4.2(h) and at the time of such termination there has not been any breach
by Purchaser of Section 7.14(a) which
is capable of being cured and which has not been cured, then the Selling
Stockholder shall be entitled to receive the Deposit Amount, including any
earnings thereon, from the Escrow Agent; or (iii) if such termination was made
pursuant to Section
4.2(e) and at the time of such termination the condition set forth in
Section 8.2(d)
is capable of being satisfied, then the Selling Stockholder shall be entitled to
receive the Deposit Amount, including any earnings thereon, from the Escrow
Agent, plus
reimbursement of all of Selling Stockholder’s costs and expenses incurred in
connection with the Transactions (whether incurred before or after the signing
of this Agreement) not to exceed $1,200,000; provided further, however, (x) if
Selling Stockholder terminates this Agreement under Section 4.2(a), Section 4.2(h) or
Section 4.2(e)
and under the foregoing clauses (i), (ii) or (iii), as applicable, and the
Selling Stockholder would be entitled to receive the Deposit Amount, including
any earnings thereon, from the Escrow Agent, and, in the case of a termination
under clause (iii), would also be entitled to receive reimbursement of all of
Selling Stockholder’s costs and expenses incurred in connection with the
Transactions (whether incurred before or after the signing of this Agreement)
not to exceed $1,200,000 and (y) if, at the time of such termination, a Material
Adverse Effect described in Section 4.2(i) exists
which would permit Purchaser to terminate this Agreement if such Material
Adverse Effect could not be cured by the Termination Date and which has not been
cured by the time of such termination, then the Deposit Amount and earnings
thereon, shall be returned to the Purchaser (and not paid to Selling
Stockholder) and, in the case of a termination under clause (iii), Selling
Stockholder shall not be entitled to reimbursement of any of Selling
Stockholder’s costs and expenses incurred in connection with the Transactions
(whether incurred before or after the signing of this Agreement). For
the avoidance of doubt, it is hereby acknowledged and agreed that the total
amount of the expense reimbursement and the Deposit Amount that the Selling
Stockholder shall be entitled to receive pursuant to clause (iii) above, shall
not exceed $2,400,000 in the aggregate. The Selling Stockholder’s right to
receive the foregoing amounts in the circumstances provided above shall be the
exclusive remedy available to the Selling Stockholder against the Purchaser for
a termination of this Agreement and upon payment in full of such amounts the
Purchaser shall have no further liability for a termination of this
Agreement. Notwithstanding anything to the contrary contained in this
subsection, if the condition set forth in Section 8.2(d) is not
satisfied because Selling Stockholder fails to execute any document or agreement
required by any lender under the Credit Agreement, other than any document or
agreement that modifies or is inconsistent with any Material Note Term in a
manner adverse to the Selling Stockholder (except such document or agreement may
restrict Selling Stockholder's remedies or actions upon the occurrence of any of
the events of default or change in control included as a Material Note Term),
then the Deposit Amount and any earnings thereon shall be returned by the Escrow
Agent to Purchaser. For the avoidance of doubt, if any restriction on
Selling Stockholder's remedies or actions upon the occurrence of any of the
events of default or change in control included as a Material Note Term is not
satisfactory to Selling Stockholder and Selling Stockholder does not execute the
agreement or document containing such restriction and the Closing does not
occur, then the Deposit Amount and any earnings thereon shall be returned by the
Escrow Agent to Purchaser. “Material Note Term”
shall mean (1) any of the terms of the Second Lien Facilities (as defined in
Exhibit A)
described under the following headings in Exhibit A: “Principal
Amount”, “Adverse Ticketing Regulations”, “Interest Rate”, “Ranking”, and
“Security”, (2) the ability of Selling Stockholder to assign or transfer
participations in the Note in accordance with the terms described under the
heading “Assignments and Participations” in Exhibit A, (3) the
events of default and change in control provisions described under the heading
“Mandatory Prepayment” in Exhibit A or (4)
Purchaser being entitled to make mandatory payments of principal or interest on
the Note, including at the maturity date described under the heading “Maturity”
in Exhibit A,
(other than upon an acceleration due to an event of default) when there is no
event of default under the Credit Agreement. For the avoidance of
doubt, the provisions of the Intercreditor Agreement set forth in Exhibit A (other than
Purchaser being entitled to make mandatory payments of principal or interest on
the Note (other than upon an acceleration due to an event of default) when there
is no event of default under the Credit Agreement) shall not be a Material Note
Term; provided, however, nothing contained in this Agreement shall require
Selling Stockholder to complete the Closing if the Intercreditor Agreement does
not contain the terms set forth in Exhibit
A or otherwise is not in a form reasonably satisfactory to
Selling Stockholder.
4.5 Termination
Fee.
(a) In
the event that:
(i) (A)
an Acquisition Proposal shall have been made to the Selling Stockholder or any
Person shall have publicly announced an intention (whether or not conditional or
withdrawn) to make an Acquisition Proposal, in each case after the date hereof
and prior to any termination of this Agreement, and thereafter, (B) this
Agreement is terminated by the Selling Stockholder or Purchaser pursuant to
Sections 4.2(a) or 4.2(c), and (C) the
Selling Stockholder consummates a transaction contemplated by any Acquisition
Proposal (for purposes of this clause 4.5(a)(i), clauses (C) and (D) of the
definition of Acquisition Proposal are revised to read in their entirety as
follows: (C) acquisition of assets of any of the Companies (including securities
of subsidiaries, but excluding sales of assets in the Ordinary Course of
Business) equal to 50% or more of the Companies’ consolidated assets, as
applicable, or to which 50% or more of the Companies’ revenues or earnings, as
applicable, on a consolidated basis are attributable or (D) acquisition of 50%
or more of the equity securities of Theatre Direct) within fifteen (15) months
of the date this Agreement is terminated; or
(ii) this
Agreement is terminated by Purchaser pursuant to Section 4.2(d)(ii);
or
(iii) this
Agreement is terminated by the Selling Stockholder pursuant to Section
4.2(g),
then in
any such event under clause (i), (ii) or (iii) of this Section 4.5(a), the
Selling Stockholder shall pay to Purchaser a termination fee of $1,200,000 in
cash (the “Termination
Fee”). In no event shall the Selling Stockholder be required
to pay more than one Termination Fee. Purchaser’s acceptance of the Termination
Fee shall constitute conclusive evidence that this Agreement has been validly
terminated. Purchaser’s right to receive a Termination Fee in the circumstances
provided in this Agreement is the exclusive remedy available to Purchaser for
any failure of the Transactions to be consummated in those circumstances, and
the Selling Stockholder shall have no further liability with respect to this
Agreement or the Transactions, except liability for an act undertaken (or
failure to take an act) by the Selling Stockholder with the actual knowledge and
intent that the taking of such act (or failure to take such act) would directly
cause a breach of this Agreement.
ARTICLE
V
REPRESENTATIONS
AND WARRANTIES OF THE SELLING STOCKHOLDER
The
Selling Stockholder hereby represents and warrants to Purchaser
that:
5.1 Organization and Good
Standing. Each of Theatre Direct and the Selling Stockholder
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 to own, lease and operate its properties and to carry on its
business as now conducted. Each of Theatre Direct and the Selling
Stockholder is duly qualified or authorized to do business and is in good
standing under the laws of each jurisdiction in which it owns or leases real
property and each other jurisdiction in which the conduct of its business or the
ownership of its properties requires such qualification or authorization, except
where the failure to be so qualified, authorized or in good standing has not had
and would not reasonably be expected to have a Material Adverse
Effect. Selling Stockholder has made available to Purchaser true and
correct copies of the articles or certificate of incorporation and bylaws for
the Companies as in effect on the date hereof.
5.2 Authorization of
Agreement. The affirmative vote (in person or by proxy) of the
holders of a majority of the outstanding shares of Common Stock entitled to vote
(whether present or not) at the Shareholders Meeting or any adjournment or
postponement thereof in favor of the adoption of the Transactions (the “Company Shareholder
Approval") is the only vote or approval of the holders of any class or
series of capital stock of the Selling Stockholder which is necessary to adopt
this Agreement and approve the Transactions. The Selling Stockholder
has all requisite corporate power, authority and legal capacity to execute and
deliver this Agreement and each other agreement, document, or instrument or
certificate contemplated by this Agreement or to be executed by the Selling
Stockholder in connection with the consummation of the Transactions
(together with this Agreement, the “Selling Stockholder
Documents”), and, subject to obtaining the Company Shareholder Approval,
to consummate the Transactions. Except for the Company Shareholder
Approval, the execution and delivery of this Agreement and each of the Selling
Stockholder Documents and the consummation of the Transactions have been duly
authorized by all required corporate action on the part of such Selling
Stockholder. Without limiting the generality of the prior sentence,
the Board of Directors of the Selling Stockholder has, at a meeting duly called
and held on or prior to the date hereof, (i) adopted and approved this
Agreement, (ii) resolved to make the Board Recommendation, and (iii) directed
that this Agreement be submitted to the Selling Stockholder’s shareholders for
approval. This Agreement has been, and each of the Selling
Stockholder Documents will be at or prior to the Closing, duly and validly
executed and delivered by the Selling Stockholder, and (assuming the due
authorization, execution and delivery by the other parties hereto and thereto)
this Agreement constitutes, and each Selling Stockholder Document, when so
executed and delivered will constitute, the legal, valid and binding obligation
of the Selling Stockholder, enforceable against the Selling Stockholder in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors’ rights and
remedies generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity).
5.3 Conflicts; Consents of Third
Parties.
(a) Except
as set forth on Schedule 5.3(a), none
of the execution and delivery by the Selling Stockholder of this Agreement or
the Selling Stockholder Documents, the consummation of the Transactions, or
compliance by the Selling Stockholder with any of the provisions hereof or
thereof will conflict with, or result in any violation of or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination or cancellation under, any provision of (i) the certificate of
incorporation and by-laws or comparable organizational documents of the
Companies or of the Selling Stockholder; (ii) any Contract, or Permit to
which the Companies or the Selling Stockholder is a party or by which any of the
properties or assets of the Companies or of the Selling Stockholder are bound;
(iii) any Order of any Governmental Body applicable to either the Companies or
the Selling Stockholder or by which any of the properties or assets of either
the Companies or the Selling Stockholder are bound; or (iv) any applicable Law,
other than, in the case of clauses (ii), (iii) and (iv), such conflicts,
violations, defaults, terminations or cancellations, that would not reasonably
be expected to have a Material Adverse Effect.
(b) Except
as set forth on Schedule 5.3(b), and
except for the Company Shareholder Approval no material consent, waiver,
approval, Order, Permit or authorization of, or declaration or filing with,
or notification to, any Governmental Body is required on the part of the
Companies or the Selling Stockholder in connection with the execution and
delivery of this Agreement or the Selling Stockholder Documents or with the
compliance by the Selling Stockholder with any of the provisions hereof or
thereof, or the consummation of the Transactions.
5.4 Capitalization.
(a) The
authorized capital stock of Theatre Direct consists of 3,000 shares of common
stock, $0.01 par value per share (“Theatre Direct Common
Stock”). As of the date hereof, there are 100 shares of
Theatre Direct Common Stock issued and outstanding, all of which are held of
record by the Selling Stockholder, and no shares of Theatre Direct Common Stock
are held by Theatre Direct as treasury stock. All of the issued and
outstanding shares of Theatre Direct Common Stock were duly authorized for
issuance and are validly issued, fully paid and non-assessable.
(b) Except
as set forth on Schedule 5.4(b),
there is no existing option, warrant, call, right, or Contract of any character
to which Theatre Direct is a party requiring, and there are no securities of
Theatre Direct outstanding which upon conversion or exchange would require, the
issuance of any shares of capital stock of Theatre Direct or other securities
convertible into, exchangeable for or evidencing the right to subscribe for or
purchase shares of capital stock of Theatre Direct. Theatre Direct is
not party to any voting trust or other Contract with respect to the voting,
redemption, sale, transfer or other disposition of Theatre Direct Common
Stock.
5.5 Ownership of Assets and
Shares and Transfer of Shares.
(a) The
Selling Stockholder is the record and beneficial owner of the Shares, free and
clear of any and all Liens and the Selling Stockholder has the corporate power
and authority to sell, transfer, assign and deliver such Shares as provided in
this Agreement, and such delivery will convey to Purchaser good and valid title
to such Shares, free and clear of any and all Liens.
(b) Except
as set forth on Schedule 5.5(b) and
except for this Agreement, there is no existing option, warrant, call, right, or
Contract of any character to which the Selling Stockholder is a party requiring
the Selling Stockholder to transfer or sell any Shares to any Person, and the
Selling Stockholder is not the record or beneficial owner of any other
securities convertible into, exchangeable for or evidencing the right to
subscribe for or purchase Shares.
(c) None
of the assets of the Companies are subject to any Lien except for Permitted
Exceptions. Except as set forth on Schedule 5.5(c) or
services to be provided under the Transition Services Agreement, the Companies
own, lease or license all property necessary to carry on their business as now
being conducted and none of the assets used in the business of the Companies are
owned by Selling Stockholder or any Affiliate of the Company (other than the
Companies).
5.6 Subsidiary.
(a) Schedule 5.6(a) sets
forth the name of the Subsidiary and the jurisdiction in which it is
incorporated or organized, the number of shares of its authorized capital stock,
the number and class of shares thereof duly issued and outstanding, the names of
all stockholders or other equity owners and the number of shares of stock owned
by each stockholder or the amount of equity owned by each equity
owner. Other than as set forth on Schedule 5.6(a),
Theatre Direct does not own, directly or indirectly, any
Subsidiary. The Subsidiary is a duly organized and validly existing
corporation or other entity in good standing under the laws of the jurisdiction
of its incorporation or organization and is duly qualified or authorized to do
business as a foreign corporation or entity and is in good standing under the
laws of each jurisdiction in which the conduct of its business or the ownership
of its properties requires such qualification or authorization, except where the
failure to be so qualified, authorized or in good standing would not reasonably
be expected to have a Material Adverse Effect. The Subsidiary has all
requisite corporate or entity power and authority to own, lease and operate its
properties and carry on its business as now conducted.
(b) The
outstanding shares of capital stock of the Subsidiary are validly issued, fully
paid and non-assessable, and all such shares or other equity interests
represented are owned by the holder identified in Schedule 5.6(a) free
and clear of any and all Liens except as set forth on Schedule
5.6(b). No shares of capital stock are held by the Subsidiary
as treasury stock. There is no existing option, warrant, call, right
or Contract to which the Subsidiary is a party requiring, and there are no
convertible securities of the Subsidiary outstanding which upon conversion would
require, the issuance of any shares of capital stock or other equity interests
of the Subsidiary or other securities convertible into shares of capital stock
or other equity interests of the Subsidiary.
5.7 Financial
Statements.
(a) Schedule 5.7(a) sets
forth the unaudited consolidated balance sheet of the Companies at December 31,
2008 and 2007 and September 30, 2009 and the related unaudited consolidated
statement of income of the Companies for the years and nine month period then
ended (such unaudited statements including any related notes and schedules
thereto, are referred to herein as the “Financial
Statements”). For the purposes hereof, the unaudited balance
sheets of the Companies as of September 30, 2009 are referred to as the “Balance Sheets” and
September 30, 2009 is referred to as the “Balance Sheet
Date”.
(b) Except
as set forth in the notes thereto and as disclosed in Schedule 5.7(b), the
Financial Statements have been prepared in accordance with GAAP consistently
applied in accordance with past practice and present fairly in all material
respects the respective financial position and results of operations of the
Companies as of the dates and for the periods indicated therein (except to the
extent that they have incomplete notes or do not contain footnotes and other
presentation items that may be required by GAAP).
5.8 No Undisclosed
Liabilities. Except as disclosed on Schedule 5.8, the
Companies do not have any Liabilities as of the date of this Agreement of the
type required to be reflected on a balance sheet prepared in accordance with
GAAP consistently applied in accordance with past practice (“Balance Sheet
Liabilities”), other than (i) Liabilities reflected in the Financial
Statements (including notes and supplemental materials thereto) or the Schedules
to this Agreement, (ii) Liabilities incurred after the Balance Sheet Date in the
Ordinary Course of Business or as permitted or contemplated under this
Agreement, (iii) Liabilities incurred in connection with the Transactions and
(iv) Liabilities that would not reasonably be expected to be material to the
Companies.
5.9 Absence of Certain Changes
or Events. Since the Balance Sheet Date:
(a) there
have not been any events, changes, occurrences or state of facts that,
individually or in the aggregate, have had, or would reasonably be expected to
have, a Material Adverse Effect; and
(b) the
Companies have not sold or otherwise disposed of any material properties or
assets, except for dispositions in the Ordinary Course of Business.
5.10 Taxes. Except
as set forth on Schedule 5.10, each
of the Companies has timely filed all Federal, state and foreign Tax Returns and
reports required to be filed by it, and all Taxes required to be paid by it have
either been timely paid or are not yet due, and all such returns and reports are
correct and complete in all respects, or requests for extensions to file such
returns or reports have been timely filed, granted and have not expired, and the
Financial Statements of the Companies reflect an adequate reserve for all Taxes
payable by the Companies for all taxable periods and portions thereof through
the respective dates of such financial statements. All Taxes required
to be withheld by the Companies have been withheld and have been (or will be)
duly and timely paid to the proper Taxing Authority. No deficiencies
for any Taxes have been proposed, asserted or assessed against the Companies
that are still pending. None of the Tax Returns of a Company filed on
or after January 1, 2002 have been examined by any Taxing Authority and no
audit, action, proceeding or assessment is pending or threatened by any Taxing
Authority against any Company. No written claim has been made since
January 1, 2002 by any Taxing Authority in any jurisdiction (other than
jurisdictions where a Company files Tax Returns) that a Company is or may be
subject to taxation by that jurisdiction. No requests for waivers of
the time to assess any such Taxes have been made that are still
pending. None of the Companies is liable for the Taxes of any other
person as a result of any Law or indemnification provision or other contractual
obligation, except for Taxes of the affiliated group the common parent of which
is the Selling Stockholder pursuant to applicable Law. No Company has
been a member of an “affiliated group” (as defined in Section 1504(a) of the
Code) (other than a group the common parent of which is the Selling
Stockholder). Each Company will not be required to include any item
of income in, or exclude any deduction from, taxable income for any taxable
period (or portion thereof) ending after the Closing Date as a result of any:
(i) change in method of accounting for a taxable period ending or prior to the
Closing Date; (ii) “closing agreement” as described in Section 7121 of the Code
(or any corresponding or similar provision of state, local or foreign Tax Law)
executed on or prior to the Closing Date; (iii) intercompany transactions or any
excess loss account described in Treasury Regulations under Section 1502 of the
Code (or any corresponding or similar provision of state, local or foreign Tax
Law); (iv) installment sale or open transaction disposition made on or prior to
the Closing Date; or (v) prepaid amount received on or prior to the Closing
Date. Each Company has not distributed stock of another entity, or
had its stock distributed by another entity, in a transaction that was purported
or intended to be governed in whole or in part by Section 355 or 361 of the
Code. Each Company has not engaged in any transaction that could give
rise to (x) a disclosure obligation with respect to any Person under Section
6111 of the Code or the regulations promulgated thereunder, (y) a list
maintenance obligation with respect to any Person under Section 6112 of the Code
or the regulations promulgated thereunder, or (z) a disclosure obligation as a
“reportable transaction” under Section 6011 of the Code and the promulgated
regulations thereunder. Each Company is not required to make any payments in
connection with transactions or events contemplated by this Agreement or is a
party to an agreement that would require it to make any payments that would not
be fully deductible by reason of Section 162(m) of the Code. This
Section 5.10
represents the sole and exclusive representation and warranty of the Selling
Stockholder regarding tax matters of the Companies.
5.11 Real
Property. The Companies do not own any real property in
fee. Schedule 5.11 sets
forth a complete list of all leases of real property by the Companies
(individually, a “Real
Property Lease” and collectively, the “Real Property
Leases”) as lessee or lessor. None of the Companies has
received any written notice of any default or event that with notice or lapse of
time, or both, would constitute a material default by the Companies under any of
the Real Property Leases.
5.12 Tangible Personal
Property. Schedule 5.12 sets
forth all leases of personal property by the Companies (“Personal Property
Leases”) involving annual payments in excess of $75,000. None
of the Companies has received any written notice of any default or any event
that with notice or lapse of time, or both, would constitute a material default
by the Companies under any of the Personal Property Leases.
5.13 Intellectual
Property.
(a) Schedule 5.13(a) sets
forth (i) a list of all registered Intellectual Property owned by the Companies
or the subject of an application for registration including, but not limited to,
internet domain names owned by or registered in the name of the Companies and
(ii) certain other specified internet domain names identified by agreement of
the parties which internet domain names the parties agree shall be assigned and
transferred to the Subsidiary at or before Closing as specified in Schedule 5.13(a), it
being understood that such internet domain names listed under this clause (ii)
consist of certain internet domain names which are currently owned by or
registered in the name of the Selling Stockholder or one of its subsidiaries
other than Theatre Direct and the Subsidiary as indicated in Schedule 5.13(a); it
being further understood that the nature of the ownership or registration of the
internet domain names is as described in Schedule
5.13(a). The Companies own all right, title and interest in
and to all Intellectual Property required to be set forth on Schedule
5.13(a).
(b) Except
as set forth on Schedule 5.13(b), to
the Knowledge of the Selling Stockholder, the Companies own or have valid
licenses to use all material Intellectual Property used by them in the Ordinary
Course of Business.
(c) To
the Knowledge of the Selling Stockholder, all of the material Intellectual
Property owned by the Companies is valid and enforceable. Except as set forth on
Schedule
5.13(c): (i) to the Knowledge of the Selling Stockholder, no Person is
infringing upon or misappropriating any material Intellectual Property owned by
the Companies, (ii) there are no pending, or to the Knowledge of the Selling
Stockholder, threatened, Legal Proceedings with respect to any such infringement
or misappropriation or which challenges the validity or use of the Intellectual
Property used by any of the Companies or the ownership of
Intellectual Property by any of the Companies, and (iii) none of the Companies
has received written notice that it is infringing, misappropriating or violating
any intellectual property right or other proprietary right of another Person,
and to the Knowledge of Selling Stockholder, no such infringement,
misappropriation or violation has occurred.
(d) To
the Knowledge of the Selling Stockholder, no trade secrets owned by the
Companies has been authorized to be disclosed or has been actually disclosed by
any of the Companies to any third Person other than pursuant to a written
non-disclosure agreement including restrictions on the disclosure and use of the
trade secret consistent with best practices in the industry in which the
Companies operate.
5.14 Material
Contracts.
(a) Schedule 5.14(a) sets
forth all of the following Contracts to which any of the Companies is a party or
by which it is bound (collectively, the “Material
Contracts”):
(i)
Contracts with the Selling Stockholder or
any current officer or director of the Companies;
(ii) Contracts
for the sale of any of the assets of the Companies other than in the Ordinary
Course of Business;
(iii) Contracts
relating to any acquisition to be made by the Companies of any operating
business or the capital stock of any other Person;
(iv) Contracts
relating to the incurrence of Indebtedness of the Companies;
(v) Contracts
relating to the lending of money by the Companies (but excluding trade accounts
receivable);
(vi) Contracts
relating to the Companies’ granting to any Person a Lien on any of the assets of
the Companies, in whole or in part (other than Permitted
Exceptions);
(vii) Contracts
relating to the Companies’ capital expenditures, capitalized lease obligations,
or its acquisition or construction of fixed assets for or in respect of any real
property, involving payments in excess of $100,000 individually or $500,000 in
the aggregate;
(viii) Contracts
relating to the Companies’ purchase, lease or maintenance of equipment,
vehicles, inventory, materials, supplies, machinery, equipment, parts or any
other property or services (excluding any such Contract (i) made in the Ordinary
Course of Business, or (ii) which involves expenditures of less than $25,000, or
less than $100,000 annually, or that is terminable by the Companies without
penalty on notice of thirty (30) days or less);
(ix) Contracts
under which the Companies has granted or received a material license or
sublicense (other than generally available off-the-shelf software licenses)
under which the Companies is obligated to pay or has the right to receive a
royalty or license fee in excess of $25,000 per annum (excluding any such
Contract that is terminable by the Companies without penalty on notice of thirty
(30) days or less);
(x)
Contracts relating
to (i) the Companies’ obligation for employment, compensation for employment or
severance of employment, or consulting services with the Companies’ officers or
directors, or (ii) any other employee or consultant of the Companies who is
entitled to base compensation thereunder in excess of $100,000 per
annum;
(xi) any
Contract that obligates the Companies not to compete with any
business;
(xii) any
Contract or commitment that requires any of the Companies to provide advertising
privileges or exposure to any third party sponsor that involves the payment of
cash, services or other consideration by such third party sponsor;
and;
(xiii) any
Contract that is a joint venture or partnership contract or a limited liability
company operating agreement; and
(xiv) any
Contract which requires the expenditure by the Companies of more than $75,000 in
the aggregate after the date of this Agreement (excluding any such Contract that
is terminable by the Companies without penalty on notice of thirty (30) days or
less).
(b) Except
as set forth on Schedule 5.14(b),
none of the Companies has received any written notice of any material default,
or event that with notice or lapse of time, or both, would constitute a material
default, by the Companies under any Material Contract. To the Knowledge of the
Selling Stockholder, no other party to a Material Contract is in default of its
obligations thereunder and no event that with notice or lapse of time, or both,
has occurred which would constitute a default by such other
party. Selling Stockholder has provided or made available to
Purchaser true and correct copies of all Material Contracts, including all
amendments thereto.
5.15 Employee Benefits
Plans.
(a) Schedule 5.15(a)
lists each “employee benefit plan” (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”)), and each
bonus or other incentive compensation, stock purchase, equity or equity-based
compensation, deferred compensation, change in control, severance, sick leave,
vacation, loans, salary continuation, health, life insurance and educational
assistance plan, policies, agreements or arrangements (i) sponsored by any of
the Companies (each, a “Company Benefit
Plan”) or (ii) sponsored by the Selling Stockholder for the benefit of
any employee of any of the Companies (each, a “Seller Benefit
Plan”). The Companies have made available to Purchaser correct
and complete copies of (i) each Company Benefit Plan and Seller Benefit Plan,
(ii) the most recent annual reports on Form 5500 required to be filed with the
IRS with respect to each Company Benefit Plan (if any such report was required),
(iii) the most recent summary plan description for each Company Benefit Plan and
Seller Benefit Plan for which such summary plan description is required and (iv)
each trust agreement and insurance or group annuity contract relating to any
Company Benefit Plan. Each Company Benefit Plan is in material
compliance with its terms and the applicable provisions of ERISA, the Code and
all other applicable Laws.
(b) To
the Knowledge of the Selling Stockholder, (i) all Company Benefit Plans that are
“employee pension plans” (as defined in Section 3(3) of ERISA) that are intended
to be tax qualified under Section 401(a) of the Code (each, a “Company Pension
Plan”) are so qualified and (ii) no event has occurred since the date of
the most recent determination letter or application therefor relating to any
such Company Pension Plan that would adversely affect the qualification of such
Company Pension Plan. The Companies have made available to Purchaser
a correct and complete copy of the most recent determination letter received
with respect to each Company Pension Plan or a correct and complete copy of each
pending application for a determination letter, if such determination letter is
still pending.
(c) This
Section 5.15
represents the sole and exclusive representation and warranty of the Selling
Stockholder with respect to the Companies’ employee benefit
matters.
(d) The
Company has not incurred any liability under Title IV of ERISA since the
effective date of ERISA that has not been satisfied in full (including Sections
4063, 4064 and 4069 of ERISA) and to the Knowledge of the Selling Stockholder,
no reasonable basis for any such liability exists.
(e) None
of the Company Benefit Plans provide for postretirement welfare benefits (other
than those required to be provided under Section 4980B of the Code) to be
provided to any Company Employee now or in the future, and no Company has any
obligation to make payment to or with respect to any former employee pursuant to
any previous retiree medical benefit.
(f) The
Companies do not maintain, administer, contribute to or is required to
contribute to any “multiemployer plan” as defined in sections 4001(a)(3) and
3(37) of ERISA that covers one or more employees of the Company (a “Multiemployer Plan”).
Neither Company did, at any time, withdraw from a Multiemployer Plan in a
“complete withdrawal” or a “partial withdrawal” as defined in Sections 4203 and
4205 of ERISA, respectively, so as to result in a liability of any of the
Companies.
5.16 Labor.
(a) Except
as set forth on Schedule 5.16(a),
none of the Companies is a party to any labor or collective bargaining
agreement.
(b) Except
as set forth on Schedule 5.16(b),
there are no (i) strikes, work stoppages, work slowdowns or lockouts pending or,
to the Knowledge of the Selling Stockholder, threatened against or involving the
Companies, or (ii) unfair labor practice charges, grievances or complaints
pending or, to the Knowledge of the Selling Stockholder, threatened by or on
behalf of any employee or group of employees of the Companies.
(c) Schedule 5.16(c)
contains true and correct list, on a nameless basis, of (i) the titles or
positions of all full time employees of the Companies as of the date hereof,
(ii) the current base compensation for each such employee, and (iii) the amount
of the bonus paid to date for each such employee with respect to calendar year
2009.
(d) Neither
of the Companies is required to provide any notice to employees under the Worker
Adjustment and Retraining Notification Act, 29 U.S.C. Sections 2101-2109, or any
similar laws (altogether, the “WARN Act”) in
connection with the Transactions.
5.17 Litigation. Except
as set forth on Schedule 5.17, there
are no Legal Proceedings pending against or by either of the Companies before
any Governmental Body. Except as set forth on Schedule 5.17, to the
Knowledge of the Selling Stockholder, there are no Legal Proceedings threatened
against the Companies before any Governmental Body, which, if adversely
determined, would reasonably be expected to have a Material Adverse
Effect. The Companies are not subject to any Order of any
Governmental Body that would materially and adversely affect their assets or
operations. As of the date hereof, there are no Legal Proceedings
pending or, to the knowledge of the Selling Stockholder, threatened that are
reasonably likely to prohibit or restrain the ability of the Selling Stockholder
to enter into this Agreement or consummate the Transactions.
5.18 Compliance with Laws;
Permits.
(a) The
Companies are in compliance with all Laws of any Governmental Body applicable to
their respective businesses or operations, except where the failure to be in
compliance would not reasonably be expected to have a Material Adverse
Effect. Except as set forth in Schedule 5.18(a),
none of the Companies has received any written notice of or been charged with
the violation of any Laws, except where such violation would not reasonably be
expected to have a Material Adverse Effect.
(b) The
Companies currently have all Permits which are required for the operation of
their respective businesses as presently conducted, other than those the failure
of which to possess would not reasonably be expected to have a Material Adverse
Effect. None of the Companies is in default or violation (and no
event has occurred which, with notice or the lapse of time or both, would
constitute a default or violation) of any term, condition or provision of any
Permit to which it is a party, except where such default or violation would not
reasonably be expected to have a Material Adverse Effect.
5.19 Environmental
Matters. The representations and warranties contained in this
Section 5.19
are the sole and exclusive representations and warranties of the Selling
Stockholder pertaining or relating to any environmental, health or safety
matters, including any arising under any Environmental Laws. Except
as set forth on Schedule 5.19:
(a) the
operations of the Companies are in compliance with all applicable Environmental
Laws, which compliance includes obtaining, maintaining and complying with any
Permits required under all applicable Environmental Laws necessary to operate
its business (“Environmental
Permits”);
(b) none
of the Companies is subject to any pending, or to the Knowledge of the Selling
Stockholder, threatened claim alleging that the Companies may be in violation of
any Environmental Law or any Environmental Permit or may have any liability
under any Environmental Law;
(c) there
are no pending or, to the Knowledge of the Selling Stockholder, threatened
investigations of the businesses of the Companies, or any currently or
previously owned or leased property of the Companies under Environmental Laws,
which would reasonably be expected to result in the Companies incurring any
material liability pursuant to any Environmental Law;
(d) none
of the Companies is a party to any Order or settlement which relates to
compliance with any Environmental Law or to responsibility for investigation or
cleanup of any Hazardous Materials at any location, and, to the Knowledge of the
Selling Stockholder, no such Order is threatened; and
(e) to
the Knowledge of the Selling Stockholder, there are no Hazardous Materials at,
or emanating or disposed from, any of the premises at which any of the Companies
conducts business, which Hazardous Materials are in contravention of any
applicable Environmental Law.
5.20 Financial
Advisors. Except as set forth on Schedule 5.20, no
Person has acted, directly or indirectly, as a broker, finder or financial
advisor for the Selling Stockholder or any of the Companies in connection with
the Transactions, and no such Person listed on Schedule 5.20 is
entitled to any fee or commission or like payment from Purchaser or the
Companies in respect thereof.
5.21 Insurance. The
insurance policies maintained with respect to the Companies and their respective
businesses, assets and properties (the “Insurance Policies”)
are listed on Schedule
5.21.
5.22 Bank
Accounts. Schedule 5.22 sets
forth a true, correct and complete list of all bank accounts or similar
financial depositary accounts maintained by, or in the name of, any of the
Companies.
5.23 Net Operating
Losses. To the Knowledge of the Selling Stockholder, Schedule 5.23 sets
forth the net operating loss of Theatre Direct as of December 31, 2008 (broken
down by federal, Florida, New York State and New York City) and a schedule of
the expiration date for each portion of such net operating
loss. Since the Selling Stockholder acquired Theatre Direct on or
about September 11, 2000, the Selling Stockholder has owned 100% of the capital
stock of Theatre Direct.
5.24 No Other Representations or
Warranties; Schedules. Except for the representations and
warranties contained in this Article V (as
modified by the Schedules hereto) or other Selling Stockholder Document, none of
the Selling Stockholder, Theatre Direct nor any other Person makes any other
express or implied representation or warranty with respect to any of the
Companies, the Selling Stockholder or the Transactions. Except for
the representations and warranties contained in this Article V (as
modified by the Schedules hereto) or other Selling Stockholder Document, the
Selling Stockholder hereby disclaims all liability and responsibility for any
representation, warranty, statement, information, projection or forecast made,
communicated, or furnished (orally or in writing) to Purchaser or its Affiliates
or representatives in connection with the sale of the Companies and the
Transactions (including any information, projection or forecast that may have
been or may be provided to Purchaser by any director, officer, employee, agent,
consultant, or representative of the Companies or the Selling Stockholder or any
of their respective Affiliates in connection with the sale of the Companies and
the Transactions). The Selling Stockholder makes no representations
or warranties to Purchaser regarding the probable success or profitability of
the Companies. The disclosure of any matter or item in any Schedule
hereto shall not be deemed to constitute an acknowledgment that any such matter
is required to be disclosed.
ARTICLE
VI
REPRESENTATIONS
AND WARRANTIES OF PURCHASER
Purchaser
hereby represents and warrants to the Selling Stockholder that:
6.1 Organization and Good
Standing. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own, lease and operate properties
and carry on its business.
6.2 Authorization of
Agreement. Purchaser has full corporate power and authority to
execute and deliver this Agreement and each other agreement, document,
instrument or certificate contemplated by this Agreement or to be executed by
Purchaser in connection with the consummation of the Transactions (the “Purchaser
Documents”), and to consummate the Transactions. The
execution, delivery and performance by Purchaser of this Agreement and each
Purchaser Document have been duly authorized by all necessary corporate action
on behalf of Purchaser. This Agreement has been, and each Purchaser
Document will be at or prior to the Closing, duly executed and delivered by
Purchaser and (assuming the due authorization, execution and delivery by the
other parties hereto and thereto) this Agreement constitutes, and each Purchaser
Document when so executed and delivered will constitute, the legal, valid and
binding obligation of Purchaser, enforceable against Purchaser in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors’ rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in
equity).
6.3 Conflicts; Consents of Third
Parties.
(a) Except
as set forth on Schedule 6.3(a), none
of the execution and delivery by Purchaser of this Agreement or the Purchaser
Documents, the consummation of the Transactions, or the compliance by Purchaser
with any of the provisions hereof or thereof will conflict with, or result in
any violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination or cancellation under, any
provision of (i) the certificate of incorporation and by-laws of Purchaser;
(ii) any Contract or Permit to which Purchaser is a party or by which
Purchaser or its properties or assets are bound; (iii) any Order of any
Governmental Body applicable to Purchaser or by which any of the properties or
assets of Purchaser are bound; or (iv) any applicable Law other than a violation
or breach which would not have an adverse effect on Purchaser’s ability to
consummate the Transactions.
(b) Except
as set forth on Schedule 6.3(b), no
consent, waiver, approval, Order, Permit or authorization of, or declaration or
filing with, or notification to, any Person or Governmental Body is required on
the part of Purchaser in connection with the execution and delivery of this
Agreement or the Purchaser Documents, the compliance by Purchaser with any of
the provisions hereof or thereof, the consummation of the Transactions or the
taking by Purchaser of any other action contemplated hereby.
6.4 Litigation. There
are no Legal Proceedings pending or, to the Knowledge of Purchaser, threatened
that are reasonably likely to prohibit or restrain the ability of Purchaser to
enter into this Agreement or consummate the Transactions.
6.5 Investment
Intention. Purchaser is acquiring the Shares for its own
account, for investment purposes only and not with a view to the distribution
(as such term is used in Section 2(11) of the Securities Act of 1933, as amended
(the “Securities
Act”) thereof. Purchaser understands that the Shares have not
been registered under the Securities Act and cannot be sold unless subsequently
registered under the Securities Act or an exemption from such registration is
available.
6.6 Financial
Advisors. Except as set forth on Schedule 6.6, no
Person has acted, directly or indirectly, as a broker, finder or financial
advisor for Purchaser in connection with the Transactions, and no Person listed
on Schedule 6.6
is entitled to any fee or commission or like payment from Selling Stockholder or
any of its Affiliates in respect thereof.
6.7 Financial
Capability. Purchaser has delivered to the Selling Stockholder
a true, correct and complete copy of (i) an executed letter (the “JPM Letter”) from
J.P. Morgan Securities Inc. (“JPM”) to Purchaser,
dated September 24, 2009, pursuant to which JPM stated, based on information it
had received, that it was generally supportive of the Transactions and (ii)
Purchaser’s existing Senior Secured Credit Agreement, dated as of January 23,
2008 with JPMorgan Chase Bank, N.A. and other lenders, as amended by Amendment
No. 1 to Credit Agreement, dated as of August 22, 2008 (the “Credit
Agreement”). The Credit Agreement is in full force and effect
as to Purchaser and its subsidiaries, as applicable, and to the Knowledge of
Purchaser, each of the other parties thereto. The Credit Agreement is
a legal, valid and binding obligation of Purchaser and its subsidiaries, as
applicable, and to the Knowledge of Purchaser, each of the other parties
thereto. To the Knowledge of the Purchaser, as of the date hereof, no
event has occurred which, with or without notice, lapse of time or both, would
constitute a default on the part of Purchaser or any of its subsidiaries, as
applicable, under the Credit Agreement.
6.8 No
Discussions. Since the date of the Confidentiality Agreement,
the Purchaser has not discussed the existence, or terms and conditions of, any
of the Transactions with third parties or disclosed to third parties the
existence, or terms and conditions of, any of the Transactions, other than any
discussions with, or disclosures to, any of Purchaser's officers, directors,
controlled affiliates or employees or any of their respective investment
bankers, attorneys or other advisors or representatives or JPM. Since
the date of the Confidentiality Agreement, to the Knowledge of the Purchaser,
none of Purchaser's Affiliates has discussed the existence, or terms and
conditions of, any of the Transactions with third parties or disclosed to third
parties the existence, or terms and conditions of, any of the Transactions,
other than any discussions with, or disclosures to, any of such Affiliate's
officers, directors, controlled affiliates or employees or any of their
respective investment bankers, attorneys or other advisors or representatives or
JPM.
6.9 No Other Representations by
Selling Stockholder. Notwithstanding anything contained in
this Agreement to the contrary, Purchaser acknowledges and agrees that the
Selling Stockholder is not making any representations or warranties whatsoever,
express or implied, beyond those expressly given by the Selling Stockholder in
Article V (as
modified by the Schedules hereto) or any other Selling Stockholder
Document. Purchaser acknowledges and agrees that, except for the
representations and warranties contained in this Article V (as
modified by the Schedules hereto) or other Selling Stockholder Document, the
Selling Stockholder hereby disclaims all liability and responsibility for any
representation, warranty, statement, documents, information, projection or
forecast made, communicated, or furnished (orally or in writing) to Purchaser or
its Affiliates or representatives in connection with the sale of the Companies
and the Transactions (including any documents, information, projection or
forecast that may have been or may be provided or made available to Purchaser by
any director, officer, employee, agent, consultant, or representative of the
Companies or the Selling Stockholder or any of their respective Affiliates in
connection with the sale of the Companies and the Transactions).
ARTICLE
VII
COVENANTS
7.1 Access to
Information. Prior to the Closing, Purchaser shall be
entitled, through its officers, employees and representatives (including its
legal advisors and accountants), to make such investigation of the properties,
businesses and operations of the Companies and such examination of the books and
records of the Companies as it reasonably requests and to make extracts and
copies of such books and records. Any such investigation and
examination shall be conducted during regular business hours upon reasonable
advance notice and under reasonable circumstances and shall be subject to
restrictions under applicable Law. The Selling Stockholder shall
cause its respective officers, employees, consultants, agents, accountants,
attorneys and other representatives and the Companies to cooperate with
Purchaser and Purchaser’s representatives in connection with such investigation
and examination, and Purchaser and its representatives shall cooperate with the
Selling Stockholder, the Companies and their representatives and shall use their
reasonable efforts to minimize any disruption to the business of the Companies
in connection with such investigation and
examination. Notwithstanding anything herein to the contrary, no such
investigation or examination shall be permitted to the extent that Selling
Stockholder or the Companies determines, in its reasonable judgment, that doing
so would violate applicable Law or a Contract or obligation of confidentiality
owing to a third-party, jeopardize the protection of an attorney-client
privilege, or expose the Companies to risk of liability for disclosure of
sensitive or personal information. Notwithstanding anything to the
contrary contained herein, prior to the Closing, without the prior written
consent of the Selling Stockholder, which may be withheld for any reason, (i)
Purchaser shall not contact any suppliers to, or customers of, the Selling
Stockholder or the Companies, and (ii) Purchaser shall have no right to perform
invasive or subsurface investigations of the properties or facilities of the
Companies. All information provided to Purchaser and its Affiliates
and Representatives pursuant to this Agreement (including pursuant to Section 7.4) shall be
considered confidential and be subject to the terms of the Confidentiality
Agreement.
7.2 Preparation of the Proxy
Statement; Shareholders Meeting.
(a) As
soon as practicable following the date of this Agreement, (i) the Selling
Stockholder shall prepare a proxy statement relating to the Shareholders Meeting
(as amended or supplemented from time to time, the “Proxy Statement”),
(ii) Purchaser shall promptly provide to the Selling Stockholder any information
regarding Purchaser required for inclusion in the Proxy Statement and shall
promptly provide such other information or assistance in the preparation thereof
as may be reasonably requested by the Selling Stockholder and (iii) the Selling
Stockholder shall file the Proxy Statement with the Securities and Exchange
Commission (the “SEC”); provided, however, that such
filing shall be made no later than January 15, 2010. The Selling
Stockholder shall thereafter use its commercially reasonable efforts to respond
as promptly as practicable to any comments of the SEC with respect to the Proxy
Statement and to cause the Proxy Statement to be mailed to the shareholders of
the Selling Stockholder as promptly as practicable after the Proxy Statement is
cleared by the SEC. The Selling Stockholder shall promptly notify
Purchaser upon the receipt of any comments from the SEC or its staff or any
request from the SEC or its staff for amendments or supplements to the Proxy
Statement and shall provide Purchaser with copies of all correspondence between
the Selling Stockholder and its representatives, on the one hand, and the SEC
and its staff, on the other hand. In the event that the Selling
Stockholder receives any comments from the SEC or its staff or any request from
the SEC or its staff for amendments or supplements to the Proxy Statement,
Purchaser shall promptly provide to the Selling Stockholder, upon receipt of
notice from the Selling Stockholder, any information regarding Purchaser
required for inclusion in the response of the Selling Stockholder to such
comments or such request and shall promptly provide such other information or
assistance in the preparation thereof as may be reasonably requested by the
Selling Stockholder.
(b) Subject
to the terms of Section 7.4(b), the
Selling Stockholder shall (x) as soon as practicable following the date on which
the Proxy Statement is cleared by the SEC, establish a record date for and duly
call a meeting of its shareholders to be held no earlier than April 22, 2010, or
on any other date agreed to by the Selling Stockholder and Purchaser for the
purpose of obtaining the Company Shareholder Approval (the “Shareholders
Meeting”), (y) duly give notice of the Shareholders Meeting and convene
and hold the Shareholders Meeting and (z) use commercially reasonable efforts to
solicit from its shareholders proxies in favor of the approval of the
Transactions. The Selling Stockholder shall, through its board of
directors (the “Board
of Directors”), recommend to its shareholders that its shareholders vote
in favor of and approve the Transactions at the Shareholders Meeting, and the
Proxy Statement shall include a statement to the effect that the Board of
Directors has recommended that its shareholders vote in favor of and approve the
Transactions at the Shareholders Meeting (the “Board
Recommendation”). Notwithstanding the foregoing, (i) the Selling
Stockholder shall have no obligation to do any of the foregoing if there shall
have been an Adverse Recommendation Change in compliance with Section 7.4(b) and
(ii) the Selling Stockholder may adjourn or postpone the Shareholders Meeting to
the extent necessary to ensure that any required supplement or amendment to the
Proxy Statement is provided to the shareholders of the Selling Stockholder or,
if as of the time for which the Shareholders Meeting is originally scheduled (as
set forth in the Proxy Statement), there are insufficient shares of Common Stock
represented (either in person or by proxy) to constitute a quorum necessary to
conduct business at such meeting.
7.3 Conduct of the Business
Pending the Closing.
(a) Prior
to the Closing, except (I) as set forth on Schedule 7.3, (II) as
required by applicable Law, (III) as otherwise permitted or contemplated by this
Agreement or (IV) with the prior written consent of Purchaser (which consent
shall not be unreasonably withheld, delayed or conditioned), the Selling
Stockholder shall cause the Companies to use commercially reasonable efforts
to:
(i) conduct
the respective businesses of the Companies in the Ordinary Course of Business or
otherwise in a manner permissible under this Agreement, including this Section 7.3;
and
(ii) preserve
the business operations, organization and goodwill of the Companies, and their
relationships with customers and suppliers of the Companies;
(iii) it
being agreed, however, that subject to Schedule 7.3(a)(iii),
any transaction consummated or proposed providing for a third party to acquire
any assets or securities of the Selling Stockholder or any of its direct or
indirect subsidiaries (other than the Companies) shall not constitute a breach
or violation of this Agreement.
(b) Prior
to the Closing, except (I) as set forth on Schedule 7.3(b),
(II) as required by applicable Law, (III) as otherwise permitted or contemplated
by this Agreement or (IV) with the prior written consent of Purchaser (which
consent shall not be unreasonably withheld, delayed or conditioned and shall be
deemed given if Purchaser does not respond to any written request of a Company
or the Selling Stockholder within two (2) Business Days after delivery of such
request to Purchaser in accordance with Section 10.6), the
Selling Stockholder shall cause the Companies not to:
(i) declare,
set aside, make or pay any dividend or other distribution in respect of the
capital stock of Theatre Direct (other than cash dividends or other
distributions paid to the Selling Stockholder consistent with past practice) or
repurchase, redeem or otherwise acquire any outstanding shares of the capital
stock or other securities of, or other ownership interests in, the
Companies;
(ii) transfer,
issue, sell or dispose of any shares of capital stock or other securities of the
Companies or grant options, warrants, calls or other rights to purchase or
otherwise acquire shares of the capital stock or other securities of the
Companies;
(iii) effect
any recapitalization, reclassification or like change in the capitalization of
the Companies;
(iv) amend
the certificate of incorporation or by-laws or comparable organizational
documents of the Companies;
(v) hire
employees whose annual compensation equals or exceeds $100,000 per year, except
for any hiring to replace the loss or departure of any existing employees if
made on substantially similar terms;
(vi) enter
into any employee retention bonus plan which could have payments due after the
Closing
(vii) enter
into any agreement with employees, or agree to make any payment to employees,
which would be triggered by the consummation of the Transactions and would be
payable after the Closing;
(viii) other
than as required by Law, a Contract listed on Schedule 5.14 or the
terms of any Seller Benefit Plan or Company Benefit Plan (A) increase the annual
level of compensation payable or to become payable by the Companies to any of
their respective directors or employees by more than $5,000 per year, (B) grant
any unusual or extraordinary bonus, benefit or other direct or indirect
compensation to any director or executive officer of the Companies which is
payable after the Closing, (C) except as required by any existing Company
Benefit Plan, and other than any incentive or bonus compensation paid prior to
the Closing, increase the coverage or benefits available under any Company
Benefit Plan which would apply after the Closing and which would increase the
overall costs of such Company Benefit Plans or create any bonus, incentive
compensation, deferred compensation, severance, profit sharing, stock option,
stock purchase, pension, retirement or other employee benefit plan or
arrangement or (D) enter into any employment, deferred compensation, severance,
consulting, non-competition or similar agreement (or materially amend any such
agreement) to which any of the Companies is a party or involving a director or
executive officer of any of the Companies;
(ix) subject
to any Lien, any of the properties or assets (whether tangible or intangible) of
the Companies, except for Permitted Exceptions;
(x) acquire
any material properties or assets or sell, assign, license, transfer, convey,
lease or otherwise dispose of any of the properties or assets of the Companies
(except acquisitions or dispositions of properties or assets
which are not material to the Companies, (A) pursuant to an existing
Contract for fair consideration or (B) in the Ordinary Course of Business or (C)
for the purpose of disposing of obsolete or worthless assets); it being agreed
for purposes of clarity that this Section 7.3 does not
prohibit intercompany transfers of cash among the Companies, the Selling
Stockholder and its subsidiaries in the Ordinary Course of Business consistent
with past practice;
(xi) other
than in the Ordinary Course of Business, cancel or compromise any material debt
or claim or waive or release any material right of the Companies; it being
agreed for purposes of clarity that this Section 7.3 does not
prohibit intercompany transfers of cash among the Companies, the Selling
Stockholder and its subsidiaries in the Ordinary Course of Business consistent
with past practice, or the settlement of any intercompany accounts or debt prior
to Closing;
(xii) within
75 days after the date hereof enter into any commitment for capital expenditures
of the Companies in excess of $50,000 for all commitments in the aggregate or
after 75 days after the date hereof enter into any commitment for capital
expenditures of the Companies in excess of $100,000 for all commitments in the
aggregate (including commitments entered into prior to such 75th day); provided, however, that the
Companies may enter into any commitment for capital expenditures without the
consent of the Purchaser (i) in order to make emergency repairs, or (ii) to
replace equipment and assets in the Ordinary Course of Business;
(xiii) enter
into, modify or terminate any labor or collective bargaining agreement of the
Companies;
(xiv) permit
the Companies to enter into or agree to enter into any merger or consolidation
with any Person or to adopt or agree to adopt a plan of complete or partial
liquidation, dissolution, restructuring or other material reorganization of any
of the Companies;
(xv) make
or rescind any election relating to Taxes, settle or compromise any claim,
action, suit, litigation, proceeding, arbitration, investigation, audit
controversy relating to Taxes, or except as required by applicable law or GAAP,
make any material change to any of its methods of accounting or methods of
reporting income or deductions for Tax or accounting practice or policy from
those employed in the preparation of its most recent Tax Return;
(xvi) except
for the replacement or substitution of existing insurance policies with similar
or comparable policies, permit any insurance policy naming any of the Companies
as a beneficiary or a loss payable payee to be cancelled or terminated or,
except as required by any existing Company Benefit Plan, create an employee
insurance benefit plan or arrangement;
(xvii) within
75 days after the date hereof enter into any Contract relating to the Companies’
purchase, lease or maintenance of equipment, vehicles, inventory, materials,
supplies, machinery, equipment, parts or any other property or services which
involves expenditures of more than $50,000 annually, except for expenditures
made (i) in order to make emergency repairs, or (ii) to replace equipment and
assets in the Ordinary Course of Business;
(xviii) after
75 days after the date hereof enter into any Contract relating to the Companies’
purchase, lease or maintenance of equipment, vehicles, inventory, materials,
supplies, machinery, equipment, parts or any other property or services which
involves expenditures of more than $100,000 annually except for expenditures
made (i) in order to make emergency repairs, or (ii) to replace equipment and
assets in the Ordinary Course of Business;
(xix) other
than in the Ordinary Course of Business, (A) enter into any Contract that if
existing on the date hereof would be a “Material Contract” (other than contracts
described in Section
5.14(vii) or (viii)), (B)
terminate, amend, supplement or modify in any respect any Material Contract, (C)
waive, release, cancel, allow to lapse, convey, encumber or otherwise transfer
any rights or claims under any Material Contract, or (D) change incentive
policies or payments under any Material Contract existing on the date hereof or
entered into after the date hereof;
(xx) incur
any Indebtedness for borrowed money, enter into any guarantees of Indebtedness
of other Persons (other than one of the Companies) or make any loans, advances
or capital contributions to, or investments in, any other Person;
(xxi) enter
into any Contract that obligates the Companies not to compete with any
business;
(xxii) enter
into any Contract that is a joint venture or partnership contract or a limited
liability company operating agreement; or
(xxiii) agree
to do anything prohibited by this Section
7.3.
7.4 Non-Solicitation.
(a) From
and after the date of this Agreement until the earlier to occur of the
consummation of the Transactions or the termination of this Agreement pursuant
to Section
4.2(b), and except as otherwise provided for in this Agreement, the
Selling Stockholder and the Companies will not, nor will they authorize or
knowingly permit any of their respective officers, directors, controlled
affiliates or employees or any of their respective investment bankers, attorneys
or other advisors or representatives (collectively, “Representatives”) to,
(and the Selling Stockholder will direct the Representatives not to) directly or
indirectly: (i) solicit, initiate, or take an action intended (or which may
reasonably be expected) to induce the making, submission or announcement of any
Acquisition Proposal; (ii) engage or participate in any discussions or
negotiations with any Person (other than any officer, director, controlled
affiliate or employee of Purchaser or any of its Affiliates or any investment
banker, attorney or other advisor or representative of the Purchaser or any of
its Affiliates) regarding, or furnish to any Person any information with respect
to, or take any other action intended (or which may reasonably be expected) to
induce any inquiries or the making of, any proposal that constitutes or may
reasonably be expected to lead to, any Acquisition Proposal; or (iii) enter into
any letter of intent or similar document or any contract, agreement or
commitment contemplating or otherwise relating to any Acquisition
Proposal. Notwithstanding the foregoing, prior to the approval of the
Transactions by the shareholders of the Selling Stockholder at the Shareholders
Meeting, nothing contained in this Agreement (including this Section 7.4) shall
prohibit the Board of Directors, in response to an unsolicited Acquisition
Proposal that is not withdrawn, from engaging or participating in discussions or
negotiations with and/or furnishing information to the party making such
Acquisition Proposal, provided that the Selling
Stockholder complies with its obligations under this subsection (a) and Section 7.4(c), and
that the Board of Directors: (A) in good faith, after consultation with the
Selling Stockholder’s financial advisors, concludes that the offer constitutes
or could reasonably be expected to result in or lead to a Superior Proposal (as
defined below), and (B) determines in good faith, after consultation with its
outside legal counsel, that such action is advisable in order for the Board of
Directors to comply with its fiduciary obligations to the shareholders of the
Selling Stockholder under applicable Law; and provided further that (x)
concurrently with furnishing any such information to, or entering into
discussions or negotiations with, such party, the Selling Stockholder gives
Purchaser written notice of the identity of such Person or group and of the
Selling Stockholder’s intention to furnish information to, or enter into
discussions or negotiations with, such party and (y) the Selling Stockholder
receives from such party an executed confidentiality agreement at least as
restrictive as the Confidentiality Agreement, which agreement shall not in any
event be required to contain a standstill agreement that would prohibit the
actions contemplated by this Section; and (z) prior to or contemporaneously with
furnishing any such information to such party, the Selling Stockholder furnishes
such non-public information to the Purchaser (to the extent such information has
not been previously furnished by the Selling Stockholder to the
Purchaser).
(b) Except
as expressly permitted by this Section 7.4(b), the
Board of Directors shall not (i)(A) withdraw or modify, in a manner adverse to
Purchaser, the Board Recommendation or (B) publicly approve, endorse or
recommend to the shareholders of the Selling Stockholder an Acquisition Proposal
(any action described in this clause (i) being referred to as an “Adverse Recommendation
Change”) or (ii) authorize the Selling Stockholder or any of its
subsidiaries to enter into any merger, acquisition or similar agreement with
respect to any Acquisition Proposal (other than a confidentiality agreement)
(each, an “Acquisition
Agreement”). Notwithstanding anything in this Agreement to the
contrary, but subject to Section 4.2(d)(ii),
(x) at any time the Board of Directors of the Selling Stockholder may withdraw
or modify the Board Recommendation, and/or recommend an Acquisition Proposal, if
the Board of Directors determines for any reason that such action is advisable
in order for the Board of Directors to comply with its fiduciary duties under
applicable Law and (y) if the Transactions have not yet been approved by the
shareholders of the Selling Stockholder at the Shareholders Meeting and the
condition in the foregoing clause (x) is satisfied, then Selling Stockholder or
its subsidiaries may enter into an Acquisition Agreement with respect to a
Superior Proposal if concurrently with entering into such Acquisition Agreement,
the Selling Stockholder terminates this Agreement pursuant to Section
4.2(g).
(c) In
addition to the obligations of the Selling Stockholder set forth in Section 7.4(a), the
Selling Stockholder as promptly as practicable, and in any event within 48
hours, shall notify Purchaser of: (i) any request for information in connection
with, or which the Selling Stockholder reasonably concludes would lead to, any
Acquisition Proposal; (ii) the receipt of any Acquisition Proposal, or any
inquiry with respect to or which the Selling Stockholder reasonably concludes
would lead to any Acquisition Proposal; (iii) the material terms and conditions
of such request, Acquisition Proposal or inquiry; and (iv) the identity of the
Person or group making any such request, Acquisition Proposal or inquiry. The
Selling Stockholder shall keep Purchaser informed in all material respects of
the status and details (including material amendments or proposed amendments) of
any Acquisition Proposal. All information provided by the Selling
Stockholder to Purchaser and its representatives pursuant to this Section 7.4 shall be
kept confidential and be subject to the terms and provisions of the
Confidentiality Agreement.
(d) For
purposes of this Agreement:
“Acquisition Proposal”
means any inquiry, proposal or offer from any Person or group of Persons (other
than Purchaser and its Affiliates) to acquire, directly or indirectly (whether
by way of merger, consolidation, share exchange, business combination,
recapitalization, tender or exchange offer, asset sale, lease or otherwise), for
consideration consisting of cash and/or securities (A) the assets of the
Selling Stockholder and its subsidiaries (including securities of subsidiaries,
but excluding sales of assets in the Ordinary Course of Business) constituting
all or substantially all of the Selling Stockholder’s consolidated assets, (B)
50% or more of the outstanding voting securities of the Selling Stockholder
(including any merger, tender offer, exchange offer, consolidation, business
combination, arrangement or similar transaction involving the Selling
Stockholder pursuant to which the shareholders of the Selling Stockholder
immediately preceding such transaction hold less than 50% of the equity
interests in the surviving or resulting entity of such transaction), (C)
acquisition of assets of any of the Companies (including securities of
subsidiaries, but excluding sales of inventory or obsolete assets in the
Ordinary Course of Business) or (D) acquisition of any of the equity securities
of Theatre Direct, in each case, other than the Transactions.
“Superior Proposal”
means any bona fide, unsolicited written Acquisition Proposal to acquire (i) at
least 75% of the outstanding Common Stock or all or substantially all of the
assets of the Selling Stockholder and its subsidiaries on a consolidated basis
or (ii) all of the
equity securities of Theatre Direct or all or substantially all of the assets of
the Companies, in either case, other than the Transactions: (A) with respect to
which the Board of Directors shall have in good faith determined (taking into
account the advice of the Selling Stockholder’s financial advisors) that the
acquiring party is capable of consummating such proposed Acquisition Proposal on
the terms proposed; (B) the Board of Directors shall have in good faith
determined (taking into account the advice of the Selling Stockholder’s
financial advisors) that the proposed Acquisition Proposal, taking into account
all the terms and conditions of such Acquisition Proposal including the
reasonably expected time for the consummation of such Acquisition Proposal, is
more favorable to the shareholders of the Selling Stockholder, from a financial
point of view, than the Transactions (taking into account any proposed
modifications by Purchaser in response thereto), and (C) the Board of Directors
shall have in good faith determined (taking into account the advice of the
Selling Stockholder’s outside legal counsel) that accepting such Acquisition
Proposal is advisable under applicable law for the discharge of its fiduciary
duties.
(e) Nothing
in this Section
7.4 shall prohibit the Board of Directors from taking and disclosing to
the Selling Stockholder’s stockholders a position contemplated by Rule 14e-2(a),
Rule 14d-9 or Item 1012(a) of Regulation M-A promulgated under the Exchange Act,
or other applicable Law, provided, however, that, except
as contemplated by Section 7.4(b), the
Board of Directors shall not withdraw or modify, in a manner adverse to
Purchaser, the Board Recommendation or recommend an Acquisition
Proposal. In addition, it is understood and agreed that, for purposes
of this Agreement, a factually accurate public statement by the Selling
Stockholder that describes the Selling Stockholder’s receipt of an Acquisition
Proposal and the operation of this Agreement with respect thereto, or any “stop,
look and listen” communication by the Board of Directors pursuant to Rule
14d-9(f) of the Exchange Act or any other applicable law, or any similar
communication to the shareholders of the Selling Stockholder, shall not
constitute an Adverse Recommendation Change or a withdrawal or modification or
supplement, or proposal by the Board of Directors to withdraw or modify, such
Board’s recommendation of this Agreement or the Transactions, or an approval or
recommendation with respect to any Acquisition Proposal.
7.5 Reasonable Best
Efforts. Subject to the terms and conditions of this
Agreement, each of the parties hereto shall cooperate with the other parties and
use (and shall cause their respective subsidiaries to use) their respective
reasonable best efforts to promptly (i) take, or cause to be taken, all actions,
and do, or cause to be done, all things, necessary, proper or advisable to cause
the conditions to Closing to be satisfied as promptly as practicable and to
consummate and make effective, in the most expeditious manner practicable, the
Transactions, including preparing and filing promptly and fully all
documentation to effect all necessary filings, notices, petitions, statements,
registrations, submissions of information, applications and other documents, and
(ii) obtain all approvals, consents, registrations, permits, authorizations and
other confirmations from any Governmental Authority or third party necessary,
proper or advisable to consummate the Transactions; provided, however, Purchaser
shall have no obligation to cause the Intercreditor Agreement (as defined in
Exhibit A) to
contain any of the terms set forth in Exhibit
A.
7.6 Selling Stockholder
Guarantees. Purchaser shall use its commercially reasonable
efforts to cause Purchaser or one or more of Purchaser’s respective Affiliates
to be substituted in all respects for the Selling Stockholder, effective as of
the Closing, in respect of all obligations of the Selling Stockholder under each
of the guarantees, bonds, sureties, letters of credit, escrow deposits listed on
Schedule 7.6
(collectively, “Assurance
Agreements”) made by the Selling Stockholder and its Affiliates for the
benefit of the Companies. If Purchaser is unable to effect such a
substitution with respect to any Assurance Agreements after using its
commercially reasonable efforts to do so, Purchaser shall indemnify and hold
harmless the Selling Stockholder and its Affiliates from and against any and all
losses resulting from or arising out of or relating to the Assurance
Agreements. As a result of the substitution contemplated by the first
sentence of this Section 7.6
and/or the indemnity obligation contemplated by the second sentence of this
Section 7.6, the
Selling Stockholder and its Affiliates shall, from and after the Closing, cease
to have any obligations whatsoever arising from or in connection with the
Assurance Agreements, except for obligations, if any, for which the Selling
Stockholder or its Affiliates will be fully indemnified pursuant to the second
sentence of this Section 7.6.
7.7 Public
Announcements. The initial press release with respect to the
execution of this Agreement shall be a joint press release to be reasonably
agreed upon by Purchaser and the Selling Stockholder. Thereafter,
neither the Selling Stockholder nor Purchaser shall issue or cause the
publication of any press release or other public announcement (to the extent not
previously issued or made in accordance with this Agreement) with respect to the
Transactions without the prior consent of the other party (which consent shall
not be unreasonably withheld or delayed), except as may be required by Law
(including any disclosure and public filings required under rules and
regulations of the SEC applicable to the Selling Stockholder), applicable
fiduciary duties or by any applicable listing agreement with a national
securities exchange or NASDAQ as determined in the good faith judgment of the
party proposing to make such release (in which case the party intending to make
such release or public announcement shall use its commercially reasonable
efforts consistent with such applicable Law to consult with the other party with
respect to the timing and content thereof).
7.8 Consents. The
Selling Stockholder and the Companies shall use commercially reasonable efforts,
and the Purchaser shall cooperate with Selling Stockholder and the Companies, to
obtain at the earliest practicable date all consents and approvals required for
Selling Stockholder and the Companies to consummate the Transactions, including,
without limitation, the consents and approvals referred to in Section 5.3(b) and
the Schedules thereto, provided, however, that no party shall be obligated to
pay any consideration to any third party from whom consent or approval is
requested other than a payment required by the express terms of any agreement to
which the Selling Stockholder or any of the Companies is a party. The
Purchaser shall use commercially reasonable efforts, and the Selling Stockholder
and the Companies shall cooperate with the Purchaser, to obtain at the earliest
practicable date all consents and approvals required for the Purchaser to
consummate the Transactions, including, without limitation, the consents and
approvals referred to in Section 6.3(b) and
the Schedules thereto, provided, however, that Purchaser shall not be obligated
to pay any consideration to any third party from whom consent or approval is
requested other than a payment required by the express terms of any agreement to
which the Purchaser is a party.
7.9 Non-Competition
Agreements.
(a) For
a period of seven (7) years from and after the Closing Date, the
Selling Stockholder shall not, and shall cause its Affiliates not to,
directly or indirectly, own, manage, engage in, operate, control, work for or
participate in the ownership, management, operation or control of, any business,
whether in corporate, proprietorship or partnership form or otherwise, engaged
in the sales of tickets to live musical, live theatrical or other live
entertainment performances in the City of New York, New York or that otherwise
competes with the Companies’ business as it exists as of the Closing Date (a
“Restricted
Business”); provided, however, that the
restrictions contained in this Section 7.9(a) shall
(A) not restrict (i) the sale of advertisements, including online advertising,
or (ii) the acquisition by the Selling Stockholder, directly or indirectly, of
less than 5% of the outstanding capital stock of any publicly traded company
engaged in a Restricted Business, (B) cease upon any event of default under the
Note, or any other documents listed on Exhibit A, whereby
the Companies or any of their assets are controlled by, foreclosed upon or
otherwise returned to the Selling Stockholder and (C) not restrict the
acquisition of the Selling Stockholder by any Person which prior to such
transaction was already engaged in the Restricted Business. It is
hereby understood and agreed that for the purposes of this Section 7.9(a),
Mitchell Rubenstein and Laurie S. Silvers shall not be deemed Affiliates of the
Selling Stockholder.
(b)
The parties hereto agree that the scope, the duration and the area for which the
restrictive covenants set forth in Section 7.9(a) are
reasonable in view of the substantial consideration the Selling Stockholder is
receiving and in view of the fact that these covenants are ancillary to
acquisition of the Companies. In the event that any court determines
that the time period or the area, or both of them, are unreasonable, the parties
hereto agree that the covenants shall remain in full force and effect for the
greatest time period and in the greatest area that would not render it
unenforceable. The parties intend that this Agreement shall be deemed
to be a series of separate covenants, one for each and every county or
jurisdiction.
(c) The
effective time of the limitations imposed by Section 7.9(a) shall
be extended for the period of time equal to any period of time during which the
Selling Stockholder or its Affiliate acts in circumstances that a court of
competent jurisdiction finally determines to have violated the terms of Section
7.9(a).
(d) Purchaser
hereby agrees to comply with the covenants set forth in Schedule
7.9.
7.10 Further
Assurances. Subject to, and not in limitation of, Section 7.8,
Purchaser shall use its, and the Selling Stockholder shall cause the Companies
to use their, commercially reasonable efforts to (i) take all actions necessary
or appropriate to consummate the Transactions and (ii) cause the fulfillment at
the earliest practicable date of all of the conditions to their respective
obligations to consummate the Transactions.
7.11 Preservation of
Records. The Selling Stockholder and Purchaser agree that each
of them shall preserve and keep the records held by them or their Affiliates
relating to the respective businesses of the Companies for a period of seven
years from the Closing Date and shall make such records and personnel available
to the other as may be reasonably required by such party in connection with,
among other things, any insurance claims by, Legal Proceedings or tax audits
against or governmental investigations of the Selling Stockholder or Purchaser
or any of their Affiliates or in order to enable the Selling Stockholder or
Purchaser to comply with their respective obligations under this Agreement and
each other agreement, document or instrument contemplated hereby or
thereby. In the event the Selling Stockholder or Purchaser wishes to
destroy such records after that time, such party shall first give ninety (90)
days prior written notice to the other and such other party shall have the right
at its option and expense, upon prior written notice given to such party within
such 90-day period, to take possession of the records within one hundred eighty
(180) days after the date of such notice.
7.12 Use of
Name. Purchaser agrees that it shall have no right, title or
interest in or to the name “Hollywood Media Corp.” or any other Marks of the
Selling Stockholder or any of its Affiliates (other than the names of each of
the Companies and the Marks listed on Schedule 7.12
(collectively, the “Purchased Marks”),
after the Closing) or any other Marks containing or comprising the foregoing or
confusingly similar thereto (all of the foregoing collectively, the “Retained
Marks”). Purchaser agrees that it will not, and will cause the
Companies to not, at any time hold itself out as having any affiliation with the
Selling Stockholder, or any of its Affiliates. In furtherance
thereof, as promptly as practicable but in no event later than one hundred and
twenty (120) days following the Closing Date, Purchaser shall remove, strike
over or otherwise obliterate all references to the Hollywood Media Corp. name
and mark from all materials including, without limitation, any vehicles,
business cards, schedules, stationery, packaging materials, displays, signs,
promotional materials, manuals, forms, Web sites, computer software and other
materials. Purchaser agrees that use of the Retained Marks during the
period authorized by this Section 7.12 shall be
(i) only with respect to inventories of packaging, labels, sales literature and
other hard copy materials existing as of the Closing Date, (ii) strictly the
same as existed prior to the Closing Date, and (iii) at a level of quality equal
to, or greater than, the quality of goods and services with respect to which the
Retained Marks were used by the Selling Stockholder prior to the Closing
Date. Purchaser agrees (i) not to contest the ownership or validity
of any rights of the Selling Stockholder or any of its Affiliates in or to the
Retained Marks, (ii) that the Retained Marks are the sole property of the
Selling Stockholder or its Affiliates and Purchaser will do nothing inconsistent
with such ownership, and (iii) not to attack the Retained Marks in any way or
use, register or seek to register any Trademark which is the same as, contains,
or is confusingly similar to a Retained Mark.
7.13 Employment and Employee
Benefits.
(a)
Purchaser and its Affiliates shall recognize the service of each employee of a
Company as of the Closing Date (each a “Company
Employee”) with any Company (or any of its predecessors) and
its Affiliates prior to the Closing Date as service with the Purchaser and its
Affiliates under any employee benefit plans covering or otherwise benefiting
such employee after the Closing for purposes of eligibility and vesting but not
benefit accrual.
(b) Purchaser
and its Affiliates shall waive, or cause its insurance carriers to waive, all
limitations as to pre-existing and at-work conditions, if any, with respect to
participation and coverage requirements applicable to Company Employees under
any welfare benefit plan (as defined in Section 3(1) of ERISA) that is made
available to the Company Employees after the Closing.
(c) Purchaser
and its Affiliates shall permit each Company Employee who participated in a
401(k) plan sponsored by Selling Stockholder to elect to make direct rollovers
of their account balances into a 401(k) plan maintained by the Purchaser or its
Affiliates (“Purchaser
401(k) Plan”) as of Closing and the direct rollover of any outstanding
loan balances under such plans such that the Company Employee will continue to
make payments under the terms of such loans under the applicable Purchaser
401(k) Plan.
(d)
Selling Stockholder maintains a plan qualified under Section 125 of the Code
(“Selling
Stockholder’s 125 Plan”) that includes flexible spending accounts for
medical care reimbursements and dependent care reimbursements (“Reimbursement
Accounts”). As of the Closing Date, cash equal to the
aggregate value of the Reimbursement Accounts of the Company Employees shall be
transferred from Selling Stockholder to a plan established by Purchaser or its
Affiliates intended to qualify under Section 125 of the Code (“Purchaser’s 125
Plan”). Upon receipt of such amount, Purchaser (or its
Affiliates) and Purchaser’s 125 Plan shall assume all liabilities with respect
to the Reimbursement Accounts for the Company Employees. Purchaser
and its Affiliates shall recognize the elections of the Company Employees under
Selling Stockholder’s 125 Plan for purposes of Purchaser’s 125 Plan for calendar
year in which the Closing occurs.
(e)
Selling Stockholder and its Affiliates shall be responsible for providing the
group health plan continuation coverage pursuant to Section 4980B of the Code
and Sections 601-609 of ERISA for employees of the Companies and their eligible
dependents who incurred a “qualifying event” within the meaning of Section
4980B(f)(3) of the Code at or prior to the Closing. From and after
the Closing, Purchaser and its Affiliates shall be responsible for providing the
group health plan continuation coverage pursuant to Section 4980B of the
Code or Sections 601-609 of ERISA for Company Employees and their eligible
dependents who incur a “qualifying event” (within the meaning of Section
4980B(f)(3) of the Code) after the Closing.
(f) Purchaser
shall be responsible for, and shall indemnify and hold Selling Stockholder and
its Affiliates harmless from and against, all liabilities under WARN Act arising
due to a termination of Company Employees after the Closing, provided, however, that at the
Closing Selling Stockholder shall provide Purchaser with a list of employees of
the Companies who have experienced an “employment loss” (as defined in the WARN
Act) within 90 days prior to the Closing Date.
(g) The
parties acknowledge and agree that the Liabilities with respect to any payment
associated with a change of control under the employment agreements with Matt
Kupchin and Jerome Kane, up to a maximum amount of $1,600,000 in the aggregate,
shall be or remain the Liabilities of Theatre Direct from and after the Closing
and the Selling Stockholder shall have no obligation with respect to such
Liabilities up to a maximum of $1,600,000.
7.14 Financing.
(a)
Purchaser shall use commercially reasonable efforts to satisfy, as promptly as
practicable (and in any event prior to the Termination Date), all conditions and
obtain all consents necessary as set forth in or required under the Credit
Agreement for a borrowing thereunder to make the payment at Closing under Section 3.2(b)
and to deliver the Note and the Warrant at Closing under Section 3.2(c) and
Section 3.2(d),
respectively, and to consummate the Transactions, in each case which are within
the control of Purchaser or any of its wholly-owned subsidiaries (including
those party to the Credit Agreement). For the avoidance of doubt, (i)
any conditions relating to the results of operations or EBITDA (as defined in
the Credit Agreement) of Purchaser or any of its Affiliates (including those
party to the Credit Agreement), or value of collateral or assets or no change in
management (if not a result of any termination of employment without cause by
Purchaser or any of its Affiliates) and (ii) any actions taken against Purchaser
or any Affiliate by a third party which restricts the ability of Purchaser to
borrow under the Credit Agreement shall not be deemed to be within the control
of Purchaser or any of its Affiliates. In addition, Purchaser shall
not amend or alter, or agree to amend or alter, the Credit Agreement in any
manner or borrow funds under the Credit Agreement with the actual knowledge and
intent at the time of such amendment, alteration or agreement or such borrowing
that such amendment, alteration or agreement or such borrowing would prevent a
borrowing under the Credit Agreement to make the payment at Closing under Section 3.2(b)
or not allow Purchaser to deliver the Note and the Warrant at Closing under
Section 3.2(c)
and Section
3.2(d), respectively, and to consummate the
Transactions. Further, if available, the Purchaser shall draw funds
under the Credit Agreement necessary to make the payment at Closing under Section
3.2(b).
(b) Purchaser
agrees to notify the Selling Stockholder promptly, and in any event within two
(2) Business Days, if at any time prior to the Closing Date (i) the Credit
Agreement shall expire or be terminated for any reason, or (ii) JPM or any
party to or lender under the Credit Agreement notifies Purchaser that Purchaser
will not be entitled to borrow funds under the Credit Agreement to make the
payment at Closing under Section 3.2(b) or
will not be entitled to deliver the Note and the Warrant at Closing under Section 3.2(c) and
Section 3.2(d),
respectively, or to consummate the Transactions.
7.15 Customer Lists and Data
Base. Selling Stockholder agrees that any lists of customers
of either of the Companies and any data base of customers of either of the
Companies are the property of the Companies (and not the property of the Selling
Stockholder) and the Selling Stockholder agrees that it shall not be entitled to
use them from and after Closing for any purposes, including in connection with
any sale of Selling Stockholder or any assets of Selling
Stockholder.
ARTICLE
VIII
CONDITIONS
TO CLOSING
8.1 Conditions Precedent to Each
Party’s Obligation to Effect the Transactions. The respective
obligations of each party hereto to effect the Closing shall be subject to the
satisfaction (or waiver, if permissible under applicable Law) on or prior to the
Closing Date of the following conditions:
(a)
Company Shareholder
Approval. The Company Shareholder Approval shall have been
obtained;
(b) No Injunctions or
Restraints. No Law, injunction, judgment or ruling enacted,
promulgated, issued, entered, amended or enforced by any United States
Governmental Authority (collectively, “Restraints”) shall be
in effect enjoining, restraining, preventing or prohibiting consummation of the
Transactions or making the consummation of the Transactions
illegal.
8.2 Conditions Precedent to
Obligations of Purchaser. The obligation of Purchaser to
consummate the Closing is subject to the fulfillment, on or prior to the Closing
Date, of each of the following conditions (any or all of which may be waived by
Purchaser in whole or in part to the extent permitted by applicable
Law):
(a) The
representations and warranties of the Selling Stockholder set forth in this
Agreement shall be true and correct as of the Closing, except to the extent such
representations and warranties relate to an earlier date (in which case such
representations and warranties shall be true and correct as of such earlier
date); provided, however, for purposes
of the condition set forth in this Section 8.2(a) (i)
any materiality or Material Adverse Effect qualifications in such
representations and warranties shall be disregarded, and (ii) in the event of a
breach of a representation or warranty (after taking into effect disregarding
materiality or Material Adverse Effect qualifications), the condition set forth
in this Section
8.2(a) shall be deemed satisfied unless the effect of all such breaches
of representations and warranties taken together have had or are reasonably
expect to have a Material Adverse Effect, and Purchaser shall have received a
certificate signed by an authorized officer of the Selling Stockholder, dated
the Closing Date, to the foregoing effect.
(b) The
Selling Stockholder shall have performed and complied in all material respects
with all obligations and agreements required by this Agreement to be performed
or complied with by it on or prior to the Closing Date, and Purchaser shall have
received a certificate signed by an authorized officer of the Selling
Stockholder, dated the Closing Date, to the foregoing effect.
(c) No
Material Adverse Effect shall have occurred; provided, however, that for the
purpose of this Section 8.2(c), a
large-scale terrorism event in New York City, New York that (i) results or that
could reasonably be expected to result in a long term and adverse impact on the
business of the Companies or (ii) which causes the lenders under the Credit
Agreement to suspend loans to businesses in New York City, New York for a period
of thirty (30) consecutive days or more shall not be deemed to be an Excluded
Matter.
(d) Purchaser
shall have received a written consent from the requisite lenders under the
Credit Agreement for Purchaser to consummate the Transactions (the “JPM Consent”) and
Purchaser shall be entitled to borrow up to $15 million under the Credit
Agreement towards the payment pursuant to Section
3.2(b).
(e) At
the Closing, all documents required to be executed and delivered by Selling
Stockholder (or other Persons) under Section 3.5, and
certificates representing the Shares pursuant to Section 3.4, have
been delivered to Purchaser.
8.3 Conditions Precedent to
Obligations of the Selling Stockholder. The obligations of the
Selling Stockholder to consummate the Closing are subject to the fulfillment,
prior to or on the Closing Date, of each of the following conditions (any or all
of which may be waived by the Selling Stockholder in whole or in part to the
extent permitted by applicable Law):
(a) The
representations and warranties of Purchaser set forth in this Agreement
qualified as to materiality shall be true and correct, and those not so
qualified shall be true and correct in all material respects, at and as of the
Closing Date as though made on the Closing Date, except to the extent such
representations and warranties relate to an earlier date (in which case such
representations and warranties qualified as to materiality shall be true and
correct, and those not so qualified shall be true and correct in all material
respects, on and as of such earlier date), and the Selling Stockholder shall
have received a certificate signed by an authorized officer of Purchaser, dated
the Closing Date, to the foregoing effect.
(b) Purchaser
shall have performed and complied in all material respects with all obligations
and agreements required by this Agreement to be performed or complied with by
Purchaser on or prior to the Closing Date, and the Selling Stockholder shall
have received a certificate signed by an authorized officer of Purchaser, dated
the Closing Date, to the foregoing effect.
(c) At
the Closing, all documents required to be executed and delivered by Purchaser
(and Theatre Direct or other Persons) under Section 3.6 have been
delivered to Selling Stockholder.
(d)
At the Closing, (i) the Purchaser has delivered to the Selling Stockholder a
copy of the JPM Consent, and (ii) JPM and any other lenders under the Credit
Agreement have delivered to the Selling Stockholder any and all documents and
agreements required to be delivered by JPM or such other lenders pursuant to
Exhibit A
(including the Intercreditor Agreement (as defined in Exhibit A)) in form
and substance reasonably acceptable to the Selling Stockholder.
ARTICLE
IX
TERMINATION
OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION;
SECTION 338(H)(10) ELECTION
9.1 Termination of
Representations and Warranties. The representations and
warranties of the parties contained in this Agreement shall survive the Closing
and expire on the date that is twenty-four (24) months after the Closing Date,
provided, however, that the
representations and warranties contained in Section 5.1, 5.2, 5.4, 5.5(a), 5.5(b), the first
sentence of Section
5.5(c), 5.10 and 6.1 and 6.2 (all of the
foregoing representations being referred to herein as the “Fundamental
Representations”), shall survive the Closing until the applicable statute
of limitations for such claims has expired and provided, further, that claims
for indemnification related to a breach of a representation and warranty that is
a reasonably foreseeable consequence of an act undertaken (or failure to
disclose an exception to a representation and warranty) by the Selling
Stockholder with the actual knowledge and intent that the taking of such act (or
failure to make such disclosure) would lead to or cause such breach (“Intentional Breach”)
shall survive until the applicable statute of limitations for such claims has
expired. All covenants and agreements of the parties shall survive and remain in
effect in accordance with the terms of such covenant or agreement as set forth
herein (the parties agree if there is no specified period for a covenant or
agreement which applies after the Closing, then such covenant or agreement shall
survive in perpetuity).
9.2 Indemnification by the
Selling Stockholder. The Selling Stockholder shall save,
defend, indemnify and hold harmless Purchaser and its officers, directors,
employees, agents, successors and assigns (collectively, the “Purchaser Indemnified
Parties”) from and against, and reimburse Purchaser Indemnified Parties
for, any and all losses, damages, liabilities, deficiencies, claims, interest,
awards, obligations, debts, fines, fees, judgments, penalties, costs and
expenses (including reasonable attorneys’ fees, costs and other out-of-pocket
expenses incurred in investigating, preparing or defending the foregoing) (but
excluding diminution of value, special, punitive, incidental and consequential
damages or any damages based on a multiple of value) (hereinafter collectively,
“Losses”)
arising out of, in connection with or resulting from:
(a) any
breach of any representation or warranty made by the Selling Stockholder
contained in this Agreement or any Selling Stockholder Document;
(b) any
breach of or failure to perform, carry out, satisfy or discharge any covenant or
agreement of the Selling Stockholder contained in this Agreement or any Selling
Stockholder Document; and
(c) any
fees, commissions, or like payments by any Person having acted or claiming to
have acted, directly or indirectly, as a broker for the Selling Stockholder or
the Companies in connection with the Transactions.
9.3 Indemnification by
Purchaser. Purchaser shall save, defend, indemnify and hold
harmless each of the Selling Stockholder, the Companies and their Affiliates,
and their respective officers, directors, employees, agents, successors and
assigns (collectively, the “Seller Indemnified
Parties”) from and against, and reimburse Seller Indemnified Parties for,
any and all Losses arising out of, in connection with or resulting
from:
(a) any
breach of any representation or warranty made by Purchaser contained in this
Agreement or any Purchaser Document;
(b) any
breach of or failure to perform, carry out, satisfy or discharge any covenant or
agreement of Purchaser contained in this Agreement or any Purchaser Document;
and
(c) any
fees, commissions, or like payments by any Person having acted or claiming to
have acted, directly or indirectly, as a broker for Purchaser in connection with
the Transactions.
9.4 Procedures.
(a)
In order for a Purchaser Indemnified Party or Seller Indemnified Party (the
“Indemnified
Party”) to be entitled to any indemnification provided for under this
Agreement as a result of a Loss or a claim or demand made by any Person against
the Indemnified Party (a “Third Party Claim”),
such Indemnified Party shall deliver notice thereof to the party against whom
indemnity is sought (the “Indemnifying Party”)
promptly after receipt by such Indemnified Party of written notice of the Third
Party Claim, describing in reasonable detail the facts giving rise to any claim
for indemnification hereunder, the amount or method of computation of the amount
of such claim (if known) and copies of any relevant documentation evidencing
such claim. The failure to provide such notice, however, shall not
release the Indemnifying Party from any of its obligations under this Article IX except and
solely to the extent that the Indemnifying Party is prejudiced by such
failure.
(b) The
Indemnifying Party shall have the right, upon written notice to the Indemnified
Party within thirty (30) days of receipt of notice from the Indemnified Party of
the commencement of such Third Party Claim, to assume the defense thereof at the
expense of the Indemnifying Party with counsel selected by the Indemnifying
Party and reasonably satisfactory to the Indemnified Party. If the Indemnifying
Party assumes the defense of such Third Party Claim, the Indemnified Party shall
have the right to employ separate counsel and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the sole cost and
expense of the Indemnified Party; provided, however, that such
Indemnified Party shall be entitled to participate in any such defense with
separate counsel at the expense of the Indemnifying Party if (i) so requested by
the Indemnifying Party to participate or (ii) in the reasonable opinion of
counsel to the Indemnifying Party a conflict or potential conflict exists
between the Indemnified Party and the Indemnifying Party that would make such
separate representation advisable; and provided, further, that the
Indemnifying Party shall not be required to pay for more than one such counsel
for all Indemnified Parties in connection with any Third Party
Claim. Regardless of whether the Indemnifying Party assumes the
defense of any Third Party Claim, each party shall cooperate with the other
party in such defense and make available all witnesses, pertinent records,
materials and information in its possession or under its control relating
thereto as is reasonably required by the other party. The party
controlling such defense shall keep the other party hereto advised of the status
of such Third-Party Claim and the defense thereof and shall consider
recommendations made by the other party hereto with respect
thereto. The Indemnifying Party shall not agree to any settlement of
such Third-Party Claim that imposes any liability or obligation on the
Indemnified Party or that does not include a full, complete and unconditional
release of the Indemnified Party from all liability with respect thereto, in
each case, without the prior written consent of the Indemnified Party. The
Indemnified Party shall not agree to any settlement of such Third-Party Claim
without the prior written consent of the Indemnifying Party.
(c) In
the event any Indemnified Party should have a claim against any Indemnifying
Party hereunder that does not involve a Third Party Claim being asserted against
or sought to be collected from such Indemnified Party, the Indemnified Party
shall deliver notice of such claim promptly to the Indemnifying Party,
describing in reasonable detail the facts giving rise to any claim for
indemnification hereunder, the amount or method of computation of the amount of
such claim (if known) and copies of any relevant documentation evidencing such
claim. The failure to provide such notice, however, shall not release
the Indemnifying Party from any of its obligations under this Article IX except to
the extent and solely that the Indemnifying Party is prejudiced by such
failure. The Indemnified Party shall reasonably cooperate and assist
the Indemnifying Party in determining the validity of any claim for indemnity by
the Indemnified Party and in otherwise resolving such matters. Such
assistance and cooperation shall include providing reasonable access to and
copies of information, records and documents relating to such matters,
furnishing employees to assist in the investigation, defense and resolution of
such matters and providing legal and business assistance with respect to such
matters.
9.5 Limits on
Indemnification.
(a) No
claim may be asserted against either party for breach of any representation,
warranty or covenant contained herein, unless written notice of such claim is
received by such party pursuant to the terms hereof on or prior to the date on
which the representation, warranty or covenant on which such claim is based
ceases to survive as set forth in Section 9.1, in which
case such representation, warranty or covenant shall survive as to such claim
until such claim has been finally resolved.
(b) Notwithstanding
anything to the contrary contained in this Agreement:
(i)
the maximum aggregate amount of indemnifiable Losses that may be recovered from
the Selling Stockholder by Purchaser Indemnified Parties pursuant to Section 9.2(a)
(other than for breach of a Fundamental Representation or an Intentional Breach)
for claims made prior to the first anniversary of the Closing Date shall be an
amount equal to $4,000,000;
(ii)
the maximum aggregate amount of indemnifiable Losses that may be recovered from
the Selling Stockholder by Purchaser Indemnified Parties pursuant to Section 9.2(a)
(other than for breach of a Fundamental Representation or an Intentional Breach)
for claims made after the first anniversary of the Closing Date but prior to the
second anniversary of the Closing Date shall be an amount equal to (A)
$2,000,000 minus (B)
the aggregate amount of any indemnifiable Losses that were claimed during the
first year after Closing Date and were recovered or are still pending (which
shall be zero if such calculation results in a negative number); provided, however, that if any
pending claims from the first year after the Closing Date are resolved in favor
of the Selling Stockholder prior to the second anniversary of the Closing Date,
then the amount(s) of such claims resolved in favor of the Selling Stockholder
shall no longer be included in clause (B) above, and provided, further, that even if
Purchaser Indemnified Parties may not be able to recover indemnifiable Losses
under this clause (ii) due to a pending claim, Purchaser Indemnified Parties may
continue to make claims for indemnifiable Losses pursuant to Section 9.2(a) after
the first anniversary of the Closing Date but prior to the second anniversary of
the Closing Date until Purchaser Indemnified Parties have recovered $2,000,000
of indemnifiable Losses from the Selling Stockholder pursuant to Section 9.2(a) (other
than for breach of a Fundamental Representation or an Intentional
Breach);
(iii) In
addition to the offset rights under Section 9.5(f), the
maximum aggregate amount of indemnifiable Losses that are recoverable from
Selling Stockholder by Purchaser Indemnified Parties pursuant to Section 9.2(a) for
breaches of Fundamental Representations or an Intentional Breach shall be an
amount equal to the sum of all cash amounts actually received by the Selling
Stockholder pursuant to this Agreement, the Note or the Warrant, including the
Level 1 Earnout Amount, if any, and the Level 2 Earnout Amount, if
any.
(iv) the
Selling Stockholder shall not be liable to any Purchaser Indemnified Party for
any claim for indemnification pursuant to Section 9.2(a) (other
than for a breach of a Fundamental Representation or an Intentional Breach)
unless and until the aggregate amount of all indemnifiable Losses that may be
recovered from the Selling Stockholder equals or exceeds $500,000
(the “Basket”), and
thereafter the applicable party shall be liable for all Losses including Losses
up to and including the Basket;
(c) No
Losses shall be asserted by either party with respect to any matter which is
covered by insurance proceeds to the extent of such insurance
proceeds.
(d) In
determining the amount of any Losses for which any party seeks to be indemnified
hereunder, any and all Tax benefits resulting from such Losses shall be
excluded.
(e) For
purposes of determining the failure of any representations or warranties to be
true and correct, and calculating Losses hereunder, any materiality or Material
Adverse Effect qualifications in such representations and warranties shall be
disregarded.
(f) Subject
to the maximum amounts of indemnifiable Losses set forth in Sections 9.5(b)(i)
and 9.5(b)(ii)
for claims subject to such maximum amounts, if Purchaser has obtained the
written consent of the Selling Stockholder or a final and non-appealable order
of a court of competent jurisdiction that the Selling Stockholder owes any
Losses under Section
9.2, then at the option of Purchaser (i) the principal amount owing under
the Note may be reduced by any Losses owed to Purchaser hereunder and not paid
by the Selling Stockholder, or (ii) any payments owed by Purchaser under Section 3.7 may be
reduced by any Losses owed to Purchaser and not paid to the Selling Stockholder,
or (iii) any payments owed by Theatre Direct under the Warrant may be reduced by
any Losses owed to Purchaser and not paid to the Selling Stockholder or (iv)
Purchaser may take any combination of the actions set forth in clauses (i), (ii)
or (iii) of this subsection without duplication of payment. In addition, if
there are any claims which have been consented to by the Selling Stockholder or
for which Purchaser has obtained a final and non-appealable order of a court of
competent jurisdiction that the Selling Stockholder owes Losses under Section
9.2 but the value or amount of the Losses have not been so consented to or
finally determined and Selling Stockholder has not paid all of the Losses with
respect to such claims at the time a payment is made to the Selling Stockholder
under the Note, Section 3.7 or the
Warrant, then (x) the Selling Stockholder agrees not to distribute or dividend
any such payments received by it to its stockholders until Purchaser and Selling
Stockholder determine in good faith the amount of the reasonably estimated
Losses which Purchaser will incur under such claims (the “Estimated Losses”),
and (y) upon such determination, Selling Stockholder shall not distribute or
dividend to its stockholders the portion of such payments equal to the Estimated
Losses not paid by Selling Stockholder until the value of all of the Losses with
respect to such claims have been finally determined and paid by the Selling
Stockholder.
9.6 Section 338(h)(10)
Election.
(a)
Upon the request of Purchaser, the Selling Stockholder shall, or shall cause its
Affiliates to, join with Purchaser in making an election under Section
338(h)(10) of the Code and the Treasury Regulations and any corresponding or
similar elections under state, local or foreign tax law (collectively, the
“Section 338(h)(10)
Election”) with respect to the Companies. Any such request
shall be made by Purchaser in writing within thirty (30) days after the Closing
Date. For the purpose of making the Section 338(h)(10) Election for
federal income tax purposes, on or prior to the 60th day following the Closing
Date, the Selling Stockholder shall deliver to Purchaser an executed original
IRS Form 8023 (or successor form). If no Section 338(h)(10) Election
is to be made, the Form 8023 will be returned to the Selling Stockholder within
one hundred twenty (120) days after the Closing Date. If a Section
338(h)(10) Election is to be made, Purchaser will file the Form 8023 with the
IRS at least thirty (30) days prior to the due date of such form, and Purchaser
will provide the Selling Stockholder a copy of such filing. In the event
Purchaser does not request that the Selling Stockholder join in making the
Section 338(h)(10) Election, the remainder of the provisions of this Section 9.6 shall not
apply.
(b) Except
as otherwise specifically provided above, Purchaser shall be responsible for the
preparation and filing of all forms and documents required to effectuate the
Section 338(h)(10) Election. In addition to the Form 8023, the
Selling Stockholder shall execute (or cause to be executed) and deliver to
Purchaser such additional documents or forms as are reasonably requested to
complete properly the Section 338(h)(10) Election at least thirty (30) days
prior to the date such Section 338(h)(10) Election is required to be
filed.
(c) Purchaser
and the Selling Stockholder shall file, and shall cause their Affiliates to
file, all Tax Returns and statements, forms and schedules in connection
therewith in a manner consistent with the Section 338(h)(10) Election and shall
take no position contrary thereto unless required to do so by applicable
Laws.
(d) Within
(60) days after notifying the Selling Stockholder of its intent to make a
Section 338(h)(10) Election, Purchaser shall provide to the Selling Stockholder
a statement (the “Allocation
Statement”) allocating the Purchase Price and any other items that are
treated as additional Purchase Price for tax purposes among the Companies and
among the different items of assets of the Companies, in a manner consistent
with applicable Tax Laws. Purchaser shall provide the Selling
Stockholder a reasonable opportunity to review and comment on the Allocation
Statement and cooperate in good faith with the Selling Stockholder to resolve
any disagreement relating to the calculations or allocations set forth in the
Allocation Statement. In the event that Selling Stockholder disagrees
within any item on such Allocation Statement, the Selling Stockholder and
Purchaser shall engage the Independent Accountant to resolve such dispute in
accordance with the procedures set forth in Section 3.3(c), with
the costs of such engagement to be divided equally between the Selling
Stockholder and Purchaser. The Independent Accountant shall make a
determination as to which of the Selling Stockholder’s position and Purchaser’s
position as to the allocation of Purchase Price on the Allocation Statement is
more appropriate under applicable Tax Laws, within thirty (30) days after the
Independent Accountant is engaged, and such determination shall be final and
binding on the parties for all purposes of this Section
9.6. Purchaser and the Selling Stockholder shall allocate the
Purchase Price in accordance with the Allocation Statement, and all Tax Returns
and reports filed by Purchaser, the Selling Stockholder, and their respective
Affiliates shall be prepared consistently with such allocation.
9.7 Tax
Indemnification. The Selling Stockholder shall save, defend,
indemnify and hold harmless the Purchaser Indemnified Parties from and against
any and all Losses arising out of, in connection with or resulting from any
Taxes:
(a) imposed
on or payable by any of the Companies under Treasury Regulation 1.1502-6 (or any
similar provision of state, local or foreign law) by reason of such Company
being included in any consolidated, affiliated, combined, unitary or similar
group at any time on or before the Closing Date;
(b) imposed
on or payable by any of the Companies with respect to any Tax period that ends
on or before the Closing Date or includes the Closing Date;
(c) imposed
as a result of or attributable to any Section 338(h)(10) Election;
or
(d) attributable
to any breach of a representation made in Section
5.10.
ARTICLE
X
MISCELLANEOUS
10.1 Payment of Sales, Use or
Similar Taxes. All sales, use, transfer, intangible,
recordation, documentary stamp or similar Taxes or charges, of any nature
whatsoever, applicable to, or resulting from, the Transactions shall be borne
one-half by Purchaser and one-half by the Selling Stockholder.
10.2 Expenses. Except
as otherwise provided in this Agreement, each of the Selling Stockholder and
Purchaser shall bear its own expenses incurred in connection with the
negotiation and execution of this Agreement and each other agreement, document
and instrument contemplated by this Agreement and the consummation of the
Transactions.
10.3 Submission to Jurisdiction;
Consent to Service of Process; Waiver of Jury Trial.
(a) The
parties hereto hereby irrevocably submit to the exclusive jurisdiction of any
federal or state court located within the borough of Manhattan of the City,
County and State of New York over any dispute arising out of or relating to this
Agreement or any of the Transactions or any suit, action proceeding related
thereto may be heard and determined in such courts. The parties
hereby irrevocably waive, to the fullest extent permitted by applicable law, any
objection which they may now or hereafter have to the laying of venue of any
such dispute brought in such court or any defense of inconvenient forum for the
maintenance of such dispute. Each of the parties hereto agrees that a
judgment in any such dispute may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law.
(b) Each
of the parties hereto hereby consents to process being served by any party to
this Agreement in any suit, action or proceeding by the delivery of a copy
thereof in accordance with the provisions of Section
10.6.
(c)
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS TO TRIAL
BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS
AGREEMENT.
10.4 Entire Agreement; Amendments
and Waivers. This Agreement (including the Schedules and
Exhibits hereto) and the Confidentiality Agreement represent the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereof and thereof. This Agreement can be amended,
supplemented or changed, and any provision hereof can be waived, only by written
instrument making specific reference to this Agreement signed by the party
against whom enforcement of any such amendment, supplement, modification or
waiver is sought; provided, however, that
following receipt of the Company Shareholder Approval, no such amendment,
supplement or change that requires shareholder approval under the Florida
Business Corporation Act shall be made by the Selling Stockholder without first
obtaining such shareholder approval. No action taken pursuant to this
Agreement, including any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by the party taking such action of compliance with
any representation, warranty, covenant or agreement contained
herein. The waiver by any party hereto of a breach of any provision
of this Agreement shall not operate or be construed as a further or continuing
waiver of such breach or as a waiver of any other or subsequent
breach. No failure on the part of any party to exercise, and no delay
in exercising, any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of such right, power or remedy
by such party preclude any other or further exercise thereof or the exercise of
any other right, power or remedy.
10.5 Governing
Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and performed in such State without giving effect to the choice of law
principles of such state that would require or permit the application of the
laws of another jurisdiction, except for matters that are required to be
determined with respect to the Selling Stockholder by the Florida Business
Corporation Act, which shall be governed by and construed in accordance with the
laws of the State of Florida.
10.6 Notices. All
notices and other communications under this Agreement shall be in writing and
shall be deemed given (i) when delivered personally by hand (with written
confirmation of receipt), (ii) when sent by facsimile (with written confirmation
of transmission) or (iii) one Business Day following the day sent by overnight
courier (with written confirmation of receipt), in each case at the following
addresses and facsimile numbers (or to such other address or facsimile number as
a party may have specified by notice given to the other party pursuant to this
provision):
If to the
Selling Stockholder, to:
Hollywood
Media Corp.
2255
Glades Road, Suite 221A
Boca
Raton, Florida 33431
Facsimile:
(561) 998-2974
Attention:
Mitchell Rubenstein
With a
copy (which shall not constitute notice) to:
Weil,
Gotshal & Manges LLP
767 Fifth
Avenue
New York,
New York 10153
Facsimile:
(212) 833-8007
Attention: S.
Scott Parel
Marita A. Makinen
If to
Purchaser, to:
Key Brand
Entertainment Inc.
1619
Broadway, 9th Floor
New York,
NY 10019
Attention:
John Gore and Liam Lynch
Facsimile:
(971) 421-5430
And
to:
Key Brand
Entertainment Inc.
10880
Wilshire Boulevard, Suite 870
Los
Angeles, CA 90024
Attention:
David Bauer Stern, Esq. and Tom McGrath
Facsimile:
(310) 446-4930
With a
copy (which shall not constitute notice) to:
Jeffer,
Mangels, Butler & Marmaro LLP
1900
Avenue of the Stars, 7th Floor
Los
Angeles, CA 90067
Facsimile:
(310) 203-0567
Attention:
Frederick W. Gartside, Esq.
10.7 Severability. If
any term or other provision of this Agreement is invalid, illegal, or incapable
of being enforced by law or public policy, all other terms or provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the Transactions is not affected in any manner
materially adverse to any party. Upon such determination that any
term or other provision is invalid, illegal, or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner in order that the Transactions are consummated as originally
contemplated to the greatest extent possible.
10.8 Binding Effect;
Assignment. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and permitted
assigns. Nothing in this Agreement shall create or be deemed to
create any third party beneficiary rights in any person or entity not a party to
this Agreement except as expressly stated herein or as provided
below. No assignment of this Agreement or of any rights or
obligations hereunder may be made by either the Selling Stockholder or
Purchaser, directly or indirectly (by operation of law or otherwise), without
the prior written consent of the other parties hereto and any attempted
assignment without the required consents shall be void; provided, however, that after
Closing and subject to its compliance with Section 3.7(d), the
Purchaser may assign this Agreement to an acquiror or a successor of the
Companies or in connection with a sale of all or substantially all of the assets
of Purchaser without the consent of the Selling Stockholder. No assignment of
any obligations hereunder shall relieve the parties hereto of any such
obligations. Upon any such permitted assignment, the references in
this Agreement to Purchaser shall also apply to any such assignee unless the
context otherwise requires.
10.9 Non-Recourse. No
past, present or future director, officer, employee, incorporator, member,
partner, stockholder, Affiliate, agent, attorney or representative of the
Selling Stockholder, the Companies or any of their respective Affiliates shall
have any liability for any obligations or liabilities of the Selling Stockholder
or the Companies under this Agreement of or for any claim based on, in respect
of, or by reason of, the Transactions.
10.10 Counterparts. This
Agreement may be executed in multiple counterparts and by facsimile or other
electronic means, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
10.11 Specific
Enforcement. The parties hereby agree that irreparable damage
would occur in the event that any of the provisions of this Agreement required
to be performed by such party were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed
that each party shall be entitled to seek an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically the terms and
provisions of this Agreement in addition to any other remedy to which it is
entitled at law or in equity. Notwithstanding the foregoing, nothing
in this Section
10.11 shall require the Purchaser to consummate the Transactions at the
Closing Date and the Selling Stockholder’s remedies for any such failure shall
be governed by Section
4.4(d).
10.12 Attorneys’
Fees. In the event that any suit or action is instituted prior
to Closing in connection with any termination of this Agreement pursuant to
Article IV, the
prevailing party in such dispute shall be entitled to recover from the losing
party all reasonable fees, costs and expenses of enforcing any right of such
prevailing party under or with respect to this Agreement, including, such
reasonable fees and expenses of attorneys and accountants, which shall include
all fees, costs and expenses of appeals. Nothing contained in this
subsection shall limit the rights of the parties under Article IX of this
Agreement if the Closing occurs.
**
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK **
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by
their respective authorized officers, as of the date first written
above.
HOLLYWOOD
MEDIA CORP.
|
|
|
By:
|
/s/ Mitchell Rubenstein
|
|
Name: Mitchell
Rubenstein
|
|
Title:
Chairman and CEO
|
|
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KEY
BRAND ENTERTAINMENT INC.
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|
|
By:
|
/s/ John Gore
|
|
Name: John
Gore
|
|
Title:
Chief Executive Officer
|
AMENDMENT
NO. 1 TO
STOCK
PURCHASE AGREEMENT
AMENDMENT
NO. 1 TO STOCK PURCHASE AGREEMENT, dated as of January 13, 2010 (this
“Amendment”),
is by and between Key Brand Entertainment Inc. a Delaware corporation (“Purchaser”), and
Hollywood Media Corp., a Florida corporation (the “Selling
Stockholder”).
WITNESSETH:
WHEREAS,
Purchaser and Selling Stockholder are parties to that certain Stock Purchase
Agreement, dated as of December 22, 2009 (the “Purchase Agreement”);
and
WHEREAS,
the parties desire to, subject to the terms and conditions contained herein,
amend the Purchase Agreement as set forth herein.
NOW,
THEREFORE, in consideration of the premises and the mutual covenants and
agreements contained herein and in the Purchase Agreement, the parties hereto
agree as follows:
1. Definitions. Capitalized
terms used herein but not defined herein shall have the meanings ascribed to
them in the Purchase Agreement.
2. Amendment to Purchase
Agreement. The
Purchase Agreement is hereby amended to replace the date “January 15, 2010”
contained in Section 7.2(a)(iii) of the Purchase Agreement to “January 22,
2010”.
3. No Further
Amendments. Except as amended by this Amendment, the Purchase
Agreement shall remain in full force and effect in accordance with its
terms.
4. Governing
Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and performed in such State without giving effect to the choice of law
principles of such state that would require or permit the application of the
laws of another jurisdiction, except for matters that are required to be
determined with respect to the Selling Stockholder by the Florida Business
Corporation Act, which shall be governed by and construed in accordance with the
laws of the State of Florida.
5. Counterparts. This
Amendment may be executed in multiple counterparts and by facsimile or other
electronic means, each of which will be deemed to be an original copy of this
Amendment and all of which, when taken together, will be deemed to constitute
one and the same agreement.
**
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK **
IN
WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by
their respective authorized officers, as of the date first written
above.
|
HOLLYWOOD
MEDIA CORP.
|
|
|
|
|
|
|
By:
|
/s/ Mitchell Rubenstein
|
|
|
|
Name:
|
Mitchell
Rubenstein
|
|
|
|
Title:
|
Chairman
and CEO
|
|
|
|
|
|
|
KEY
BRAND ENTERTAINMENT INC.
|
|
|
|
|
|
|
By:
|
/s/ David B. Stern
|
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|
|
Name:
|
|
|
|
|
Title:
|
Secretary
|
Signature
Page to Amendment No. 1 to Stock Purchase Agreement
AMENDMENT
NO. 2 TO
STOCK
PURCHASE AGREEMENT
AMENDMENT
NO. 2 TO STOCK PURCHASE AGREEMENT, dated as of January 21, 2010 (this
“Amendment”),
is by and between Key Brand Entertainment Inc. a Delaware corporation (“Purchaser”), and
Hollywood Media Corp., a Florida corporation (the “Selling
Stockholder”).
WITNESSETH:
WHEREAS,
Purchaser and Selling Stockholder are parties to that certain Stock Purchase
Agreement, dated as of December 22, 2009, as amended by that Amendment No. 1 to
Stock Purchase Agreement, dated as of January 13, 2010 (the “Purchase Agreement”);
and
WHEREAS,
the parties desire to, subject to the terms and conditions contained herein,
amend the Purchase Agreement as set forth herein.
NOW,
THEREFORE, in consideration of the premises and the mutual covenants and
agreements contained herein and in the Purchase Agreement, the parties hereto
agree as follows:
1. Definitions. Capitalized
terms used herein but not defined herein shall have the meanings ascribed to
them in the Purchase Agreement.
2. Amendment to Purchase
Agreement. The
Purchase Agreement is hereby amended to replace the date “January 22, 2010”
contained in Section 7.2(a)(iii) of the Purchase Agreement to “January 29,
2010”.
3. No Further
Amendments. Except as amended by this Amendment, the Purchase
Agreement shall remain in full force and effect in accordance with its
terms.
4. Governing
Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and performed in such State without giving effect to the choice of law
principles of such state that would require or permit the application of the
laws of another jurisdiction, except for matters that are required to be
determined with respect to the Selling Stockholder by the Florida Business
Corporation Act, which shall be governed by and construed in accordance with the
laws of the State of Florida.
5. Counterparts. This
Amendment may be executed in multiple counterparts and by facsimile or other
electronic means, each of which will be deemed to be an original copy of this
Amendment and all of which, when taken together, will be deemed to constitute
one and the same agreement.
**
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK **
IN
WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by
their respective authorized officers, as of the date first written
above.
|
HOLLYWOOD
MEDIA CORP.
|
|
|
|
|
|
|
By:
|
/s/ Mitchell Rubenstein
|
|
|
|
Name:
|
Mitchell
Rubenstein
|
|
|
|
Title:
|
Chairman
and CEO
|
|
|
|
|
|
|
KEY
BRAND ENTERTAINMENT INC.
|
|
|
|
|
|
|
By:
|
/s/ David
B. Stern
|
|
|
|
Name:
|
David
B. Stern
|
|
|
|
Title:
|
Secretary
|
Signature
Page to Amendment No. 2 to Stock Purchase Agreement
EXECUTION
COPY
AMENDMENT
NO. 3 TO STOCK PURCHASE AGREEMENT
AMENDMENT
NO. 3 TO STOCK PURCHASE AGREEMENT, dated as of April 9, 2010 (this “Amendment”),
is by and between Key Brand Entertainment Inc. a Delaware corporation (“Purchaser”), and Hollywood Media Corp., a Florida
corporation (the “Selling
Stockholder”).
WITNESSETH:
WHEREAS,
Purchaser and Selling Stockholder are parties to that certain Stock Purchase
Agreement, dated as of December 22, 2009, as amended by that Amendment No. 1 to
Stock Purchase Agreement, dated as of January 13, 2010, and that Amendment No. 2
to the Stock Purchase Agreement, dated as of January 21, 2010 (the “Purchase
Agreement”); and
WHEREAS,
the parties desire to, subject to the terms and conditions contained herein,
amend the Purchase Agreement as set forth herein.
NOW,
THEREFORE, in consideration of the premises and the mutual covenants and
agreements contained herein and in the Purchase Agreement, the parties hereto
agree as follows:
1.
Definitions.
Capitalized terms used herein but not defined herein shall have the meanings
ascribed to them in the Purchase Agreement.
2.
Amendment to Purchase
Agreement. The Purchase Agreement is hereby amended to replace the date
“June 22,2010” contained in Section 4.2(a) of the Purchase Agreement with “July
30, 2010”.
3.
No Further
Amendments. Except as amended by this Amendment, the Purchase Agreement
shall remain in full force and effect in accordance with its terms.
4.
Governing Law. This
Amendment shall be governed by and construed in accordance with the laws of the
State of New York applicable to contracts made and performed in such State
without giving effect to the choice of law principles of such state that would
require or permit the application of the laws of another jurisdiction, except
for matters that are required to be determined with respect to the Selling
Stockholder by the Florida Business Corporation Act, which shall be governed by
and construed in accordance with the laws of the State of Florida.
5.
Counterparts. This
Amendment may be executed in multiple counterparts and by facsimile or other
electronic means, each of which will be deemed to be an original copy of this
Amendment and all of which, when taken together, will be deemed to constitute
one and the same agreement.
**
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK **
IN
WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by
their respective authorized officers, as of the date first written
above.
|
HOLLYWOOD
MEDIA CORP.
|
|
|
|
|
|
|
By:
|
/s/
Scott Gomez |
|
|
Name:
Scott Gomez
|
|
|
Title:
CAO
|
|
|
|
|
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KEY
BRAND ENTERTAINMENT INC.
|
|
|
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|
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By:
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/s/ Liam Lynch |
|
|
Name: Liam
Lynch
|
|
|
Title:
Chief Financial
Officer
|
Signature
Page to Amendment No. 3 to Stock Purchase Agreement
Annex
B
Terms
of the Promissory Note
Borrower:
|
Key
Brand Entertainment Inc. (the “Borrower”).
|
|
|
Lender:
|
Hollywood
Media Corp. (the “Lender”).
|
|
|
Agent:
|
JPMorgan
Chase Bank, N.A. (the “Agent”).
|
|
|
Credit
Agreement:
|
That
certain Credit, Security, Pledge and Guaranty Agreement, dated as of
January 23, 2008, by and among, inter alios, the
Borrower, Toronto Theater Ltd., the guarantors and lenders named therein,
and the Agent, as amended by that Amendment No. 1 to Credit Agreement,
dated as of August 22, 2008 (the “Credit Agreement”).
|
|
|
Second
Lien Facilities:
|
A
second lien facility to be entered into among the Borrower, Theatre Direct
NY, Inc. (the “Company”), the
Lender and the Agent in connection with the closing of the Transactions
(the “Second Lien
Facilities”).
|
|
|
Second
Lien Note:
|
The
promissory note to be delivered in connection with the closing of the
Second Lien Facilities (the “Note”).
|
|
|
Principal
Amount:
|
$8,500,000,
subject to reduction as set forth in the following
paragraph.
|
|
|
Adverse
Ticketing
Regulations:
|
The
principal amount of the Second Lien Facilities and the Note shall be
subject to reduction by up to $5,000,000 upon any adverse change in state
or federal ticketing regulations that takes effect within two years of the
Closing Date that restricts or limits the amount of services fees that may
be charged on the resale of tickets (“Adverse Ticketing
Regulations”), the actual amount of any such reduction to be
determined by a valuation firm mutually acceptable to Lender and
Borrower.
Any
reduction of the principal amount of the Second Lien Facilities and the
Note shall be added to the Earnout Amount as follows: (i) if no Earnout
Amount has been earned, 50% of such reduction shall be added to the Level
1 Earnout Amount (as the Level 1 Regulatory Earnout Amount) and 50% of
such reduction shall be added to the Level 2 Earnout Amount (as the Level
2 Regulatory Earnout Amount); and (ii) if the Level 1 Earnout Amount
has been earned and the Level 2 Earnout Amount has not been earned, then
100% of such reduction shall be added to the Level 2 Earnout Amount (as
the Level 2 Regulatory Earnout Amount); provided, however, if the entire
Earnout Amount has been earned, there will be no such reduction in the
Note for such Adverse Ticketing
Regulation.
|
Interest
Rate:
|
12%
per annum, payable in quarterly in cash.
|
|
|
Maturity:
|
The
Note will be payable in full upon on the fifth anniversary of the Closing
Date.
|
|
|
Mandatory
Prepayment:
|
The
Second Lien Facilities and the Note will accelerate and become immediately
due and payable upon any event of default (to be defined in a manner
consistent with the definition of Events of Default in the Credit
Agreement, but excluding as an Event of Default any Change in Management
(as defined in the Credit Agreement)) or a change in control (to be
defined in a manner consistent with the definition of Change in Control in
the Credit Agreement and which shall also include any sale, transfer,
disposition or change in control of the Company).
|
|
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Voluntary
Prepayment:
|
Subject
to the terms of the Credit Agreement and the Intercreditor Agreement (as
defined below), the obligations under the Second Lien Facility and the
Note may be voluntarily prepaid in whole or in part in minimum amounts of
no less than $25,000.
|
|
|
Ranking:
|
The
obligations under the Second Lien Facilities and the Note will be
subordinated to up to $15,000,000 in the aggregate of senior indebtedness
(plus all interest accrued thereon from and after the Closing Date),
including amounts outstanding under the Credit Agreement or any renewal or
replacement thereof.
|
|
|
Security:
|
The
obligations under the Second Lien Facilities and the Note will be secured
on a second priority basis by (i) a perfected pledge of the capital
stock of the Company and each direct or indirect subsidiary of the Company
(subject, in the case of any foreign direct subsidiary, to a pledge of 65%
of the capital stock of such foreign subsidiary) and (ii) perfected
security interests in substantially all tangible and intangible assets of
the Company and each direct or indirect US domestic subsidiary of the
Company (including equipment, investment property, intellectual property,
other general intangibles, real property and proceeds of the foregoing),
which shall include a mortgage on any owned real estate but not leased
real
estate.
|
Facilities
Documentation
and
Intercreditor
Agreement:
|
The
Second Lien Facilities shall be documented pursuant to a loan agreement,
security documents and other ancillary documents containing terms and
conditions (including representations, warranties, affirmative covenants,
negative covenants and events of default) which are substantially the same
as those set forth for the Credit Agreement except (i) as otherwise
set forth herein, (ii) the Second Lien Facilities shall not contain any
financial ratio covenants, (iii) for differences necessary or
customary to reflect the relative ranking of the Credit Agreement and the
Second Lien Facilities, (iv) that no representations and warranties shall
be given covering any period prior to the Closing Date with respect to the
Company or any of its subsidiaries and (v) events of default shall not
include any Change in Management.
An
intercreditor agreement (the “Intercreditor
Agreement”) shall be executed between the Lender, the Borrower and
the Agent, which shall contain market standard provisions as between first
lien and second lien facilities and any other conditions required by Agent
and agreed to by the Lender, including (i) permitted enforcement by the
Lenders under the Second Lien Facility after a standstill period to be
agreed in the event of non-payment of principal or interest, and a
standstill period to be agreed in the case of a breach of any other
provisions; (ii) a payment blockage period to be agreed, (iii) a provision
which permits Lender to file Lender's claim in any bankruptcy of Borrower
and vote Lender's claim, (iv) a provision which will require Agent not to
disproportionately foreclose on the collateral for the Note as compared to
the other assets which are collateral under Credit Agreement, and (v) a
provision which permits Borrower to make mandatory payments of principal
and interest on the Note (other than upon on acceleration due to an event
of default) when there is no event of default under the Credit
Agreement.
|
|
|
Refinancing
or
Replacement
of the
Credit
Agreement:
|
The
loans under the Credit Agreement may be refinanced or replaced by the
Borrower so long as any intercreditor agreement to be agreed with the new
senior lender does not contain provisions which are adverse to Lender
(including with respect to ranking as set forth above) as compared to the
provisions of the Intercreditor Agreement with Agent then in effect with
respect to the Credit Agreement.
|
|
|
Assignments
and
Participations:
|
No
assignments or transfers by the Borrower or the Company. The
Lender may assign or transfer participations in the Second Lien Facilities
without restriction, except prior to any assignment or transfer of
participations Borrower shall have the right to purchase the
participations for a price equal to 102.5% of the amount offered for such
participations by the proposed purchaser thereof.
|
|
|
Governing
Law and
Forum:
|
New
York.
|
Annex
C
THE
SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY
NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION
STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR
SUCH LAWS.
WARRANT
to
purchase shares of
Common
Stock
of
Theatre
Direct NY, Inc.
a
Delaware corporation
Issue
Date: [●], 20__
1. Definitions. As
used herein the following capitalized terms shall have the meanings indicated
below.
“Affiliate” means, with
respect to any Person, any other Person that, directly or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, such Person, and the term “control” (including the terms
“controlled by” and “under common control with”) means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through ownership of voting securities, by
contract or otherwise.
“Board of Directors” means the
board of directors of the Corporation, including, if applicable, any duly
authorized committee thereof.
“Business Day” means any day
of the year on which national banking institutions in New York are open to the
public for conducting business and are not required or authorized to
close.
“Change of Control” means any
transaction or series of related transactions, whether or not the Corporation is
a party thereto, in which, after giving effect to such transaction or
transactions, the outstanding Corporation Securities (on an as-converted or
as-exercised basis) then representing in excess of fifty percent (50%) of the
voting power or economic rights of the Corporation are owned directly by any
“person” or “group” (as such terms are used in Section 13(d) of the Exchange
Act) of Persons, other than KBE and/or any of its Affiliates (including any
wholly-owned subsidiary of KBE).
“Common Stock” means the
Corporation’s authorized shares of common stock, par value $0.01 per share, and
any stock into which such common stock may hereafter be converted, changed or
reclassified.
“Common Stock Equivalents”
means, without duplication, any security of the Corporation that is convertible
into, exercisable or exchangeable for, or options, warrants or other rights to
acquire, directly or indirectly, Common Stock, whether at the time of issuance
or upon the passage of time or the occurrence of some future event.
“Corporation” means Theatre
Direct NY, Inc., a Delaware corporation and any of its successors.
“Corporation Securities” means
the Common Stock and/or Common Stock Equivalents, as applicable.
“Conversion Event” shall mean
(A) any direct or indirect, whether occurring in any transaction or a series of
related transactions, (i) sale, lease, license, exchange or other
disposition of an or substantially all of the assets of the Corporation and its
subsidiaries taken as a whole (including securities of the Corporation’s
directly or indirectly owned subsidiaries), or (ii) merger, consolidation, share
purchase, share exchange, business combination or recapitalization, tender or
exchange offer or other similar transaction involving the Corporation or any of
its subsidiaries (other than solely among or between the Corporation and any of
its subsidiaries), in which the Corporation is not the continuing or surviving
entity, in which the stockholders of the Corporation immediately prior to such
transaction or transactions do not hold at least 50% of the voting power of the
continuing or surviving entity immediately after such transaction or
transactions, or pursuant to which Corporation Securities would be converted to
cash, securities or other property, (B) any public offering of the Common Stock
or any other equity securities of the Corporation or any of its successors, (C)
any Change of Control or (D) any liquidation, dissolution or winding up of the
Corporation.
“Economic Affiliate” means any
Person of which KBE and/or any stockholder of KBE owns or is the beneficiary of,
directly or indirectly through one or more intermediaries, 50% or more of the
economic interests, income, profits, distributions or other similar rights or
payments, whether through ownership of equity interests, by contract or
otherwise. "Economic Affiliate" also means any Person which owes to
KBE and/or any stockholder of KBE, directly or indirectly through one or more
intermediaries, indebtedness in an amount (including any interest, premium or
other payments) that represents more than 50% of the total enterprise value of
such Person.
“Exchange Act” means the
Securities Exchange Act of 1934, as amended, or any successor statute, and the
rules and regulations promulgated thereunder.
“Exercise Price” means $0.01
per share of Common Stock.
“Governmental Body” means any
government or governmental or regulatory body thereof, or political subdivision
thereof, whether federal, state, local or foreign, or any agency,
instrumentality or authority thereof, or any court or arbitrator (public or
private).
“Issue Date” means [●],
20__.
“KBE” means Key Brand
Entertainment, Inc.
“KBE Group” means KBE or any
of its direct or indirect stockholders.
“Person” means any individual,
corporation, partnership, limited liability company, firm, joint venture,
association, joint-stock company, trust, unincorporated organization,
Governmental Body or other entity.
“Preferred Stock” means any
authorized class or series of capital stock of the Corporation which has any
rights, privileges or preferences with respect to dividends or other
distributions or upon liquidation or any deemed liquidation that are senior to
the Common Stock.
“Preferred Stock Investment
Amount” means the total cash consideration actually paid to the
Corporation by any Person for the sale or issuance by the Corporation of any
Preferred Stock to such Person.
“Purchase Agreement” means
that certain Stock Purchase Agreement, dated as of December [·], 2009, as may be amended
from time to time, between the Corporation and the Warrantholder, including all
schedules and exhibits thereto.
“Regulatory Approvals” with
respect to the Warrantholder, means, to the extent applicable and required to
permit the Warrantholder to exercise this Warrant for the Shares and to own such
Shares without the Warrantholder being in violation of any applicable law, rule
or regulation, the receipt of any necessary approvals and authorizations of,
filings and registrations with, or notifications to any Governmental Body,
including the expiration or termination of any applicable waiting period under,
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations thereunder.
“SEC” means the U.S.
Securities and Exchange Commission.
“Securities Act” means the
Securities Act of 1933, as amended, or any successor statute, and the rules and
regulations promulgated thereunder.
“Warrant” means this Warrant
as it may be amended, modified or replaced from time to time.
2. Number of Shares; Exercise
Price. This certifies that, for value received, HOLLYWOOD
MEDIA CORP. (together with its successors and assigns, the “Warrantholder”) is entitled,
upon the terms and subject to the conditions hereinafter set forth, to acquire
from the Corporation [_________]1 shares of Common Stock
(the “Shares”), at a
purchase price per share equal to the Exercise Price. The number of
Shares and the Exercise Price are subject to adjustment as provided herein, and
all references to “Shares” and “Exercise Price” herein shall be deemed to
include any such adjustment or series of adjustments.
3. Conversion Event; Exercise
of Warrant. This Warrant shall only be exercisable if a
Conversion Event occurs and shall only be exercised in whole not in part. The
Corporation shall notify the Warrantholder of any Conversion Event, as promptly
as practicable and in any event at least ten (10) Business Days prior to the
consummation of such Conversion Event, which notice shall contain the material
terms and conditions of such Conversion Event and the confirmation of the
Warrantholder’s rights under this Section 3. The right to purchase
the Shares represented by this Warrant shall be exercisable, in whole and not in
part, by the Warrantholder in connection with and subject to the consummation or
occurrence of any Conversion Event by (A) the surrender of this Warrant and
delivery of the Notice of Exercise annexed hereto at the principal executive
office of the Corporation located at 1619 Broadway, 9th Floor, New York, NY
10019 (or such other office or agency of the Corporation in the United States as
it may designate by notice in writing to the Warrantholder), and (B) payment of
the Exercise Price for the Shares at the election of the Warrantholder by
tendering in cash, by certified or cashier’s check payable to the order of the
Corporation, or by wire transfer of immediately available funds to an account
designated by the Corporation.
4.
Issuance of Shares;
Authorization; Listing. If this Warrant has been duly
exercised in accordance with the terms of this Warrant, certificates for Shares
issuable upon exercise of this Warrant will be issued in such name or names as
the Warrantholder may designate and will be delivered to such named Person or
Persons no later than three (3) Business Days after the date on which this
Warrant has been duly exercised in accordance with the terms of this Warrant;
provided, however, if the Shares are converted into cash, securities or other
property pursuant to the Conversion Event resulting in the exercise hereof, then
the Shares shall not be issued and this Warrant shall entitle the holder thereof
to receive the cash, securities and/or other property payable for the Shares
issuable upon exercise of this Warrant. The Corporation agrees that the Shares
so issued will be deemed to have been issued to the Warrantholder as of the
close of business on the date on which this Warrant and payment of the Exercise
Price are delivered to the Corporation in accordance with the terms of this
Warrant, notwithstanding that the stock transfer books of the Corporation may
then be closed or certificates representing such Shares may not be actually
delivered on such date. The Corporation hereby represents and
warrants that the Shares issuable upon the exercise of this Warrant in
accordance with the provisions of Section 3 when issued will be duly and validly
authorized and issued, fully paid and nonassessable and free from all taxes,
liens and charges. The Corporation will at all times reserve and keep
available, out of its authorized but unissued Common Stock, solely for the
purpose of providing for the exercise of this Warrant, the aggregate number of
Shares issuable upon exercise of this Warrant. The Corporation will
use commercially reasonable efforts to ensure that the Shares may be issued
without violation of any applicable law or regulation or of any requirement of
any securities exchange on which the Shares are listed or traded. The
Corporation will reasonably cooperate to take such other actions as are
necessary to obtain any Regulatory Approvals applicable to Warrantholder’s
exercise of its rights hereunder, including with respect to the issuance of the
Shares.
5. Fractional
Shares. Fractional Shares may be issued upon any exercise of
this Warrant.
6. No Rights as Stockholders;
Transfer Books. Except as set forth herein, this Warrant does
not entitle the Warrantholder to any voting rights or other rights as a
stockholder of the Corporation prior to the date of exercise
hereof. The Corporation will at no time close its transfer books
against transfer of this Warrant in any manner which interferes with the timely
exercise of this Warrant.
7. Charges, Taxes and
Expenses. Issuance of certificates for Shares to the
Warrantholder upon the exercise of this Warrant shall be made without charge to
the Warrantholder for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificates, all of which taxes and expenses
shall be paid by the Corporation.
8. Transfer/Assignment. Prior
to delivery of a notice of redemption under Section 11 (A) hereof, this Warrant
and all rights hereunder are transferable, in whole or in part, upon the books
of the Corporation by the holder hereof in person or by duly authorized
attorney, and a new warrant shall be made and delivered by the Corporation, of
the same tenor and date as this Warrant but registered in the name of one or
more transferees, upon surrender of this Warrant, duly endorsed, to the office
or agency of the Corporation described in Section 3. All expenses
(other than stock transfer taxes) and other charges payable in connection with
the preparation, execution and delivery of the new warrants pursuant to this
Section 8 shall be paid by the Corporation. For all purposes of this
Warrant, if there is more than one Warrantholder at any time, all actions or
approvals hereunder, including the exercise of the Warrant under Section 3
hereof or the election to put the Warrant under Section 11(B) hereof by
Warrantholders, shall be made by a majority-in-interest of Warrantholders at
such time (based on the number of Shares exercisable under all Warrants) and any
such actions or approvals shall be binding on all Warrantholders.
9. Loss, Theft, Destruction or
Mutilation of Warrant. Upon receipt by the Corporation of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and in the case of any such loss, theft or
destruction, upon receipt of an, indemnity or security reasonably satisfactory
to the Corporation (but without requiring the posting of any bond or letter or
credit), or, in the case of any such mutilation, upon surrender and cancellation
of this Warrant, the Corporation shall make and deliver, in lieu of such lost,
stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and
representing the right to purchase the same aggregate number of Shares as
provided for in such lost, stolen, destroyed or mutilated Warrant.
10. Saturdays, Sundays,
Holidays, etc. If the last or appointed day for the taking of
any action or the expiration of any right required or granted herein shall not
be a Business Day, then such action may be taken or such right may be exercised
on the next succeeding day that is a Business Day.
11. Redemption and Put of
Warrant.
(A) At
any time after the first (1st) anniversary of the Issue Date, the Corporation
may elect to redeem this Warrant (or the Shares issued upon exercise of this
Warrant), in whole and not in part, in exchange for an amount equal to the
greater of (x) the aggregate Fair Market Value of the Shares on or about the
date of notice of redemption and (y) $1,000,000 (the “Redemption Price”) by
delivering to the Warrantholder a notice of redemption, which when delivered
shall be irrevocable by the Corporation and binding on the Corporation and the
Warrantholder, stating the Corporation’s intent to redeem this Warrant and the
effective date for such redemption (which shall not be more than ten (10)
Business Days from the date of such notice).
(B) At
any time after the seventh (7th) anniversary of the Issue Date, the
Warrantholder may elect to put this Warrant, in whole and not in part, to the
Corporation in exchange for an amount equal to the greater of (x) the aggregate
Fair Market Value of the Shares, and (y) $1,000,000 (the “Put Price”) by
delivering to the Corporation a put notice, which when delivered shall be
irrevocable by the Warrantholder and binding on the Warrantholder and the
Corporation, stating the Warrantholder’s intent to put this Warrant back to the
Corporation and the effective date of such put (which shall not be less than
twenty (20) Business Days from the date of such
notice). Notwithstanding the foregoing, if the Corporation has
delivered notice of a Conversion Event and such Conversion Event is consummated
within thirty (30) days thereof, the Warrantholder may not exercise the put
under this Section 11(B) until after such thirty (30) day period; provided that
such restriction shall apply to only one such notice.
(C) The
Redemption Price or the Put Price, as applicable, shall be payable by the
Corporation on the effective redemption or put date, as set forth in notices
delivered pursuant to clauses (A) or (B) of Section 11, as applicable, by wire
transfer of immediately available funds into an account designated by the
Warrantholder.
(D) For
purposes of this Warrant, “Fair Market Value” means fair
market value as mutually agreed by the Corporation and the Warrantholder; provided, however, that if such
parties are unable to reach such agreement within a fifteen (15) Business Day
period after one party delivers written notice to the other party that the
notifying party desires to determine Fair Market Value for purposes of this
Section 11, they shall promptly thereafter submit the matter to a mutually
agreeable (acting reasonably and in good faith) nationally recognized appraisal
firm with experience in such matters (the “Appraiser”) for a
binding determination. Upon selection of the Appraiser, the
Corporation and the Warrantholder shall submit to the Appraiser each of their
proposed determinations of fair market value and agree to execute a reasonable
engagement letter with the Appraiser in connection therewith. The
Corporation and the Warrantholder shall cooperate with the Appraiser and
promptly provide all documents and information requested by the
Appraiser. The Appraiser’s determination of fair market value shall
not be less than the Corporation’s submitted determination of fair market value
or more than the Warrantholder’s submitted determination of fair market value.
The Appraiser shall deliver to the Corporation and the Warrantholder, as
promptly as practicable (but in any case no later than thirty (30) days from the
date of engagement of the Appraiser), a report setting forth its calculation of
fair market value, including the basis and explanation therefor. Such
report shall be final and binding upon the Corporation and the Warrantholder,
shall be deemed a final arbitration award that is binding on the Corporation and
the Warrantholder, and neither the Corporation nor the Warrantholder shall seek
further recourse to courts or other tribunals, other than to enforce such
report. Judgment may be entered to enforce such report in any court
of competent jurisdiction. The Appraiser will determine the
allocation of the cost of its review and report based on the inverse of the
percentage its determination (before such allocation) bears to the total amount
of the differential between the fair market values as originally submitted by
the Corporation and the Warrantholder to the Appraiser. For example,
should the differential in the fair market values submitted by the parties
amount to $1,000 and the Appraiser awards $600 more than the Corporation’s
original determination of fair market value, then 60% of the costs of its review
would be borne by Corporation and 40% of the costs would be borne by the
Warrantholder. The Fair Market Value determined under this subsection
shall be the Fair Market Value for a redemption provided that notice of such
redemption is given within sixty (60) days after such determination
is made. In case the Corporation shall make any payment, dividend or
distribution (a “Distribution”) in the
form of indebtedness, assets, cash, rights or other property (excluding (i)
dividends pursuant to which subsection (A) of Section 12 as applicable and (ii)
any Distribution with respect to any shares of Preferred Stock up to the
Preferred Stock Investment Amount for such shares of Preferred Stock) on or with
respect to any equity securities (or securities exercisable for or convertible
into any equity securities) of the Corporation owned of record or beneficially
by any member of the KBE Group or any Economic Affiliate between the Issue Date
and the date of any determination of the Fair Market Value hereunder (whether by
mutual agreement of by the Appraiser), Fair Market Value shall include or take
into account the value of any and all such Distributions.
(E) In
the event of a redemption or put of this Warrant pursuant to this
Section 11 (including payment in full of the Redemption Price or Put Price,
as applicable), this Warrant shall automatically be cancelled and the
Warrantholder shall have no further rights under this Warrant.
12. Adjustments and Other
Rights. The Exercise Price and the number of Shares issuable
upon exercise of this Warrant shall be subject to adjustment from time to time
as follows; provided, that if more than one subsection of this Section 12 is
applicable to a single event, the subsection shall be applied that produces the
largest adjustment and no single event shall cause an adjustment under more than
one subsection of this Section 12 so as to result in duplication:
(A) Stock Splits, Subdivisions,
Reclassifications or Combinations. If the Corporation shall
(i) declare and pay a dividend or make a distribution on its Common Stock in
shares of Common Stock, (ii) subdivide or reclassify the outstanding shares of
Common Stock into a greater number of shares, or (iii) combine or reclassify the
outstanding shares of Common Stock into a smaller number of shares, the number
of Shares issuable upon exercise of this Warrant at the time of the record date
for such dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so that the
Warrantholder after such date shall be entitled to purchase the number of shares
of Common Stock which such holder would have owned or been entitled to receive
in respect of the shares of Common Stock subject to this Warrant after such date
had this Warrant been exercised immediately prior to such date. In
such event, the Exercise Price in effect at the time of the record date for such
dividend or distribution or the effective date of such subdivision, combination
or reclassification shall be adjusted to the number obtained by dividing (x) the
product of (1) the number of Shares issuable upon the exercise of this Warrant
before such adjustment and (2) the Exercise Price in effect immediately prior to
the record or effective date, as the case may be, for the dividend,
distribution, subdivision, combination or reclassification giving rise to this
adjustment by (y) the new number of Shares issuable upon exercise of this
Warrant determined pursuant to the immediately preceding sentence.
(B) Certain Issuances of
Corporation Securities. If the Corporation shall issue any
Corporation Securities (other than in a transaction to which subsection (A) of
this Section 12 is applicable) without consideration or at a consideration per
share of Common Stock (or having a conversion or exercise price per share of
Common Stock) that is less than the current Fair Market Value of the Common
Stock, in such event:
(i) the
number of Shares issuable upon the exercise of this Warrant immediately prior to
such issuance (the “Initial
Number”) shall be increased to the number obtained by multiplying the
Initial Number by a fraction (A) the numerator of which shall be the sum of (x)
the number of shares of Common Stock of the Corporation outstanding on such date
and (y) the number of additional shares of Common Stock issued (or into which
Common Stock Equivalents may be exercised or converted) and (B) the denominator
of which shall be the sum of (x) the number of shares of Common Stock
outstanding on such date and (y) the number of shares of Common Stock which the
aggregate consideration receivable by the Corporation for the total number of
shares of Common Stock so issued (or into which Common Stock Equivalents may be
exercised or converted) would purchase at the Fair Market Value on the date of
such issuance; and
(ii) the
Exercise Price payable upon exercise of this Warrant shall be adjusted by
multiplying such Exercise Price in effect immediately prior to the date of such
issuance by a fraction, the numerator of which shall be the number of shares of
Common Stock issuable upon exercise of this Warrant prior to such date and the
denominator of which shall be the number of shares of Common Stock issuable upon
exercise of this Warrant immediately after the adjustment described in clause
(i) above.
For
purposes of the foregoing, the aggregate consideration receivable by the
Corporation in connection with the issuance of Corporation Securities shall be
deemed to be equal to the sum of the offering price of all such securities plus
the minimum aggregate amount, if any, payable upon exercise or conversion of any
Common Stock Equivalents. If there is an adjustment to the Initial
Number and the Exercise Price in connection with an issuance of a Common Stock
Equivalent, then there shall be no further adjustment when Common Stock is
issued under such Common Stock Equivalent, unless such Common Stock Equivalent
by its terms provides, with the passage of time or otherwise, for any increase
or decrease in the exercise or conversion price for or the number of shares of
Common Stock issuable under such Common Stock Equivalent, in which case the
Exercise Price or the Initial Number shall be recomputed to reflect any such
increase or decrease as of the date of exercise or
conversion. Further, if there is no adjustment to the Exercise Price
or the Initial Number required in connection with the issuance of a Common Stock
Equivalent, then no adjustment to the Initial Number and the Exercise Price
shall be required when Common Stock is issued under such Common Stock
Equivalent, unless such Common Stock Equivalent by its terms provides, with the
passage of time or otherwise, for any increase or decrease in the exercise or
conversion price for or the number of shares of Common Stock issuable under such
Common Stock Equivalent, in which case the Exercise Price or the Initial Number
shall be recomputed to reflect any such increase or decrease as of the date of
exercise or conversion. Without the prior written consent of the
Warrantholder, the Corporation agrees that it will not issue to any member of
the KBE Group or any Economic Affiliate any equity securities (or securities
exercisable for or convertible into any equity securities), including Preferred
Stock, other than Corporation Securities and other than Preferred Stock with a
liquidation preference equal to no more than the Preferred Stock Investment
Amount for such Preferred Stock and which does not accrue or pay any
dividends.
(C) Rounding of Calculations;
Minimum Adjustments. All calculations under this Section 12
shall be made to the nearest one-thousandth (1/1000th) of a cent or to the
nearest one-hundredth (1/100th) of a share, as the case may be. Any
provision of this Section 12 to the contrary notwithstanding, no adjustment in
the Exercise Price or the number of Shares into which this Warrant is
exercisable shall be made if the amount of such adjustment would be less than
$0.0001 or one-hundredth (1/100th) of a share of Common Stock.
(D) Statement Regarding
Adjustments. Whenever the Exercise Price or the number of
Shares into which this Warrant is exercisable shall be adjusted as provided in
Section 12, the Corporation shall forthwith file at the principal office of the
Corporation a statement showing in reasonable detail the facts requiring such
adjustment and the Exercise Price that shall be in effect and the number of
Shares into which this Warrant shall be exercisable after such adjustment, and
the Corporation shall also cause a copy of such statement to be sent to the
Warrantholder.
(E) Proceedings Prior to Any
Action Requiring Adjustment. As a condition precedent to the
taking of any action which would require an adjustment pursuant to this
Section 12, the Corporation shall take any action which may be necessary,
including obtaining regulatory or stockholder approvals or exemptions, in order
that the Corporation may thereafter validly and legally issue as fully paid and
nonassessable all shares of Common Stock that the Warrantholder is entitled to
receive upon exercise of this Warrant pursuant to this Section 12.
(F) Adjustment
Rules. Any adjustments pursuant to this Section 12 shall be
made successively whenever an event referred to herein shall occur.
13. Governing
Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and performed in such State without giving effect to the choice of law
principles of such state that would require or permit the application of the
laws of another jurisdiction.
14. Submission to Jurisdiction;
Consent to Service of Process; Waiver of Jury Trial. The
parties hereto hereby irrevocably submit to the exclusive jurisdiction of any
federal or state court located within the borough of Manhattan of the City,
County and State of New York over any dispute arising out of or relating to this
Warrant or any suit, action proceeding related thereto may be heard and
determined in such courts. The parties hereby irrevocably waive, to
the fullest extent permitted by applicable law, any objection which they may now
or hereafter have to the laying of venue of any such dispute brought in such
court or any defense of inconvenient forum for the maintenance of such
dispute. Each of the parties hereto agrees that a judgment in any
such dispute may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Each of the parties hereto
hereby consents to process being served by any party to this Warrant in any
suit, action or proceeding by the delivery of a copy thereof in accordance with
the provisions of Section 16. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS WARRANT.
15. Binding
Effect. This Warrant shall be binding upon any successors or
assigns of the Corporation; provided that this Warrant may not be assigned,
conveyed or otherwise transferred by the Corporation without the prior written
consent of the Warrantholder.
16. Notices. All
notices and other communications under this Warrant shall be in writing and
shall be deemed given (i) when delivered personally by hand (with written
confirmation of receipt), (ii) when sent by facsimile (with written confirmation
of transmission) or (iii) one (1) Business Day following the day sent by
overnight courier (with written confirmation of receipt), in each case at the
following addresses and facsimile numbers (or to such other address or facsimile
number as a party may have specified by notice given to the other party pursuant
to this provision):
If to the
Corporation, to:
Theatre
Direct NY, Inc.
1619
Broadway, 9th Floor
New York,
NY 10019
Attention:
John Gore
Facsimile:
(971) 421-5430
With a
copy (which shall not constitute notice) to:
Key Brand
Entertainment Inc.
10880
Wilshire Boulevard, Suite 870
Los
Angeles, CA 90024
Attention:
David Bauer Stern, Esq. and Tom McGrath
Facsimile:
(310) 446-4930
and
Jeffer,
Mangels, Butler & Marmaro LLP
1900
Avenue of the Stars, 7th Floor
Los
Angeles, CA 90067
Facsimile:
(310) 203-0567
Attention:
Frederick W. Gartside, Esq.
If to the
Warrantholder, to:
Hollywood
Media Corp.
2255
Glades Road, Suite 221A
Boca
Raton, Florida 33431
Facsimile:
(561) 998-2974
Attention:
Mitchell Rubenstein
With a
copy (which shall not constitute notice) to:
Weil,
Gotshal & Manges LLP
767 Fifth
Avenue
New York,
New York 10153
Facsimile:
(212) 833-8007
Attention: S.
Scott Parel
Marita A. Makinen
17. Entire Agreement; Amendments
and Waivers. This Warrant and the Purchase Agreement represent
the entire understanding and agreement between the parties hereto with respect
to the subject matter hereof and thereof. This Warrant can be
amended, supplemented or changed, and any provision hereof can be waived, only
by written instrument making specific reference to this Warrant signed by the
party against whom enforcement of any such amendment, supplement, modification
or waiver is sought. No action taken pursuant to this Warrant,
including any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representation, warranty, covenant or agreement contained herein. The
waiver by any party hereto of a breach of any provision of this Warrant shall
not operate or be construed as a further or continuing waiver of such breach or
as a waiver of any other or subsequent breach. No failure on the part
of any party to exercise, and no delay in exercising, any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of such right, power or remedy by such party preclude any other or
further exercise thereof or the exercise of any other right, power or
remedy.
18. Counterparts. This
Warrant may be executed in multiple counterparts and by facsimile or other
electronic means, each of which will be deemed to be an original copy of this
Warrant and all of which, when taken together, will be deemed to constitute one
and the same agreement.
[Remainder
of page intentionally left blank]
IN
WITNESS WHEREOF, the parties hereto have caused this Warrant to be executed by
their respective authorized officers, as of the date first written
above.
THEATRE
DIRECT NY, INC.
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By:
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Name:
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Title:
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HOLLYWOOD
MEDIA CORP.
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By:
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Name:
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Title:
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[SIGNATURE
PAGE TO WARRANT]
[Form of
Notice of Exercise]
Date:
_________
To:
________________________
RE:
Election to Purchase Common Stock
The
undersigned, pursuant to the provisions set forth in the attached Warrant,
hereby subscribes for and purchases the number of shares of the Common Stock
covered by such Warrant, as set forth below.
[If
payment is made by certified or cashier’s check]. The undersigned, in
accordance with Section 3 of the Warrant, hereby includes a [certified]
[cashier’s check] for the aggregate Exercise Price for such shares of Common
Stock.
[If
payment is made by wire transfer] The undersigned, in accordance with
Section 3 of the Warrant, hereby certifies that it has paid the aggregate
Exercise Price for such shares of Common Stock by wire transfer of immediately
available funds to an account designated by the Corporation.
Number of
Shares of Common Stock: ____________________
Aggregate
Exercise Price: _____________________________________]
Title:
________
Annex
D
ESCROW
AGREEMENT
between
Hollywood
Media Corp.,
Key Brand
Entertainment Inc.
and
THE BANK
OF NEW YORK MELLON
Dated as
of December 22, 2009
ESCROW AGREEMENT made this
22nd day of December 2009 by and between THE BANK OF NEW YORK MELLON ("Escrow
Agent"), HOLLYWOOD MEDIA CORP. (“HMC”) and KEY BRAND ENTERTAINMENT INC. (“KBE”,
both collectively the "Depositors" and each individually the
"Depositor").
Depositors
and Escrow Agent hereby agree that, in consideration of the mutual promises and
covenants contained herein, Escrow Agent shall hold in escrow and shall
distribute Escrow Property (as defined herein) in accordance with and subject to
the following Instructions and Terms and Conditions:
The
property and/or funds deposited or to be deposited with Escrow Agent by
Depositors shall be as follows:
US
$1,200,000.00
The
foregoing property and/or funds, plus all interest, dividends and other
distributions and payments thereon (collectively the "Distributions") received
by Escrow Agent, less any property and/or funds distributed or paid in
accordance with this Escrow Agreement, are collectively referred to herein as
"Escrow Property."
2.
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Investment of Escrow
Property Depositors are to select one of the following
options:
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_____
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(a)
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Escrow
Agent shall have no obligation to pay interest on or to invest or reinvest
any Escrow Property deposited or received
hereunder.
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X____
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(b)
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Upon
written directions from the Depositors, the Escrow Agent shall invest or
reinvest Escrow Property without distinction between principal and income,
in the following:
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Interest
bearing bank deposits or marketable obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, or money market funds subject to
the requirements of the Investment Company Act of 1940, as amended, invested in
any one or more of the aforementioned types of instruments.
Escrow
Agent shall have no liability for any loss arising from or related to any such
investment other than in accordance with paragraph 4 of the Terms and
Conditions.
3.
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Distribution of Escrow
Property
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Notwithstanding
anything to the contrary herein (other than Section II.22), Escrow Agent shall
only release the Escrow Property as directed by a written notice signed by both
Depositors or a final, non-appealable order of a court of competent jurisdiction
directing the release or delivery of the Escrow Property. The
Depositors hereby agree to execute and deliver joint written instructions for
the release of the Escrow Property for any payment of the Escrow Property
required by that certain Stock Purchase Agreement, dated as of the date hereof,
by and between HMC and KBE.
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Notices,
instructions and other communications shall be sent to Escrow Agent,
Corporate Trust Administration, 101 Barclay Street-Floor 8W, New York, New
York 10286, Attn.: Insurance Trust and Escrow Group or Odell.Romeo@BNYMellon.com and to Depositors
as follows:
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If to
Hollywood Media Corp., to:
Hollywood
Media Corp.
2255
Glades Road, Suite 221A
Boca
Raton, Florida 33431
Facsimile:
(561) 998-2974
Attention:
Mitchell Rubenstein
With a
copy (which shall not constitute notice) to:
Weil,
Gotshal & Manges LLP
767 Fifth
Avenue
New York,
New York 10153
Facsimile:
(212) 833-8007
Attention:
S. Scott Parel
Marita A. Makinen
If to Key
Brand Entertainment Inc., to:
Key Brand
Entertainment Inc.
1619
Broadway, 9th Floor
New York,
NY 10019
Attention:
John Gore
Facsimile:
(971) 421-5430
With a
copy (which shall not constitute notice) to:
David
Bauer Stern, Esq.
General
Counsel
10880
Wilshire Boulevard, Suite 870
Los
Angeles, CA 90024
Facsimile:
(310) 446-4930
and
Jeffer,
Mangels, Butler & Marmaro LLP 1900
Avenue of
the
Stars, 7th Floor
Los
Angeles, CA 90067
Facsimile:
(310) 203-0567
Attention:
Frederick W. Gartside, Esq.
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(a)
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Depositors
shall pay Escrow Agent an annual fee of $6,000, payable upon execution of
this Agreement and thereafter on each anniversary date of this Agreement.
The annual fee shall not be pro-rated for any portion of a
year.
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(b)
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Depositors
shall pay all activity charges as per Escrow Agent’s fee schedule attached
hereto as Exhibit A.
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(c)
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Depositors
shall be responsible for and shall reimburse Escrow Agent upon demand for
all expenses, disbursements and advances incurred or made by Escrow Agent
in connection with this Agreement.
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II. TERMS AND
CONDITIONS:
1.
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The
duties, responsibilities and obligations of Escrow Agent shall be limited
to those expressly set forth herein and no duties, responsibilities or
obligations shall be inferred or implied. Escrow Agent shall
not be subject to, nor required to comply with, any other agreement
between or among any or all of the Depositors or to which any Depositor is
a party, even though reference thereto may be made herein, or to comply
with any direction or instruction (other than those contained herein or
delivered in accordance with this Escrow Agreement) from any Depositor or
any entity acting on its behalf. Escrow Agent shall not be
required to, and shall not, expend or risk any of its own funds or
otherwise incur any financial liability in the performance of any of its
duties hereunder.
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2.
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This
Agreement is for the exclusive benefit of the parties hereto and their
respective successors hereunder, and shall not be deemed to give, either
express or implied, any legal or equitable right, remedy, or claim to any
other entity or person whatsoever.
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3.
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If
at any time Escrow Agent is served with any judicial or administrative
order, judgment, decree, writ or other form of judicial or administrative
process which in any way affects Escrow Property (including but not
limited to orders of attachment or garnishment or other forms of levies or
injunctions or stays relating to the transfer of Escrow Property), Escrow
Agent is authorized to comply therewith in any manner as it or its legal
counsel of its own choosing deems appropriate; and if Escrow Agent
complies with any such judicial or administrative order, judgment, decree,
writ or other form of judicial or administrative process, Escrow Agent
shall not be liable to any of the parties hereto or to any other person or
entity even though such order, judgment, decree, writ or process may be
subsequently modified or vacated or otherwise determined to have been
without legal force or effect.
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4.
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(a)
Escrow Agent shall not be liable for any action taken or omitted or for
any loss or injury resulting from its actions or its performance or lack
of performance of its duties hereunder in the absence of fraud, gross
negligence or willful misconduct on its part. In the absence of
fraud, gross negligence and willful misconduct on its part, the Escrow
Agent shall not be liable (i) for acting in accordance with or relying
upon any instruction, notice, demand, certificate or document from any
Depositor or any entity acting on behalf of any Depositor, (ii) for any
consequential, punitive or special damages, (iii) for the acts or
omissions of its nominees, correspondents, designees, subagents or
subcustodians, or (iv) for an amount in excess of the value of the Escrow
Property, valued as of the date of
deposit.
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(b)
If any fees, expenses or costs incurred by, or any obligations owed to,
Escrow Agent hereunder are not promptly paid when due, Escrow Agent may
reimburse itself therefor from the Escrow Property. As security
for the due and punctual performance of any and all of Depositors'
obligations to Escrow Agent hereunder, now or hereafter arising,
Depositors, individually and collectively, hereby pledge, assign and grant
to Escrow Agent a continuing security interest in, and a lien on, the
Escrow Property and all Distributions thereon or additions thereto
(whether such additions are the result of deposits by Depositors or the
investment of Escrow Property). The security interest of Escrow
Agent shall at all times be valid, perfected and enforceable by Escrow
Agent against Depositors and all third parties in accordance with the
terms of this Escrow Agreement.
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(c)
Escrow Agent may consult with legal counsel at the expense of the
Depositors as to any matter relating to this Escrow Agreement, and Escrow
Agent shall not incur any liability in acting in good faith in accordance
with any advice from such counsel.
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(d)
Escrow Agent shall not incur any liability for not performing any act or
fulfilling any duty, obligation or responsibility hereunder by reason of
any occurrence beyond the control of Escrow Agent (including but not
limited to any act or provision of any present or future law or regulation
or governmental authority, any act of God or war, or the unavailability of
the Federal Reserve Bank wire or telex or other wire or communication
facility).
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5.
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Unless
otherwise specifically set forth herein, Escrow Agent shall proceed as
soon as practicable to collect any checks or other collection items at any
time deposited hereunder. All such collections shall be subject
to Escrow Agent's usual collection practices or terms regarding items
received by Escrow Agent for deposit or collection. Escrow
Agent shall not be required, or have any duty, to notify anyone of any
payment or maturity under the terms of any instrument deposited hereunder,
nor to take any legal action to enforce payment of any check, note or
security deposited hereunder or to exercise any right or privilege which
may be afforded to the holder of any such
security.
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6.
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Escrow
Agent shall provide to Depositors monthly statements identifying
transactions, transfers or holdings of Escrow Property and each such
statement shall be deemed to be correct and final upon receipt thereof by
the Depositors unless Escrow Agent is notified in writing to the contrary
within thirty (30) business days of the date of such
statement.
|
7.
|
Escrow
Agent shall not be responsible in any respect for the form, execution,
validity, value or genuineness of documents or securities deposited
hereunder, or for any description therein, or for the identity, authority
or rights of persons executing or delivering or purporting to execute or
deliver any such document, security or
endorsement.
|
8.
|
Notices,
instructions or other communications shall be in writing and shall be
given to the address set forth in the "Addresses" provision herein (or to
such other address as may be substituted therefor by written notification
to Escrow Agent or Depositors). Notices to Escrow Agent shall
be deemed to be given when actually received by Escrow Agent's Insurance
Trust and Escrow Unit of the Corporate
Trust Division. Escrow Agent is authorized to comply with and
rely upon any notices, instructions or other communications believed by it
to have been sent or given by Depositors or by a person or persons
authorized by Depositors. Whenever under the terms hereof the
time for giving a notice or performing an act falls upon a Saturday,
Sunday, or banking holiday, such time shall be extended to the next day on
which Escrow Agent is open for
business.
|
9.
|
Depositors,
jointly and severally, shall be liable for and shall reimburse and
indemnify Escrow Agent and hold Escrow Agent harmless from and against any
and all claims, losses, liabilities, costs, damages or expenses (including
reasonable attorneys' fees and expenses) (collectively, "Losses") arising
from or in connection with or related to this Escrow Agreement or being
Escrow Agent hereunder, including, but not limited to, (i)Losses incurred
by Escrow Agent in connection with its successful defense, in whole or in
part, of any claim of gross negligence or willful misconduct on its part
or (ii) Losses incurred or sustained by the Escrow Agent as a result of or
in connection with the Escrow Agent’s reliance upon and compliance with
instructions or directions given by facsimile or electronic transmission;
provided, however, that nothing contained herein shall require Escrow
Agent to be indemnified for Losses caused by its fraud, gross negligence
or willful misconduct, it being understood that the failure of the Escrow
Agent to verify or confirm that the person giving the instructions or
directions, is, in fact, an authorized person does not constitute gross
negligence or willful misconduct.
|
10.
|
(a)
Depositors may remove Escrow Agent at any time by giving to Escrow Agent
thirty (30) calendar days' prior notice in writing signed by all
Depositors. Escrow Agent may resign at any time by giving
thirty (30)calendar days' prior written notice
thereof.
|
|
(b)
Within ten (10) calendar days after giving the foregoing notice of removal
to Escrow Agent or receiving the foregoing notice of resignation from
Escrow Agent, all Depositors shall jointly agree on and appoint a
successor Escrow Agent. If a successor Escrow Agent has not
accepted such appointment by the end of such 10-day period, Escrow Agent
may, in its sole discretion, apply to a court of competent jurisdiction
for the appointment of a successor Escrow Agent or for other appropriate
relief. The costs and expenses (including reasonable attorneys'
fees and expenses) incurred by Escrow Agent in connection with such
proceeding shall be paid by, and be deemed a joint and several obligation
of, the Depositors.
|
|
(c)
Upon receipt of the identity of the successor Escrow Agent, Escrow Agent
shall either deliver the Escrow Property then held hereunder to the
successor Escrow Agent, less Escrow Agent's fees, costs and expenses or
other obligations owed to Escrow Agent, or hold such Escrow Property (or
any portion thereof), pending distribution, until all such fees, costs and
expenses or other obligations are
paid.
|
|
(d)
Upon delivery of the Escrow Property to successor Escrow Agent, Escrow
Agent shall have no further duties, responsibilities or obligations
hereunder.
|
11.
|
(a)
In the event of any ambiguity or uncertainty hereunder or in any notice,
instruction or other communication received by Escrow Agent hereunder,
Escrow Agent may, in its sole discretion, refrain from taking any action
other than retain possession of the Escrow Property, unless Escrow Agent
receives written instructions, signed by all Depositors, which eliminates
such ambiguity or uncertainty.
|
|
(b)
In the event of any dispute between or conflicting claims by or among the
Depositors and/or any other person or entity with respect to any Escrow
Property, Escrow Agent shall be entitled, in its sole discretion, to
refuse to comply with any and all claims, demands or instructions with
respect to such Escrow Property so long as such dispute or conflict shall
continue, and Escrow Agent shall not be or become liable in any way to the
Depositors for failure or refusal to comply with such conflicting claims,
demands or instructions. Escrow Agent shall be entitled to
refuse to act until, in its sole discretion, either (i) such conflicting
or adverse claims or demands shall have been determined by a final order,
judgment or decree of a court of competent jurisdiction, which order,
judgment or decree is not subject to appeal, or settled by agreement
between the conflicting parties as evidenced in a writing satisfactory to
Escrow Agent or (ii) Escrow Agent shall have received security or an
indemnity satisfactory to it sufficient to hold it harmless from and
against any and all Losses which it may incur by reason of so
acting. Escrow Agent may, in addition, elect, in its sole
discretion, to commence an interpleader action or seek other judicial
relief or orders as it may deem, in its sole discretion,
necessary. The costs and expenses (including reasonable
attorneys' fees and expenses) incurred in connection with such proceeding
shall be paid by, and shall be deemed a joint and several obligation of,
the Depositors.
|
12.
|
This
Agreement shall be interpreted, construed, enforced and administered in
accordance with the internal substantive laws (and not the choice of law
rules) of the State of New York. Each of the Depositors hereby
submits to the personal jurisdiction of and each agrees that all
proceedings relating hereto shall be brought in courts located within the
City and State of New York or elsewhere as Escrow Agent may
select. Each of the Depositors hereby waives the right to trial
by jury and to assert counterclaims in any such proceedings. To
the extent that in any jurisdiction any Depositor may be entitled to
claim, for itself or its assets, immunity from suit, execution, attachment
(whether before or after judgment) or other legal process, each hereby
irrevocably agrees not to claim, and hereby waives, such
immunity. Each Depositor waives personal service of process and
consents to service of process by certified or registered mail, return
receipt requested, directed to it at the address last specified for
notices hereunder, and such service shall be deemed completed ten (10)
calendar days after the same is so
mailed.
|
13.
|
Except
as otherwise permitted herein, this Escrow Agreement may be modified only
by a written amendment signed by all the parties hereto, and no waiver of
any provision hereof shall be effective unless expressed in a writing
signed by the party to be charged.
|
14.
|
The
rights and remedies conferred upon the parties hereto shall be cumulative,
and the exercise or waiver of any such right or remedy shall not preclude
or inhibit the exercise of any additional rights or
remedies. The waiver of any right or remedy hereunder shall not
preclude the subsequent exercise of such right or
remedy.
|
15.
|
Each
Depositor hereby represents and warrants (a) that this Escrow Agreement
has been duly authorized, executed and delivered on its behalf and
constitutes its legal, valid and binding obligation and (b) that the
execution, delivery and performance of this Escrow Agreement by Depositor
do not and will not violate any applicable law or
regulation.
|
16.
|
The
invalidity, illegality or unenforceability of any provision of this
Agreement shall in no way affect the validity, legality or enforceability
of any other provision; and if any provision is held to be enforceable as
a matter of law, the other provisions shall not be affected thereby and
shall remain in full force and
effect.
|
17.
|
This
Agreement shall constitute the entire agreement of the parties with
respect to the subject matter and supersedes all prior oral or written
agreements in regard thereto.
|
18.
|
This
Agreement shall terminate upon the distribution of all Escrow Property
from the Account. The provisions of these Terms and Conditions
shall survive termination of this Escrow Agreement and/or the resignation
or removal of the Escrow Agent.
|
19.
|
No
printed or other material in any language, including prospectuses,
notices, reports, and promotional material which mentions "The Bank of New
York Mellon" by name or the rights, powers, or duties of the Escrow Agent
under this Agreement shall be issued by any other parties hereto, or on
such party's behalf, without the prior written consent of Escrow
Agent.
|
20.
|
The
headings contained in this Agreement are for convenience of reference only
and shall have no effect on the interpretation or operation
hereof.
|
21.
|
This
Escrow Agreement may be executed by each of the parties hereto in any
number of counterparts, each of which counterpart, when so executed and
delivered, shall be deemed to be an original and all such counterparts
shall together constitute one and the same
agreement.
|
22.
|
The
Escrow Agent does not have any interest in the Escrowed Property deposited
hereunder but is serving as escrow holder only and having only possession
thereof. If Closing does not occur prior to December 31, 2009, KBE shall
be deemed the owner of the Escrow Property for tax purposes, and KBE will
be required to report its earnings as reported by the Escrow Agent. The
Escrow Agent shall release an amount equal to _40% of the earnings within
thirty (30) days of the end of each calendar year to KBE in order to pay
taxes on such earnings. KBE shall indemnify and hold harmless
the Escrow Agent for any amounts that it is obligated to pay in the way of
such taxes; provided, however, that if the Escrow Property is disbursed to
a Depositor, then the earnings included in such disbursement shall be
allocated to such Depositor for tax purposes and such Depositor shall
indemnify and hold harmless the Escrow Agent for any amounts that it is
obligated to pay in the way of such taxes. Any payments of
income from this Escrow Account shall be subject to withholding
regulations then in force with respect to United States
taxes. The parties hereto will provide the Escrow Agent with
appropriate W-9 forms for tax I.D., number certifications, or W-8 forms
for non-resident alien certifications. It is understood that
the Escrow Agent shall be responsible for income reporting only with
respect to income earned on investment of funds which are a part of the
Escrowed Property and is not responsible for any other
reporting. This paragraph and paragraph (9) shall survive
notwithstanding any termination of this Escrow Agreement or the
resignation of the Escrow Agent.
|
23.
|
Notwithstanding
anything to the contrary contained herein, in all circumstances under
which Depositors are jointly or jointly and severally obligated to make
payments to Escrow Agent, which includes all compensation under Section
I.5 above, as between the Depositors, such payments shall be borne fifty
percent (50%) by each Depositor and to the extent Depositor fails to make
such payment any right it has to receive distributions of the Escrow
Property hereunder shall be reduced
accordingly.
|
[Signature
page to follow]
IN
WITNESS WHEREOF, each of the parties has caused this Escrow Agreement to be
executed by a duly authorized officer as of the day and year first written
above.
Hollywood
Media Corp.
|
|
Key
Brand Entertainment Inc.
|
|
|
|
|
|
By:
|
/s/ Mitchell Rubenstein
|
|
By:
|
/s/ John Gore
|
Name:
Mitchell Rubenstein
|
|
Name:
John Gore
|
Title:
Chairman and CEO
|
|
Title:
Chief Executive
Officer
|
|
THE
BANK OF NEW YORK MELLON, as Escrow Agent
|
|
|
|
|
|
|
By:
|
/s/ Odell Romeo
|
|
|
Name:
Odell Romeo
|
|
|
Title:
Vice President
|
|
Annex
E
December
18, 2009
Board of
Directors
Hollywood
Media Corp.
2255
Glades Road
Boca
Raton, Florida 33431
Ladies
and Gentlemen:
You have
asked us to advise you with respect to the fairness to Hollywood Media Corp., a
Florida corporation (“Hollywood”), from a financial point of view of the
consideration proposed to be received by Hollywood pursuant to the terms of the
Stock Purchase Agreement, substantially in the form of the draft dated December
12, 2009 (the “Agreement”), by and between Key Brand Entertainment Inc., a
Delaware corporation (“KBE”), and Hollywood. Capitalized terms used
herein but not otherwise defined herein shall have the definitions given to them
in the Agreement.
We
understand that the Agreement provides for the sale of all of the issued and
outstanding shares of common stock, par value $0.01 per share (collectively, the
“Theater Direct Stock”) of Theatre Direct NY, Inc., a Delaware corporation and
wholly-owned subsidiary of Hollywood (“Theater Direct”) to KBE (the
“Transaction”), and that, as consideration for the Theater Direct Stock to be
sold by Hollywood in the Transaction, Hollywood will receive (i) an amount in
cash equal to $20,000,000, subject to adjustments pursuant to the Agreement,
plus (ii) a
secured promissory note issued by KBE to Hollywood, in the initial principal
amount of $8,500,000, subject to downward adjustments (as to which adjustments
we express no opinion) (the “Note”), plus (iii) a warrant
to purchase shares representing 5% of the fully-diluted Theater Direct Stock as
of the Closing Date (the “Warrant”), plus (iv) Earnout
Payment Amounts, if any, representing up to $14,000,000 in the aggregate,
subject to upward adjustments (as to which adjustments we express no opinion)
(the “Earnouts”), plus (v) the
assumption by KBE of certain liabilities of Theatre Direct payable upon
consummation of the Transaction (clauses (i) through (v) in the aggregate, the
“Aggregate Consideration”). The terms and conditions of the
Transaction are more fully set forth in the Agreement.
For
purposes of the opinion set forth herein, we have:
(i) reviewed
certain publicly available financial statements and/or other information of
Hollywood, Theater Direct and KBE;
(ii) reviewed
certain internal financial statements and other financial and operating data
concerning Hollywood, Theater Direct and KBE prepared by the management of
Hollywood, Theater Direct and KBE, respectively;
(iii) reviewed
certain financial projections for Theater Direct and KBE prepared by the
management of Theater Direct and KBE, respectively;
(iv) discussed
the past and current operations, financial condition and prospects of Hollywood,
Theater Direct and KBE with management of Hollywood, Theater Direct and KBE,
respectively;
(v) compared
the financial performance and condition of Theater Direct with that of certain
other comparable publicly traded companies;
(vi) reviewed
publicly available information regarding the financial terms of certain
transactions we consider comparable, in whole or in part, to the
Transaction;
(vii) participated
in certain discussions among representatives of each of Hollywood, Theater
Direct and KBE;
(viii) reviewed
the Agreement, substantially in the form of the draft dated December 12,
2009;
(ix) reviewed
the Terms of Note, Form of Warrant, Form of Selling Stockholder Release, Form of
Transition Services Agreement, and Form of Non-Competition Agreement, each
substantially in the form of the drafts dated December 12, 2009 (the “Ancillary
Agreements”), and certain related documents; and
(x) performed
such other analyses as we have deemed appropriate.
We have
assumed and relied upon the accuracy and completeness of the information
reviewed by us for the purposes of this opinion and we have not assumed any
responsibility for independent verification of such information and have relied
on such information being complete and correct. With respect to the
financial projections of Theater Direct and KBE, we have assumed that the
financial projections were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the future financial performance
of Theater Direct and KBE, respectively. We have not conducted a
physical inspection of the facilities or property of Theater Direct, Hollywood
or KBE. We have not assumed any responsibility for any independent
valuation or appraisal of the assets or liabilities of Theater Direct, Hollywood
or KBE, nor have we been furnished with any such valuation or
appraisal. We have not made any independent valuation or appraisal of
Hollywood, and we do not express any opinion as to the Aggregate Consideration
proposed to be received in the Transaction relative to the price of Hollywood
Common Stock. Furthermore, we have not considered any tax, accounting or legal
effects of the Transaction or the transaction structure on any person or
entity.
We have
assumed that the final form of the Agreement and each Ancillary Agreement will
be substantially the same as the last draft of each document reviewed by
us. We have also assumed that the Transaction will be consummated in
accordance with the terms of the Agreement and the Ancillary Agreements, without
waiver, modification or amendment of any material term, condition or agreement
(including, without limitation, the Aggregate Consideration proposed to be
received by Hollywood in connection with the Transaction), and that, in the
course of obtaining the necessary regulatory or third party approvals, consents
and releases for the Transaction, no delay, limitation, restriction or condition
will be imposed that would have a material adverse effect on Theater Direct or
Hollywood or the contemplated benefits of the Transaction. We have
further assumed that all representations and warranties set forth in the
Agreement and Ancillary Agreements are and will be true and correct as of all
the dates made or deemed made and that all parties to the Agreement and
Ancillary Agreements will comply with all covenants of such party
thereunder.
Our
opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, December 18,
2009. In particular, we do not express any opinion as to what the
value of Theater Direct Stock will be at any future time, which may vary
depending upon, among other things, market conditions, general economic
conditions and other factors that generally influence the price of
securities. We do not express any opinion as to whether the Warrants
will be exercised, redeemed or put at any future time in accordance with the
terms thereof or what the redemption or put price would be at any future time or
what the value of the shares of Theater Direct Stock issuable upon exercise of
the Warrants will be when (and if) issued as contemplated by the Form of
Warrant. Events occurring after the date hereof may affect this
opinion and the assumptions used in preparing it, and we do not assume any
obligation to update, revise or reaffirm this opinion. This opinion
does not address the fairness of the terms of the Warrants or the
Note. We do not express any opinion as to the likelihood that Theater
Direct will achieve any of the milestones upon which the Earnouts are
conditioned nor have we conducted any analysis as to KBE’s ability to fulfill
its future obligations to Hollywood, including the payment of the Warrants and
the Note. Furthermore, our opinion does not address Hollywood’s
underlying business decision to undertake the Transaction, and our opinion does
not address the relative merits of the Transaction as compared to any
alternative transactions that might be available to Hollywood.
We have
acted as financial advisor to Hollywood in connection with the Transaction and
will receive a fee for our services, payable upon the delivery of this
opinion. We may receive additional consideration for our services
upon the closing of the Transaction. In performing our work as
financial advisor to Hollywood, we solicited interest from other parties with
respect to a merger or other business combination transaction involving Theater
Direct. Except in our role as financial advisor to Hollywood in
connection with the Transaction, during the past two years, we have not provided
financial advisory services to Hollywood, Theater Direct or KBE or any of their
affiliates, The issuance of this opinion has been authorized by our
fairness opinion committee.
This
letter is for the information of the board of directors of Hollywood in
connection with its consideration of the Transaction, and may not be reproduced,
summarized, described, referred to or used for any other purpose without our
prior written consent, except as part of a proxy statement relating to the vote
of the holders of Hollywood common stock in connection with the
Transaction. We express no view as to, and our opinion does not
address, the fairness (financial or otherwise) of the amount or nature or any
other aspect of any compensation to any officers, directors or employees of any
parties to the Transaction, or any class of such persons, relative to the
consideration to be received by Hollywood pursuant to the
Agreement. This letter does not constitute a recommendation to any
holder of Hollywood Common Stock as to how any such holder should vote or act on
any matter relating to the Transaction.
Based on,
and subject to, the foregoing, we are of the opinion that on the date hereof,
the Aggregate Consideration proposed to be received by Hollywood in connection
with the Transaction is fair from a financial point of view to
Hollywood.
Very
truly yours,
|
|
|
|
PETER
J. SOLOMON COMPANY L.P.
|
Annex
F
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders
Hollywood
Media Corp.
Boca
Raton, Florida
We have
audited the accompanying consolidated balance sheets of Hollywood Media Corp.
and Subsidiaries as of December 31, 2009 and 2008, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 2009. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Hollywood Media Corp. and
Subsidiaries as of December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2009, in conformity with accounting principles generally accepted
in the United States of America.
KAUFMAN,
ROSSIN & CO., P.A.
Miami,
Florida
March 18,
2010
HOLLYWOOD
MEDIA CORP. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
11,764,810 |
|
|
$ |
12,685,946 |
|
Receivables,
net
|
|
|
897,503 |
|
|
|
1,433,797 |
|
Inventories
held for sale
|
|
|
3,735,691 |
|
|
|
4,491,841 |
|
Deferred
ticket costs
|
|
|
10,985,160 |
|
|
|
12,085,237 |
|
Prepaid
expenses
|
|
|
1,896,237 |
|
|
|
1,418,563 |
|
Other
receivables
|
|
|
1,125,263 |
|
|
|
1,287,752 |
|
Other
current assets
|
|
|
436,675 |
|
|
|
99,945 |
|
Related
party receivable
|
|
|
335,245 |
|
|
|
143,464 |
|
Restricted
cash
|
|
|
1,221,000 |
|
|
|
2,600,000 |
|
Total
current assets
|
|
|
32,397,584 |
|
|
|
36,246,545 |
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, net
|
|
|
4,369,085 |
|
|
|
4,649,202 |
|
INVESTMENTS
IN AND ADVANCES TO UNCONSOLIDATED INVESTEES
|
|
|
230,097 |
|
|
|
132,800 |
|
INTANGIBLE
ASSETS, net
|
|
|
390,818 |
|
|
|
682,896 |
|
GOODWILL
|
|
|
20,197,513 |
|
|
|
25,154,292 |
|
OTHER
ASSETS
|
|
|
21,082 |
|
|
|
73,126 |
|
TOTAL
ASSETS
|
|
$ |
57,606,179 |
|
|
$ |
66,938,861 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
1,632,351 |
|
|
$ |
1,329,949 |
|
Accrued
expenses and other
|
|
|
3,074,549 |
|
|
|
3,708,652 |
|
Deferred
revenue
|
|
|
14,012,178 |
|
|
|
15,196,455 |
|
Gift
certificate liability
|
|
|
3,794,899 |
|
|
|
3,434,359 |
|
Customer
deposits
|
|
|
948,273 |
|
|
|
831,838 |
|
Current
portion of capital lease obligations
|
|
|
123,061 |
|
|
|
203,579 |
|
Current
portion of notes payable
|
|
|
37,454 |
|
|
|
43,147 |
|
Related
party payable
|
|
|
- |
|
|
|
2,622,438 |
|
Total
current liabilities
|
|
|
23,622,765 |
|
|
|
27,370,417 |
|
|
|
|
|
|
|
|
|
|
DEFERRED
REVENUE
|
|
|
309,190 |
|
|
|
401,309 |
|
CAPITAL
LEASE OBLIGATIONS, less current portion
|
|
|
75,830 |
|
|
|
203,901 |
|
OTHER
DEFERRED LIABILITY
|
|
|
1,105,553 |
|
|
|
1,168,096 |
|
NOTES
PAYABLE, less current portion
|
|
|
2,432 |
|
|
|
36,258 |
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Preferred
stock, $.01 par value, 1,000,000 shares authorized; none
outstanding
|
|
|
- |
|
|
|
- |
|
Common
stock, $.01 par value, 100,000,000 shares authorized; 31,037,656
and
|
|
|
|
|
|
|
|
|
30,883,913
shares issued and outstanding at December 31, 2009 and
|
|
|
|
|
|
|
|
|
December
31, 2008, respectively
|
|
|
310,377 |
|
|
|
308,839 |
|
Additional
paid-in capital
|
|
|
309,480,331 |
|
|
|
309,100,760 |
|
Accumulated
deficit
|
|
|
(277,315,848 |
) |
|
|
(271,695,431 |
) |
Total
Hollywood Media Corp. shareholders’ equity
|
|
|
32,474,860 |
|
|
|
37,714,168 |
|
Non-controlling
interest
|
|
|
15,549 |
|
|
|
44,712 |
|
Total
shareholders’ equity
|
|
|
32,490,409 |
|
|
|
37,758,880 |
|
TOTAL
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
$ |
57,606,179 |
|
|
$ |
66,938,861 |
|
The
accompanying notes to consolidated financial statements
are an
integral part of these consolidated balance sheets.
HOLLYWOOD
MEDIA CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
YEAR ENDED DECEMBER 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
NET
REVENUES
|
|
|
|
|
|
|
|
|
|
Ticketing
|
|
$ |
98,860,362 |
|
|
$ |
110,918,969 |
|
|
$ |
111,792,068 |
|
Other
|
|
|
4,518,548 |
|
|
|
6,138,962 |
|
|
|
6,369,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,378,910 |
|
|
|
117,057,931 |
|
|
|
118,161,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues - ticketing
|
|
|
81,014,536 |
|
|
|
92,882,066 |
|
|
|
94,017,924 |
|
Editorial,
production, development and technology
|
|
|
2,569,354 |
|
|
|
3,323,546 |
|
|
|
3,590,192 |
|
Selling,
general and administrative
|
|
|
10,827,719 |
|
|
|
13,932,852 |
|
|
|
14,269,974 |
|
Payroll
and benefits
|
|
|
10,574,375 |
|
|
|
13,284,857 |
|
|
|
13,368,817 |
|
Impairment
loss
|
|
|
- |
|
|
|
3,524,697 |
|
|
|
- |
|
Depreciation
and amortization
|
|
|
1,590,598 |
|
|
|
2,224,831 |
|
|
|
1,378,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating costs and expenses
|
|
|
106,576,582 |
|
|
|
129,172,849 |
|
|
|
126,625,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(3,197,672 |
) |
|
|
(12,114,918 |
) |
|
|
(8,464,175 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS
(LOSSES) OF UNCONSOLIDATED INVESTEES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in earnings of unconsolidated investees
|
|
|
2,006,498 |
|
|
|
1,160,623 |
|
|
|
4,747 |
|
Impairment
loss
|
|
|
(5,000,000 |
) |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
equity in earnings (losses) of unconsolidated investees
|
|
|
(2,993,502 |
) |
|
|
1,160,623 |
|
|
|
4,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest,
net
|
|
|
28,922 |
|
|
|
425,251 |
|
|
|
199,437 |
|
Other,
net
|
|
|
(75,146 |
) |
|
|
44,958 |
|
|
|
(50,935 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(6,237,398 |
) |
|
|
(10,484,086 |
) |
|
|
(8,310,926 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss) on sale of discontinued operations, net of income
taxes
|
|
|
614,572 |
|
|
|
(4,655,122 |
) |
|
|
10,254,287 |
|
Loss
from discontinued operations
|
|
|
- |
|
|
|
(1,635,750 |
) |
|
|
(211,993 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from discontinued operations
|
|
|
614,572 |
|
|
|
(6,290,872 |
) |
|
|
10,042,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
(5,622,826 |
) |
|
|
(16,774,958 |
) |
|
|
1,731,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
(INCOME) LOSS ATTRIBUTABLE TO NON-CONTROLLING
|
|
|
2,409 |
|
|
|
(81,365 |
) |
|
|
3,241 |
|
INTEREST
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to Hollywood Media Corp.
|
|
$ |
(5,620,417 |
) |
|
$ |
(16,856,323 |
) |
|
$ |
1,734,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted income (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
(0.20 |
) |
|
$ |
(0.33 |
) |
|
$ |
(0.25 |
) |
Discontinued
operations
|
|
|
0.02 |
|
|
|
(0.20 |
) |
|
|
0.30 |
|
Total
basic and diluted net income (loss) per share
|
|
$ |
(0.18 |
) |
|
$ |
(0.53 |
) |
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common and common equivalent shares
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
– basic and diluted
|
|
|
30,584,902 |
|
|
|
31,793,853 |
|
|
|
33,303,886 |
|
The
accompanying notes to consolidated financial statements
are an
integral part of these consolidated statements of operations.
HOLLYWOOD
MEDIA CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
|
|
Common Stock
|
|
|
Additional
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
– December 31, 2006
|
|
|
33,476,530 |
|
|
$ |
334,765 |
|
|
$ |
311,210,796 |
|
|
$ |
(255,846,144 |
) |
|
$ |
55,699,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of adoption of FSP EITF 00-19-2
|
|
|
- |
|
|
|
- |
|
|
|
2,151,037 |
|
|
|
(727,573 |
) |
|
|
1,423,464 |
|
Repurchase
of company stock
|
|
|
(2,003,660 |
) |
|
|
(20,037 |
) |
|
|
(5,084,167 |
) |
|
|
- |
|
|
|
(5,104,204 |
) |
Issuance
of stock – stock option exercises
|
|
|
69,375 |
|
|
|
694 |
|
|
|
203,130 |
|
|
|
- |
|
|
|
203,824 |
|
Issuance
of stock to employees
|
|
|
145,308 |
|
|
|
1,453 |
|
|
|
570,806 |
|
|
|
- |
|
|
|
572,259 |
|
Issuance
of stock – warrant exercise
|
|
|
149,181 |
|
|
|
1,492 |
|
|
|
(1,492 |
) |
|
|
- |
|
|
|
- |
|
Issuance
of stock – 401(k) employer match
|
|
|
59,257 |
|
|
|
593 |
|
|
|
248,283 |
|
|
|
- |
|
|
|
248,876 |
|
Amortization
of deferred compensation
|
|
|
- |
|
|
|
- |
|
|
|
650,000 |
|
|
|
- |
|
|
|
650,000 |
|
Issuance
of stock for acquisitions of intangible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assets
|
|
|
1,992 |
|
|
|
20 |
|
|
|
7,980 |
|
|
|
- |
|
|
|
8,000 |
|
Compensation
expense on employee stock options
|
|
|
- |
|
|
|
- |
|
|
|
164,158 |
|
|
|
- |
|
|
|
164,158 |
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,734,609 |
|
|
|
1,734,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
– December 31, 2007
|
|
|
31,897,983 |
|
|
|
318,980 |
|
|
|
310,120,531 |
|
|
|
(254,839,108 |
) |
|
|
55,600,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
of company stock
|
|
|
(1,711,639 |
) |
|
|
(17,117 |
) |
|
|
(2,107,882 |
) |
|
|
- |
|
|
|
(2,124,999 |
) |
Issuance
of stock – stock option exercises
|
|
|
101,000 |
|
|
|
1,010 |
|
|
|
121,890 |
|
|
|
- |
|
|
|
122,900 |
|
Issuance
of stock to officers
|
|
|
100,000 |
|
|
|
1,000 |
|
|
|
101,000 |
|
|
|
- |
|
|
|
102,000 |
|
Issuance
of warrants for services rendered
|
|
|
- |
|
|
|
- |
|
|
|
4,429 |
|
|
|
- |
|
|
|
4,429 |
|
Issuance
of stock – 401(k) employer match
|
|
|
96,569 |
|
|
|
966 |
|
|
|
279,084 |
|
|
|
- |
|
|
|
280,050 |
|
Amortization
of deferred compensation
|
|
|
- |
|
|
|
- |
|
|
|
487,500 |
|
|
|
- |
|
|
|
487,500 |
|
Issuance
of restricted stock - officers
|
|
|
400,000 |
|
|
|
4,000 |
|
|
|
(3,069 |
) |
|
|
- |
|
|
|
931 |
|
Compensation
expense on employee stock options
|
|
|
- |
|
|
|
- |
|
|
|
97,277 |
|
|
|
- |
|
|
|
97,277 |
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(16,856,323 |
) |
|
|
(16,856,323 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
– December 31, 2008
|
|
|
30,883,913 |
|
|
|
308,839 |
|
|
|
309,100,760 |
|
|
|
(271,695,431 |
) |
|
|
37,714,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
of company stock
|
|
|
(71,600 |
) |
|
|
(716 |
) |
|
|
(72,238 |
) |
|
|
- |
|
|
|
(72,954 |
) |
Issuance
of stock – 401(k) employer match
|
|
|
225,343 |
|
|
|
2,254 |
|
|
|
223,089 |
|
|
|
- |
|
|
|
225,343 |
|
Stock
compensation expense - officers
|
|
|
- |
|
|
|
- |
|
|
|
204,885 |
|
|
|
- |
|
|
|
204,885 |
|
Stock
compensation expense - employees
|
|
|
- |
|
|
|
- |
|
|
|
23,835 |
|
|
|
- |
|
|
|
23,835 |
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(5,620,417 |
) |
|
|
(5,620,417 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
– December 31, 2009
|
|
|
31,037,656 |
|
|
$ |
310,377 |
|
|
$ |
309,480,331 |
|
|
$ |
(277,315,848 |
) |
|
$ |
32,474,860 |
|
The
accompanying notes to consolidated financial statements are an integral part of
these consolidated statements of shareholders’ equity.
HOLLYWOOD
MEDIA CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
YEAR ENDED DECEMBER 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
(5,622,826 |
) |
|
$ |
(16,774,958 |
) |
|
$ |
1,731,368 |
|
Adjustments
to reconcile net income (loss) to net cash provided by (used
in)
|
|
|
|
|
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Income)
loss from discontinued operations
|
|
|
(614,572 |
) |
|
|
6,290,872 |
|
|
|
(10,042,294 |
) |
Depreciation
and amortization
|
|
|
1,590,598 |
|
|
|
2,224,831 |
|
|
|
1,378,492 |
|
Amortization
of discount on senior unsecured notes
|
|
|
- |
|
|
|
- |
|
|
|
624,601 |
|
401(k)
stock match
|
|
|
141,664 |
|
|
|
165,819 |
|
|
|
198,753 |
|
Warrants issued for consulting services
|
|
|
- |
|
|
|
4,429 |
|
|
|
- |
|
Equity
in earnings of unconsolidated investees, net of return of invested
capital
|
|
|
(97,297 |
) |
|
|
154,185 |
|
|
|
(4,271 |
) |
Stock
compensation expense
|
|
|
23,835 |
|
|
|
97,277 |
|
|
|
164,158 |
|
Loss
(gain) on retirement of property
|
|
|
160,608 |
|
|
|
(21,340 |
) |
|
|
- |
|
Stock
compensation expense - officers
|
|
|
204,885 |
|
|
|
102,931 |
|
|
|
- |
|
Amortization
of deferred compensation costs
|
|
|
- |
|
|
|
487,500 |
|
|
|
650,000 |
|
Provision
for bad debts
|
|
|
387,362 |
|
|
|
319,273 |
|
|
|
627,197 |
|
Distributions
to minority owners
|
|
|
(26,754 |
) |
|
|
(3,724 |
) |
|
|
(91,728 |
) |
Impairment
loss
|
|
|
5,000,000 |
|
|
|
3,524,697 |
|
|
|
- |
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
148,932 |
|
|
|
280,632 |
|
|
|
(378,620 |
) |
Inventories
held for sale
|
|
|
756,150 |
|
|
|
(541,263 |
) |
|
|
(576,451 |
) |
Deferred
ticket costs
|
|
|
1,100,077 |
|
|
|
4,396,624 |
|
|
|
(1,208,537 |
) |
Prepaid
expenses
|
|
|
(477,674 |
) |
|
|
778,953 |
|
|
|
(111,753 |
) |
Other
receivables
|
|
|
162,489 |
|
|
|
2,559,682 |
|
|
|
(933,160 |
) |
Related
party receivable
|
|
|
12,640 |
|
|
|
(
88,992 |
) |
|
|
5,193 |
|
Other
current assets
|
|
|
(336,730 |
) |
|
|
529,353 |
|
|
|
(543,764 |
) |
Other
assets
|
|
|
52,044 |
|
|
|
(18,133 |
) |
|
|
55,685 |
|
Accounts
payable
|
|
|
239,633 |
|
|
|
(2,053,364 |
) |
|
|
697,626 |
|
Accrued
expenses and other
|
|
|
(644,141 |
) |
|
|
(303,440 |
) |
|
|
(2,655,186 |
) |
Deferred
revenue
|
|
|
(915,856 |
) |
|
|
(5,747,493 |
) |
|
|
489,412 |
|
Customer
deposits
|
|
|
116,435 |
|
|
|
(1,096,519 |
) |
|
|
152,644 |
|
Other
deferred liability
|
|
|
(62,543 |
) |
|
|
272,014 |
|
|
|
613,118 |
|
Restricted
cash
|
|
|
(1,221,000 |
) |
|
|
- |
|
|
|
- |
|
Net
cash provided by (used in) operating activities – continuing
operations
|
|
|
77,959 |
|
|
|
(4,460,154 |
) |
|
|
(9,157,517 |
) |
Net
cash provided by (used in) operating activities - discontinued
operations
|
|
|
- |
|
|
|
(2,717,075 |
) |
|
|
1,510,881 |
|
Net
cash provided by (used in) operating activities
|
|
|
77,959 |
|
|
|
(7,177,229 |
) |
|
|
(7,646,636 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(1,190,141 |
) |
|
|
(1,290,439 |
) |
|
|
(3,393,426 |
) |
Acquisition
of businesses, net of cash acquired
|
|
|
- |
|
|
|
(43,313 |
) |
|
|
(2,690,659 |
) |
Proceeds
(expenditures) from sale of assets
|
|
|
472,920 |
|
|
|
(42,320 |
) |
|
|
25,418,361 |
|
Acquisition
of intangible assets
|
|
|
- |
|
|
|
(17,000 |
) |
|
|
(59,470 |
) |
Proceeds
from property and equipment sales
|
|
|
- |
|
|
|
- |
|
|
|
29,432 |
|
Loss
on disposition of assets
|
|
|
- |
|
|
|
- |
|
|
|
(
1,722 |
) |
Restricted
cash
|
|
|
- |
|
|
|
- |
|
|
|
90,000 |
|
Net
cash (used in) provided by investing activities – continuing
operations
|
|
|
(717,221 |
) |
|
|
(1,393,072 |
) |
|
|
19,392,516 |
|
Net
cash used in investing activities – discontinued
operations
|
|
|
- |
|
|
|
(3,274,868 |
) |
|
|
(582,048 |
) |
Net
cash (used in) provided by investing activities
|
|
|
(717,221 |
) |
|
|
(4,667,940 |
) |
|
|
18,810,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
received from exercise of stock options
|
|
|
- |
|
|
|
122,900 |
|
|
|
203,824 |
|
Payments
under capital lease obligations
|
|
|
(169,401 |
) |
|
|
(157,030 |
) |
|
|
(93,290 |
) |
(Repayment
of) proceeds from notes payable
|
|
|
(39,519 |
) |
|
|
(68,306 |
) |
|
|
147,711 |
|
Extinguishment
of unsecured notes
|
|
|
- |
|
|
|
- |
|
|
|
(7,000,000 |
) |
Stock
repurchase program
|
|
|
(72,954 |
) |
|
|
(2,124,999 |
) |
|
|
(5,104,204 |
) |
Net
cash used in financing activities – continuing operations
|
|
|
(281,874 |
) |
|
|
(2,227,435 |
) |
|
|
(11,845,959 |
) |
Net
cash used in financing activities – discontinued
operations
|
|
|
- |
|
|
|
- |
|
|
|
(7,972 |
) |
Net
cash used in financing activities
|
|
|
(281,874 |
) |
|
|
(2,227,435 |
) |
|
|
(11,853,931 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(921,136 |
) |
|
|
(14,072,604 |
) |
|
|
(690,099 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, beginning of period
|
|
|
12,685,946 |
|
|
|
26,758,550 |
|
|
|
27,448,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, end of period
|
|
$ |
11,764,810 |
|
|
$ |
12,685,946 |
|
|
$ |
26,758,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
SCHEDULE OF CASH RELATED ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
41,607 |
|
|
$ |
64,674 |
|
|
$ |
268,628 |
|
Taxes
paid
|
|
$ |
19,345 |
|
|
$ |
462,837 |
|
|
$ |
787,086 |
|
The
accompanying notes to consolidated financial statements are an integral part of
these consolidated statements of cash flows.
HOLLYWOOD MEDIA CORP. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2009, 2008 AND
2007
(1) BACKGROUND:
Hollywood
Media Corp. (“Hollywood Media” or “the Company”) was incorporated in the State
of Florida on January 22, 1993. Hollywood Media is comprised of
various businesses focusing primarily on online ticket sales, deriving revenue
primarily from Broadway, Off-Broadway and London’s West End ticket sales to
individuals and groups, as well as advertising and book development license fees
and royalties.
Hollywood
Media’s main Internet website is Broadway.com. Hollywood Media
launched the Broadway.com website on May 1, 2000. Broadway.com features the
ability to purchase Broadway, off-Broadway and London theater tickets online;
theater news; interviews with stage actors and playwrights; opening-night
coverage; theater reviews and video excerpts from selected
shows. Hollywood Media generates revenues through the sale of live
theater tickets, hotel and restaurant packages online, gift certificates and
sponsorships on Broadway.com.
Theatre
Direct NY, Inc. (“TDI”), a wholly-owned subsidiary of Hollywood Media, is a
ticketing wholesaler to groups and individuals with access to theater tickets
and knowledgeable service covering shows on Broadway, off-Broadway and in
London’s West End. In addition, TDI is a live theater marketing and sales agency
representing Broadway shows to businesses and groups including domestic and
international travel professionals and traveling consumers. Hollywood Media also
sells Broadway tickets through 1-800-BROADWAY, and on Broadway.com.
Hollywood Media owns the U.K. based
companies CinemasOnline Limited, UK Theatres Online Limited, WWW.CO.UK Limited
and Spring Leisure Limited (collectively known as “CinemasOnline”), which were
acquired in November 2005. CinemasOnline, included as part of
Hollywood Media’s Ad Sales Segment, maintains plasma television screens in
hotels, car dealerships, cinemas and live theaters in the U.K. and Ireland in
exchange for the right to sell advertising displayed on such plasma screens.
CinemasOnline also provides other marketing services, including advertising
sales on lobby display posters, movie brochure booklets and ticket wallets
distributed in cinemas, live theater and other entertainment venues in the U.K.
and developing and maintaining websites for cinemas and live theater venues in
the U.K. and Ireland in exchange for the right to sell advertising on such
websites.
The
intellectual properties segment owns or controls the exclusive rights to certain
original characters and concepts created by best-selling authors and media
celebrities, which it licenses across all media, including books, films and
television, multimedia software, and other products. Hollywood Media acquires
the rights to its intellectual properties pursuant to agreements that grant it
exclusive rights in the intellectual property itself as well as the right to use
the creator’s name in the title of the intellectual property. The intellectual
properties division also includes a 51%-owned book development and licensing
operation named Tekno Books which focuses on developing and executing book
projects, typically with best-selling authors, which books are then licensed for
publication to book publishers. Tekno Books generates revenues from new book
projects in the form of non-refundable advances paid by publishers and royalties
from its library of book titles.
Hollywood
Media is a 50% partner in NetCo Partners. NetCo Partners was formed in June 1995
as a joint venture between Hollywood Media and C.P. Group, Inc. NetCo
Partners is engaged in the development and licensing of
NetForce. NetCo Partners is not consolidated in these financial
statements, and Hollywood Media records 50% of the earnings in NetCo Partners as
“equity in earnings of unconsolidated investees” in the accompanying
consolidated financial statements.
Hollywood
Media owns 26.2% of the equity of MovieTickets.com Inc. (“MovieTickets.com”), a
joint venture, primarily with AMC Entertainment Inc., National Amusements, Inc.,
Viacom Inc. and America Online,
Inc. The
MovieTickets.com joint venture is not consolidated in the accompanying
consolidated financial statements. The MovieTickets.com website allows users to
purchase movie tickets online and retrieve them at “will call” windows or kiosks
at the theaters. MovieTickets.com generates revenue from the sale of
advertising and from service fees charged to users for the purchase of tickets
and from the sale of research data, which revenues are not included in Hollywood
Media’s revenues. Hollywood Media records its share of the earnings
or loss in MovieTickets.com as “Equity in Earnings of Unconsolidated Investees”
in the accompanying consolidated financial statements. Hollywood Media did not
record income from its investment in MovieTickets.com for 2008 because
accumulated losses from 2006 and prior years exceeded MovieTickets.com’s
accumulated net income in 2008 and 2007. During 2009, Hollywood Media
recorded $0.1 million in income from its investment in MovieTickets.com
representing the excess of income over accumulated losses. As of
December 31, 2009, there were no suspended losses remaining.
The
Company had an accumulated deficit totaling $277.3 million and $271.7 million at
December 31, 2009 and 2008, respectively. The success of Hollywood Media’s
operations in future years is dependent on its ability to generate adequate
revenues and cash flows to offset operating expenses. Hollywood Media expects to
incur additional losses while it continues to grow its businesses. There can be
no assurances that Hollywood Media will be able to generate sufficient revenues
from these activities to cover its costs and therefore, Hollywood Media may
continue to incur losses and negative cash flows from operations. To the extent
that Hollywood Media does not generate sufficient revenues to offset expenses
Hollywood Media may require further financing beyond cash on hand to fund
ongoing operations. Hollywood Media estimates, based on operating
plans and assumptions, that existing cash and cash equivalents and anticipated
cash flows will be sufficient to meet working capital requirements for the year
2010.
In August
2008, Hollywood Media entered into a purchase agreement with R&S
Investments, LLC (“Purchaser”) for the sale of Hollywood Media’s subsidiaries
Hollywood.com, Inc. and Totally Hollywood TV, LLC (collectively, the
“Hollywood.com Business”). The Purchaser is owned by Mitchell
Rubenstein, Hollywood Media’s Chief Executive Officer and Chairperson of the
Board, and Laurie S. Silvers, Hollywood Media’s President and Vice-Chairperson
of the Board. Pursuant to the purchase agreement, Hollywood Media
sold the Hollywood.com Business to Purchaser for a potential purchase price of
$10.0 million, which includes $1.0 million in cash which was paid to Hollywood
Media at closing and potential earn-out payments totaling $9.0
million. During 2009, Hollywood Media recorded $0.7 million in income
under this arrangement. The Hollywood.com Business includes the
Hollywood.com website and related URLs and celebrity fan websites and
Hollywood.com Television, a free video on demand service distributed pursuant to
annual affiliation agreements with certain cable operators (see Notes 4 and
20).
In August
2007, Hollywood Media and its wholly-owned subsidiary Showtimes.com, Inc.
(“Showtimes”) entered into and simultaneously closed on a definitive asset
purchase agreement with Brett West and West World Media, LLC (“West World
Media”), pursuant to which Hollywood Media sold substantially all of the assets
of the Showtimes business to West World Media for a cash purchase price of $23.0
million paid to Hollywood Media on the closing date. The Showtimes
business included the CinemaSource, EventSource and ExhibitorAds operations and
constituted the remainder of Hollywood Media’s Data Business Segment, which
previously included the Baseline/StudioSystems business unit until it was sold
to The New York Times Company (“The New York Times”) in August
2006. West World Media is controlled by Brett West, who founded the
Showtimes business in 1995 and sold the business to Hollywood Media in 1999.
Mr. West served as president of Hollywood Media’s Showtimes
business.
In
February 2007, TDI entered into and simultaneously closed on a definitive
asset purchase agreement with Showtix LLC (“Showtix”) and each of its members
pursuant to which TDI purchased substantially all of the assets of Showtix
related to its group ticketing sales business. The aggregate purchase price paid
by TDI for the assets of Showtix was $2.7 million in cash. In addition, Showtix
was also entitled to receive up to $0.4 million in cash earn-outs based on the
gross profits earned by TDI’s group ticketing business for the 2007 through 2011
fiscal years. See Note 5 for additional discussion of this
transaction.
In August
2006, Hollywood Media, entered into and simultaneously closed on a definitive
stock purchase agreement with The New York Times, pursuant to which The New York
Times purchased all of the
outstanding
capital stock of Hollywood Media’s wholly-owned subsidiary, Baseline
Acquisitions Corp. (“BAC”), for a cash purchase price of $35.0 million. BAC was
a subsidiary of Hollywood Media which constituted a portion of Hollywood Media’s
Data Business Segment. $3.5 million of the purchase price was held in
escrow for twelve months following the closing to cover potential
indemnification claims, if any, made by The New York Times. During
2007, Hollywood Media received $2.8 million, representing the full amount of the
escrow net of costs of $0.7 million for certain contractual bonuses due to the
former division heads of BAC. See Note 4 for additional discussion of
this transaction.
(2) SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
Principles of
Consolidation
Hollywood
Media’s consolidated financial statements include the accounts of Hollywood
Media, its wholly owned subsidiaries, and its 51% owned subsidiary, Tekno Books
which is a partnership. All significant intercompany balances and transactions
have been eliminated in consolidation and a non-controlling interest has been
established to reflect the outside ownership of Tekno Books. Hollywood Media’s
50% and 26.2% ownership interests in NetCo Partners and MovieTickets.com,
respectively, are accounted for under the equity method of
accounting.
Accounting
Estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires that the
Company make estimates and judgments that affect the reported amounts of assets
and liabilities, revenues and expenses, and related disclosures of contingent
assets and liabilities. These estimates are based on the information
that is currently available and on various other assumptions that the Company
believes to be reasonable under the circumstances. Actual results could vary
from those estimates under different assumptions or conditions. Significant
estimates and assumptions embodied in the accompanying consolidated financial
statements, which are evaluated on an ongoing basis, include the deferred tax
asset valuation allowance, the adequacy of reserves for accounts receivables and
inventory, accruals for compensation, contingencies and litigation, as well as
Hollywood Media’s ability to realize the carrying value of goodwill, intangible
assets, investments in less than 50% owned companies and other long-lived
assets.
Cash and Cash
Equivalents
Hollywood
Media considers all highly liquid investments with original maturities of three
months or less to be cash and cash equivalents. Interest bearing amounts
included in cash and cash equivalents were $14,008,426 and $13,759,707 at
December 31, 2009 and 2008, respectively. The Company maintains cash
balances with financial institutions in excess of federally insured
limits.
Receivables
Receivables
consist of amounts due from customers who have advertised on plasma TV displays,
posters, brochures and websites in our UK business, purchased live theater
tickets, amounts due from box offices for commission on live theater tickets
sold to groups and refunds for performances that did not occur and amounts due
from publishers relating to signed contracts, to the extent that the earnings
process is complete and amounts are realizable.
Allowance for Doubtful
Accounts
Hollywood
Media maintains an allowance for doubtful accounts for estimated losses
resulting from the inability of its customers to make required
payments. The Company’s accounting for doubtful accounts contains
uncertainty because management must use judgment to estimate the collectibility
of these accounts. When preparing these estimates, management considers a number
of factors, including the age of a customer’s account, past transactions with
customers, creditworthiness of specific customers, historical trends and other
information. The allowance for doubtful accounts was $473,686 and $645,177 at
December 31, 2009 and 2008,
respectively. The
allowance is primarily attributable to receivables due from customers of
CinemasOnline. Although the Company believes its allowance is
sufficient, if the financial condition of the Company’s customers were to
unexpectedly deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required that could materially impact the
Company’s consolidated financial statements. Concentrations of credit risk with
respect to accounts receivable are limited due to the large number of customers
comprising the Company’s customer base and their dispersion across many
different geographical regions. Changes in the allowance for doubtful
accounts consisted of:
|
|
Additions (Deductions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charges to
|
|
|
Charged
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning
|
|
|
costs and
|
|
|
to other
|
|
|
|
|
|
|
|
end of
|
|
|
|
of period
|
|
|
expenses
|
|
|
accounts
|
|
|
|
Write-offs
|
|
|
|
period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful
accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$ |
645,177 |
|
|
$ |
141,310 |
|
|
|
- |
|
|
|
$ |
(312,801 |
) |
(B)
|
|
$ |
473,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$ |
1,146,536 |
|
|
$ |
319,273 |
|
|
$ |
5,000 |
|
(A)
|
|
$ |
(825,632 |
) |
(B)
|
|
$ |
645,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$ |
1,144,700 |
|
|
$ |
627,197 |
|
|
$ |
48,360 |
|
(A)
|
|
$ |
(673,721 |
) |
(B)
|
|
$ |
1,146,536 |
|
Notes:
|
(A)
Collections on accounts previously written off and acquisitions of
subsidiaries.
|
(B)
Uncollectible accounts written off.
Inventories Held for Sale
and Deferred Ticket Costs
Inventories
held for sale consist of Broadway tickets or other live theater tickets
available for sale. Deferred ticket costs consist of tickets sold
(subject to the performance occurring) to groups, individuals, and travel
agencies for future performances which have been delivered to the customer or
held by the Company as “will call.” Both are carried at cost using
the specific identification method. Ticket inventory does not include
movie tickets.
The
portion of receivable and inventory balances that relate to the sales of tickets
to groups, individuals and travel agencies for Broadway and other live theatre
shows are, with isolated exceptions, for shows or performances that take place
at venues in New York, New York, a major metropolitan area reported as subject
to the threat of terrorist acts from time to time by relevant United States
Government agencies. Hollywood Media recognizes that the occurrence
of such a terrorist act, a labor strike or dispute, or any other significant
civil disturbance in New York City could lead to closures of available
performance venues for which Hollywood Media may not receive reimbursement of
ticket costs and/or payment on outstanding receivables, and could adversely
impact the normal conduct of its operations within New York City for an
indefinite period of time.
Property and
Equipment
Property
and equipment are carried at cost and are classified in six categories. The
categories and estimated service lives are as follows:
Furniture
and fixtures
|
5
years
|
Equipment
and software
|
3
to 5 years
|
Website
development
|
Up
to 3 years
|
Equipment
under capital leases
|
Shorter
of term of lease or 3 to 5 years
|
Leasehold
improvements
|
Term
of lease
|
Internally
developed software
|
3
years upon
implementation
|
Depreciation
is provided in amounts sufficient to allocate the cost of depreciable assets to
operations over their estimated service lives, which range from three to five
years, on a straight-line basis. Leasehold
improvements
are amortized over the terms of the respective
leases. Maintenance and repairs are charged to expense when
incurred.
Website Development Costs
and Internally Developed Software
FASB
Accounting Standards Codification (“ASC”) Topic No. 350, “Intangibles-Goodwill and Other”
Subtopic No. 50 “Website Development Costs”
(ASC 350-50) is the authoritative guidance for accounting for website
costs. Under ASC 350-50 all costs relating to software used to
operate a website should be accounted for under ASC 350-40, “Internal Use Software”
unless a plan exists or is being developed to market the software
externally. Website development costs capitalized, net of transfers
in and out, during the years ended December 31, 2009, 2008 and 2007 were
$493,493, $28,624 and $0, respectively. Website development costs are
amortized using the straight-line method over the lesser of three years or the
estimated useful life of the related software.
Certain
software development costs for internally developed software have been
capitalized in accordance with the provisions of ASC 350-40. These
capitalized costs include purchased software for internal use, consulting
services and costs for personnel associated with programming, coding and testing
such software during the application development stage and are included in
“Property and Equipment” in the accompanying consolidated balance
sheets. Amortization of capitalized software costs begins when the
software is placed into service and is included in “depreciation and
amortization expense” in the accompanying consolidated statements of
operations. Software development costs are being amortized using the
straight-line method over three years. Internally developed software
costs capitalized, net of transfers in and out, during the years ended December
31, 2009, 2008 and 2007 were $163,931, $100,562 and $26,274,
respectively.
Goodwill and Intangible
Assets
Under ASC
Topic No. 350, “Intangibles –
Goodwill and Other” (ASC 350), goodwill and certain intangibles are no
longer amortized; however, they are subject to evaluation for
impairment annually, or more frequently if indicators
arise, using a fair value based test. The fair value based test is a
two-step test. The first step involves comparing the fair value of each of our
reporting units to the carrying value of those reporting units. If the carrying
value of a reporting unit exceeds the fair value of the reporting unit, we are
required to proceed to the second step. In the second step, the fair value of
the reporting unit would be allocated to the assets (including unrecognized
intangibles) and liabilities of the reporting unit, with any residual
representing the implied fair value of goodwill. An impairment loss would be
recognized if and to the extent that the carrying value of goodwill exceeds the
implied value.
Hollywood
Media established October 1, as its annual impairment test date and conducted
required testing on that date during fiscal 2009, 2008 and
2007. Although the Company’s annual impairment analyses
in 2009 and 2007 did not result in any impairment charges, during the second
quarter of 2009 the Company determined the $5.0 million of the goodwill
associated with its MovieTickets.com business should be written down based on
the discounted cash flow not exceeding carrying value and accordingly recorded
an impairment loss of $5.0 million. For additional information see
Note 15 – “Investments in and Advances to Equity Method Unconsolidated
Investees” in these Notes to the Consolidated Financial
Statements. As part of our fiscal 2008 annual impairment evaluation,
the Company determined that the goodwill associated with its CinemasOnline
business should be written off, and, accordingly, the Company recorded an
impairment loss of $2.8 million. In addition, the Company recorded
$0.7 million in additional impairment to goodwill recorded after our 2001
acquisition of Always Independent Entertainment Corp. and our Intellectual
Properties segment in 2008.
As
of December 31, 2009, we are not aware of any items or events that would cause
us to adjust the recorded value of Hollywood Media’s goodwill for impairment
further. Future changes in estimates used to conduct the impairment
review, including revenue projections or market values could cause the analysis
to indicate that Hollywood Media’s goodwill is impaired in subsequent periods
and result in a write-off of a portion or all of the goodwill. In order to
evaluate the sensitivity of the fair value calculations of our reporting units
on the impairment calculation, we applied a hypothetical decrease to the fair
values of each reporting unit.
During
the period from November 21, 2008 to May 21, 2009, the Company’s market
capitalization periodically fell below the book value of its equity. The Company
believes that the disparity between the book value of its assets as compared to
the market capitalization of its business was in large part a consequence of
market conditions, including perceived risks in the debt markets, the Company’s
industry and the broader economy. While the Company believes that some of these
risks are unique to specific companies, some represent global industry
risks. The Company believes that there is no fundamental change in our
underlying business model or prospects for our Company. We
considered the periodic decline in our market capitalization to be
temporary and based on general economic conditions and a decline in general
investor confidence throughout the market and not based on any events or
conditions specific to us. The Company has evaluated the impairment of its
goodwill, giving consideration to these risks, and their impact upon the
respective reporting units’ fair values, and has reported impairments where it
deems appropriate. The Company believes that the fair value of its remaining
reporting units that contain goodwill at December 31, 2009 and 2008
exceeded the book value of those units.
Impairment of Long-Lived
Assets
ASC Topic
No. 360-10 requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets’
carrying amount. If an indicator of impairment is present, Hollywood
Media evaluates the recoverability of long-lived assets not held for sale by
comparing the carrying amount of the assets to the estimated undiscounted future
cash flows associated with them. At the time such evaluations indicate that the
future undiscounted cash flows of certain long-lived assets are not sufficient
to recover the carrying values of such assets, the assets are adjusted to their
fair values if such fair values are lower than their carrying value. Hollywood
Media determines fair value as the net present value of future cash flows. There
were no adjustments to the carrying value of long-lived assets for any of the
years ended December 31, 2009, 2008, and 2007.
Revenue
Recognition
Revenue
recognition policies for ticketing, shipping and handling, advertising and book
packaging and licensing, are set forth below.
Ticketing. Ticket
revenue is derived from the sale of live theater tickets for Broadway,
off-Broadway and London shows to individuals, groups, travel agencies, tour
groups and educational organizations. Proceeds from these sales
received in advance of the corresponding performance activity are included in
“Deferred Revenue” in our accompanying consolidated balance sheets, at the time
of receipt. The Company is the primary obligor and recognizes revenue
on a gross basis in the period the performance of the show occurs.
Gift
certificate revenue is derived from the sale of gift certificates, for Broadway,
off-Broadway, London shows and dinner and show sales to individuals, groups,
travel agencies, tour groups and corporate programs. Proceeds from
these sales are included in “Gift Certificate Liability” in our accompanying
consolidated balance sheets, at the time of receipt, and if redeemed, are
recognized on a gross basis as ticketing revenue in the period the performance
of the show occurs. Gift certificates do not expire.
Hotel
package revenue is derived from the sale of exclusive allocation rooms provided
by New York City hotels to individuals and groups. Proceeds from
these sales are included in “Customer Deposits” in our accompanying consolidated
balance sheets, at the time of receipt, and are recognized as revenue on a net
basis on the day of departure from the hotel.
Dinner
voucher revenue is derived from the sale of dinner vouchers for meals at upscale
restaurants in New York City to individuals and groups. Proceeds from
these sales are included in “Customer Deposits” in our accompanying consolidated
balance sheets, at the time of receipt, and are recognized as revenue on a net
basis on the date the voucher is presented, or upon expiration of the
voucher.
ASC Topic
No. 605, “Revenue Recognition”
Subtopic No. 45,
“Principal Agent Considerations” (ASC 605-45) provides guidance
concerning under what circumstances a company should report revenue based on (a)
the gross amount billed to a customer because it has earned revenue from the
sale of goods or services or (b) the net amount retained (that is, the amount
billed to the customer less the amount paid to a supplier) because it has earned
a commission or fee. Hollywood Media’s existing accounting policies conform to
ASC 605-45. Ticket revenue and cost of revenue-ticketing are
recorded on a gross basis in our accompanying consolidated statements of
operations. Revenues on hotel packages and dinner vouchers sold for
New York restaurants are reported on a net basis in our accompanying
consolidated statements of operations.
Shipping
and Handling. The Company includes
shipping and handling revenues and costs in ticketing revenues and cost of
revenues-ticketing, respectively. Shipping and handling revenues amounted to
$261,077, $267,883 and $341,769 for the years ended December 31, 2009, 2008 and
2007, respectively. Shipping and handling costs amounted to $194,020, $270,011
and $294,147 for the years ended December 31, 2009, 2008 and 2007,
respectively.
Advertising. Advertising
revenue is derived from the sale, by CinemasOnline, of advertising on plasma TV
displays throughout the U.K. and Ireland, on lobby display posters, movie
brochure booklets and ticket wallets distributed in cinemas, live theater and
other entertainment venues in the U.K. and on cinema and theater websites in the
U.K. and Ireland. Advertising revenue is recognized over the period
that the advertisement is displayed, provided that no significant obligations of
Hollywood Media remain and collection is reasonably assured. Hollywood Media’s
obligations typically are based on maintaining plasma TV displays, posters,
brochures and websites where the advertisements are displayed.
Book
Packaging and Licenses. Licensing revenues in the form of
non-refundable advances and other guaranteed royalty payments are recognized
when the earnings process has been completed, which is generally upon the
delivery of a completed manuscript and acceptance by the publisher.
Non-guaranteed royalties based on sales of licensed products and on sales of
books published directly by Hollywood Media are recognized as revenues when
earned based on royalty statements or other notification of such amounts from
the publishers.
Revenue
relating to Hollywood Media’s book licensing business is recognized when the
earnings process is complete, typically when a publisher accepts a book for
publishing. Advances received from publishers are recorded as “Deferred Revenue”
in the accompanying consolidated balance sheets until the book is accepted by
the publisher. In the book licensing division, expenditures for
co-editors and permission payments are also deferred and recorded as “Prepaid
expenses” in the accompanying consolidated balance sheet until the book is
accepted by the publisher, at which time such costs are expensed.
Segment
Information
ASC Topic
No. 280, “Segment
Reporting” establishes standards for reporting of selected information
about operating segments in interim financial reports issued to shareholders. It
also establishes standards for related disclosures about products and services,
geographic areas and major customers (see Note 18).
Earnings Per Common
Share
FASB Accounting Standard Codification
No. 260, “Earnings per
Share” requires companies
to present basic and diluted earnings per share. Earnings per common
share is computed by dividing net income or loss by the weighted average number
of common shares outstanding during the period presented.
Common
shares issuable upon conversion of convertible securities and upon exercise of
outstanding options and warrants of 1,328,443, 2,581,928 and 2,736,428 were
excluded from the calculation of diluted earnings per share for the years ended
December 31, 2009, 2008 and 2007, respectively, because their impact was
anti-dilutive to the loss from continuing operations. Non-vested
shares are not included in the basic calculation until vesting occurs. There
were 233,334, 400,000 and 150,000 unvested shares as of December 31, 2009, 2008,
and 2007, respectively.
Advertising
Costs
Hollywood
Media expenses the cost of advertising as incurred. Advertising costs
for the years ended December 31, 2009, 2008 and 2007 were $3,874,479, $4,066,839
and $4,703,407, respectively, and are included in “Selling, general and
administrative” expenses in the accompanying consolidated statements of
operations.
401(k)
Plan
Hollywood
Media maintains a 401(k) Plan (“the Plan”) covering all employees who meet
certain eligibility requirements. The Plan provides that each participant may
contribute up to 15% of his or her pre-tax gross compensation (not to exceed a
statutorily prescribed annual limit). All amounts contributed by employee
participants in conformity with Plan requirements and earnings on such
contributions are fully vested at all times. With respect to the year ended
December 31, 2009, Hollywood Media accrued $141,664, or a match of 50% of the
first 8% of the employees’ compensation contributions, for those participants
employed in excess of 1,000 hours during the year and employed on the last day
of the year. The matches paid for the years ended December 31, 2008
and 2007 were 165,819 and 80,547 shares of Hollywood Media common stock, valued
at $165,819 and $233,586, respectively, at a share price of $1.00 and $2.90,
respectively. The Plan had investments in Company stock of 439,874
shares valued at a share price of $1.40 or $615,824 and 227,520 shares valued at
a share price of $1.00 or $227,520, as of December 31, 2009 and 2008,
respectively.
Income
Taxes
Income taxes are accounted for under
the liability method pursuant to FASB Accounting Standards Codification No. 740,
“Income Taxes” (ASC
740). Under ASC 740, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. A valuation allowance is recorded to reduce
deferred income tax assets to an amount that is more likely than not to be
realized. Pursuant to the provisions of ASC 740 uncertain tax
positions must meet a “more-likely-than-not” recognition threshold.
Variable Interest
Entities
ASC Topic No. 810, “Consolidation” Subtopic No.
10-25 “Recognition”
(ASC 810-10-25), requires a variable interest entity (“VIE”) to be consolidated
by its primary beneficiary. Hollywood Media determined that
Hollywood.com, LLC met the definition of a VIE based on one of the criteria
described in ASC 810-10-25, which states the total equity investment at risk is
not sufficient to permit the entity to finance its activities without additional
subordinated financial support provided by any parties, including equity
holders. The initial investment provided by R&S Investments of
$1.0 million is not sufficient to fund the ongoing losses without additional
subordinated financial support. The Company has made the
determination that it is not the primary beneficiary of Hollywood.com, LLC, as
it is not expected to absorb a majority of the loss. Accordingly,
Hollywood.com LLC is not consolidated into the Company’s consolidated financial
statements.
(3) STOCK OPTION PLANS;
WARRANTS; AND EMPLOYEE STOCK BASED COMPENSATION:
Shareholder-Approved
Plans
Hollywood Media has four
shareholder-approved equity compensation plans: the 2004 Stock Incentive Plan,
the 2000 Stock Incentive Plan, the 1993 Stock Option Plan, and the Directors
Stock Option Plan (the “Plans”). In addition to stock options, the
2004 and 2000 Plans permit the granting of stock awards and other forms of
equity compensation for key personnel and non-employee
directors. There were an aggregate of 524,313, 512,370, and 951,370
shares remaining available for issuance under Hollywood Media’s equity
compensation plans at December 31, 2009, 2008 and 2007,
respectively. The options may be either qualified
incentive
stock options or nonqualified stock options. Stock options granted to
date generally have had an exercise price per share equal to the market value
per share of the common stock on the date prior to grant and generally expire
five years or ten years from the date of grant. Options awarded to
Hollywood Media’s employees generally become exercisable in annual increments
over a four-year period beginning one year from the grant date, although some
are immediately exercisable and some vest based on other terms as specified in
the option grants. Options awarded to directors become exercisable
six months after date of grant. The Plans are registered with the SEC
on Form S-8. Shares issued under the Plans are issued from the
Company’s unissued shares authorized under its articles of
incorporation.
Warrants
Equity compensation not approved by
shareholders consists primarily of warrants or other equity purchase rights
granted to non-employees of Hollywood Media in exchange for
services. Additional information about such equity compensation is
included in the paragraphs and tables below.
1993 Stock Option
Plan
Under Hollywood Media’s
shareholder-approved 1993 Stock Option Plan, as amended (the “1993 Plan”),
3,000,000 shares of Hollywood Media’s common stock were reserved for issuance
upon exercise of options. The 1993 Plan is designed to serve as an
incentive for retaining qualified and competent consultants and
employees. The Stock Option Committee of Hollywood Media’s Board of
Directors (the “Stock Option Committee”) administers and interprets the 1993
Plan and, prior to July 1, 2003, was authorized to grant options thereunder to
all eligible consultants, employees and officers of Hollywood
Media.
The 1993 Plan provided for the granting
of both “incentive stock options” (as defined in Section 422 of the Internal
Revenue Code of 1986, as amended) and nonqualified stock
options. Options were granted under the 1993 Plan on such terms and
at such prices as determined by the Stock Option Committee. Each
option is exercisable after the period or periods specified in the option
agreement, but no option can be exercised until six months after the date of
grant, or after the expiration of 10 years from the date of
grant. Options granted under the 1993 Plan are not transferable other
than by will or by the laws of descent and distribution. The 1993
Plan also authorizes Hollywood Media to make loans to employees to enable them
to exercise their options. Such loans must (i) provide for recourse
to the optionee, (ii) bear interest at a rate no less that the rate of interest
payable by Hollywood Media to its principal lender at the time the loan is made,
and (iii) be secured by the shares of common stock purchased. No such
loans were made during the years ended December 31, 2009, 2008 or
2007.
As of December 31, 2009, options to
purchase 36,000 shares of common stock were outstanding under the 1993 Plan and
no options granted under the 1993 Plan were exercised in 2009. The
ability to grant more options under the 1993 Plan expired on July 1,
2003. As such, no further grants are permitted under the 1993
Plan.
2000 Stock Incentive
Plan
In December 2000, the Board of
Directors and Hollywood Media’s shareholders approved Hollywood Media’s 2000
Stock Incentive Plan (the “2000 Plan”), and the 2000 Plan was amended during the
year ended December 31, 2003. The purpose of the 2000 Plan is to
advance the interests of Hollywood Media by providing an additional incentive to
attract, retain and motivate highly competent persons as officers and key
employees of, and consultants to, Hollywood Media and its
subsidiaries and affiliates and to encourage stock ownership in
Hollywood Media by such persons by providing them opportunities to acquire
shares of Hollywood Media’s common stock, or to receive monetary payments based
on the value of such shares pursuant to the benefits described
therein. Additionally, the 2000 Plan is intended to assist in further
aligning the interests of Hollywood Media’s officers, key employees and
consultants to those of its other stockholders.
Under the 2000 Plan, as amended,
2,765,287 shares of common stock are reserved for issuance upon
exercise
of benefits granted under the 2000 Plan. The maximum number of shares
of Common Stock with respect to which benefits may be granted or measured to any
individual participant under the 2000 Plan during the term of the 2000 Plan
shall not exceed 1,000,000 subject to certain potential adjustments as provided
in the plan. If any benefit granted pursuant to the 2000 Plan
terminates, expires or is canceled or surrendered, in whole or in part, shares
subject to the unexercised portion may again be issued pursuant to the 2000
Plan. The shares acquired upon exercise of benefits granted under the
2000 Plan will be authorized and issued shares of common
stock. Hollywood Media’s shareholders do not have any preemptive
rights to purchase or subscribe for the shares reserved for issuance under the
2000 Plan.
The 2000 Plan is administered by the
Stock Option Committee or the Compensation Committee of the Board of Directors
for grants to executive officers, which has the right to determine, among other
things, the persons to whom options, restricted stock, or other benefits are
granted, the number of shares of common stock subject to options and other
benefits, the exercise price of options and the other terms and conditions
thereof. The 2000 Plan provides for the issuance of Incentive Stock
Options and Nonqualified Stock Options. In addition, the Benefits
under the 2000 Plan may be granted in any one or a combination of Options, Stock
Appreciation Rights, Stock Awards, Performance Awards and Stock
Units. Upon receiving grants of benefits, each holder of benefits
must enter into a benefit agreement with Hollywood Media that contains the
appropriate terms and conditions as determined by the Stock Option
Committee.
As of December 31, 2009, there were no
options outstanding to purchase shares of common stock under the 2000
Plan. During the year ended December 31, 2009, no options were
granted, exercised, cancelled or expired under the 2000 Plan.
2004 Stock Incentive
Plan
During the year ended December 31,
2004, Hollywood Media’s Board of Directors and shareholders approved Hollywood
Media’s 2004 Stock Incentive Plan (the “2004 Plan”). The purpose of
the 2004 Plan is to advance the interests of Hollywood Media by providing an
additional incentive to attract, retain and motivate highly competent persons as
officers and key employees of, and consultants to, Hollywood Media and its
subsidiaries and affiliates and to encourage stock ownership in Hollywood Media
by such persons by providing them opportunities to acquire shares of Hollywood
Media’s common stock, or to receive monetary payments based on the value of such
shares pursuant to the benefits described therein. Additionally, the
2004 Plan is intended to assist in further aligning the interest of Hollywood
Media’s officers, key employees and consultants to those of its other
stockholders.
Under the 2004 Plan, 1,500,000 shares
of common stock are reserved for issuance upon exercise of benefits granted
under the 2004 Plan. The maximum number of shares of Common stock
with respect to which benefits may be granted or measured to any individual
participant under the 2004 Plan during the term of the 2004 Plan shall not
exceed 500,000 subject to certain potential adjustments as provided in the
plan. If any benefit granted pursuant to the 2004 Plan terminates,
expires, or is canceled or surrendered, in whole or in part, shares subject to
the unexercised portion may again be issued pursuant to the 2004
Plan. The shares acquired upon exercise of benefits granted under the
2004 Plan will be authorized and issued shares of common
stock. Hollywood Media’s shareholders do not have any preemptive
rights to purchase or subscribe for the shares reserved for issuance under the
2004 Plan.
The 2004 Plan is administered by the
Stock Option Committee or the Compensation Committee of the Board of Directors
for grants to executive officers, which has the right to determine, among other
things, the persons to whom options, restricted stock, or other benefits are
granted, the number of shares of common stock subject to options and other
benefits, the exercise price of options and the other terms and conditions
thereof. The 2004 Plan provides for the issuance of Incentive Stock
Options and Nonqualified Stock Options. An Incentive Stock Option is
an option to purchase common stock that meets the definition of “incentive stock
option” set forth in Section 422 of the Internal Revenue Code of
1986. A Nonqualified Stock Option is an option to purchase common
stock that meets certain requirements in the 2004 Plan but does not meet the
definition of an “incentive stock option” set forth in Section 422 of the
Code. In addition, the benefits under the 2004 Plan may be granted in
any one or a combination of options, stock appreciation rights, stock
awards,
performance
awards and stock units. Upon receiving Grants of benefits, each
holder of benefits must enter into a benefit agreement with Hollywood Media that
contains the appropriate terms and conditions as determined by the Stock Option
Committee.
As of December 31, 2009, options to
purchase 204,000 shares of common stock were outstanding under the 2004
Plan. During the year ended December 31, 2009, no options were
granted or exercised, and 1,000 and 15,000 shares were cancelled and expired,
respectively, under the 2004 Plan.
Directors Stock Option
Plan
Hollywood Media has established the
shareholder-approved Directors Stock Option Plan for non-employee directors,
which provides for grants to each non-employee director of options to purchase
15,000 shares of Hollywood Media’s common stock upon election or
re-election. In December 2007, the Board of Directors of Hollywood
Media elected to temporarily suspend such annual option issuances until such
time that the Board determines to reserve additional shares of common stock for
issuance upon exercise of options granted under the Directors Stock Option
Plan. The ability to grant more options under the Directors Stock
Option Plan expired on July 1, 2008. As such, no further grants are
permitted under the Directors Stock Option Plan. A total of 300,000
shares of common stock have been reserved for issuance upon exercise of options
granted under the Directors Stock Option Plan.
As of December 31, 2009, options to
purchase 280,943 shares of common stock were outstanding under Directors Stock
Option Plan. During the year ended December 31, 2009, no options were
granted, exercised, cancelled or expired under the Directors Stock Option
Plan.
Shares Available for Future
Grant under Stock Plans
At December 31, 2009, options to
purchase 4,057 shares were available for future grant under the Directors Stock
Option Plan. At December 31, 2009 there were 226,052 shares available
for future grant under the 2000 Plan for options, stock and other awards, and
298,261 shares available for future grant under the 2004 Plan for options, stock
and other awards. No options were available for future grant under
the 1993 Plan.
Accounting for Share-Based
Compensation
Pursuant to ASC Topic No. 718,
“Compensation-Stock Compensation” (ASC 718) the Company uses the modified
prospective transition method and recognizes compensation cost for (i)
share-based awards granted prior to but not yet vested as of January 1, 2006,
based on the fair value calculated on the grant date, and (ii) share-based
awards granted subsequent to January 1, 2006, also based on the fair value
calculated on the grant date.
During the year ended December 31,
2009, Hollywood Media recorded $228,720 of stock-based compensation expense
which caused the loss from continuing operations to increase by $228,720 and
basic and diluted loss per share from continuing operations to increase by $0.01
per share.
Table of Stock Option and
Warrant Activity
A summary of all stock option and
warrant activities for the year ended December 31, 2009:
|
|
Stock Options
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2008
|
|
|
591,943 |
|
|
$ |
5.24 |
|
|
|
1,989,985 |
|
|
$ |
4.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cancelled
|
|
|
(1,000 |
) |
|
|
4.28 |
|
|
|
- |
|
|
|
- |
|
Expired
|
|
|
(70,000 |
) |
|
|
11.73 |
|
|
|
(1,182,485 |
) |
|
|
4.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2009
|
|
|
520,943 |
|
|
$ |
4.37 |
|
|
|
807,500 |
|
|
$ |
4.27 |
|
Stock
Options
The
following table summarizes the activity with respect to the stock options of
Hollywood Media for the year ended December 31, 2009.
|
|
Number of
|
|
|
Exercise Price
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2008
|
|
|
591,943 |
|
|
$2.03 - $16.50
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
- |
|
|
-
|
|
Exercised
|
|
|
- |
|
|
-
|
|
Cancelled
|
|
|
(1,000 |
) |
|
$4.28
|
|
Expired
|
|
|
(70,000 |
) |
|
$2.55 - $16.50
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2009
|
|
|
520,943 |
|
|
$2.03 - $9.75
|
|
Data on Outstanding Options
at December 31, 2009:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Number of
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
Options
|
|
|
Average Exercise
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Outstanding
|
|
|
Price Per Share
|
|
|
Term (years)
|
|
|
Intrinsic Value (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
Options
|
|
|
517,193 |
|
|
$ |
4.37 |
|
|
|
3.04 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested
Options
|
|
|
3,750 |
|
|
$ |
4.19 |
|
|
|
1.77 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Outstanding Stock Options
|
|
|
520,943 |
|
|
|
|
|
|
|
|
|
|
$ |
- |
|
(1)
|
The
aggregate intrinsic value is computed based on the closing price of
Hollywood Media’s stock on December 31, 2009, which is a
price per share of $1.40.
|
As of
December 31, 2009, there was $21,676 of unrecognized compensation cost related
to non-vested stock option awards. The cost is expected to be
recognized over a weighted-average period of 0.33 years.
Stock
options exercises during the years ended December 31, 2008 and 2007 resulted in
the receipt of cash proceeds of $122,900 and $203,824,
respectively. There were no stock option exercises during
2009. The intrinsic values of the stock options exercised during the
years ended 2008 and 2007 were $115,020 and $74,673,
respectively. There were no tax benefits realized from stock option
exercises during the years ended December 31, 2008 and 2007, as a result of
available net operating losses and the related valuation allowance.
The
following table summarizes the activity with respect to the non-vested stock
options of Hollywood Media for the year ended December 31, 2009.
|
|
|
|
|
Weighted -
|
|
|
|
|
|
|
Average Grant
|
|
|
|
Number of
|
|
|
Date Fair Value
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
|
|
|
|
|
Non-vested
at December 31, 2008
|
|
|
7,500 |
|
|
$ |
2.42 |
|
Granted
|
|
|
- |
|
|
|
- |
|
Vested
|
|
|
(3,750 |
) |
|
$ |
2.32 |
|
Forfeited
|
|
|
- |
|
|
|
- |
|
Non-vested
at December 31, 2009
|
|
|
3,750 |
|
|
$ |
2.39 |
|
The fair value of each option award is
estimated as of the date of grant using the Black-Scholes option valuation
model, which uses various assumptions in the calculation of the fair
value. There were no options granted during the years ended December
31, 2009 and 2008.
The fair
value of each option grant is estimated on the date of the grant using an option
pricing model with the following weighted average assumptions used for grants
during the years ended December 31, 2009, 2008 and 2007:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Average
risk free interest rate
|
|
|
- |
|
|
|
- |
|
|
|
4.14 |
% |
Expected
lives of options (years):
|
|
|
|
|
|
|
|
|
|
|
|
|
Two
year options
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Three
year options
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Five
and Ten year options
|
|
|
- |
|
|
|
- |
|
|
|
10 |
|
Expected
volatility
|
|
|
- |
|
|
|
- |
|
|
|
72.1 |
% |
The
following table summarizes weighted average exercise prices and fair value of
options and warrants granted whose exercise price equals, exceeds or is less
than the market price of the stock on the grant date.
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
Price Equals Market Price
|
|
|
|
|
|
|
|
|
|
Weighted
average exercise price
|
|
$ |
- |
|
|
$ |
2.34 |
|
|
$ |
2.50 |
|
Weighted
average fair value
|
|
$ |
- |
|
|
$ |
0.59 |
|
|
$ |
1.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
Price Exceeds Market Price
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average exercise price
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Weighted
average fair value
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
Price is Less Than Market Price
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average exercise price
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Weighted
average fair value
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
The
following is a summary of stock options and warrants outstanding and exercisable
as of December 31, 2009:
|
|
Options and Warrants Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Remaining
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
Range of
|
|
Number of
|
|
|
Contractual
|
|
|
Price
|
|
|
Number of
|
|
|
Price
|
|
Exercise Prices
|
|
Shares
|
|
|
Life
|
|
|
Per Share
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
2.03 - $ 2.50
|
|
|
97,500 |
|
|
|
4.31 |
|
|
$ |
2.13 |
|
|
|
97,500 |
|
|
$ |
2.13 |
|
$
4.06 - $ 5.19
|
|
|
1,194,943 |
|
|
|
1.56 |
|
|
$ |
4.32 |
|
|
|
1,191,193 |
|
|
$ |
4.32 |
|
$9.75
|
|
|
36,000 |
|
|
|
.41 |
|
|
$ |
9.75 |
|
|
|
36,000 |
|
|
$ |
9.75 |
|
|
|
|
1,328,443 |
|
|
|
1.73 |
|
|
$ |
4.31 |
|
|
|
1,324,693 |
|
|
$ |
4.31 |
|
Non-vested Stock
Awards
On
December 22, 2008, Hollywood Media issued 250,000 and 150,000 restricted shares
to the Chairman of the Board and President, respectively, in accordance with and
pursuant to Hollywood Media’s 2004 Stock Incentive Plan with an aggregate value
of $408,000, the fair market value on the date of issuance.
The
restricted shares will vest as follows, provided that the respective executive
remains employed by Hollywood Media on such vesting dates:
|
(a)
|
One-third
of the issued shares vest at the rate of 25% per year on each of the first
through fourth anniversaries of the date of grant, such that these shares
will be fully vested on the fourth anniversary of the date of grant,
assuming continued employment of the executives by Hollywood
Media.
|
|
(b)
|
One-third
of the issued shares will vest if, at any time prior to the fourth
anniversary of the date of grant, Hollywood Media achieves EBITDA greater
than zero for either (A) each of two consecutive fiscal quarters or
(B) any three quarters in any 15-month period, in each case beginning
with the fourth fiscal quarter of
2008.
|
|
(c)
|
One-third
of the issued shares will vest if, at any time prior to the fourth
anniversary of the date of grant, the closing price of Hollywood Media’s
Common Stock exceeds $2.00 per share for at least 10 consecutive trading
days after the date of grant.
|
Hollywood Media recorded $204,885 as
compensation expense for the year ended December 31, 2009 relating to this
issuance. At December 31, 2009 unrecognized potential compensation
expense for the non-vested shares amounted to $202,184. As of
December 31, 2009 there were 233,334 shares of non-vested common
stock.
During the year ended December 31,
2004, Hollywood Media issued 400,000 shares to each of the President and the
Chairman of the Board pursuant to employment agreements with an aggregate value
of $2,600,000, the fair market value on the date of issuance, which vest at a
rate of 6.25% per quarter beginning on October 1, 2004. Hollywood
Media recorded $487,500, and $650,000 as compensation expense for the years
ended December 31, 2008 and 2007, respectively, under these non-vested stock
awards. There was no compensation expense recorded during 2009
under these stock awards. At December 31, 2007, unrecognized
compensation expense for the non-vested shares amounted to
$487,500. As of December 31, 2009 and 2008, there were no unvested
shares or unrecognized compensation expense remaining under this
issuance. As of December 31, 2007, there were 150,000 shares of
non-vested common stock. During the years ended December 31, 2008 and
2007, 150,000 and 200,000 shares of common stock vested,
respectively.
In
accordance with ASC Topic No. 718, Compensation – Stock Compensation, unearned
deferred
compensation
amounts of $1,787,500 previously classified as a contra-equity were eliminated
against additional paid-in capital, commencing January 1, 2006, as the stock is
not deemed to be issued until vesting requirements are satisfied.
(4) DISCONTINUED
OPERATIONS
Hollywood.com
Business
On August
21, 2008, Hollywood Media entered into a purchase agreement with the Purchaser
for the sale of the Hollywood.com Business. The Purchaser is owned by
Mitchell Rubenstein, Hollywood Media’s Chief Executive Officer and Chairperson
of the Board, and Laurie S. Silvers, Hollywood Media’s President and
Vice-Chairperson of the Board. Pursuant to the purchase agreement,
Hollywood Media sold the Hollywood.com Business to Purchaser for a potential
purchase price of $10,000,000, which includes $1,000,000, which was paid to
Hollywood Media at closing, and potential earn-out payments totaling $9,000,000.
Hollywood Media does not have a significant continuing involvement in the
Hollywood.com Business operations.
The earn-out payments will equal the
greater of 10 percent of gross revenue and 90 percent of EBITDA (as
defined in the purchase agreement) for the Hollywood.com Business until the
earn-out is fully paid. The Company considers the $9,000,000 in
potential earn-out payments to be contingent consideration and
non-recourse. Thus, the Company will not record a receivable and any
corresponding gain until the contingencies have been
met. During 2009, Hollywood Media recorded $677,342 in
income under this arrangement. In addition, $61,543 of
indemnification expenses related to claims by former employees relating to the
period of their employment with Hollywood Media and a $1,227 tax expense offset
the overall gain on sale of discontinued operations recorded in the accompanying
consolidated statement of operations for the year ended December 31,
2009. As of the filing of this Form 10-K, the Company has collected
the entire amount recorded in income in accordance with the payment
terms. As of December 31, 2009, there remains $8,322,658 in potential
earn-out payments. The Company will estimate an
appropriate reserve for at-risk amounts, if necessary, at the time that any
accounts receivable are recorded. If a subsequent change of
control of the Hollywood.com Business, or a portion thereof, occurs before the
earn-out is fully paid, the remaining portion of the earn-out would be paid to
the Company immediately upon such an event, up to the amount of the
consideration received less related expenses. If the aggregate proceeds received
by the Company in such a change of control are less than the remaining balance
of the earn-out, then the surviving entity which owns the Hollywood.com Business
will be obligated to pay the difference in accordance with the same earn-out
terms. If the Hollywood.com Business, or a portion thereof, is resold prior to
August 21, 2011, Hollywood Media established an escrow account to fund negative
EBITDA of the sold business as necessary, up to a total of $2,600,000, the
maximum amount of negative EBITDA required to be funded per the purchase
agreement. During 2009, Hollywood Media distributed the full balance
of the escrow to fund operating losses. In addition, Hollywood Media
paid $400,000 to the Purchaser for working capital adjustments at
closing. The $2,600,000 and the $400,000 were included in “Gain
(loss) on sale of discontinued operations” in 2008 in our accompanying
consolidated statements of operations. Pursuant to Staff Accounting
Bulletin (“SAB”) Topic 5-E, the Company must consider if it has transferred
risks of ownership, which the Company has considered and concluded that the
risks of ownership have been transferred.
The
Hollywood.com Business included:
(i) Hollywood
Media’s Hollywood.com, Inc. subsidiary, which owned the Hollywood.com website
and related URLs and celebrity fan websites. Hollywood.com features
in-depth movie information including movie showtimes listings, celebrity
biographical data, and celebrity photos primarily obtained by Hollywood.com
through licenses with third party licensors which are made available on the
Hollywood.com website and mobile platform. Hollywood.com also has
celebrity fan sites and a library of feature stories and interviews which
incorporate photos and multimedia videos taken at entertainment events including
movie premiers and award shows; and
(ii) Hollywood
Media’s Totally Hollywood TV, LLC subsidiary, which owned Hollywood.com
Television, a free video on demand service distributed pursuant to annual
affiliation agreements with certain cable operators for the distribution of
movie trailers to subscribers of those cable systems.
Showtimes.com,
Inc.
On
August 24, 2007, Hollywood Media Corp. entered into and simultaneously closed on
a definitive asset purchase agreement with West World Media and its principal, a
former employee, pursuant to which Hollywood Media sold to West World Media
substantially all of the assets of its Showtimes business, for a cash purchase
price of $23,000,000, subject to a working capital post-closing
adjustment. The working capital post-closing adjustment was a price
reduction of $114,454, which was paid by Hollywood Media to West World Media in
January 2008.
The
Showtimes business included the CinemaSource, EventSource and ExhibitorAds
operations and constituted the remainder of Hollywood Media’s Data Business
Division, which previously included the Baseline/StudioSystems business unit
until it was sold to The New York Times in August 2006. West World
Media is controlled by Brett West, who founded the Showtimes business in 1995
and sold the business to Hollywood Media in 1999. Mr. West served as
president of Hollywood Media’s Showtimes business.
Results from Discontinued
Operations
The net
income (loss) from discontinued operations has been classified in the
accompanying consolidated statement of operations as “Income (loss) from
discontinued operations” and include the gain from the sale of
Showtimes.com and the loss on sale of the Hollywood.com
Business. Summarized results of discontinued operations include the
operating income from Showtimes.com and the operating loss from the
Hollywood.com Business through their respective dates of disposition, for the
years ended December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
$ |
- |
|
|
$ |
3,948,495 |
|
|
$ |
4,322,810 |
|
Gain
(loss) on sale of discontinued operations net of
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes of $569,298 for 2007
|
|
|
614,572 |
|
|
|
(4,655,122 |
) |
|
|
10,254,287 |
|
Loss
from discontinued operations
|
|
|
- |
|
|
|
(1,635,750 |
) |
|
|
(211,993 |
) |
Income
(loss) from discontinued operations
|
|
$ |
614,572 |
|
|
$ |
(6,290,872 |
) |
|
$ |
10,042,294 |
|
(5)
|
ACQUISITIONS AND OTHER
CAPITAL TRANSACTIONS:
|
Showtix
Acquisition
On February 1, 2007, Hollywood Media
through its wholly-owned subsidiary TDI entered into a definitive asset purchase
agreement with Showtix and each of its members for the acquisition by TDI of
substantially all of the assets of Showtix. Showtix was a full
service, licensed group ticketing sales agency that sells tickets for Broadway
and Off-Broadway theatrical performances. The acquisition was
completed and closed on February 1, 2007. The acquisition allowed TDI
to increase its presence in the Broadway ticketing industry. The
aggregate purchase consideration was $2,839,194, including $2,600,000 in cash
and $138,796 of acquisition costs. In addition, Showtix is also
entitled to receive up to $370,000 in potential periodic cash earn-outs as
defined in the agreement. During the first quarter of 2008, Hollywood
Media paid Showtix $43,313 pursuant to the first annual earn-out then due, and
$57,177 was paid in fiscal year 2009 pursuant to the second annual earn-out
due. In fiscal 2009, $43,321 was accrued pursuant to the third annual
earn-out due in 2010. During the first quarter of 2008, Hollywood
Media completed its evaluation of the acquired assets. The fair
market value of these intangible assets on the date of acquisition was $470,760
and the reconciliation of the purchase price has been adjusted to reflect this
value. A reconciliation of the purchase price is provided
below:
Purchase
consideration (including contingent consideration recorded through
December 31, 2009)
|
|
$ |
2,839,194 |
|
|
|
|
|
|
Cash
acquired
|
|
|
4,824 |
|
Accounts
receivable
|
|
|
368,319 |
|
Prepaid
|
|
|
11,584 |
|
Intangibles
|
|
|
470,760 |
|
|
|
|
|
|
Total
assets
|
|
$ |
855,487 |
|
|
|
|
|
|
Current
liabilities
|
|
$ |
(94,167 |
) |
|
|
|
|
|
Total
liabilities
|
|
$ |
(94,167 |
) |
|
|
|
|
|
Net
assets
|
|
$ |
761,320 |
|
|
|
|
|
|
Excess
of the purchase consideration over fair value of net assets acquired
(included in Broadway Ticketing segment)
|
|
$ |
2,077,874 |
|
The excess of the purchase
consideration over the fair value of net assets has been classified
as “Goodwill” in the accompanying consolidated balance
sheets.
The
results of operations of the Showtix business have been included in Hollywood
Media’s results of operations since the date of acquisition (February 1,
2007). The following are Hollywood Media’s pro forma results for the
year ended December 31, 2007, to show results of operations if the Showtix
business had been acquired on January 1, 2007:
|
|
December 31, 2007
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
Proforma
net revenues
|
|
$ |
118,897,529 |
|
|
|
|
|
|
Proforma
loss from continuing operations
|
|
$ |
(8,482,476 |
) |
|
|
|
|
|
Proforma
net income
|
|
$ |
1,716,308 |
|
|
|
|
|
|
Proforma
loss per share from continuing operations
|
|
$ |
(0.25 |
) |
|
|
|
|
|
Proforma
net income per share
|
|
$ |
0.05 |
|
|
|
|
|
|
Proforma
weighted average common and common equivalent shares
|
|
|
33,303,886 |
|
(6) FAIR VALUE OF FINANCIAL
INSTRUMENTS AND CONCENTRATION OF CREDIT RISK:
The
carrying amounts of cash and cash equivalents, receivables and accounts payable,
approximate fair value due to the short maturity of the
instruments. The carrying value of notes payable approximates fair
value because the interest rates approximate the market rate.
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist primarily of cash and cash equivalents and accounts
receivable. The Company’s cash management and investment policies
restrict investments to low risk, highly-liquid securities, and the Company
performs periodic evaluations of the credit standing of the financial
institutions with which it deals. The Company generally does not
require collateral when granting credit. The Company performs ongoing
credit evaluations and maintains an allowance for doubtful accounts for accounts
which management believes may have become impaired and, to date, losses have not
been significant. See Note 2 for a further discussion on allowance
for doubtful accounts.
The
Company has three primary suppliers of tickets for the Broadway Ticketing
division. Purchases from these three suppliers comprised approximately 88%, 84%
and 86% of all purchases made during each of the years ended December 31, 2009,
2008, and 2007, respectively. Loss of one or more of these suppliers
could have a significant adverse effect on the operations of the
Company.
(7) RECENTLY ISSUED ACCOUNTING
STANDARDS:
In
January 2010, the FASB issued Accounting Standards Update 2010-06,
“Improving Disclosures about Fair Value Measurements,” (ASU 2010-06) which
amends ASC 820, “Fair Value Measurements and Disclosures.” This amendment
requires new disclosures, including the reasons for and amounts of significant
transfers in and out of Levels 1 and 2 fair value measurements and separate
presentation of purchases, sales, issuances and settlements in the
reconciliation of activity for Level 3 fair value measurements. It also
clarified guidance related to determining the appropriate classes of assets and
liabilities and the information to be provided for valuation techniques used to
measure fair value. This guidance will be effective for us in our interim
and annual reporting periods beginning after December 15, 2010.
We are evaluating the adoption of this guidance, but we do not expect that it
will have a significant impact on our consolidated financial position or results
of operations.
(8) PROPERTY AND EQUIPMENT,
NET:
Property
and equipment, net consists of:
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Equipment
and software
|
|
$ |
4,691,921 |
|
|
$ |
4,328,556 |
|
Leasehold
improvements
|
|
|
2,878,332 |
|
|
|
2,869,874 |
|
Equipment
under capital leases
|
|
|
1,059,560 |
|
|
|
1,200,737 |
|
Furniture
and fixtures
|
|
|
850,704 |
|
|
|
860,132 |
|
Website
development
|
|
|
781,717 |
|
|
|
288,224 |
|
Internally
developed software project
|
|
|
|
|
|
|
|
|
In
progress
|
|
|
591,329 |
|
|
|
427,398 |
|
|
|
|
10,853,563 |
|
|
|
9,974,921 |
|
Less: Accumulated
depreciation and
|
|
|
|
|
|
|
|
|
amortization
|
|
|
(6,484,478 |
) |
|
|
(5,325,719 |
) |
|
|
$ |
4,369,085 |
|
|
$ |
4,649,202 |
|
Depreciation
and amortization expense of property and equipment was $1,590,598, $1,353,497
and $977,598 for the years ended December 31, 2009, 2008 and 2007, respectively.
Included in these amounts is depreciation and amortization expense for equipment
under capital leases of $153,386, $164,986 and $108,048 for the years ended
December 31, 2009, 2008 and 2007, respectively.
(9)
|
GOODWILL AND
INTANGIBLE ASSETS:
|
The following table reflects the
changes in the net carrying amount of goodwill relating to continuing operations
by operating segment (see Note 18) for the years ended December 31, 2009 and
2008:
|
|
Balance at
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
December 31,
|
|
|
Acquisition
|
|
|
|
|
|
December 31,
|
|
|
Acquisition
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
and Other
|
|
|
Impairment
|
|
|
2008
|
|
|
and Other
|
|
|
Impairment
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadway
Ticketing
|
|
$ |
5,601,730 |
|
|
$ |
43,221 |
|
|
$ |
- |
|
|
$ |
5,558,509 |
|
|
$ |
(370,270 |
) |
|
$ |
- |
|
|
$ |
5,928,779 |
|
Ad
Sales and Other
|
|
|
14,595,783 |
|
|
|
- |
|
|
|
(5,000,000 |
) |
|
|
19,595,783 |
|
|
|
- |
|
|
|
(3,276,640 |
) |
|
|
22,872,423 |
|
Intellectual
Properties
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(248,057 |
) |
|
|
248,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
20,197,513 |
|
|
$ |
43,221 |
|
|
$ |
(5,000,000 |
) |
|
$ |
25,154,292 |
|
|
$ |
(370,270 |
) |
|
$ |
(3,524,697 |
) |
|
$ |
29,049,259 |
|
The
intangible assets of continuing operations, other than goodwill, consist of the
following at December 31, 2009 and 2008:
|
|
Balance at December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
and trademarks
|
|
$ |
203,368 |
|
|
$ |
(183,831 |
) |
|
$ |
19,537 |
|
|
$ |
203,368 |
|
|
$ |
(171,843 |
) |
|
$ |
31,525 |
|
Web
addresses
|
|
|
2,061,089 |
|
|
|
(2,044,128 |
) |
|
|
16,961 |
|
|
|
2,061,089 |
|
|
|
(1,999,604 |
) |
|
|
61,485 |
|
Other
|
|
|
2,112,852 |
|
|
|
(1,758,532 |
) |
|
|
354,320 |
|
|
|
2,112,852 |
|
|
|
(1,522,966 |
) |
|
|
589,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
4,377,309 |
|
|
$ |
(3,986,491 |
) |
|
$ |
390,818 |
|
|
$ |
4,377,309 |
|
|
$ |
(3,694,413 |
) |
|
$ |
682,896 |
|
Amortization
expense was $292,078, $871,334 and $400,893 for the years ended December 31,
2009, 2008 and 2007, respectively. Future amortization expense of the
net carrying amount of intangible assets is as follows:
Year
|
|
Amount
|
|
|
|
|
|
2010
|
|
$ |
232,404 |
|
2011
|
|
|
90,505 |
|
2012
|
|
|
62,820 |
|
2013
|
|
|
5,089 |
|
2014
|
|
|
- |
|
|
|
|
|
|
Total
|
|
$ |
390,818 |
|
Patents and trademarks are being
amortized on a straight-line basis over 3 to 17 years. Web addresses and Other
are amortized over 3 to 5 years.
(10)
CAPITAL LEASE
OBLIGATIONS:
Future
minimum lease payments under capital leases, which contain bargain purchase
options, together with the present value of the net minimum lease payments as of
December 31, 2009 are as follows:
Year
|
|
Amount
|
|
|
|
|
|
|
|
|
|
2010
|
|
$ |
135,715 |
|
2011
|
|
|
68,458 |
|
2012
|
|
|
11,135 |
|
2013
|
|
|
355 |
|
2014
|
|
|
- |
|
|
|
|
|
|
Minimum
lease payments
|
|
|
215,663 |
|
Less:
amount representing imputed interest
|
|
|
(16,772 |
) |
|
|
|
|
|
Present
value of net minimum lease payments
|
|
|
198,891 |
|
Less:
current portion
|
|
|
(123,061 |
) |
|
|
$ |
75,830 |
|
(11) DEBT:
Senior
Unsecured Notes
On
November 23, 2005, Hollywood Media issued and sold $7,000,000 aggregate
principal amount of its Senior Unsecured Notes (the “Senior Notes”) for
aggregate gross cash proceeds of $7,000,000. The notes carried an 8% interest
rate and an initial 12 month term, on which interest was payable in quarterly
installments commencing December 31, 2005. The principal was payable in cash or,
at Hollywood Media’s option, in shares of Hollywood Media’s common stock valued
on a per share basis at a 5% discount from the 20-day volume-weighted average
market price per share of the common stock as of the payment date, subject to
certain conditions to such option including but not limited to the requirement
that the shares be registered for resale. Hollywood Media’s proceeds related to
the issuance, net of issuance costs, were $6,595,690. The holders of the Senior
Notes also received warrants (the “Warrants”) to purchase 700,000 shares of
Hollywood Media’s common stock at an exercise price of $4.29 per share. In March
2006, Hollywood Media exercised its option under the terms of the Senior Notes
to extend the maturity date of the Senior Notes to May 23, 2007 in exchange for
the delivery of additional five-year Warrants to purchase an aggregate of
100,000 shares of Hollywood Media’s common stock with an exercise price per
share at $4.29. The Senior Notes were not convertible at the option
of the holders.
On May
18, 2007, the $7,000,000 principal amount of the Senior Notes, together with all
accrued and unpaid interest thereon, was paid in full in accordance with the
provisions of the Senior Notes.
Upon
issuance, Hollywood Media recognized the value attributable to the 700,000
issued Warrants in the amount of $1,865,037 as a discount against the Senior
Notes. The Company valued the Warrants using the Black-Scholes
pricing model assuming a risk-free rate of 4.45%, an expected volatility of
69.4% and a five year life; the fair value of the Warrants was determined to be
$2.66 per share. Additional discount of $286,000 was recorded in
conjunction with the 100,000 extension Warrants issued in March of
2006. The Company valued the additional Warrants using the
Black-Scholes pricing model assuming a risk-free rate of 4.73%, an expected
volatility of 64.2% and an approximate five year life; the fair value of the
Warrants was determined to be $2.86 per share. The debt
discount attributed to the value of the Warrants issued was amortized over the
life of the Senior Notes as interest expense using the effective yield
method. The Company amortized the Senior Notes debt discount
attributed to the value of the Warrants of $624,601 for the year ended December
31, 2007.
During
the year ended December 31, 2007, $220,889 in interest expense was recorded for
stated interest on the Company’s consolidated statement of operations in
connection with the Senior Unsecured Notes.
Registration
Payment Arrangement
In
connection with Hollywood Media’s issuance in November 2005 of $7.0 million
aggregate principal amount of senior unsecured notes (the “Senior Notes”), the
holders of the Senior Notes also received warrants to purchase an aggregate of
800,000 shares of Hollywood Media’s common stock at an exercise price of $4.29
per share (the “Warrants”). In May 2007, the full principal amount of
the Senior Notes, together with all accrued and unpaid interest thereon, was
paid in full in accordance with the provisions of the Senior
Notes. As required by the registration rights agreement entered into
in connection with the Warrants, Hollywood Media filed a registration statement
for the resale of the shares of common stock issuable upon the exercise of the
Warrants that was declared effective by the SEC on March 3, 2006, and must
maintain the effectiveness of such registration statement through the earlier of
(a) the fifth anniversary of the effective date or (b) the date on which the
holders of Warrant shares are able to resell such Warrant shares under Rule
144(k) of the Securities Act. If the registration statement ceases to
be effective for any reason for more than 30 trading days during any 12-month
period (the “Grace Period”) in violation of the agreement, and if there are no
applicable defenses or limitations under the agreement or at law or otherwise,
Hollywood Media would be required to pay to the holders of Warrant shares, in
addition to any other rights such holders may have, an aggregate cash amount
equal to $25,000 for each of the first three 30-day periods following the date
that the Grace Period is exceeded, increasing to $70,000 for each succeeding
30-day period. As of December 31, 2009, none of the Warrants have
been exercised, no Warrant shares have been issued, and the registration
statement continues to be effective.
In
accordance with FASB Accounting Standard Codification Topic No. 815, “Derivatives and Hedging”,
Subtopic No, 40, “Contracts in Entity’s Own
Equity” (ASC 815-40), Hollywood Media is required to calculate the
maximum potential amount of consideration payable pursuant to registration
payment arrangements, even if the likelihood of payments under such arrangements
is remote. ASC 815-40 is applicable to financial statements issued
for fiscal years beginning after December 15, 2006 and any interim periods
therein. Assuming for purposes of this calculation that (i) all of
the Warrants were exercised on December 31, 2009, (ii) the Warrant shares issued
upon such exercise are available for resale under Rule 144(k) on June 30, 2010,
(iii) the registration statement ceased to be effective in violation of the
agreement on December 31, 2009 and does not become effective again before June
30, 2010, the remainder of the required registration period, and (iv) that there
are no applicable defenses or limitations under the agreement or at law or
otherwise, the maximum potential amount of consideration payable by Hollywood
Media to the holders of Warrant shares would be $215,000. Management
does not believe that any significant material payments are likely under this
registration payment arrangement.
(12)
OFFERINGS OF
SECURITIES:
On January 4, 2007, Hollywood Media
issued 20,101 shares of common stock valued at $4.20 per share, which was the
closing price of Hollywood Media common stock on the trading date prior to the
January 1, 2007 date of grant, in payment of $84,422 of additional compensation
to a non-executive employee pursuant to an employment agreement.
On January 22, 2007, Hollywood Media
issued 1,000 shares of common stock valued at $1,490 pursuant to the exercise of
an employee stock option with an exercise price of $1.49 per share.
On January 29, 2007, Hollywood Media
issued 500 shares of common stock valued at $750 pursuant to the exercise of an
employee stock option with an exercise price of $1.50 per share.
On
January 30, 2007, Hollywood Media issued 8,300 shares of common stock valued at
$4.13 per share, which was the average of the closing price of Hollywood Media
common stock on the five consecutive business days ending on and including the
third business day immediately preceding the January 10, 2007 date of grant, in
payment of $34,275 of additional compensation to a non-executive employee
pursuant to an employment agreement.
On February 9, 2007, Hollywood Media
issued 31,250 shares of common stock valued at $108,125 pursuant to the exercise
of an employee stock option with an exercise price of $3.46 per
share.
On February 9, 2007, Hollywood Media
issued 59,257 shares of common stock valued as of the December 29, 2006 closing
share price of $4.20, or $248,876, for payment of Hollywood Media’s 401(k)
employer match for the calendar year 2006.
On
February 21, 2007, Hollywood Media issued 1,992 shares of common stock valued as
of the average of the ten days closing prices prior to the issuance date, or
$4.02 per share, in payment of the $8,000 purchase price for the acquisition of
intangible assets.
On March 19, 2007, Hollywood Media
issued 15,625 shares of common stock valued at $63,438 pursuant to the exercise
of an employee stock option with an exercise price of $4.06 per
share.
On April 25, 2007, Hollywood Media
issued 8,174 shares of common stock pursuant to cashless net exercises of
warrants with an exercise price of $2.84 per share. The warrant was issued in
connection with a private placement completed in 2004.
On May 2,
2007, Hollywood Media issued 5,937 shares of common stock valued at $4.33 per
share, which was the average of the closing price of Hollywood Media common
stock on the five consecutive business days ending on and including the third
business day immediately preceding the April 10, 2007 date of grant, in payment
of $25,706 of additional compensation to a non-executive employee pursuant to an
employment agreement.
On May 14, 2007, Hollywood Media issued
22,766 shares of common stock pursuant to the cashless net exercise of a warrant
with an exercise price of $3.34 per share. The warrant was issued in connection
with a debt offering completed in 2002.
On May 16, 2007, Hollywood Media issued
67,202 shares of common stock pursuant to the cashless net exercise of a warrant
with an exercise price of $3.34 per share. The warrant was issued in connection
with a debt offering completed in 2002.
On May 17, 2007, Hollywood Media issued
4,698 shares of common stock pursuant to the cashless net exercise of a warrant
with an exercise price of $3.34 per share. The warrant was issued in connection
with a debt offering completed in 2002.
On May 17, 2007, Hollywood Media issued
12,014 shares of common stock pursuant to the cashless net exercise of a warrant
with an exercise price of $4.00 per share. The warrant was issued in connection
with a debt offering completed in 2001.
On May 18, 2007, Hollywood Media issued
11,743 shares of common stock pursuant to the cashless net exercise of a warrant
with an exercise price of $3.34 per share. The warrant was issued in connection
with a debt offering completed in 2002.
On May 21, 2007, Hollywood Media issued
22,584 shares of common stock pursuant to the cashless net exercise of a warrant
with an exercise price of $3.34 per share. The warrant was issued in connection
with a debt offering completed in 2002.
On July 16, 2007, Hollywood Media
issued 1,000 shares of common stock valued at $1,021 pursuant to the exercise of
an employee stock option with an exercise price of $1.02 per share.
On July
19, 2007, Hollywood Media issued 5,970 shares of common stock valued at $4.31
per share, which was the average of the closing price of Hollywood Media common
stock on the five consecutive business days ending on and including the third
business day immediately preceding the July 10, 2007 date of grant, in payment
of $25,707 of additional compensation to a non-executive employee pursuant to an
employment agreement.
On August 13, 2007, Hollywood Media
issued 20,000 shares of common stock valued at $29,000 pursuant to the exercise
of an employee stock option with an exercise price of $1.45 per
share.
On
September 7, 2007, Hollywood Media issued 105,000 shares of the common stock
valued at $3.83 per share, which was the closing share price of Hollywood Media
common stock on the August 30, 2007 date of grant, in payment of $402,150 in
compensatory bonuses to certain officers of Hollywood Media associated with the
August 24, 2007 sale of the Showtimes business.
On February 8, 2008, Hollywood
Media issued 96,569 shares of common stock valued at the December 31, 2007
closing share price of $2.90, or $280,050, for payment of Hollywood Media’s
401(k) employer match for the calendar year 2007.
On April 28, 2008, Hollywood Media
issued 20,000 shares of common stock valued at $17,600 pursuant to the exercise
by the Chief Accounting Officer of Hollywood Media of an employee stock option
with an exercise price of $0.88 per share.
On June 24, 2008, Hollywood Media
issued 81,000 shares of common stock valued at $105,300, pursuant to the
exercise by the Chief Executive Officer of Hollywood Media of an employee stock
option with an exercise price of $1.30 per share.
On December 22, 2008, Hollywood Media
issued 50,000 shares of unrestricted common stock to each of the Chief Executive
Officer and President of Hollywood Media, valued at $102,000 in the aggregate
based on the $1.02 closing share price as of the date of grant. Such
100,000 shares were issued as payment of annual stock bonuses granted by the
Compensation Committee of the Board of Directors. See Note 3 –
“Accounting for Share-Based Compensation” for additional
information.
On December 22, 2008, Hollywood Media
issued 250,000 shares and 150,000 shares, respectively, of restricted common
stock to the Chief Executive Officer and President of Hollywood Media, valued at
$408,000 in the aggregate based on the $1.02 closing share price as of the date
of grant. Such 400,000 shares were issued as payment of restricted
stock bonuses granted by the Compensation Committee of the Board of
Directors. See Note 3 – “Accounting for Share-Based Compensation” for
additional information.
On March 30, 2009, Hollywood Media
issued 225,343 shares of common stock valued at the December 31, 2008 closing
share price of $1.00 or $225,363, for payment of Hollywood Media’s 401(k)
employer match for the calendar year 2008.
(13) STOCK REPURCHASE
PROGRAM:
Hollywood
Media reported in its Form 8-K report filed on October 4, 2007, that its Board
of Directors authorized a stock repurchase program under which Hollywood Media
may use up to $10 million of its cash and cash equivalents to repurchase shares
of its outstanding common stock. Pursuant to the repurchase program,
Hollywood Media purchased an aggregate of 71,600, 1,711,639 and 2,003,660 shares
of its common stock during the years ended December 31, 2009, 2008 and 2007,
respectively. The shares were purchased for $72,954, $2,124,999 and
$5,104,204 for the years ended December 31, 2009, 2008 and 2007, respectively,
reflecting an approximate average price per share of $1.02, $1.24 and $2.55 for
the years ended December 31, 2009, 2008 and 2007, respectively.
(14) INCOME
TAXES:
The Company adopted the provisions of
FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes on
January 1, 2007, which was later codified under FASB Accounting Standards
Codification No. 740, “Income
Taxes.” The adoption had no impact on the Company’s
consolidated financial statements as of that date. There are no
unrecognized tax benefits in the consolidated financial statements as of
December 31, 2009 and December 31, 2008.
Hollywood
Media is in a cumulative net loss position for both financial and tax reporting
purposes. The primary item giving rise to the Company’s net deferred
tax asset is a net operating loss carryforward of $225,847,306 as a result of
losses incurred during the period from inception (January 22, 1993) to December
31, 2009. However, due to the uncertainty of Hollywood Media’s ability to
generate taxable income in the future, and, to the extent taxable income is
generated in the future, the uncertainty as to Hollywood Media’s ability to
utilize its loss carryforwards subject to the “ownership change” provisions of
Section 382 of the U.S. Internal Revenue Code, Hollywood Media has established a
valuation allowance for the full amount of the deferred tax asset.
The net
operating loss carryforwards expire as follows:
Year
|
|
Amount
|
|
|
|
|
|
2018
|
|
$ |
5,804,864 |
|
2019
|
|
|
18,526,989 |
|
2020
|
|
|
43,159,623 |
|
2021
|
|
|
37,552,359 |
|
2022
|
|
|
76,867,212 |
|
2023
|
|
|
9,728,058 |
|
2024
|
|
|
8,719,119 |
|
2025
|
|
|
9,543,785 |
|
2028
|
|
|
10,876,436 |
|
2029
|
|
|
5,068,861 |
|
|
|
|
|
|
|
|
$ |
225,847,306 |
|
The
components of Hollywood Media’s deferred tax assets and liabilities consist of
the following at December 31:
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
difference in tax basis and book basis for certain
|
|
|
|
|
|
|
assets
and liabilities
|
|
$ |
324,483 |
|
|
$ |
1,997,251 |
|
Net
operating loss and tax credit carryforwards
|
|
|
86,144,320 |
|
|
|
84,102,705 |
|
|
|
|
86,468,803 |
|
|
|
86,099,956 |
|
Valuation
allowance
|
|
|
(86,468,803 |
) |
|
|
(86,099,956 |
) |
Net
deferred tax asset
|
|
$ |
- |
|
|
$ |
- |
|
The
provision for income taxes from continuing operations is different from that
which would be obtained by applying the statutory Federal income tax rate of 35%
as a result of the following:
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit at Federal statutory tax rate
|
|
$ |
(1,967,989 |
) |
|
$ |
(3,697,908 |
) |
|
$ |
(2,907,690 |
) |
State
income tax benefit (net of federal benefit)
|
|
|
(163,062 |
) |
|
|
(306,398 |
) |
|
|
(240,923 |
) |
Change
in valuation allowance
|
|
|
694,919 |
|
|
|
4,938,841 |
|
|
|
(1,170,750 |
) |
Change
in valuation allowance resulting from change in
|
|
|
|
|
|
|
|
|
|
|
|
|
cumulative
temporary differences
|
|
|
(326,072 |
) |
|
|
- |
|
|
|
1,943,628 |
|
Impairment
of goodwill
|
|
|
1,895,000 |
|
|
|
1,182,315 |
|
|
|
- |
|
Dividends
received deduction
|
|
|
(580,386 |
) |
|
|
(397,526 |
) |
|
|
- |
|
Change
in cumulative temporary differences
|
|
|
- |
|
|
|
- |
|
|
|
(1,943,628 |
) |
Sale
of subsidiaries – basis difference
|
|
|
326,072 |
|
|
|
450,206 |
|
|
|
- |
|
Non
deductible expenses
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Loss
of foreign subsidiaries
|
|
|
- |
|
|
|
271,973 |
|
|
|
418,802 |
|
Tax
effect of income (loss) from discontinued operations
|
|
|
152,351 |
|
|
|
(2,384,240 |
) |
|
|
3,900,561 |
|
Other
|
|
|
(30,833 |
) |
|
|
(57,263 |
) |
|
|
- |
|
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
During
2009 and 2007, the Company reassessed the amounts of certain prior year deferred
tax assets and the corresponding effect of the valuation thereon. As
a result of this reassessment, deferred tax assets and the related valuation
allowance were decreased in 2009 in the amount of $326,072 and increased in 2007
in the amount of $1,943,628, resulting in zero net change to net deferred tax
assets.
The
Company is currently open to audit under the statute of limitations by the
Internal Revenue Service and certain state income taxing authorities for all
years due to the net operating loss carryovers from those years.
(15)
INVESTMENTS IN AND ADVANCES
TO EQUITY METHOD UNCONSOLIDATED INVESTEES:
Investments
in and advances to equity method unconsolidated investees consist of the
following:
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
NetCo
Partners (a)
|
|
$ |
139,789 |
|
|
$ |
137,775 |
|
MovieTickets.com
(b)
|
|
|
90,308 |
|
|
|
(4,975 |
) |
|
|
$ |
230,097 |
|
|
$ |
132,800 |
|
(a) Netco
Partners:
In June
1995, Hollywood Media and C.P. Group, Inc. (“C.P. Group”), entered into an
agreement to form NetCo Partners (the “Netco Joint Venture Agreement”). NetCo
Partners is engaged in the development and licensing of NetForce.
Hollywood
Media and C.P. Group are each 50% partners in NetCo Partners. C.P. Group
contributed to NetCo Partners all rights to NetForce, and Hollywood Media
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.
Pursuant
to the terms of the NetCo Partners Joint Venture Agreement, Hollywood Media is
responsible for developing, producing, manufacturing, advertising, promoting,
marketing and distributing NetCo Partners’ illustrated novels and related
products and for advancing all costs incurred in connection therewith. All
amounts advanced by Hollywood Media to fund NetCo Partners’ operations are
treated as capital contributions from Hollywood Media and Hollywood Media is
entitled to a return of such capital contributions before distributions of
profits are split equally between Hollywood Media and C.P.
Group.
Hollywood
Media accounts for its investment in NetCo Partners under the equity method of
accounting, recognizing 50% of NetCo Partners’ income or loss as Equity in
Earnings of Unconsolidated Investees. Since NetCo Partners is a partnership, any
income tax payable is passed through to the partners. The revenues,
gross profit and net income of NetCo Partners for the years ended December 31,
2009, 2008 and 2007 are presented below:
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
- |
|
|
$ |
9,508 |
|
|
$ |
1,138 |
|
Gross
profit
|
|
|
- |
|
|
|
7,416 |
|
|
|
887 |
|
Net
income (loss)
|
|
|
(5,973 |
) |
|
|
(300,954 |
) |
|
|
9,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company’s
share
|
|
|
|
|
|
|
|
|
|
|
|
|
of
net income (loss)
|
|
$ |
(2,987 |
) |
|
$ |
(150,477 |
) |
|
$ |
4,747 |
|
The
current assets and current liabilities of NetCo Partners of December 31, 2009
and 2008, which are not included in Hollywood Media’s consolidated balance
sheets, are presented below:
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
Current
assets
|
|
$ |
1,546 |
|
|
$ |
771 |
|
Current
liabilities
|
|
$ |
49,025 |
|
|
$ |
48,700 |
|
(b) MovieTickets.com.
Hollywood
Media 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. In August 2000, the joint venture entered into an
agreement with Viacom Inc. to acquire a five percent interest in the joint
venture for $25 million of advertising over 5 years. In addition to the Viacom
advertising and promotion, MovieTickets.com is promoted through on-screen
advertising on most participating exhibitors’ movie screens. In March 2001,
America Online Inc. (“AOL”) purchased a non-interest bearing convertible
preferred voting equity interest in MovieTickets.com for $8.5 million in cash,
convertible into approximately 3% of the common stock of
MovieTickets.com. AOL converted its preferred shares into common
stock during the year ended December 31, 2005. Those shares are now
held by Time Warner Inc.
Hollywood
Media owns 26.2% of the equity in MovieTickets.com, Inc. at December 31, 2009
and shares in 26.2% of the income or losses generated by the joint
venture. This investment is recorded under the equity method of
accounting, recognizing 26.2% of ownership of MovieTickets.com income or loss as
“Equity in Earnings of Unconsolidated Investees” in the accompanying
consolidated balance sheets. Under applicable accounting principles,
Hollywood Media had not recorded income from MovieTickets.com operating results
for 2008 and 2007 because accumulated losses from 2006 and prior years exceeded
MovieTickets.com’s accumulated net income in 2008 and 2007. Dividends
of $1,914,202 and $1,311,100 are included in “Equity in Earnings of
Unconsolidated Investees” in our accompanying consolidated statement of
operations for the years ended December 31, 2009 and 2008,
respectively. Receivables from MovieTickets.com of $112,789 and
$143,464 were recorded as “Related Party Receivables” as of December 31, 2009
and 2008, respectively. During 2009, Hollywood Media recorded $95,283
of income because accumulated income surpassed accumulated
losses.
The
revenues, cost and expenses, depreciation and amortization and net income of
MovieTickets.com for the years ended December 31, 2009, 2008 and 2007, which are
not included in Hollywood Media’s consolidated statements of operations, are
presented below:
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
18,643,342 |
|
|
$ |
18,062,438 |
|
|
$ |
13,130,977 |
|
Cost
and expenses
|
|
$ |
13,471,941 |
|
|
$ |
12,345,771 |
|
|
$ |
10,045,326 |
|
Depreciation
and amortization
|
|
$ |
594,120 |
|
|
$ |
502,950 |
|
|
$ |
532,495 |
|
Net
income
|
|
$ |
4,842,476 |
|
|
$ |
5,764,290 |
|
|
$ |
3,318,818 |
|
The cash,
accounts receivable and accrued expenses and other liabilities balances of
MovieTickets.com as of December 31, 2009 and 2008, which are not included in
Hollywood Media’s consolidated balance sheets, are presented below:
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
Cash
|
|
$ |
5,128,137 |
|
|
$ |
3,183,806 |
|
Accounts
receivable, net
|
|
$ |
5,822,591 |
|
|
$ |
5,651,847 |
|
Accrued
expenses and current liabilities
|
|
$ |
2,090,816 |
|
|
$ |
3,451,147 |
|
(16)
COMMITMENTS AND
CONTINGENCIES:
Operating
Leases
Hollywood
Media conducts its operations in various leased facilities, under leases that
are classified as operating leases for financial statement purposes. Certain
leases provide for payment of real estate taxes, common area maintenance,
insurance, and certain other expenses. Lease terms may include escalating rent
provisions and rent holidays which are expensed on a straight-line basis over
the term of the lease, and expire at various dates through the year 2017. Also,
certain equipment used in Hollywood Media’s operations is leased under operating
leases. Operating lease commitments at December 31, 2009 are as
follows:
Year
|
|
Amount
|
|
|
|
|
|
2010
|
|
$ |
1,081,613 |
|
2011
|
|
|
1,087,238 |
|
2012
|
|
|
1,141,414 |
|
2013
|
|
|
865,664 |
|
2014
|
|
|
886,083 |
|
Thereafter
|
|
|
1,994,967 |
|
|
|
|
|
|
Total
|
|
$ |
7,056,979 |
|
The fixed
operating lease commitments detailed above assume that Hollywood Media continues
the leases through their initial lease terms. Rent expense, including equipment
rentals, was $943,376, $1,419,410 and $1,638,350 during the years ended December
31, 2009, 2008 and 2007, respectively, and is included in “Selling, general and
administrative” expense in the accompanying consolidated statements of
operations.
Litigation
Hollywood
Media is from time to time party to various legal proceedings, including matters
arising in the ordinary course of business.
(17)
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
|
|
|
2009
|
|
|
|
|
|
2008
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of property and equipment under capital leases
|
|
$ |
- |
|
|
|
|
|
$ |
(456,587 |
) |
|
|
|
|
$ |
(441,026 |
) |
|
Total
non-cash investing activities
|
|
$ |
- |
|
|
|
|
|
$ |
(456,587 |
) |
|
|
|
|
$ |
(441,026 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
acquired under capital leases
|
|
$ |
- |
|
|
|
|
|
$ |
176,918 |
|
|
|
|
|
$ |
441,026 |
|
|
Common stock issued
and
vesting for compensation to
officers
|
|
|
204,885 |
|
|
|
|
|
|
102,931 |
|
|
(2), (3)
|
|
|
|
- |
|
|
Common
stock issued for contributions to Company 401(k)
Plan
|
|
|
225,343 |
|
|
(1)
|
|
|
|
280,050 |
|
|
(4)
|
|
|
|
248,876 |
|
(5)
|
Common
stock issued as compensation as part of sale
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
402,150 |
|
(6)
|
Total
non-cash financing activities
|
|
$ |
430,228 |
|
|
|
|
|
$ |
559,899 |
|
|
|
|
|
$ |
1,092,052 |
|
|
(1) On
March 30, 2009, Hollywood Media issued 225,343 shares of common stock valued at
the December 31, 2008 closing share price of $1.00 or $225,363 for payment of
Hollywood Media’s 401(k) employer match for 2008.
(2) On
December 22, 2008, Hollywood Media issued 250,000 shares and 150,000 shares,
respectively, of restricted common stock to the Chief Executive Officer and
President of Hollywood Media, valued at $408,000 in the aggregate based on the
$1.02 closing share price as of the date of grant. Such 400,000
shares were issued as payment of restricted stock bonuses granted by the
Compensation Committee of the Board of Directors. Compensation expense is
recognized quarterly on one-third of the shares, or $136,000, over a 4-year
period beginning on the date of grant. The shares are based on a service
condition, of which Hollywood Media recorded compensation expense of $33,977 and
$931 in the consolidated statement of operations for the twelve months ended
December 31, 2009 and 2008, respectively. One-third of the
shares, or $136,000 of value was recorded as compensation expense in fiscal 2009
since Hollywood Media achieved three quarters of positive EBITDA in a 15-month
period. The remaining one-third of shares, or $136,000 of value, is
recorded to compensation expense pro-rata over a 4-year period beginning on the
date of grant. However, the vesting of the shares does not occur
until Hollywood Media’s share price exceeds $2.00 for ten consecutive trading
days. Hollywood Media recorded compensation expense of $34,908 and $0
for the twelve months ended December 31, 2009 and 2008,
respectively. See Note 3 – “Accounting for Share-Based Compensation”
for additional information.
(3) On
December 22, 2008, Hollywood Media issued 50,000 shares of unrestricted common
stock to each of the Chief Executive Officer and President of Hollywood Media,
valued at $102,000 in the aggregate based on the $1.02 closing share price as of
the date of grant. Such 100,000 shares were issued as payment of
annual stock bonuses granted by the Compensation Committee of the Board of
Directors. See Note 3 – “Accounting for Share-Based Compensation” for
additional information.
(4) On
February 8, 2008, Hollywood Media issued 96,569 shares of common stock
valued at the December 31, 2007 closing share price of $2.90, or $280,050,
for payment of Hollywood Media’s 401(k) employer match for the calendar year
2007 (see Note 2).
|
(5) On
February 9, 2007, Hollywood Media issued 59,257 shares of common stock
valued at $248,876, based on the December 29, 2006 closing share price of
$4.20, for payment of Hollywood Media’s 401(k) employer match for calendar
year 2006 (see Note 2).
|
(6) On
September 7, 2007, Hollywood Media issued 105,000 shares of common stock valued
at $3.83 per share, which was the closing share price, on the August 30, 2007
date of grant, in payment of $402,150 in compensatory bonuses to certain
officers of Hollywood Media associated with the August 24, 2007 sale of the
Showtimes business.
(18) SEGMENT
REPORTING:
Hollywood
Media’s reportable segments are Broadway Ticketing, Ad Sales, Intellectual
Properties, and Other. The Broadway Ticketing segment sells tickets and related
hotel and restaurant packages for live theater events on Broadway, Off-Broadway
and London’s West End, both online and offline, to individual consumers, groups
and domestic and international travel professionals, including travel agencies,
tour operators and educational institutions. This segment also
generates revenue from the sale of sponsorships and advertisements on
Broadway.com. The Ad Sales segment sells advertising on plasma TV
displays throughout the U.K. and Ireland, on lobby display posters, movie
brochure booklets and ticket wallets distributed in cinemas, live theater and
other entertainment venues in the U.K. and on cinema and theater websites in the
U.K. and Ireland. This segment also includes Hollywood Media’s
investment in MovieTickets.com. 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. This segment also includes a 51% interest in Tekno Books, a book
development business. The Other segment is comprised of payroll and
benefits for corporate and administrative personnel as well as other
corporate-wide expenses such as legal fees, audit fees, proxy costs, insurance,
centralized information technology, and includes consulting fees and other fees
and costs relating to compliance with the provisions of the Sarbanes-Oxley Act
of 2002 that require Hollywood Media to make an assessment of and report on
internal control over financial reporting.
There are
no intersegment sales or transfers.
The
following table illustrates the financial information regarding Hollywood
Media’s reportable segments. Discontinued operations (see Note 4)
were previously included in the Data Business and Ad Sales segments and have
been removed from the table below, to illustrate financial information from
continuing operations.
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Net
Revenues:
|
|
|
|
|
|
|
|
|
|
Broadway
Ticketing
|
|
$ |
98,860,362 |
|
|
$ |
110,918,969 |
|
|
$ |
111,792,068 |
|
Ad
Sales
|
|
|
3,391,714 |
|
|
|
4,830,760 |
|
|
|
5,308,038 |
|
Intellectual
Properties
|
|
|
1,126,834 |
|
|
|
1,308,202 |
|
|
|
1,061,118 |
|
Other
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
$ |
103,378,910 |
|
|
$ |
117,057,931 |
|
|
$ |
118,161,224 |
|
Operating
Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadway
Ticketing
|
|
$ |
4,809,588 |
|
|
$ |
2,533,682 |
|
|
$ |
2,652,352 |
|
Ad
Sales
|
|
|
(355,892 |
) |
|
|
(3,977,171 |
) |
|
|
(571,818 |
) |
Intellectual
Properties
|
|
|
(4,816 |
) |
|
|
(71,372 |
) |
|
|
(8,918 |
) |
Other
|
|
|
(7,646,552 |
) |
|
|
(10,600,057 |
) |
|
|
(10,535,791 |
) |
|
|
$ |
(3,197,672 |
) |
|
$ |
(12,114,918 |
) |
|
$ |
(8,464,175 |
) |
Capital
Expenditures (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadway
Ticketing
|
|
$ |
1,088,501 |
|
|
$ |
791,356 |
|
|
$ |
2,725,762 |
|
Ad
Sales
|
|
|
31,694 |
|
|
|
208,577 |
|
|
|
438,572 |
|
Intellectual
Properties
|
|
|
- |
|
|
|
897 |
|
|
|
- |
|
Other
|
|
|
69,946 |
|
|
|
289,609 |
|
|
|
229,092 |
|
|
|
$ |
1,190,141 |
|
|
$ |
1,290,439 |
|
|
$ |
3,393,426 |
|
Depreciation
and
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadway
Ticketing
|
|
$ |
846,603 |
|
|
$ |
876,049 |
|
|
$ |
351,310 |
|
Ad
Sales
|
|
|
354,932 |
|
|
|
901,351 |
|
|
|
553,237 |
|
Intellectual
Properties
|
|
|
299 |
|
|
|
150 |
|
|
|
- |
|
Other
|
|
|
388,764 |
|
|
|
447,281 |
|
|
|
473,945 |
|
|
|
$ |
1,590,598 |
|
|
$ |
2,224,831 |
|
|
$ |
1,378,492 |
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Segment
Assets:
|
|
|
|
|
|
|
Broadway
Ticketing
|
|
$ |
30,386,157 |
|
|
$ |
34,958,642 |
|
Ad
Sales
|
|
|
16,376,839 |
|
|
|
21,989,086 |
|
Intellectual
Properties
|
|
|
475,140 |
|
|
|
543,989 |
|
Other
|
|
|
10,368,043 |
|
|
|
9,447,144 |
|
|
|
$ |
57,606,179 |
|
|
$ |
66,938,861 |
|
|
(a)
|
Capital
expenditures do not include property and equipment acquired under capital
lease obligations or through
acquisitions.
|
(19) UNAUDITED QUARTERLY
FINANCIAL INFORMATION:
For
the quarter ended March 31, 2009
|
|
|
|
|
|
|
|
Reported
|
|
|
|
|
|
Net
revenues
|
|
$ |
21,313,897 |
|
Loss
from continuing operations
|
|
$ |
(95,020 |
) |
Loss
from discontinued operations
|
|
$ |
- |
|
Net
loss attributable to Hollywood Media Corp.
|
|
$ |
(91,853 |
) |
Weighted
average shares
|
|
|
30,418,516 |
|
Loss
per share - continuing operations
|
|
$ |
- |
|
Loss
per share - discontinued operations
|
|
$ |
- |
|
Net
loss per share (1)
|
|
$ |
- |
|
For
the quarter ended June 30, 2009
|
|
|
|
|
|
|
|
Reported
|
|
|
|
|
|
Net
revenues
|
|
$ |
30,252,255 |
|
Loss
from continuing operations
|
|
$ |
(4,792,490 |
) |
Loss
from discontinued operations
|
|
$ |
- |
|
Net
loss attributable to Hollywood Media Corp.
|
|
$ |
(4,794,716 |
) |
Weighted
average shares
|
|
|
30,637,658 |
|
Loss
per share - continuing operations
|
|
$ |
(0.16 |
) |
Income
per share - discontinued operations
|
|
$ |
- |
|
Net
loss per share (1)
|
|
$ |
(0.16 |
) |
For
the quarter ended September 30, 2009
|
|
|
|
|
|
|
|
Reported
|
|
|
|
|
|
Net
revenues
|
|
$ |
21,854,666 |
|
Loss
from continuing operations
|
|
$ |
(787,718 |
) |
Gain
from discontinued operations
|
|
$ |
472,487 |
|
Net
loss attributable to Hollywood Media Corp.
|
|
$ |
(348,993 |
) |
Weighted
average shares
|
|
|
30,637,658 |
|
Loss
per share - continuing operations
|
|
$ |
(0.03 |
) |
Income
per share - discontinued operations
|
|
$ |
0.02 |
|
Net
loss per share (1)
|
|
$ |
(0.01 |
) |
For
the quarter ended December 31, 2009
|
|
|
|
|
|
|
|
Reported
|
|
|
|
|
|
Net
revenues
|
|
$ |
29,958,092 |
|
Loss
from continuing operations
|
|
$ |
(562,170 |
) |
Gain
from discontinued operations
|
|
$ |
142,085 |
|
Net
loss attributable to Hollywood Media Corp.
|
|
$ |
(384,855 |
) |
Weighted
average shares
|
|
|
30,642,730 |
|
Loss
per share - continuing operations
|
|
$ |
(0.02 |
) |
Income
per share - discontinued operations
|
|
$ |
- |
|
Net
loss per share (1)
|
|
$ |
(0.02 |
) |
For
the quarter ended March 31, 2008
|
|
|
|
|
|
|
|
Reported
|
|
|
|
|
|
Net
revenues
|
|
$ |
26,973,670 |
|
Loss
from continuing operations
|
|
$ |
(2,279,303 |
) |
Loss
from discontinued operations
|
|
$ |
(845,973 |
) |
Net
loss attributable to Hollywood Media Corp.
|
|
$ |
(3,149,038 |
) |
Weighted
average shares
|
|
|
31,854,228 |
|
Loss
per share – continuing operations
|
|
$ |
(0.07 |
) |
Loss
per share – discontinued operations
|
|
$ |
(0.03 |
) |
Net
loss per share (1)
|
|
$ |
(0.10 |
) |
For
the quarter ended June 30, 2008
|
|
|
|
|
|
|
|
Reported
|
|
|
|
|
|
Net
revenues
|
|
$ |
35,543,314 |
|
Loss
from continuing operations
|
|
$ |
(17,500 |
) |
Loss
from discontinued operations
|
|
$ |
(674,802 |
) |
Net
loss attributable to Hollywood Media Corp.
|
|
$ |
(734,362 |
) |
Weighted
average shares
|
|
|
31,964,851 |
|
Loss
per share - continuing operations
|
|
$ |
- |
|
Loss
per share - discontinued operations
|
|
$ |
(0.02 |
) |
Net
loss per share (1)
|
|
$ |
(0.02 |
) |
For
the quarter ended September 30, 2008
|
|
|
|
|
|
|
|
Reported
|
|
|
|
|
|
Net
revenues
|
|
$ |
25,522,782 |
|
Loss
from continuing operations
|
|
$ |
(1,899,156 |
) |
Loss
from discontinued operations
|
|
$ |
(4,418,692 |
) |
Net
loss attributable to Hollywood Media Corp.
|
|
$ |
(6,349,599 |
) |
Weighted
average shares
|
|
|
32,095,554 |
|
Loss
per share - continuing operations
|
|
$ |
(0.06 |
) |
Loss
per share - discontinued operations
|
|
$ |
(0.14 |
) |
Net
loss per share (1)
|
|
$ |
(0.20 |
) |
For
the quarter ended December 31, 2008
|
|
|
|
|
|
|
|
Reported
|
|
|
|
|
|
Net
revenues
|
|
$ |
29,018,165 |
|
Loss
from continuing operations
|
|
$ |
(6,288,127 |
) |
Loss
from discontinued operations
|
|
$ |
(351,405 |
) |
Net
loss attributable to Hollywood Media Corp.
|
|
$ |
(6,623,324 |
) |
Weighted
average shares
|
|
|
31,263,293 |
|
Loss
per share - continuing operations
|
|
$ |
(0.20 |
) |
Loss
per share - discontinued operations
|
|
$ |
(0.01 |
) |
Net
loss per share (1)
|
|
$ |
(0.21 |
) |
(1) Quarterly
earnings per share are calculated on an individual basis and, because of
roundings and changes in the weighted average shares outstanding during the
year, the summation of each quarter may not equal the amount calculated for the
year as a whole.
(20) RELATED PARTY
TRANSACTIONS:
Hollywood Media entered into a purchase
agreement with R&S Investments, LLC, an entity owned by Hollywood Media’s
Chief Executive Officer and President for the sale of the Hollywood.com
Business, effective August 21, 2008. For additional information about
this transaction, see Note 3 “Discontinued Operations” in these Notes to the
Consolidated Financial Statements. In connection with this sale,
Hollywood Media and the Hollywood.com Business entered into a Transition
Services Agreement (“TSA”) to provide certain temporary administrative services,
which Hollywood Media did solely to provide for an efficient and orderly
transition. Hollywood Media was reimbursed by the Hollywood.com Business for out
of pocket costs and incremental expenses incurred in providing services under
the TSA, including, but not limited to, payments of any pro rata portions of any
applicable employee salaries and benefits. The term of the TSA was
through November 21, 2009, but Hollywood Media substantially completed the
transfer of all functions covered by such agreement by December 31,
2008.
The
related party payable at December 31, 2008 was the balance for estimated losses
to be funded by Hollywood Media pursuant to the purchase
agreement. The funding of losses pursuant to the purchase agreement
is capped at $2,600,000, which was placed in an escrow account by Hollywood
Media at closing and is included in “Restricted cash” in our accompanying
condensed consolidated balance sheet at December 31, 2008. The
related party payable was zero at December 31, 2009 and $2,622,438 at December
31, 2008. As of December 31, 2009, the escrow amounts were fully
distributed and $204,422 of the earn-out gain was recorded in “Related Party
Receivable” in our accompanying consolidated balance sheets. During
2009, Hollywood Media overall recorded $677,342 in earn-out gain. In
addition, $61,543 of indemnification expenses related to claims by former
employees relating to the period of their employment with Hollywood Media and a
$1,227 tax expense offset the overall gain on sale of discontinued operations
recorded in the accompanying consolidated statement of operations for the year
ended December 31, 2009. As of December 31, 2009, the Company has
$335,245 included in “Related party receivables” in our accompanying condensed
consolidated balance sheet which consisted of the $204,422 earn-out receivable
mentioned above and $18,034 of monies owed for reimbursement, as well as a
$112,789 receivable from MovieTickets.com. As of the filing of this
Form 10-K, all earn-out and receivable amounts included in “Related Party
Receivable” were collected.
(21) PROPOSED SALE OF THE
BROADWAY TICKETING DIVISION
On
December 22, 2009, Hollywood Media entered into a stock purchase agreement (the
“Purchase Agreement”) with Key Brand Entertainment Inc., a Delaware corporation
(“Key Brand”), pursuant to which Key Brand will purchase Hollywood Media’s
Broadway Ticketing Division (the “Broadway Sale”) through the purchase of all of
the outstanding capital stock of Theatre Direct NY, Inc., a Delaware corporation
and a wholly-owned subsidiary of Hollywood Media, from Hollywood
Media. The closing of the Broadway Sale is subject to certain
customary closing conditions specified in the Purchase Agreement, including but
not limited to the approval of Hollywood Media’s shareholders.
Subject
to Completion
Preliminary
Copies, dated April 29, 2010
Hollywood
Media Corp.
2255
Glades Road
Boca
Raton, Florida 33431
(561)
322-3450
PROXY
FOR SPECIAL MEETING OF SHAREHOLDERS ON [___], 2010
THIS
PROXY IS SOLICITED ON BEHALF OF
THE
BOARD OF DIRECTORS OF HOLLYWOOD MEDIA CORP.
The
undersigned shareholder(s) of HOLLYWOOD MEDIA CORP., a Florida corporation
(“Hollywood Media”), revoking all prior proxies, hereby constitutes and appoints
Mitchell Rubenstein and Laurie S. Silvers, and each of them, as attorneys and
proxies for the undersigned, each with full power of substitution, and hereby
authorizes them to represent and to vote all of the shares of common stock of
Hollywood Media that the undersigned is entitled to vote at the special meeting
of Hollywood Media’s shareholders to be held at 2255 Glades Road, Conference
Room 123A, Boca Raton, Florida 33431, on [___], 2010 at 10:00 a.m., local time,
and at any adjournments or postponements thereof, with all powers the
undersigned would possess if personally present, on the following proposals as
specified.
THIS
PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY
WILL BE VOTED “FOR” PROPOSAL #1, THE PROPOSAL TO SELL THEATRE DIRECT, AND “FOR”
PROPOSAL #2, THE PROPOSAL TO ADJOURN OR POSTPONE THE SPECIAL MEETING, IF
NECESSARY OR APPROPRIATE, TO SOLICIT ADDITIONAL PROXIES IF THERE ARE
INSUFFICIENT VOTES AT THE TIME OF THE SPECIAL MEETING TO APPROVE PROPOSAL #1,
THE PROPOSAL TO SELL THEATRE DIRECT.
(Continued
and to be signed on reverse side)
Special
Meeting of Shareholders of
HOLLYWOOD
MEDIA CORP.
[___],
2010
Please
date, sign and mail your proxy card in the envelope provided as soon as
possible.
Please
detach along the perforated line and mail in the envelope provided.
The
Board of Directors of Hollywood Media unanimously recommends that Hollywood
Media’s shareholders vote “FOR” Proposal #1, the Proposal to Sell Theatre
Direct, and “FOR” Proposal #2, the Proposal to Adjourn or Postpone the Special
Meeting, if necessary or appropriate, to solicit additional proxies if there are
insufficient votes at the time of the special meeting to approve Proposal #1,
the Proposal to Sell Theatre Direct.
In considering the recommendation of
Hollywood Media’s board directors with respect to the Proposal to Sell Theatre
Direct and the Proposal to Adjourn or Postpone the Special Meeting, Hollywood
Media’s shareholders should be aware that two of Hollywood Media’s six
directors, Mitchell Rubenstein, the Chairman and Chief Executive Officer of
Hollywood Media, and Laurie S. Silvers, the Vice-Chairman, President and
Secretary of Hollywood Media, will directly benefit from the sale of Theatre
Direct and therefore have interests in the Proposal to
Sell Theatre Direct and the Proposal to Adjourn or Postpone the Special Meeting
that are different from, or in addition to, the interests of Hollywood Media’s
shareholders generally. See “SUMMARY TERM SHEET—Interests of Certain
Persons in the Sale of Theatre Direct” beginning on page 7 of the accompanying
proxy statement and “PROPOSAL #1:
PROPOSAL TO SELL THEATRE DIRECT—Interests of Certain Persons in the Sale of
Theatre Direct”
beginning on page 57 of the accompanying proxy statement.
PLEASE SIGN, DATE AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN
HERE T
PROPOSAL #1, THE PROPOSAL TO
SELL THEATRE DIRECT: To approve the sale of all of the
outstanding capital stock of Theatre Direct NY, Inc., a wholly-owned
subsidiary of Hollywood Media Corp., to Key Brand Entertainment Inc. as
contemplated by the Stock Purchase Agreement, dated December 22, 2009, as
amended, between Hollywood Media Corp. and Key Brand Entertainment Inc.,
as described in the notice of special meeting and proxy
statement.
|
|
o FOR
|
o AGAINST
|
o ABSTAIN
|
PROPOSAL #2, THE PROPOSAL TO
ADJOURN OR POSTPONE THE SPECIAL MEETING: To approve the
adjournment or postponement of the special meeting, if necessary or
appropriate, to solicit additional proxies if there are insufficient votes
at the time of the special meeting to approve Proposal #1, the Proposal to
Sell Theatre Direct.
|
|
o FOR
|
o AGAINST
|
o ABSTAIN
|
The
undersigned hereby acknowledges receipt of the Notice of Special Meeting
and Proxy Statement for Hollywood Media Corp.’s Special Meeting of
Shareholders to be held on [___], 2010.
PLEASE
MARK, SIGN, DATE AND MAIL THIS PROXY PROMPTLY USING THE ENVELOPE
PROVIDED. NO POSTAGE NECESSARY IF MAILED IN THE UNITED
STATES.
|
New
Address:
|
|
|
To
change the address on your account, please check the box at right and
indicate
your new address in the address space above. Please note that
changes
to the registered name(s) on the account may not be submitted via
this method.
|
o
|
Signature
of Shareholder:
________________________________________ Date:
______________________
Signature
of Shareholder:
________________________________________ Date:
______________________
|
Note: Please sign
exactly as your name or names appear on this Proxy. When shares are held
jointly, each holder should sign. When signing as executor, administrator,
attorney, trustee or guardian, please give full title as such. If the
signer is a corporation, please sign full corporate name by duly
authorized officer, giving
full title as such. If signer is a partnership, please sign in partnership
name by authorized
person.
|
Important Notice Regarding the
Availability of Proxy Materials for the Special Meeting of Hollywood Media
Corp.’s Shareholders to be held on [___], 2010: The Notice of
Special Meeting and Proxy Statement for Hollywood Media Corp.’s Special Meeting
of Shareholders to be hold on [___], 2010 are available in the “Investor
Relations” section of Hollywood Media Corp.’s corporate website at
www.hollywoodmedia.com.